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

167

 

“impairment”;

“impairment loss”;

“related transaction”.

Group treasury companies

42    (1)  

This paragraph applies where, apart from this paragraph, an amount (“the

5

relevant amount”) is—

(a)   

a financing expense amount of a group treasury company by virtue

of meeting condition A, B or C in paragraph 39, or

(b)   

a financing income amount of a group treasury company by virtue of

meeting condition A, B or C in paragraph 40.

10

      (2)  

The relevant amount is treated as not being a financing expense amount or

a financing income amount of the group treasury company, but only if that

company makes an election for this purpose.

      (3)  

An election under this paragraph must be made within 3 years after the end

of the relevant period.

15

      (4)  

A company is a group treasury company in the relevant period if the

following conditions are met.

      (5)  

The first condition is that the company is a member of the worldwide group.

      (6)  

The second condition is that the company undertakes treasury activities for

the worldwide group in the relevant period (whether or not it also

20

undertakes other activities).

      (7)  

The third condition is that—

(a)   

if the company is the only company to meet the first and second

conditions in the relevant period, or the only other companies to

meet those conditions are not UK companies, at least 90% of the

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relevant income of the company for the relevant period is group

treasury revenue, or

(b)   

if the company and one or more other companies that are UK

companies meet the first and second conditions in the relevant

period, at least 90% of the aggregate relevant income of those

30

companies for the relevant period is group treasury revenue.

      (8)  

For the purposes of this paragraph, a company undertakes treasury

activities for the worldwide group in the relevant period if, in that period, it

does one or more of the following things in relation to, or on behalf of, the

worldwide group or any of its members—

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(a)   

managing surplus deposits of money or overdrafts,

(b)   

making or receiving deposits of money,

(c)   

lending money, and

(d)   

hedging assets, liabilities, income or expenses.

      (9)  

For the purposes of this paragraph “group treasury revenue”, in relation to

40

a company, means revenue—

(a)   

arising from the treasury activities that the company undertakes for

the worldwide group, and

(b)   

accounted for as such under generally accepted accounting practice;

           

before any deduction (whether for expenses or otherwise).

45

 
 

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

168

 

     (10)  

But revenue consisting of a dividend or other distribution is not group

treasury revenue unless it is a dividend or distribution from a company that

is, in the relevant period—

(a)   

a UK group company, and

(b)   

a group treasury company.

5

     (11)  

In this paragraph—

“relevant income”, in relation to a company, means income—

(a)   

arising from the activities of the company, and

(b)   

accounted for as such under generally accepted accounting

practice,

10

before any deduction (whether for expenses or otherwise);

“relevant period” means the period of account of the worldwide group

to which the relevant amount relates.

Companies engaged in oil extraction activities

43    (1)  

This paragraph applies where, apart from this paragraph, an amount (“the

15

relevant amount”) is—

(a)   

a financing expense amount of a company by virtue of meeting

condition A in paragraph 39, or

(b)   

a financing income amount of a company by virtue of meeting

condition A in paragraph 40.

20

      (2)  

The relevant amount is treated as not being a financing expense amount or

a financing income amount of the company if the following conditions are

met.

      (3)  

The first condition is that the company is treated, in the accounting period in

which the amount is brought into account, as carrying on a ring fence trade

25

(see section 502 of ICTA).

      (4)  

The second condition is that the amount falls to be brought into account in

calculating the profits of that trade for that accounting period.

Intra-group short-term finance: financing expense

44    (1)  

This paragraph applies where, apart from this paragraph, an amount (“the

30

relevant amount”) is a financing expense amount of a company (“company

A”) by virtue of meeting condition A in paragraph 39.

      (2)  

The relevant amount is treated as not being a financing expense amount of

company A, but only if an election is made for this purpose.

      (3)  

Such an election may not be made unless the following conditions are met.

35

      (4)  

The first condition is that company A and the other party to the loan

relationship (“company B”) are both members of the worldwide group.

      (5)  

The second condition is that the finance arrangement is a short-term loan

relationship as respects the period of account of the worldwide group.

      (6)  

An election under this paragraph may only be made—

40

(a)   

jointly by company A and company B, and

(b)   

within 36 months of the end of the accounting period of the

worldwide group to which the relevant amount relates.

 
 

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

169

 

      (7)  

An election under this paragraph is irrevocable.

      (8)  

In this paragraph “short-term loan relationship” has the meaning given in

paragraph 46.

Intra-group short-term finance: financing income

45    (1)  

This paragraph applies where—

5

(a)   

under paragraph 44, the relevant amount is treated as not being a

financing expense amount of company A, and

(b)   

apart from this paragraph, the relevant amount is a financing income

amount of company B by virtue of meeting condition A in paragraph

40.

10

      (2)  

The relevant amount is treated as not being a financing income amount of

company B.

      (3)  

In this paragraph “company A” and “company B” have the same meanings

as in paragraph 44.

Short-term loan relationships

15

46    (1)  

For the purposes of paragraph 44, the finance arrangement is a short-term

loan relationship as respects the period of account of the worldwide group

(“the relevant period”) if—

(a)   

regulations made by the Commissioners provide for it to be so, or

(b)   

one or other of the following conditions is met.

20

      (2)  

The first condition is that the finance arrangement does not terminate during

the relevant period and—

(a)   

to the extent that the finance arrangement provides for the creation

of money debt, its terms require all money debt created under it to be

settled within 12 months of money debt first being created under it,

25

and

(b)   

to the extent that the finance arrangement is otherwise a loan

relationship, its terms provide for it to terminate within 12 months of

its coming into force.

      (3)  

The second condition is that the finance arrangement terminates during, or

30

after the end of, the relevant period and—

(a)   

to the extent that the relationship provided for the creation of money

debt, all money debt created under it was settled within 12 months

of money debt first being created under it, and

(b)   

to the extent that the relationship was otherwise a loan relationship,

35

it terminated within 12 months of its coming into force.

      (4)  

The Treasury may, by regulations, make provision about other

circumstances in which the finance arrangement is to be taken not to be a

short-term loan relationship as respects—

(a)   

the relevant period, or

40

(b)   

any part or parts of the relevant period.

      (5)  

Regulations under sub-paragraph (4) may include provision for the finance

arrangement to be taken never to have been a short-term loan relationship

as respects the relevant period or the part or parts of it.

 
 

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

170

 

      (6)  

No regulations may be made under sub-paragraph (4) unless a draft of the

statutory instrument containing them has been laid before, and approved by

a resolution of, the House of Commons.

Stranded deficits in non-trading loan relationships: financing expense

47    (1)  

This paragraph applies where, apart from this paragraph, an amount (“the

5

relevant amount”) is a financing expense amount of a company (“company

A”) by virtue of meeting condition A in paragraph 39.

      (2)  

The relevant amount is treated as not being a financing expense amount of

company A, but only if an election is made for this purpose.

      (3)  

Such an election may not be made unless the following conditions are met.

10

      (4)  

The first condition is that company A and the other party to the loan

relationship (“company B”) are both members of the worldwide group.

      (5)  

The second condition is that company B—

(a)   

is resident in the United Kingdom, or

(b)   

is not resident in the United Kingdom and is carrying on a trade in

15

the United Kingdom through a permanent establishment in the

United Kingdom.

      (6)  

The third condition is that, under section 457 of CTA 2009, company B

carries forward an amount of non-trading deficit from the finance

arrangement and sets it off against non-trading profits of an accounting

20

period that falls wholly or partly within the period of account of the

worldwide group.

      (7)  

The fourth condition is that the amount of non-trading deficit carried

forward and set off is equal to, or greater than, the relevant amount.

      (8)  

An election under this paragraph may only be made—

25

(a)   

jointly by company A and company B, and

(b)   

within 36 months of the end of the accounting period of the

worldwide group to which the relevant amount relates.

Stranded deficits in non-trading loan relationships: financing income

48    (1)  

This paragraph applies where—

30

(a)   

under paragraph 47, the relevant amount is treated is not being a

financing expense amount of company A, and

(b)   

apart from this paragraph, the relevant amount is a financing income

amount of company B by virtue of meeting condition A in paragraph

40.

35

      (2)  

The relevant amount is treated as not being a financing income amount of

company B.

      (3)  

In this paragraph “company A” and “company B” have the same meanings

as in paragraph 47.

 
 

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

171

 

Stranded management expenses in non-trading loan relationships: financing expense

49    (1)  

This paragraph applies where, apart from this paragraph, an amount (“the

relevant amount”) is a financing expense amount of a company (“company

A”) by virtue of meeting condition A in paragraph 39.

      (2)  

The relevant amount is treated as not being a financing expense amount of

5

company A, but only if an election is made for this purpose.

      (3)  

Such an election may not be made unless the following conditions are met.

      (4)  

The first condition is that company A and the other party to the finance

arrangement (“company B”) are both members of the worldwide group.

      (5)  

The second condition is that company B is an investment company (within

10

the meaning of Part 4 of ICTA) and—

(a)   

is resident in the United Kingdom, or

(b)   

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.

15

      (6)  

The third condition is that company B is allowed a deduction under section

75 of ICTA (expenses of management: companies with investment business)

in respect of an accounting period that falls wholly or partly within the

period of account of the worldwide group (“the relevant period”).

      (7)  

The fourth condition is that the amount of the deduction allowed is equal to,

20

or greater than, the relevant amount.

      (8)  

The fifth condition is that the calculation of company B’s total profits for the

relevant period for the purposes of corporation tax results in a loss if

company B’s credit is not included in that calculation.

      (9)  

An election under this paragraph may only be made—

25

(a)   

jointly by company A and company B, and

(b)   

within 36 months of the end of the accounting period of the

worldwide group to which the relevant amount relates.

     (10)  

In this paragraph “company B’s credit” means the credit to company B that

arises from the debit to company A by virtue of which condition A in

30

paragraph 39 is met.

Stranded management expenses in non-trading loan relationships: financing income

50    (1)  

This paragraph applies where—

(a)   

under paragraph 49, the relevant amount is treated is not being a

financing expense amount of company A, and

35

(b)   

apart from this paragraph, the relevant amount is a financing income

amount of company B by virtue of meeting condition A in paragraph

40.

      (2)  

The relevant amount is treated as not being a financing income amount of

company B.

40

      (3)  

In this paragraph “company A” and “company B” have the same meanings

as in paragraph 49.

 
 

Finance Bill
Schedule 15 — Tax treatment of financing costs and income
Part 7 — The “tested expense amount” and “tested income amount”

172

 

Interpretation of paragraphs 42 to 50

51         

In paragraphs 42 to 50 “finance arrangement” means—

(a)   

in the case of an amount that is a debit or credit that meets the

condition in paragraph 39(2) or 40(2), the loan relationship to which

the debit or credit relates;

5

(b)   

in the case of an amount that meets the condition in paragraph 39(4)

or 40(4), the finance lease to which the amount relates;

(c)   

in the case of an amount that meets the condition in paragraph 39(5)

or 40(5), the debt factoring or similar transaction to which the

amount relates.

10

Part 7

The “tested expense amount” and “tested income amount”

The tested expense amount

52    (1)  

References in this Schedule to the “tested expense amount” for a period of

account of the worldwide group are to the sum of the net financing

15

deductions of each relevant group company.

      (2)  

References in this Schedule to the “net financing deduction” of a company

for a period of account of the worldwide group are to—

(a)   

the sum of the company’s financing expense amounts for the period

(see paragraph 39), less

20

(b)   

the sum of the company’s financing income amounts for the period

(see paragraph 40).

      (3)  

References in sub-paragraph (2) to a company’s financing expense amounts

or financing income amounts for a period of account of the worldwide

group do not include any amount that arises as a result of a transaction that

25

takes place at a time at which the company is not a relevant group company.

      (4)  

Where the amount determined in accordance with sub-paragraph (2) is

negative, the net financing deduction of the company for the period is nil.

      (5)  

Where the amount determined in accordance with sub-paragraph (2) is

small (see paragraph 54), the net financing deduction of the company for the

30

period is nil.

The tested income amount

53    (1)  

References in this Part to the “tested income amount” for the period of

account of the worldwide group are to the sum of the net financing incomes

of each UK group company.

35

      (2)  

The reference in sub-paragraph (1) to the “net financing income” of a

company for a period of account of the worldwide group is to—

(a)   

the sum of the company’s financing income amounts for the period

(see paragraph 40), less

(b)   

the sum of the company’s financing expense amounts for the period

40

(see paragraph 39).

      (3)  

References in sub-paragraph (2) to a company’s financing expense amounts

or financing income amounts for a period of account of the worldwide

 
 

Finance Bill
Schedule 15 — Tax treatment of financing costs and income
Part 8 — The “available amount”

173

 

group do not include any amount that arises as a result of a transaction that

takes place at a time at which the company is not a UK group company.

      (4)  

Where the amount determined in accordance with sub-paragraph (2) is

negative, the net financing income of the company for the period is nil.

      (5)  

Where the amount determined in accordance with sub-paragraph (2) is

5

small (see paragraph 54), the net financing income of the company for the

period is nil.

Companies with net financing deduction or net financing income that is small

54    (1)  

An amount determined in accordance with 52(2) or 53(2) is “small” if it is less

than £500,000.

10

      (2)  

The Treasury may by order amend sub-paragraph (1) by substituting a

higher or lower amount for the amount for the time being specified there.

      (3)  

No order may be made under sub-paragraph (2) unless a draft of the

statutory instrument containing it has been laid before, and approved by a

resolution of, the House of Commons.

15

      (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.

Part 8

The “available amount”

20

The available amount

55    (1)  

References in this Schedule to the “available amount” for a period of account

of the worldwide group are to the sum of the amounts disclosed in the

income statement of the group for that period in respect of—

(a)   

interest payable on amounts borrowed,

25

(b)   

amortisation of discounts relating to amounts borrowed,

(c)   

amortisation of premiums relating to amounts borrowed,

(d)   

amortisation of ancillary costs relating to amounts borrowed,

(e)   

the financing cost implicit in payments made under finance leases,

(f)   

the financing cost relating to debt factoring, or

30

(g)   

amounts of such other description as may be specified in regulations

made by the Commissioners.

      (2)  

An amount that falls within any of paragraphs (a) to (g) of sub-paragraph (1)

is to be disregarded for the purposes of that sub-paragraph to the extent

that—

35

(a)   

the amount represents a dividend payable in respect of redeemable

preference shares, and

(b)   

those shares are recognised as a liability in the financial statements

of the group for the period.

 
 

 
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