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 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.
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      (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.
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      (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,
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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
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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—
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(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.
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      (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—
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(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
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(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.
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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.
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      (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”
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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,
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(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—
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(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.