Finance Bill

House of Commons

Session 2008 - 09
Internet Publications
Other Bills before Parliament

Finance Bill

Finance Bill
Schedule 15 — Tax treatment of financing costs and income
Part 4 — Exemption of financing income
160

      (7)
In this paragraph “the appropriate person”, in relation to a company,
means—
(a)
the proper officer of the company, or
(b)
such other person as may for the time being have the express,
implied or apparent authority of the company to act on its behalf for
5
the purposes of this Schedule.
      (8)
Subsections (3) and (4) of section 108 of TMA 1970 (responsibility of
company officers: meaning of “proper officer”) apply for the purposes of this
paragraph as they apply for the purposes of that section.
      (9)
For the meaning of “financing income amount”, see Part 6.
10
Statement of allocated exemptions: effect
27
A financing income amount of a company to which this Part applies that is
specified in a statement of allocated exemptions under paragraph 26(4)(b) is
not to be brought into account by the company for the purposes of
corporation tax.
15
Company tax returns
28    (1)
This paragraph applies where—
(a)
a company to which this Part applies has delivered a company tax
return for a relevant accounting period, and
(b)
as a result of the submission of a revised statement of allocated
20
exemptions under paragraph 25—
(i)
there is a change in the amount of profits on which
corporation tax is chargeable for the period, or
(ii)
any other information contained in the return is incorrect.
      (2)
The company is treated as having amended its company tax return for the
25
accounting period so as to reflect the change mentioned in sub-paragraph
(1)(b)(i) or to correct the information mentioned in sub-paragraph (1)(b)(ii).
Power to make regulations about statement of allocated exemptions
29
The Commissioners may by regulations make further provision about a
statement of allocated exemptions including, in particular, provision—
30
(a)
about the form of a statement and the manner in which it is to be
submitted,
(b)
requiring a person to give information to HMRC in connection with
a statement,
(c)
as to circumstances in which a statement that is not received by the
35
time specified in paragraph 24(2) or 25(2) is to be treated as if it were
so received, and
(d)
as to circumstances in which a statement that does not comply with
the requirements of paragraph 26 is to be treated as if it did so
comply.
40
Failure of reporting body to submit statement of allocated exemptions
30    (1)
This paragraph applies if no statement of allocated exemptions is submitted
under paragraph 24 that complies with the requirements of paragraph 26.

Finance Bill
Schedule 15 — Tax treatment of financing costs and income
Part 4 — Exemption of financing income
161

      (2)
Subject to the following provisions of this paragraph, each financing income
amount for the relevant period of account of each company to which this
Part applies is to be reduced to nil.
      (3)
In this paragraph “unrestricted reduction” means a reduction of a financing
income amount for the relevant period of account of a company to which
5
this Part applies, determined in accordance with sub-paragraph (2).
      (4)
Sub-paragraph (5) applies if—
(a)
the total of the unrestricted reductions, exceeds
(b)
the total disallowed amount.
      (5)
Each unrestricted reduction is to be reduced by—

UR
TUR    x    X

10

where—
UR is the unrestricted reduction in question,
TUR is the total of the unrestricted reductions, and
X is the excess mentioned in sub-paragraph (4).
Power to make regulations in relation to reductions required under paragraph 30
15
31    (1)
The Commissioners may by regulations make provision for the purpose of
securing that a company required under paragraph 30 to reduce the
amounts that it brings into account in respect of financing income amounts
for the relevant period of account (“a company required to make default
reductions”) has sufficient information to determine their amount.
20
      (2)
Provision that may be made in regulations under sub-paragraph (1) includes
provision requiring one or more members of the worldwide group to send
specified information to a company required to make default reductions.
      (3)
The Commissioners may by regulations make provision about cases in
which (whether as a result of non-compliance with regulations made under
25
sub-paragraph (1) or otherwise) a company required to make default
reductions does not possess specified information.
      (4)
Provision that may be made in regulations under sub-paragraph (3) includes
provision as to assumptions that may or must be made in determining the
amount of a reduction under paragraph 30 of a financing income amount.
30
      (5)
The Commissioners may by regulations make provision for determining a
time later than that determined under paragraph 15(4) of Schedule 18 to FA
1998 (amendment of return by company) before which a company required
to make default reductions may amend its company tax return so as to
reflect a reduction under paragraph 30.
35
      (6)
In this paragraph “specified” means specified in regulations under this
paragraph.

Finance Bill
Schedule 15 — Tax treatment of financing costs and income
Part 5 — Intra-group financing income where payer denied deduction
162

Part 5
Intra-group financing income where payer denied deduction
Exemption from tax for certain financing income received from certain EEA companies
32    (1)
A financing income amount of a company that is a member of the worldwide
group (“the recipient”) is not to be brought into account for the purposes of
5
corporation tax if—
(a)
it arises as a result of a payment by another company that is a
member of the worldwide group (“the payer”),
(b)
the payment is received during a period of account of the worldwide
group to which this Schedule applies, and
10
(c)
conditions A, B and C are met.
      (2)
Condition A is that, at the time the payment is received, the payer is a
relevant associate of the recipient (see paragraph 33).
      (3)
Condition B is that, at the time the payment is received—
(a)
the payer is tax-resident in an EEA territory (see paragraph 34), and
15
(b)
the payer is liable to a tax of that territory that is chargeable by
reference to profits, income or gains arising to the payer.
      (4)
Condition C is that—
(a)
qualifying EEA tax relief for the payment is not available to the payer
in the period in which the payment is made (“the current period”) or
20
any previous period (see paragraph 35), and
(b)
qualifying EEA tax relief for the payment is not available to the payer
in any period after the current period (see paragraph 36).
      (5)
For the meaning of “financing income amount”, see paragraph 38.
Meaning of “relevant associate”
25
33
For the purposes of this Part the payer is a “relevant associate” of the
recipient if—
(a)
the payer is a parent of the recipient,
(b)
the payer is a 75% subsidiary of the recipient, or
(c)
the payer is a 75% subsidiary of a parent of the recipient.
30
Meaning of “tax-resident” and “EEA territory”
34    (1)
For the purposes of this Part the payer is “tax-resident” in a territory if it is
liable, under the law of that territory, to tax by reason of domicile, residence
or place of management.
      (2)
In this Part “EEA territory” means a territory outside the United Kingdom
35
that is within the European Economic Area.
Qualifying EEA tax relief for payment in the current period or a previous period
35    (1)
For the purposes of this Part, qualifying EEA tax relief for a payment is not
available to the payer in the current period or a previous period if conditions
A and B are met in relation to the payment.
40

Finance Bill
Schedule 15 — Tax treatment of financing costs and income
Part 5 — Intra-group financing income where payer denied deduction
163

      (2)
Condition A is that no deduction calculated by reference to the payment can
be taken into account in calculating any profits, income or gains that—
(a)
arise to the payer in the current period or any previous period, and
(b)
are chargeable to any tax of the United Kingdom or an EEA territory
for the current period or any previous period.
5
      (3)
Condition B is that no relief determined by reference to the payment can be
given in the current period or any previous period for the purposes of any
tax of the United Kingdom or an EEA territory by—
(a)
the payment of a credit,
(b)
the elimination or reduction of a tax liability, or
10
(c)
any other means of any kind.
      (4)
Conditions A and B are not met in relation to the payment unless every step
is taken (whether by the payer or any other person) to secure that deductions
are taken into account as mentioned in sub-paragraph (2) and reliefs are
given as mentioned in sub-paragraph (3).
15
      (5)
Conditions A and B are not met in relation to the payment unless they would
be met disregarding a failure to obtain a deduction or relief by virtue of—
(a)
this Schedule, or
(b)
provision made as a result of double taxation arrangements between
any two territories (including provision sanctioned by associated
20
enterprise rules contained in such arrangements).
      (6)
For this purpose—
(a)
arrangements are “double taxation arrangements” if they are
arrangements made between any two territories with a view to
affording relief from double taxation, and
25
(b)
“associated enterprise rules” means rules—
(i)
that, on the passing of this Act, were contained in Article 9 of
the Model Tax Convention on Income and on Capital
published by the Organisation for Economic Co-operation
and Development, or
30
(ii)
any rules in the same or equivalent terms.
Qualifying EEA tax relief for payment in future period
36    (1)
For the purposes of this Part, qualifying EEA tax relief for a payment is not
available to the payer in a period after the current period if conditions A and
B are met in relation to the payment.
35
      (2)
Condition A is that no deduction calculated by reference to the payment can
be taken into account in calculating any profits, income or gains that—
(a)
might arise to the payer in any period after the current period, and
(b)
would, if they did so arise, be chargeable to any tax of the United
Kingdom or an EEA territory for any period after the current period.
40
      (3)
Condition B is that no relief determined by reference to the payment can be
given in any period after the current period for the purposes of any tax of the
United Kingdom or an EEA territory by—
(a)
the payment of a credit,
(b)
the elimination or reduction of a tax liability, or
45
(c)
any other means of any kind.

Finance Bill
Schedule 15 — Tax treatment of financing costs and income
Part 5 — Intra-group financing income where payer denied deduction
164

      (4)
The question whether a deduction can be taken into account as mentioned
in sub-paragraph (2) or a relief can be given as mentioned in sub-paragraph
(3), is to be determined by reference to the position immediately after the
end of the current period.
      (5)
Conditions A and B are not met in relation to the payment unless they would
5
be met disregarding a failure to obtain a deduction or relief by virtue of—
(a)
this Schedule, or
(b)
provision made as a result of double taxation arrangements between
any two territories (including provision sanctioned by associated
enterprise rules contained in such arrangements).
10
      (6)
For this purpose—
(a)
arrangements are “double taxation arrangements” if they are
arrangements made between any two territories with a view to
affording relief from double taxation, and
(b)
“associated enterprise rules” means rules—
15
(i)
that, on the passing of this Act, were contained in Article 9 of
the Model Tax Convention on Income and on Capital
published by the Organisation for Economic Co-operation
and Development, or
(ii)
any rules in the same or equivalent terms.
20
References to tax of a territory
37    (1)
References in this Part to a tax of the United Kingdom are to income tax or
corporation tax.
      (2)
References in this Part to a tax of a territory outside the United Kingdom are
to a tax chargeable under the law of that territory that—
25
(a)
is charged on income and corresponds to United Kingdom income
tax, or
(b)
is charged on income or chargeable gains or both and corresponds to
United Kingdom corporation tax.
      (3)
For the purposes of this paragraph, a tax chargeable under the law of a
30
territory outside the United Kingdom does not fail to correspond to income
or corporation tax just because—
(a)
it is chargeable under the law of a province, state or other part of a
country, or
(b)
it is levied by or on behalf of a municipality or other local body.
35
Financing income amounts of a company
38    (1)
References in this Part to a “financing income amount” of a company are
(subject to sub-paragraph (6)) to any amount that meets condition A, B or C.
      (2)
Condition A is that the amount is a credit that—
(a)
would, apart from this Part, be brought into account by the company
40
for the purposes of corporation tax,
(b)
would be so brought into account in respect of a loan relationship—
(i)
under Part 3 of CTA 2009 by virtue of section 297 of that Act
(loan relationships for purposes of trade), or
(ii)
under Part 5 of that Act (other loan relationships), and
45

Finance Bill
Schedule 15 — Tax treatment of financing costs and income
Part 6 — “Financing expense amount” and “financing income amount”
165

(c)
is not an excluded credit.
      (3)
A credit is “excluded” if it is in respect of—
(a)
the reversal of an impairment loss,
(b)
an exchange gain, or
(c)
a profit from a related transaction.
5
      (4)
Condition B is that the amount is an amount that would, apart from this Part,
be brought into account by the company for the purposes of corporation tax
in respect of the financing income implicit in amounts received under
finance leases.
      (5)
Condition C is that the amount is an amount that would, apart from this
10
Part, be brought into account by the company for the purposes of
corporation tax in respect of the financing income receivable on debt
factoring, or any similar transaction.
      (6)
The provisions of Part 6 apply in relation to an amount that is a financing
income amount of a company by virtue of meeting condition A, B or C in this
15
paragraph as they apply in relation to an amount that is a financing income
amount of a relevant group company by virtue of meeting condition A, B or
C in paragraph 40.
Part 6
“Financing expense amount” and “financing income amount”
20
The financing expense amounts of a company
39    (1)
References in this Schedule to a “financing expense amount” of a company
for a period of account of the worldwide group are to any amount that meets
condition A, B or C.
      (2)
Condition A is that the amount is a debit that—
25
(a)
would, apart from this Schedule, be brought into account in a
relevant accounting period of the company,
(b)
would be so brought into account in respect of a loan relationship—
(i)
under Part 3 of CTA 2009 by virtue of section 297 of that Act
(loan relationships for purposes of trade), or
30
(ii)
under Part 5 of that Act (other loan relationships), and
(c)
is not an excluded debit.
      (3)
A debit is “excluded” if it is in respect of—
(a)
an impairment loss,
(b)
an exchange loss, or
35
(c)
a related transaction.
      (4)
Condition B is that the amount is an amount that would, apart from this
Schedule, be brought into account for the purposes of corporation tax in a
relevant accounting period of the company in respect of the financing cost
implicit in payments made under finance leases.
40
      (5)
Condition C is that the amount is an amount that would, apart from this
Schedule, be brought into account for the purposes of corporation tax in a
relevant accounting period of the company in respect of the financing cost
payable on debt factoring, or any similar transaction.

Finance Bill
Schedule 15 — Tax treatment of financing costs and income
Part 6 — “Financing expense amount” and “financing income amount”
166

      (6)
In a case where—
(a)
a debit or other amount would, apart from this Schedule, be brought
into account in an accounting period, and
(b)
a proportion of that period does not fall within the period of account
of the worldwide group,
5

the debit or other amount is to be reduced, for the purposes of this
paragraph, by the same proportion.
      (7)
This paragraph is subject to paragraphs 42 to 50.
The financing income amounts of a company
40    (1)
References in this Schedule (except in Part 5) to a “financing income
10
amount” of a company for a period of account of the worldwide group are
to any amount that meets condition A, B or C.
      (2)
Condition A is that the amount is a credit that—
(a)
would, apart from this Schedule, be brought into account in a
relevant accounting period of the company,
15
(b)
would be so brought into account in respect of a loan relationship—
(i)
under Part 3 of CTA 2009 by virtue of section 297 of that Act
(loan relationships for purposes of trade), or
(ii)
under Part 5 of that Act (other loan relationships), and
(c)
is not an excluded credit.
20
      (3)
A credit is “excluded” if it is in respect of—
(a)
the reversal of an impairment loss,
(b)
an exchange gain, or
(c)
a profit from a related transaction.
      (4)
Condition B is that the amount is an amount that would, apart from this
25
Schedule, be brought into account for the purposes of corporation tax in a
relevant accounting period of the company in respect of the financing
income implicit in amounts received under finance leases.
      (5)
Condition C is that the amount is an amount that would, apart from this
Schedule, be brought into account for the purposes of corporation tax in a
30
relevant accounting period of the company in respect of the financing
income receivable on debt factoring, or any similar transaction.
      (6)
In a case where—
(a)
a credit or other amount would, apart from this Schedule, be brought
into account in an accounting period, and
35
(b)
a proportion of that period does not fall within the period of account
of the worldwide group,

the credit or other amount is to be reduced, for the purposes of this
paragraph, by the same proportion.
      (7)
This paragraph is subject to paragraphs 42 to 50.
40
Interpretation of paragraphs 39 and 40
41
In paragraphs 39 and 40 the following expressions have the same meaning
as they have in Part 5 of the Corporation Tax Act 2009 (loan relationships)—
“exchange gain” and “exchange loss”;