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 8 — The “available amount”
174

Group members with income from oil extraction subject to particular tax treatment in UK
56    (1)
In calculating the available amount, an amount disclosed in the income
statement of the worldwide group (“the external finance amount”) must be
disregarded if the following conditions are met.
      (2)
Condition A is that a member of the worldwide group is treated in a relevant
5
accounting period as carrying on a ring fence trade (see section 502 of ICTA).
      (3)
Condition B is that the external finance amount falls to be brought into
account for the purposes of corporation tax in calculating the profits of that
trade for that accounting period.
      (4)
In this paragraph “relevant accounting period”, in relation to a member of
10
the worldwide group, means an accounting period of the member that falls
wholly or partly within the period of account.
Group members with income from shipping subject to particular tax treatment in UK
57    (1)
In calculating the available amount, an amount disclosed in the income
statement of the worldwide group (“the external finance amount”) must be
15
disregarded if the following conditions are met.
      (2)
Condition A is that a member of the worldwide group is, for a relevant
accounting period, a tonnage tax company for the purposes of Schedule 22
to FA 2000.
      (3)
Condition B is that the external finance amount—
20
(a)
is taken into account in computing relevant shipping profits of that
company for that accounting period, or
(b)
comprises deductible finance costs outside the ring fence, to the
extent that they are adjusted under paragraph 61 or 62 of Schedule
22 to FA 2000.
25
      (4)
In this paragraph—
“relevant accounting period”, in relation to a member of the worldwide
group, means an accounting period of the member that falls wholly
or partly within the period of account;
“relevant shipping profits” has the same meaning as in Schedule 22 to
30
FA 2000 (see Part 6 of that Schedule).
Group members with income from property rental subject to particular tax treatment in UK
58    (1)
In calculating the available amount, an amount disclosed in the income
statement of the worldwide group (“the external finance amount”) must be
disregarded if the following conditions are met.
35
      (2)
Condition A is that a member of the worldwide group is treated in a relevant
accounting period as carrying on a separate business under section 113 of FA
2006 (ring-fencing of tax exempt business).
      (3)
Condition B is that the external finance amount falls to be brought into
account in calculating the profits arising from that business in that
40
accounting period.

Finance Bill
Schedule 15 — Tax treatment of financing costs and income
Part 9 — Other interpretative provisions
175

      (4)
In this paragraph “relevant accounting period”, in relation to a member of
the worldwide group, means an accounting period of the member that falls
wholly or partly within the period of account.
Meaning of accounting expressions used in this Part
59
Subject to any provision to the contrary, expressions used in this Part have
5
the meaning for the time being given by international accounting standards.
Part 9
Other interpretative provisions
The worldwide group
60
In this Schedule “the worldwide group” means any group of entities that—
10
(a)
is large, and
(b)
contains one or more relevant group companies.
Meaning of “group”
61    (1)
Subject to sub-paragraphs (2) and (3), in this Schedule “group” has the
meaning for the time being given by international accounting standards.
15
      (2)
Where a group would (apart from this sub-paragraph) contain more than
one ultimate parent, each of those ultimate parents, together with its
subsidiaries, is to be treated as a separate group.
      (3)
An entity that is a parent of the ultimate parent of a group is to be treated as
not being a member of the group.
20
      (4)
Sub-paragraphs (2) and (3) do not apply for the purposes of paragraph 62.
Meaning of “ultimate parent”
62    (1)
For the purposes of this Schedule “ultimate parent”, in relation to a group,
means an entity that—
(a)
is a member of the group,
25
(b)
is a corporate entity or a relevant non-corporate entity,
(c)
is not a subsidiary (whether direct or indirect) of a corporate entity
or a relevant non-corporate entity, and
(d)
is not a collective investment scheme.
      (2)
For the purposes of this paragraph, any interests in another entity held by an
30
entity in its capacity as a member of a partnership or unincorporated
association are to be disregarded.
      (3)
In this paragraph—
“collective investment scheme” has the meaning given by section 235 of
FISMA 2000;
35
“partnership” and “unincorporated association” include an entity
established under the law of a country or territory outside the United
Kingdom of a similar character to a partnership or unincorporated
association, and “member” is to be read accordingly.

Finance Bill
Schedule 15 — Tax treatment of financing costs and income
Part 9 — Other interpretative provisions
176

Meaning of “corporate entity”
63    (1)
In this Schedule “corporate entity” means (subject to sub-paragraph (4))—
(a)
a body corporate incorporated under the laws of any part of the
United Kingdom or any other country or territory, or
(b)
any other entity that meets conditions A and B.
5
      (2)
Condition A is that the person or persons who have an interest in the entity
hold shares in the entity, or interests corresponding to shares.
      (3)
Condition B is that the amount of profits to which each person who has an
interest in the entity is entitled depends upon a decision that—
(a)
is taken by the entity or members of the entity, and
10
(b)
is taken after the period in which the profits arise.
      (4)
The following are not corporate entities for the purposes of this Schedule—
(a)
the Crown,
(b)
a Minister of the Crown,
(c)
a government department,
15
(d)
a Northern Ireland department, or
(e)
a foreign sovereign power.
Meaning of “relevant non-corporate entity”
64    (1)
In this Schedule “relevant non-corporate entity” means an entity—
(a)
that is not a corporate entity, and
20
(b)
in relation to which conditions A and B are met.
      (2)
Condition A is that shares or other interests in the entity are listed on a
recognised stock exchange.
      (3)
Condition B is that the shares or other interests in the entity are sufficiently
widely held.
25
      (4)
For this purpose shares or other interests in an entity are “sufficiently widely
held” if no participator in the entity holds more than 10% by value of all the
shares or other interests in the entity.
      (5)
Section 417(1) of ICTA (meaning of participator) applies for the purposes of
this paragraph.
30
      (6)
In the application of that provision for those purposes, references to a
company are to be treated as references to an entity.
Treatment of entities stapled to corporate entities or relevant non-corporate entities
65    (1)
Where a corporate entity is stapled to another entity, the two entities are
treated for the purposes of this Schedule as if—
35
(a)
they were one entity, and
(b)
that one entity were a corporate entity.
      (2)
Where a relevant non-corporate entity is stapled to another entity, the two
entities are treated as if—
(a)
they were one entity, and
40
(b)
that one entity were a relevant non-corporate entity.

Finance Bill
Schedule 15 — Tax treatment of financing costs and income
Part 9 — Other interpretative provisions
177

      (3)
For the purposes of this paragraph an entity (“entity A”) is “stapled” to
another (“entity B”) if, in consequence of the nature of the rights attaching to
the shares or other interests in entity A (including any terms or conditions
attaching to the right to transfer the interests), it is necessary or
advantageous for a person who has, disposes of or acquires shares or other
5
interests in entity A also to have, to dispose of or to acquire shares or other
interests in entity B.
Treatment of business combinations
66    (1)
This paragraph applies where two corporate entities are—
(a)
not subsidiaries of the same entity, but
10
(b)
are treated under international accounting standards as a single
economic entity by reason of being a business combination achieved
by contract.
      (2)
The two entities are treated for the purposes of this Schedule as if—
(a)
they were one entity, and
15
(b)
that one entity were a corporate entity.
Meaning of “large” in relation to a group
67    (1)
For the purposes of this Schedule a group is “large” at any time if (and only
if) any member of the group is not at that time within the category of micro,
small and medium-sized enterprises as defined in the Annex to Commission
20
Recommendation 2003/361/EC of 6 May 2003 (“the Annex”).
      (2)
In its application by virtue of sub-paragraph (1), the Annex has effect subject
to the following qualifications.
      (3)
Where a member of the group is in liquidation or administration, the rights
of the liquidator or administrator (in that capacity) are to be left out of
25
account when applying Article 3(3)(b).
      (4)
Article 3 has effect with the omission of paragraph 5 (declaration in good
faith where control cannot be determined etc).
      (5)
The first sentence of Article 4(1) has effect as if the reference to the latest
approved accounting period of a member of the group were to the current
30
accounting period of that member.
      (6)
Article 4 has effect with the omission of—
(a)
the second sentence of paragraph (1) (data to be taken into account
from date of closure of accounts),
(b)
paragraph 2 (no change of status unless ceilings exceeded for two
35
consecutive periods), and
(c)
paragraph 3 (estimate in case of newly established enterprise).
Meaning of “UK group company” and “relevant group company”
68    (1)
This paragraph applies for the purposes of this Schedule.
      (2)
A company is a “UK group company” if—
40
(a)
it meets condition A, and
(b)
it is a member of the worldwide group.

Finance Bill
Schedule 15 — Tax treatment of financing costs and income
Part 9 — Other interpretative provisions
178

      (3)
A company is a “relevant group company” if—
(a)
it meets condition A, and
(b)
it meets condition B.
      (4)
Condition A is that the company—
(a)
is resident in the United Kingdom, or
5
(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.
      (5)
Condition B is that the company is either—
(a)
the ultimate parent of the worldwide group, or
10
(b)
a relevant subsidiary of the ultimate parent of the worldwide group.
      (6)
A company is a “relevant subsidiary” of the ultimate parent of the
worldwide group if—
(a)
the company is a 75% subsidiary of the ultimate parent,
(b)
the ultimate parent is beneficially entitled to at least 75% of any
15
profits available for distribution to equity holders of the company, or
(c)
the ultimate parent would be beneficially entitled to at least 75% of
any assets of the company available for distribution to its equity
holders on a winding-up.
      (7)
A company that would not otherwise be a relevant subsidiary of the
20
ultimate parent of the worldwide group is treated as such if any member of
the group is a party to arrangements the main purpose, or one of the main
purposes, of which is to secure that the company is not a relevant subsidiary
for the purposes of this paragraph.
      (8)
Schedule 18 to ICTA (equity holders and profits or assets available for
25
distribution) applies in relation to sub-paragraph (6)(b) and (c) as it applies
in relation to section 413(7) of that Act.
      (9)
The reference in sub-paragraph (7) to arrangements is to any arrangements,
scheme or understanding of any kind whatever, whether or not legally
enforceable, involving a single transaction or two or more transactions.
30
Financial statements of the worldwide group
69    (1)
This paragraph applies for the purposes of this Schedule.
      (2)
References to financial statements of the worldwide group are to
consolidated financial statements of the ultimate parent and its subsidiaries;
and references to a balance sheet of the worldwide group or an income
35
statement of the worldwide group are to be read accordingly.
      (3)
In sub-paragraph (2) “income statement” includes a consolidated profit and
loss account or other equivalent financial statement.
      (4)
References to a period of account of the worldwide group are to a period in
respect of which financial statements of the worldwide group are drawn up.
40
Non-compliant financial statements of worldwide group
70    (1)
This paragraph applies where—

Finance Bill
Schedule 15 — Tax treatment of financing costs and income
Part 9 — Other interpretative provisions
179

(a)
financial statements of the worldwide group are drawn up in respect
of a period,
(b)
those financial statements are not drawn up in accordance with
acceptable accounting standards, and
(c)
the amounts disclosed in those financial statements are materially
5
different from those that would be disclosed in IAS financial
statements for the period.
      (2)
This Schedule (apart from this paragraph) applies as if IAS financial
statements had been drawn up in respect of the period.
      (3)
In this paragraph “acceptable accounting standards”, in relation to a period,
10
means—
(a)
international accounting standards,
(b)
accounting standards that meet conditions A to C, or
(c)
such other accounting standards as may be specified in regulations
made by the Commissioners.
15
      (4)
Condition A is that—
(a)
the companies whose results are included in the financial statements
of the worldwide group for the period, and
(b)
the companies whose results would be included in IAS financial
statements of the worldwide group for the period, were such
20
statements drawn up,

are the same.
      (5)
Condition B is that—
(a)
the transactions whose results are reflected in the amounts
mentioned in paragraph 55(1)(a) to (g) in the income statement of the
25
worldwide group for the period, and
(b)
the transactions whose results would be reflected in those amounts
in an income statement of the worldwide group for the period, were
such a statement drawn up,

are the same.
30
      (6)
Condition C is that the amounts mentioned in paragraph 55(1)(a) to (d) in
the income statement of the worldwide group for the period are calculated
using the effective interest method.
      (7)
In this paragraph, references to IAS financial statements of the worldwide
group for a period are to financial statements of the group for the period
35
drawn up in accordance with international accounting standards.
Non-existent financial statements of worldwide group
71    (1)
This paragraph applies where financial statements of the worldwide group
are not drawn up in respect of a period (“the relevant period”).
      (2)
If the relevant period is 12 months or less, this Schedule (apart from this
40
paragraph) applies as if IAS financial statements had been drawn up in
respect of the relevant period.
      (3)
If the relevant period is more than 12 months, this Schedule (apart from this
paragraph) applies as if IAS financial statements had been drawn up in
respect of each period to which sub-paragraph (4) applies.
45

Finance Bill
Schedule 15 — Tax treatment of financing costs and income
Part 9 — Other interpretative provisions
180

      (4)
This sub-paragraph applies to a period if—
(a)
it is the first period of 12 months falling within the relevant period,
(b)
it is a period of 12 months falling within the relevant period that
begins immediately after the end of the period mentioned in
paragraph (a), or immediately after the end of a period determined
5
under this paragraph, or
(c)
it is a period of less than 12 months that—
(i)
begins immediately after the end of the period mentioned in
paragraph (a) or after the end of a period determined under
paragraph (b), and
10
(ii)
ends at the end of the relevant period.
      (5)
In this paragraph, references to IAS financial statements of the worldwide
group for a period are to financial statements of the group for the period
drawn up in accordance with international accounting standards.
References to amounts disclosed in financial statements
15
72    (1)
References in this Schedule to amounts disclosed in financial statements
include an amount comprised in an amount so disclosed.
      (2)
References in this Schedule to amounts disclosed in financial statements do
not include—
(a)
any amount disclosed in respect of a group pension scheme, or
20
(b)
any amount disclosed in respect of any entity that is not a member of
the group.
Translation of amounts disclosed in financial statements into sterling
73    (1)
References in this Schedule (except in Part 2) to an amount disclosed in
financial statements for a period are, where the amount is expressed in a
25
currency other than sterling, to that amount translated into its sterling
equivalent.
      (2)
The exchange rate by reference to which the amount is to be translated is the
average rate of exchange for the period calculated from daily spot rates.
Expressions taking their meaning from international accounting standards
30
74    (1)
For the purposes of this Schedule the following expressions have the
meaning for the time being given by international accounting standards—
“effective interest method”;
“entity”;
“parent”;
35
“subsidiary”.
      (2)
The Commissioners may by order amend this paragraph.
Meaning of “relevant accounting period”
75
For the purposes of this Schedule a “relevant accounting period” of a
company, in relation to a period of account of the worldwide group, means
40
any accounting period that falls wholly or partly within the period of
account of the worldwide group.