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Finance Bill
Schedule 21 — Foreign exchange: anti-avoidance

215

 

(b)   

the sum of the relevant exchange gains of those companies

that arise in such accounting periods.

(5)   

Amount B is—

(a)   

the sum of the relevant exchange gains of company A, and of

each company connected with company A, that would have

5

arisen in accounting periods of those companies that end on

the test day, less

(b)   

the sum of the relevant exchange losses of those companies

that would have arisen in such accounting periods,

   

if exchange gains and losses of those companies in those accounting

10

periods were calculated in accordance with section 606D

(counterfactual currency movement assumptions).

(6)   

For the purposes of subsections (4) and (5), an accounting period of

company A, or of a company connected with company A, in which

the test day falls and that does not end on that day is to be treated as

15

if it did end on that day.

(7)   

In this section “the matching rules” means—

(a)   

section 328(3) and (4), and

(b)   

section 606(3) and (4).

606B    

Meaning of “relevant exchange gain” and “relevant exchange loss”

20

(1)   

For the purposes of section 606A an exchange gain or loss of a

company is “relevant” if—

(a)   

it arises in relation to—

(i)   

an asset or liability representing a loan relationship to

which the company is a party, or

25

(ii)   

a relevant contract to which the company is a party,

(b)   

the loan relationship or relevant contract is part of the

arrangements, and

(c)   

a debit or credit in respect of the exchange gain or loss is

required to be brought into account by the company for the

30

purposes of corporation tax.

(2)   

For the purposes of subsection (1)(c)—

(a)   

the arrangements are to be treated as not having a one-way

exchange effect in relation to the company for the purposes of

section 328 or 606 (whether or not they would have such an

35

effect apart from this subsection), and

(b)   

sections 441 and 442 (loan relationships: unallowable

purposes) and 690 to 692 (derivative contracts: unallowable

purposes) are to be disregarded.

606C    

Meaning of “test day”

40

(1)   

This section makes provision for the purposes of section 606A as to

whether a day in an accounting period of company A is a “test day”.

(2)   

In the case of arrangements that include one or more options, a day

in the accounting period is a “test day” if it is—

(a)   

a day on which such an option is exercised,

45

(b)   

a day on which such an option that is not exercised in the

accounting period was capable of being exercised,

 
 

Finance Bill
Schedule 21 — Foreign exchange: anti-avoidance

216

 

(c)   

a day on which company A, or a company connected with

company A, ceased to be a party to such an option,

(d)   

a day on which a terms of such an option are varied, or

(e)   

the last day of the accounting period.

(3)   

In the case of arrangements that include one or more relevant

5

contingent contracts, a day in the accounting period is a “test day” if

it is—

(a)   

a day on which an operative condition of such a contract is

met,

(b)   

a day on which company A, or a company connected with

10

company A, ceased to be a party to such a contract,

(c)   

a day on which a terms of such a contract are varied, or

(d)   

the last day of the accounting period.

606D    

Counterfactual currency movement assumptions

(1)   

This section makes provision for the purposes of section 606A(5) as

15

to the calculation of exchange gains and losses of a company arising

in an accounting period of that company.

(2)   

Where the relevant foreign currency appreciates over the accounting

period, or any part of the accounting period, relative to the operating

currency of company A by any percentage, the calculation must be

20

made on the assumption that the relevant foreign currency instead

depreciates (over the same period and in relation to the same

currency) by that percentage.

(3)   

Where the relevant foreign currency depreciates over the accounting

period, or any part of the accounting period, relative to the operating

25

currency of company A by any percentage, the calculation must be

made on the assumption that the relevant foreign currency instead

appreciates (over the same period and in relation to the same

currency) by that percentage.

(4)   

For provision as to the treatment of certain options for the purposes

30

of the calculation in cases in which subsection (2) or (3) applies, see

section 606E.

(5)   

Except as provided for in that section, the calculation must be made

on the basis of transactions in fact entered into (and not on the basis

of transactions that would have been entered into on the assumption

35

specified in subsection (2) or (3)).

(6)   

In this section “relevant foreign currency” means—

(a)   

the currency in which the loan relationships or relevant

contracts in respect of which the exchange gains or losses

arise are denominated, or

40

(b)   

where the exchange gains or losses arise in respect of loan

relationships or relevant contracts denominated in more than

one currency, any of them.

(7)   

References in this section to the “operating currency” of a company,

in relation to an accounting period, are (subject to subsection (8)) to

45

the currency in which profits or losses of the company arising in that

accounting period that fall to be computed in accordance with

generally accepted accounting practice for corporation tax purposes

 
 

Finance Bill
Schedule 21 — Foreign exchange: anti-avoidance

217

 

are required to be computed by virtue of section 92(1), 92A(2),

92B(2)(a) or 92C(3)(a) of FA 1993 (foreign currency accounting).

(8)   

In relation to a loan relationship or relevant contract to which a

company is deemed to be a party under—

(a)   

section 381(2) and (3) (loan relationships involving firms), or

5

(b)   

section 620(2) (relevant contracts involving firms),

   

references in this section to the “operating currency” of the company,

in relation to an accounting period, are to the currency that would be

the operating currency of that firm in that accounting period if that

firm were a company.

10

606E    

Counterfactual currency movement assumptions: treatment of options

(1)   

This section applies in relation to the calculation for the purposes of

section 606A(5) of exchange gains and losses of a company arising in

an accounting period of that company where—

(a)   

the calculation is made on the assumption specified in

15

subsection (2) or (3) of section 606D (“the relevant

assumption”), and

(b)   

an option is part of the arrangements.

(2)   

Subsection (3) applies if the option is exercised on the test day.

(3)   

The option is to be treated as not having been exercised on the test

20

day if, on the relevant assumption, it is in all the circumstances more

likely than not that it would not have been exercised on that day.

(4)   

Subsection (5) applies if the option is not exercised on the test day but

was exercisable on that day.

(5)   

The option is to be treated as having been exercised on the test day

25

if, on the relevant assumption, it is in all the circumstances more

likely than not that it would have been exercised on that day.

606F    

Meaning of “option”

(1)   

In the Part 7 one-way exchange effect provisions “option” is to be

construed as if section 580(2) and (3) (meaning of option) were

30

omitted.

(2)   

For the purposes of the Part 7 one-way exchange effect provisions—

(a)   

section 584 (hybrid derivatives with embedded derivatives)

is to be construed as if in subsection (1)(b) for the words “in

accordance with generally accepted accounting practice, the

35

company treats” there were substituted “it is possible to

regard”,

(b)   

section 585 (loan relationships with embedded derivatives) is

to be construed as if in subsection (1) for the words “in

accordance with generally accepted accounting practice a

40

company treats” there were substituted “it is possible to

regard”, and

(c)   

section 586 (other contracts with embedded derivatives) is to

be construed as if in subsection (1)(b) for the words “in

accordance with generally accepted accounting practice,

45

treats” there were substituted “it is possible to regard”.

 
 

Finance Bill
Schedule 21 — Foreign exchange: anti-avoidance

218

 

606G    

Meaning of “relevant contingent contract” and “operative condition”

(1)   

In the Part 7 one-way exchange effect provisions “relevant

contingent contract” means a contract that meets the following two

conditions.

(2)   

The first condition is that company A, or a company connected with

5

company A (“the relevant company”), is a party to the contract.

(3)   

The second condition is that the contract includes a condition—

(a)   

on the meeting of which a right or liability under the contract

is altered, and

(b)   

that operates (directly or indirectly) by reference to the

10

exchange rate between the operating currency of the relevant

company and another currency.

(4)   

In this section “operating currency” has the same meaning as in

section 606D.

(5)   

In the Part 7 one-way exchange effect provisions, “operative

15

condition” means a condition of the kind mentioned in subsection

(3).

606H    

Other interpretative provisions

(1)   

In this Act “the Part 7 one-way exchange effect provisions” means

sections 606A to 606G and this section.

20

(2)   

The following provisions of this section have effect for the purposes

of the Part 7 one-way exchange effect provisions.

(3)   

References to arrangements include any agreements,

understandings, schemes, transactions or series of transactions

(whether or not legally enforceable).

25

(4)   

The circumstances to be taken into account in determining whether

a loan relationship or relevant contract is “part of” any arrangements

include (in particular)—

(a)   

the circumstances in which it was entered into, acquired or

issued,

30

(b)   

the currency in which it is denominated, and

(c)   

its likely effect.

(5)   

References to the currency in which a relevant contract is

denominated are to the currency in which its underlying subject

matter is denominated.

35

(6)   

A currency (“currency A”) appreciates relative to another currency

(“currency B”) over a period if—

(a)   

the value expressed in currency B of one unit of currency A at

the end of the period, exceeds

(b)   

the value expressed in currency B of one unit of currency A at

40

the beginning of the period,

   

and the percentage of the appreciation is the amount determined

under subsection (7).

(7)   

The percentage of the appreciation is—

 
 

Finance Bill
Schedule 21 — Foreign exchange: anti-avoidance

219

 

(a)   

the difference between the amounts mentioned paragraphs

(a) and (b) of subsection (6), expressed as a percentage of the

amount mentioned in that paragraph (b), or

(b)   

if lower, 100%.

(8)   

A currency (“currency A”) depreciates relative to another currency

5

(“currency B”) over a period if—

(a)   

the value expressed in currency B of one unit of currency A at

the end of the period, is less than

(b)   

the value expressed in currency B of one unit of currency A at

the beginning of the period,

10

   

and the percentage of the depreciation is the difference, expressed as

a percentage of the amount mentioned in paragraph (b).

(9)   

References in this section to a company connected with company A

are to a company connected with company A for the relevant

accounting period.

15

(10)   

Section 466 (companies connected for an accounting period) applies

for the purposes of subsection (9).

(11)   

“Tax advantage” has the meaning given by section 840ZA of ICTA.

(12)   

See section 606A for the meaning of the following expressions—

“the arrangements”;

20

“company A”;

“the relevant accounting period”;

“the test day”.”

8          

Immediately before section 607 (pre-contract or abortive expenses) insert—

“Miscellaneous”.

25

Interpretation

9          

In Schedule 4 to CTA 2009 (index of defined expressions), insert at the

appropriate places—

 

“the Part 5 one-way exchange effect provisions

section 328H(1)”;

 
 

“the Part 7 one-way exchange effect provisions

section 606H(1)”.

 

30

Consequential revocation

10         

The Loan Relationships and Derivative Contracts (Disregard and Bringing

into Account of Profits and Losses) Regulations 2006 (S.I. 2006/843) are

revoked.

Commencement

35

11    (1)  

The amendments made by this Schedule have effect—

(a)   

in relation to exchange gains and losses arising in accounting periods

beginning on or after 22 April 2009, and

 
 

Finance Bill
Schedule 22 — Offshore funds
Part 1 — Meaning of “offshore fund”

220

 

(b)   

subject to the following provisions of this paragraph, in relation to

exchange gains and losses arising in straddling accounting periods.

      (2)  

In this paragraph “straddling accounting period” means an accounting

period that—

(a)   

begins before 22 April 2009, and

5

(b)   

ends on or after that date.

      (3)  

An exchange gain or loss that arises in a straddling accounting period in

relation to—

(a)   

an asset or liability representing a loan relationship, or

(b)   

a derivative contract,

10

           

is to be treated for the purposes of this paragraph as if it were made up of

two amounts.

      (4)  

Those two amounts are the exchange gains or losses that would arise in

relation to the loan relationship or derivative contract in—

(a)   

that part of the period that falls before 22 April, and

15

(b)   

that part of the period that falls on or after that date,

           

if those parts were separate accounting periods.

      (5)  

The amendments made by this Schedule have effect, in relation to an

exchange gain or loss of the kind mentioned in sub-paragraph (3), as if the

gain or loss were the amount determined in relation to it under sub-

20

paragraph (4)(b).

Schedule 22

Section 44

 

Offshore funds

Part 1

25

Meaning of “offshore fund”

FA 2008

1          

FA 2008 is amended as follows.

2          

Before section 41 (tax treatment of participants in offshore funds) insert—

“40A    

Meaning of “offshore fund”

30

(1)   

This section and sections 40B to 40G have effect for this group of

sections.

(2)   

“Offshore fund” means—

(a)   

a mutual fund constituted by a body corporate resident

outside the United Kingdom,

35

(b)   

a mutual fund under which property is held on trust for the

participants where the trustees of the property are not

resident in the United Kingdom, or

(c)   

a mutual fund constituted by other arrangements that create

rights in the nature of co-ownership where the arrangements

40

 
 

Finance Bill
Schedule 22 — Offshore funds
Part 1 — Meaning of “offshore fund”

221

 

take effect by virtue of the law of a territory outside the

United Kingdom (but see subsection (3)).

(3)   

Subsection (2)(c) does not include a mutual fund constituted by two

or more persons carrying on a trade or business in partnership.

(4)   

“This group of sections” means this section and sections 40B to 42A.

5

(5)   

References to participants in arrangements (or a fund) are to persons

taking part in the arrangements (or the arrangements constituting

the fund), whether by becoming the owner of, or of any part of, the

property that is the subject of the arrangements or otherwise (and

references to participation in arrangements or a fund, however

10

expressed, are to be read accordingly).

(6)   

In this section—

“body corporate” does not include a limited liability

partnership;

“co-ownership” is not restricted to the meaning of that term in

15

the law of any part of the United Kingdom.

40B     

Meaning of “mutual fund” etc

(1)   

“Mutual fund” means arrangements with respect to property of any

description, including money, that meet conditions A to C, subject

to—

20

(a)   

sections 40C and 40D, and

(b)   

the exceptions made by or under sections 40E to 40G.

(2)   

Condition A is that the purpose or effect of the arrangements is to

enable the participants—

(a)   

to participate in the acquisition, holding, management or

25

disposal of the property, or

(b)   

to receive profits or income arising from the acquisition,

holding, management or disposal of the property or sums

paid out of such profits or income.

(3)   

Condition B is that the participants do not have day-to-day control of

30

the management of the property.

(4)   

For the purpose of condition B a participant does not have day-to-

day control of the management of property by virtue of having a

right to be consulted or to give directions.

(5)   

Condition C is that, under the terms of the arrangements, a

35

reasonable investor participating in the arrangements would expect

to be able to realise all or part of an investment in the arrangements

on a basis calculated entirely, or almost entirely, by reference to—

(a)   

the net asset value of the property that is the subject of the

arrangements, or

40

(b)   

an index of any description.

(6)   

The Treasury may by regulations amend condition C.

40C     

Umbrella arrangements

(1)   

In the case of umbrella arrangements—

 
 

 
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