Finance Bill

House of Commons

Session 2008 - 09
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Finance Bill

Finance Bill
Schedule 14 — Corporation tax treatment of company distributions
Part 2 — Other amendments
146

13
In paragraph 5(3)(c) of Schedule 27 (distributing funds: United Kingdom
equivalent profits)—
(a)
for “section 1285” substitute “Chapter 2 or 3 of Part 9A”, and
(b)
omit “in like manner as if they were dividends or distributions of a
company resident outside the United Kingdom”.
5
14
In paragraph 5 of Schedule 28AA (provision not at arm’s length), after sub-
paragraph (7) insert—
    “(8)
For the purposes of sub-paragraph (1), section 209(2)(d) (excessive
interest etc treated as distribution) is to be disregarded.”
FA 1989
10
15
FA 1989 is amended as follows.
16    (1)
Section 85A (life assurance: excess adjusted Case I profits) is amended as
follows.
      (2)
In paragraph (a) of subsection (6), for “distributions received by the
company in the accounting period from companies resident in the United
15
Kingdom” substitute “non-taxable distributions received by the company in
the accounting period”.
      (3)
After that subsection insert—
“(6A)
In this section “non-taxable distribution” means—
(a)
a distribution that is exempt for the purposes of Part 9A of the
20
Corporation Tax Act 2009 (company distributions), and
(b)
does not include any amount withheld from the distribution
on account of tax payable under the laws of a territory
outside the United Kingdom.”
17    (1)
Section 89 (life assurance: policy holders’ share of profits) is amended as
25
follows.
      (2)
In subsection (2)(b), for “distributions received from companies resident in
the United Kingdom” substitute “non-taxable distributions received”.
      (3)
In subsection (7), after the definition of “Case I profits” insert—
““non-taxable distribution” has the same meaning as in section
30
85A.”
FA 1994
18
In section 219 of FA 1994 (taxation of profits of Lloyd’s underwriters etc)—
(a)
in subsection (3), omit “Subject to subsection (4A) below,”, and
(b)
omit subsections (4), (4A) and (4C).
35
FA 2006
19
In Schedule 17 to FA 2006 (group REITs modifications), in paragraph 32
(non-UK resident members), omit sub-paragraph (7).
CTA 2009
20
CTA 2009 is amended as follows.
40

Finance Bill
Schedule 14 — Corporation tax treatment of company distributions
Part 2 — Other amendments
147

21
In section 1(2) (overview of Act), before the “and” at the end of paragraph (f)
insert—
“(fa)
Part 9A (company distributions),”.
22
For section 130 (traders receiving distributions etc) substitute—
“Insurers
5
130
Insurers receiving distributions etc
(1)
This section applies for the purpose of calculating the trading profits
of—
(a)
insurance business other than life assurance business, or
(b)
any category of such business.
10
(2)
A receipt that is exempt for the purposes of Part 9A (company
distributions) is not brought into account in calculating the profits of
the trade.”
23
In section 932(1) (overview of Part 10), omit paragraph (a).
24
Omit Chapter 2 of Part 10 (taxation of dividends from non-UK resident
15
companies).
25    (1)
Section 974 (charge to tax in relation to sale of foreign dividend coupons) is
amended as follows.
      (2)
In subsection (3)(a), after “realisation of” insert “taxable”.
      (3)
In subsection (4), after “sale of” insert “taxable”.
20
      (4)
After subsection (4) insert—
“(4A)
For the purposes of subsections (3) and (4) a dividend coupon is
“taxable” if the associated dividend would not have been exempt for
the purposes of Part 9A (company distributions) had it been paid to
the holder of the shares.”
25
26
In section 982(1)(a) and (2)(a) (boundary provisions for Part 10), omit “2,”.
27
Omit section 1285 (exemption for distributions of UK resident companies).
28
In section 1310(4) (orders and regulations subject to affirmative resolution
procedure in House of Commons), before paragraph (a) insert—
“(za)
section 930C (meaning of “qualifying expenditure”),”.
30
29
In Schedule 4 (index of defined expressions), insert at the appropriate
places—

“ordinary share (in Part 9A)
section 930T”;

“payer (in Part 9A)
section 930S”;

“recipient (in Part 9A)
section 930S”;

35

“redeemable (in Part 9A)
section 930T”;

“relevant person (in Part 9A)
section 930S”;

Finance Bill
Schedule 14 — Corporation tax treatment of company distributions
Part 3 — Commencement etc
148

“scheme (in Part 9A)
section 930U”;

“small company (in Part 9A)
section 930R”;

“tax advantage scheme (in Part 9A)
section 930U”.

Consequential repeals
30
In consequence of the amendments made by this Schedule, omit—
5
(a)
in F(No.2)A 1997, section 22(2) and (3)(a),
(b)
in FA 2000, in Schedule 30, paragraphs 8(4)(c), 21 and 22,
(c)
in FA 2001, in Schedule 27, paragraphs 1(3), 4 and 5,
(d)
in FA 2008, in Schedule 39, paragraph 25, and
(e)
in CTA 2009, in Schedule 1, paragraphs 174(4)(c), 252 to 254 and
10
392(4) and (5).
Part 3
Commencement etc
Commencement
31
The amendments made by this Schedule have effect in relation to
15
distributions paid on or after 1 July 2009 (“the commencement date”).
Transitional provision
32    (1)
This paragraph contains transitional provision in relation to the
commencement of Part 9A of CTA 2009 (as inserted by paragraph 1).
      (2)
In section 930H—
20
(a)
a reference to a transaction that is one of a series of transactions does
not include a transaction where each transaction in the series was
entered into more than 12 months before the commencement date,
(b)
a reference to any other transaction does not include a transaction
entered into more than 12 months before the commencement date,
25
and
(c)
a reference to a dividend that falls into (or does not fall into) an
exempt class apart from that section is, in relation to a dividend paid
before the commencement date, to a dividend that would have so
fallen (or not so fallen) had that section had effect in relation to the
30
dividend.
      (3)
In section 930J—
(a)
a reference to profits available for distribution that arose at any time
does not include such profits that arose in a period of account ending
more than 12 months before the commencement date, and
35
(b)
a reference to a dividend that falls into (or does not fall into) an
exempt class apart from section 930E is, in relation to a dividend paid
before the commencement date, to a dividend that would have so
fallen (or not so fallen) had that section had effect in relation to the
dividend.
40

Finance Bill
Schedule 15 — Tax treatment of financing costs and income
Part 2 — Application of this Schedule
149

Schedule 15
Section 35

Tax treatment of financing costs and income
Part 1
Introduction
Overview
5
1     (1)
Part 2 contains provision for determining whether this Schedule applies in
relation to any particular period of account of the worldwide group.
      (2)
Part 3 provides for the disallowance of certain financing expenses of relevant
group companies arising in a period of account of the worldwide group to
which this Schedule applies.
10

The total of the amounts disallowed is the amount by which the tested
expense amount (defined in Part 7) exceeds the available amount (defined in
Part 8).
      (3)
Part 4 provides for the exemption from the charge to corporation tax of
certain financing income of UK group companies where financing expenses
15
of relevant group companies have been disallowed under Part 3.
      (4)
Part 5 provides for the exemption from the charge to corporation tax of
certain intra-group financing income of UK group companies where the
paying company is denied a deduction for tax purposes otherwise than
under this Schedule.
20
      (5)
Part 6 defines “financing expense amounts” and “financing income
amounts” of a company for a period of account of the worldwide group,
which are amounts that would, apart from this Schedule, be brought into
account for the purposes of corporation tax.
      (6)
Part 7 defines the “tested expense amount” and the “tested income amount”
25
of the worldwide group for a period of account of the group, which are totals
deriving from the financing expense amounts and financing income
amounts of certain group companies.
      (7)
Part 8 defines the “available amount” for a period of account of the
worldwide group, which derives from certain financing costs disclosed in
30
the group’s consolidated financial statements.
      (8)
Part 9 contains further interpretative provisions.
      (9)
Part 10 contains consequential provision and provision about
commencement.
Part 2
35
Application of this Schedule
Application of Schedule
2     (1)
This Schedule applies to any period of account of the worldwide group for
which—
(a)
the UK net debt of the group (see paragraphs 3 and 4), exceeds
40

Finance Bill
Schedule 15 — Tax treatment of financing costs and income
Part 2 — Application of this Schedule
150

(b)
75% of the worldwide gross debt of the group (see paragraph 5).
      (2)
The Treasury may by order amend sub-paragraph (1)(b) by substituting a
higher or lower percentage for the percentage for the time being specified
there.
      (3)
No order may be made under sub-paragraph (2) unless a draft of the
5
statutory instrument containing it has been laid before, and approved by a
resolution of, the House of Commons.
      (4)
An order under sub-paragraph (2) may only have effect in relation to
periods of account of the worldwide group beginning after the date on
which the order is made.
10
UK net debt of the worldwide group for period of account of worldwide group
3     (1)
The reference in paragraph 2 to the “UK net debt” of the worldwide group
for a period of account of the group is to the sum of the net debt amounts of
each company that was a relevant group company at any time during the
period.
15
      (2)
In this paragraph “net debt amount”, in relation to a company, means the
average of—
(a)
the net debt of the company as at that company’s start date, and
(b)
the net debt of the company as at that company’s end date.

For the meaning of “net debt”, see paragraph 4.
20
      (3)
Where the amount determined in accordance with sub-paragraph (2) is less
than £3m, the net debt amount of the company is nil.
      (4)
Where a company is dormant (within the meaning given by section 1169 of
the Companies Act 2006) at all times in the period beginning with that
company’s start date and ending with that company’s end date, the net debt
25
amount of the company is nil.
      (5)
The Treasury may by order amend sub-paragraph (3) by substituting a
higher or lower amount for the amount for the time being specified there.
      (6)
No order may be made under sub-paragraph (5) unless a draft of the
statutory instrument containing it has been laid before, and approved by a
30
resolution of, the House of Commons.
      (7)
An order under sub-paragraph (5) may only have effect in relation to
periods of account of the worldwide group beginning after the date on
which the order is made.
      (8)
In this Part—
35
(a)
“the start date” of a company means the first day of the period of
account of the worldwide group or, if later, the first day in the period
on which the company was a relevant group company, and
(b)
“the end date” of a company means the last day of the period of
account of the worldwide group or, if earlier, the last day in the
40
period on which the company was a relevant group company.
Net debt of a company
4     (1)
References in paragraph 3 to the “net debt” of a company as at any date are
to—

Finance Bill
Schedule 15 — Tax treatment of financing costs and income
Part 2 — Application of this Schedule
151

(a)
the sum of the company’s relevant liabilities as at that date, less
(b)
the sum of the company’s relevant assets as at that date.
      (2)
The amount determined in accordance with sub-paragraph (1) may be a
negative amount.
      (3)
For the purposes of this paragraph a company’s “relevant liabilities” as at
5
any date are the amounts that are disclosed on the balance sheet of the
company as at that date in respect of—
(a)
amounts borrowed (whether by way of overdraft or other short term
or long term borrowing),
(b)
finance income payable in respect of finance leases, or
10
(c)
amounts of such other description as may be specified in regulations
made by the Commissioners.
      (4)
For the purposes of this paragraph a company’s “relevant assets” as at any
date are the amounts that are disclosed on the balance sheet of the company
as at that date in respect of—
15
(a)
cash and cash equivalents,
(b)
amounts loaned (whether by way of overdraft or other short term or
long term loan),
(c)
finance income receivable in respect of finance leases,
(d)
securities of Her Majesty’s government or of the government of any
20
other country or territory, or
(e)
amounts of such other description as may be specified in regulations
made by the Commissioners.
      (5)
Expressions used in sub-paragraphs (3)(a) and (b) and (4)(a) to (c) have the
meaning for the time being given by generally accepted accounting practice.
25
Worldwide gross debt of worldwide group for period of account of worldwide group
5     (1)
The reference in paragraph 2 to the “worldwide gross debt” of the
worldwide group for a period of account of the group is to the average of—
(a)
the sum of the relevant liabilities of the group as at the day before the
first day of the period, and
30
(b)
the sum of the relevant liabilities of the group as at the last day of the
period.
      (2)
For the purposes of this paragraph the “relevant liabilities” of the worldwide
group as at any date are the amounts that are disclosed on the balance sheet
of the group as at that date in respect of—
35
(a)
amounts borrowed (whether by way of overdraft or other short term
or long term borrowing),
(b)
finance income payable in respect of finance leases, or
(c)
amounts of such other description as may be specified in regulations
made by the Commissioners.
40
      (3)
Expressions used in sub-paragraph (2)(a) and (b) have the meaning for the
time being given by the accounting standards in accordance with which the
financial statements of the group are drawn up.
      (4)
For provision about references in this Schedule to financial statements of the
worldwide group, and amounts disclosed in financial statements, see
45
paragraphs 69 to 72.

Finance Bill
Schedule 15 — Tax treatment of financing costs and income
Part 2 — Application of this Schedule
152

References to amounts disclosed in balance sheet of relevant group company
6     (1)
This paragraph applies for the purpose of construing references in
paragraph 4 to amounts disclosed on the balance sheet of a relevant group
company as at any date (“the relevant date”).
      (2)
Where the company—
5
(a)
is not a foreign company, and
(b)
does not draw up a balance sheet as at the relevant date,

the references are to the amounts that would be disclosed in a balance sheet
of the company as at that date, were one drawn up in accordance with
generally accepted accounting practice.
10
      (3)
Where the company—
(a)
is a foreign company, and
(b)
draws up a balance sheet (“a UK permanent establishment balance
sheet”) as at the relevant date in respect of the company’s permanent
establishment in the United Kingdom that treats the establishment as
15
a distinct and separate enterprise,

the references are to amounts in that balance sheet.
      (4)
Where the company—
(a)
is a foreign company, and
(b)
does not draw up a UK permanent establishment balance sheet as at
20
the relevant date,

the references are to the amounts that would be disclosed in a UK permanent
establishment balance sheet as at that date, were one drawn up in
accordance with generally accepted accounting practice.
      (5)
For the purposes of this paragraph a relevant group company is a “foreign
25
company” if it is not resident in the United Kingdom and is carrying on a
trade in the United Kingdom through a permanent establishment in the
United Kingdom.
Foreign currency accounting
7     (1)
Subject to the following provisions of this paragraph, references in this Part
30
to an amount disclosed in a balance sheet of a relevant group company, or
of the worldwide group, as at any date are, where the amount is expressed
in a currency other than sterling, to that amount translated into its sterling
equivalent, translated by reference to the spot rate of exchange for that date.
      (2)
Sub-paragraph (3) applies in relation to a period of account of the worldwide
35
group if all the amounts disclosed in balance sheets (whether of relevant
group companies, or of the worldwide group) that are relevant to a
calculation under this Part in relation to that period are expressed in the
same currency and that currency is not sterling.
      (3)
Where this sub-paragraph applies, references in this Schedule to an amount
40
disclosed in a balance sheet of a relevant group company, or of the
worldwide group, are to that amount expressed in the currency other than
sterling mentioned in sub-paragraph (2).