Finance Bill

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Session 2008 - 09
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Finance Bill

Finance Bill
Schedule 18 — Corporation tax: foreign currency accounting
195

92DC
Adjustment of sterling losses: carried-back amounts
(1)
This section applies if conditions A to C are met.
(2)
Condition A is that, in accordance with generally accepted
accounting practice, a company resident in the United Kingdom—
(a)
prepares its accounts for a period of account in sterling, or
5
(b)
prepares its accounts for a period of account in a currency
other than sterling and in those accounts identifies sterling as
its functional currency.
(3)
Condition B is that a loss of the company for the period that falls to
be computed in accordance with generally accepted accounting
10
practice for corporation tax purposes (“the loss”) is to be a carried-
back amount.
(4)
Condition C is that the operating currency of the company in the
accounting period to which the loss is to be carried back (“the earlier
operating currency”) is a currency other than sterling.
15
(5)
The loss must be adjusted by—
(a)
being translated into the earlier operating currency by
reference to the spot rate of exchange for the last day of the
relevant accounting period, before
(b)
being translated into sterling by reference to the same rate of
20
exchange as that at which the profit against which the
carried-back amount is to be set off is required to be
translated under section 92D.
(6)
In this section “the relevant accounting period” means the latest
accounting period of the company before the accounting period in
25
which the loss arises in which the operating currency of the company
is the earlier operating currency.
92DD
Adjustment of sterling losses: carried-forward amounts
(1)
This section applies if conditions A to C are met.
(2)
Condition A is that, in accordance with generally accepted
30
accounting practice, a company resident in the United Kingdom—
(a)
prepares its accounts for a period of account in sterling, or
(b)
prepares its accounts for a period of account in a currency
other than sterling and in those accounts identifies sterling as
its functional currency.
35
(3)
Condition B is that a loss of the company for the period that falls to
be computed in accordance with generally accepted accounting
practice for corporation tax purposes (“the loss”) is to be a carried-
forward amount.
(4)
Condition C is that the operating currency of the company in the
40
accounting period to which the loss is to be carried forward (“the
later operating currency”) is a currency other than sterling.
(5)
The loss must be adjusted by—
(a)
being translated into the later operating currency by
reference to the spot rate of exchange for the first day of the
45
relevant accounting period, before

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Schedule 18 — Corporation tax: foreign currency accounting
196

(b)
being translated into sterling by reference to the same rate of
exchange as that at which the profit against which the
carried-forward amount is to be set off is required to be
translated under section 92D.
(6)
In this section “the relevant accounting period” means the earliest
5
accounting period of the company after the accounting period in
which the loss arises in which the operating currency of the company
is the later operating currency.
92DE
Meaning of “carried-back amount” and “carried-forward amount”
(1)
In sections 92DA and 92DC “carried-back amount” means—
10
(a)
an amount carried back under section 393A(1)(b) of ICTA
(trading losses),
(b)
an amount carried back by virtue of a claim under section
459(1)(b) of the Corporation Tax Act 2009 (non-trading
deficits from loan relationships), or
15
(c)
an amount carried back under section 389(2) of the
Corporation Tax Act 2009 (deficits of insurance companies).
(2)
In sections 92DB and 92DD “carried-forward amount” means—
(a)
an amount carried forward under section 76(12) or (13) of
ICTA (certain expenses of insurance companies),
20
(b)
an amount carried forward under section 392A(2) or (3) of
ICTA (UK property business losses),
(c)
an amount carried forward under section 392B(1)(b) of ICTA
(overseas property business losses),
(d)
an amount carried forward under section 393(1) of ICTA
25
(trading losses),
(e)
an amount carried forward under section 396(1) of ICTA
(losses from miscellaneous transactions),
(f)
an amount carried forward under section 436A(4) of ICTA
(insurance companies: losses from gross roll-up business),
30
(g)
an amount carried forward under section 391(2) of the
Corporation Tax Act 2009 (deficits of insurance companies),
(h)
an amount carried forward under section 457(3) of the
Corporation Tax Act 2009 (non-trading deficits from loan
relationships),
35
(i)
an amount carried forward under section 753(3) of the
Corporation Tax Act 2009 (non-trading loss on intangible
fixed assets),
(j)
an amount carried forward under section 925(3) of the
Corporation Tax Act 2009 (patent income: relief for
40
expenses), or
(k)
an amount carried forward under section 1223 of the
Corporation Tax Act 2009 (expenses of management and
other amounts).
(3)
References in sections 92DB and 92DD to the profit against which a
45
carried-forward amount is to be set off are, in the case of a carried-
forward amount to which this subsection applies, to the profit in
computing which the amount is deductible, disregarding the
deduction.

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Schedule 18 — Corporation tax: foreign currency accounting
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(4)
Subsection (3) applies to a carried-forward amount that is treated as
arising in an accounting period later than that in which it in fact
arises, and is accordingly deductible in computing a profit for the
later period.
6     (1)
Section 92E (meaning of “accounts”, “return of accounts” and “functional
5
currency”) is amended as follows.
      (2)
Before subsection (1) insert—
“(A1)
This section applies for the purposes of sections 92A to 92DD.”
      (3)
In subsection (1), omit “in sections 92A to 92C”.
      (4)
In subsection (2), for “The reference in section 92C” substitute “A reference”.
10
      (5)
In subsection (3), omit “in sections 92A, 92B and 92D”.
      (6)
Insert at the end—
“(4)
References to “the appropriate exchange rate”, in relation to the
translation of an amount for the purposes of computing the profits or
losses of a company arising in an accounting period, are to—
15
(a)
the average exchange rate for the accounting period, or
(b)
where the amount to be translated relates to a single
transaction, an appropriate spot rate of exchange for the
transaction, or
(c)
where the amount to be translated relates to more than one
20
transaction, a rate of exchange derived on a just and
reasonable basis from appropriate spot rates of exchange for
those transactions.
(5)
References to the “operating currency” of a company in an
accounting period are to the currency in which profits or losses of
25
that company arising in that accounting period that fall to be
computed in accordance with generally accepted accounting practice
for corporation tax purposes are required to be computed by virtue
of section 92(1), 92A(2), 92B(2)(a) or 92C(3)(a).”
      (7)
For the heading substitute “Interpretation of sections 92A to 92DD”.
30
Commencement and transitional provision
7     (1)
The amendments made by this Schedule have effect in relation to profits or
losses (including losses that are to be carried-back amounts or carried-
forward amounts) arising in accounting periods beginning on or after the
commencement date.
35
      (2)
Sub-paragraph (1) is subject to the following provisions of this Schedule.
Sterling equivalent if amount carried back to pre-commencement accounting period
8     (1)
This paragraph applies where—
(a)
a loss of a company (“the loss”) is required by section 92B or 92C of
FA 1993 to be translated from a currency other than sterling into its
40
sterling equivalent,

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Schedule 18 — Corporation tax: foreign currency accounting
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(b)
the translation is for the purpose of computing a loss arising in an
accounting period beginning on or after the commencement date,
and
(c)
the loss is to be a carried-back amount that is to be carried back to an
accounting period beginning before the commencement date.
5
      (2)
Section 92DA of FA 1993 does not have effect in relation to the loss.
      (3)
The translation must be made by reference to the appropriate exchange rate.
Sterling equivalent if amount carried forward from earlier period
9     (1)
This paragraph applies where—
(a)
a loss of a company (“the loss”) is required by section 92B or 92C of
10
FA 1993 to be translated from a currency other than sterling (“the
original currency”) into its sterling equivalent,
(b)
the translation is for the purpose of computing a loss arising in an
accounting period beginning before the commencement date, and
(c)
the loss is to be a carried-forward amount that is to be carried
15
forward to an accounting period beginning on or after the
commencement date.
      (2)
The translation must be made by taking the following steps—

Step 1: translate the loss into its sterling equivalent by reference to the
appropriate exchange rate.
20

Step 2: translate the loss (as translated under step 1) into the original
currency by reference to the spot rate of exchange for the first day of the first
accounting period of the company beginning on or after the commencement
date.

Step 3: translate the loss (as translated under step 2) into its sterling
25
equivalent in accordance with rule 1, 2 or 3 (whichever is applicable).
      (3)
Rule 1 applies if the original currency and the operating currency of the
company in the accounting period to which the carried-forward amount is
to be carried forward (“the later operating currency”) are the same.
      (4)
Rule 1 is that the loss must be translated into its sterling equivalent by
30
reference to the same rate of exchange as that at which the profit against
which the carried-forward amount is to be set off is required to be translated
under section 92D of FA 1993.
      (5)
Rule 2 applies if—
(a)
the original currency is not the same as the later operating currency,
35
and
(b)
the later operating currency is sterling.
      (6)
Rule 2 is that the loss must be translated into its sterling equivalent by
reference to the spot rate of exchange for the first day of the relevant
accounting period.
40
      (7)
Rule 3 applies if—
(a)
the original currency is not the same as the later operating currency,
and
(b)
the later operating currency is a currency other than sterling.

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Schedule 18 — Corporation tax: foreign currency accounting
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      (8)
Rule 3 is that the loss must be translated into its sterling equivalent by—
(a)
being translated into the later operating currency by reference to the
spot rate of exchange for the first day of the relevant accounting
period, before
(b)
being translated into sterling by reference to the same rate of
5
exchange as that at which the profit against which the carried-
forward amount is to be set off is required to be translated under
section 92D of FA 1993.
      (9)
In this paragraph “the relevant accounting period” means the earliest
accounting period of the company beginning after the commencement date
10
in which the operating currency of the company is the later operating
currency.
Adjustment of sterling loss if amount carried back to pre-commencement accounting period
10    (1)
This paragraph applies where—
(a)
a loss arises in an accounting period beginning on or after the
15
commencement date,
(b)
the loss is to be a carried-back amount that is to be carried back to an
accounting period beginning before the commencement date, and
(c)
apart from this paragraph, section 92DC of FA 1993 would require
that the loss be adjusted.
20
      (2)
Section 92DC of FA 1993 does not have effect in relation to the loss.
Adjustment of sterling loss if amount carried forward from earlier period
11    (1)
This paragraph applies where—
(a)
a loss arises in an accounting period beginning before the
commencement date,
25
(b)
the loss is to be a carried-forward amount that is to be carried
forward to an accounting period beginning on or after the
commencement date,
(c)
if section 92DD of FA 1993 had effect in relation to losses arising in
the accounting period mentioned in paragraph (a), that section
30
would require that the loss be adjusted.
      (2)
Section 92DD of FA 1993 has effect in relation to the loss.
      (3)
In the application of section 92DD of FA 1993 by virtue of sub-paragraph (2)
that section has effect as if for subsection (6) there were substituted—
“(6)
In this section “the relevant accounting period” means the earliest
35
accounting period of the company beginning after the
commencement date in which the operating currency of the
company is the later operating currency.”
Interpretation
12    (1)
In this Schedule the following expressions have the meaning given by
40
section 92DE or 92E of FA 1993—
“appropriate exchange rate”;
“carried-back amount”;
“carried-forward amount”;

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Schedule 19 — Income tax credits for foreign distributions
200

“operating currency”.
      (2)
Subsections (3) and (4) of section 92DE of FA 1993 (meaning of certain
references to profit against which carried-forward amount is to be set off)
apply in relation to this Schedule as they apply in relation to section 92DB
and 92DD of that Act.
5
      (3)
In this Schedule “the commencement date” means 29 December 2007.
Right of company to elect for different commencement and transitional provision to apply
13    (1)
If a company so elects, this Schedule has effect in relation to the company
with the following modifications—
(a)
paragraphs 9 and 11 do not apply, and
10
(b)
“the commencement date” means the day on which this Act is
passed.
      (2)
An election by a company under this paragraph—
(a)
must be made before the end of the period of 30 days beginning with
the first day of the first accounting period of the company beginning
15
on or after the day on which this Act is passed, and
(b)
is irrevocable.
Schedule 19
Section 40

Income tax credits for foreign distributions
ITTOIA 2005
20
1
ITTOIA 2005 is amended as follows.
2     (1)
Section 397A (tax credits for distributions of non-UK resident companies:
UK residents and eligible non-UK residents) is amended as follows.
      (2)
For subsections (1) and (2) substitute—
“(1)
A UK resident or eligible non-UK resident receiving a relevant
25
distribution made by a non-UK resident company is entitled to a tax
credit equal to one-ninth of the amount or value of the grossed up
distribution (but see subsections (3) and (6) and section 397AA).”
      (3)
In subsection (3), for “(2)” substitute “(1)”.
      (4)
In subsection (7), omit the definition of “minority shareholder”.
30
3
After section 397A insert—
“397AA
Tax credit under section 397A: conditions
(1)
Section 397A(1) only applies if condition A, B or C is met.
(2)
Condition A is that—
(a)
the relevant distribution is made by a company with issued
35
share capital, and
(b)
at the time the person receives the relevant distribution, the
person is a minority shareholder in the company.

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Schedule 19 — Income tax credits for foreign distributions
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(3)
Condition B is that the company that makes the relevant distribution
is an offshore fund (but see section 378A (distributions of certain
offshore funds treated as interest)).
(4)
Condition C is that—
(a)
the company that makes the relevant distribution is a
5
resident of (and only of) a qualifying territory at the time that
the relevant distribution is received, and
(b)
if the relevant distribution is one of a series of distributions
made as part of a scheme—
(i)
each company that makes a distribution in the series
10
(a “scheme distribution”) is a resident of (and only of)
a qualifying territory at the time that the scheme
distribution is received, or
(ii)
the scheme is not a tax advantage scheme.
(5)
In this section—
15
“minority shareholder”, in relation to a company, has the
meaning given in section 397C;
“offshore fund” has the same meaning as in Chapter 5 of Part 17
of ICTA (see sections 756A to 756C of that Act);
“qualifying territory” has the meaning given by or under
20
section 397BA;
“relevant distribution” has the same meaning as in section
397A;
“scheme” includes any scheme, arrangements or understanding
of any kind, whether or not legally enforceable and whether
25
involving a single transaction or two or more transactions;
“tax advantage scheme” means a scheme that, ignoring any
incidental purposes, has as its only purpose or purposes
either or both of the following—
(a)
to enable a person to obtain a tax credit under section
30
397A, and
(b)
to enable a person to obtain (in any territory) any
other relief from tax on a distribution.”
4     (1)
Section 397B (tax credits under section 397A: manufactured overseas
dividends) is amended as follows.
35
      (2)
In subsection (2), omit “that is not an offshore fund”.
      (3)
In subsection (3), after “representative” insert “(“the original dividend”)”.
      (4)
After subsection (3) insert—
“(3A)
Section 397AA has effect as if—
(a)
the references in subsections (2)(a), (3) and (4)(a) to the
40
relevant distribution were to the original dividend, and
(b)
the reference in subsection (2)(b) to the company that makes
the relevant distribution were to the company that makes the
original dividend.”
      (5)
In subsection (4), in the definition of “gross amount”, for “a manufactured”
45
substitute “an”.