Finance Bill

House of Commons

Session 2008 - 09
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Finance Bill

Finance Bill
Schedule 23 — Insurance companies
229

No deduction for capital allocations to with-profits policy holders
2     (1)
In section 82 of FA 1989 (calculation of profits), after subsection (2) insert—
“(2A)
But amounts are not allowed as such a deduction if they—
(a)
are allocated to holders of policies under which they are
eligible to participate in surplus,
5
(b)
are of a capital nature, and
(c)
are not funded from amounts brought into account as part of
total income in line 19 of the revenue account prepared for
the purposes of Chapter 9 of the Prudential Sourcebook
(Insurers) in respect of the whole of the company’s long-term
10
business.
(2B)
For the purposes of subsection (2A) above payments made in
connection with the reattribution of inherited estate are to be
regarded as being of a capital nature.”
      (2)
The amendment made by sub-paragraph (1) has effect in relation to amounts
15
allocated on or after 22 April 2009 to holders of policies under which they are
eligible to participate in surplus.
Limits on loss relief for addition to non-profit funds
3     (1)
In ICTA, after section 434A insert—
“434AZA
Reduced loss relief for additions to non-profit funds
20
(1)
Where this section applies in the case of a company carrying on life
assurance business, relief allowable under section 393A or Chapter 4
of Part 10 in respect of losses incurred by the company in the life
assurance business in an accounting period is reduced in accordance
with section 434AZB.
25
(2)
This section applies in the case of a company where—
(a)
there has been a relevant addition to one or more non-profit
funds in a period of account ending no later than the
accounting period (“the relevant period of account”) (see
subsection (3)),
30
(b)
the company is not a non-profit company in relation to the
relevant period of account and has not elected under
subsection (9) of section 83YA of the Finance Act 1989 to be
treated for the purposes of that section as if it were, and
(c)
condition A or B is met,
35

and, if the relevant period of account is not the period of account
ending with the accounting period (“the current period of account”),
condition C is also met.
(3)
For the purposes of subsection (2), there is a relevant addition to a
non-profit fund in the relevant period of account if an amount is
40
shown as a transfer from non-technical account in line 32 of the Form
58 of the non-profit fund in the periodical return for that period of
account.
(4)
Condition A is that there is a relevant book value election in relation
to assets of a non-profit fund of the company.
45

Finance Bill
Schedule 23 — Insurance companies
230

(5)
For the purposes of subsection (4), there is a relevant book value
election in relation to assets of a non-profit fund if an amount is
shown in relation to the non-profit fund as the excess of the value of
net admissible assets in line 51 of the Form 14 of the non-profit fund
in the periodical return for the current period of account.
5
(6)
Condition B is that the company is party to arrangements the main
purpose, or one of the main purposes, of which is to reduce the
relevant admissible value of assets of a non-profit fund of the
company, other than any structural assets.
(7)
For the purposes of subsection (6) (and section 434AZB), the
10
“relevant admissible value” means the value reflected in line 89 of
Form 13 of the periodical return for the current period of account.
(8)
Condition C is that the surplus arising since the last valuation shown
in line 34 of the Form 58 of the non-profit fund, or any of the non-
profit funds, in relation to which condition A or B is met in the
15
periodical return for the current period of account is a negative
amount.
434AZB
Additions to non-profit funds: amount of loss reduction
(1)
The amount of the relief allowable as mentioned in section
434AZA(1) is reduced by whichever of the following is the least—
20
(a)
the amount of the loss,
(b)
the amount specified in subsection (2), and
(c)
the amount specified in subsection (4).
(2)
The amount mentioned in subsection (1)(b) is—
(a)
where only condition A in section 434AZA is met, the
25
relevant amount relating to the non-profit fund in relation to
which it is met or (where it is met in relation to more than one
non-profit fund) the sum of the relevant amounts relating to
them,
(b)
where only condition B is met, the amount of the relevant
30
reduction relating to the non-profit fund in relation to which
it is met or (where it is met in relation to more than one non-
profit fund) the sum of the relevant reductions relating to
them, and
(c)
where both condition A and condition B are met, the
35
aggregate of the amounts in paragraphs (a) and (b).
(3)
In subsection (2)
(a)
“relevant amount”, in relation to a non-profit fund, means the
amount shown in relation to the non-profit fund as the excess
of the value of net admissible assets in line 51 of the Form 14
40
of the non-profit fund in the periodical return for the current
period of account (as reduced by any amount which has had
effect to reduce relief for losses for a previous accounting
period), and
(b)
“relevant reduction”, in relation to a non-profit fund, means
45
the reduction of the relevant admissible value of assets of the
non-profit fund (other than structural assets) which is
attributable to the arrangements (as so reduced).

Finance Bill
Schedule 23 — Insurance companies
231

(4)
The amount mentioned in subsection (1)(c) is—
(a)
if the relevant period of account is the current period of
account, the amount referred to in section 434AZA(3) in the
case of the non-profit fund, or of each of the non-profit funds,
to which there has been a relevant addition in the relevant
5
period of account, and
(b)
otherwise, so much of the amount shown in line 31 of the
Form 58 of the non-profit fund or non-profit funds in the
periodical return for the current period of account as is
attributable to the amount so referred to.
10
434AZC
Sections 434AZA and 434AZB: supplementary
(1)
For the purposes of sections 434AZA and 434AZB, a non-profit fund
required to support a with-profits fund is to be treated as not being
a non-profit fund.
(2)
Sections 434AZA and 434AZB apply to a non-profit part of a with-
15
profits fund as if references to something shown in the Form 14 or
Form 58 of the non-profit fund in a periodical return were to what
would be so shown if there were a Form 14 or Form 58 of the non-
profit part of the with-profits fund in the periodical return.
(3)
In sections 434AZA and 434AZB—
20
“arrangements” includes any agreement, understanding,
scheme, transaction or series of transactions (whether or not
legally enforceable), and
“structural assets” has the same meaning as in section 83XA of
the Finance Act 1989 (see subsection (3) of that section and
25
any regulations made under it).”
      (2)
The amendment made by sub-paragraph (1) has effect in relation to
accounting periods ending on or after 22 April 2009 unless—
(a)
to the extent that section 434AZA would otherwise apply because
condition A in that section is met in relation to a non-profit fund, the
30
relevant addition to the non-profit fund was made before that date,
or
(b)
to the extent that section 434AZA would otherwise apply because
condition B in that section is so met, the relevant addition to the non-
profit fund and the arrangements were both made before that date.
35
FAFTS and contingent loans
4     (1)
In paragraph 4(5) of Schedule 17 to FA 2008 (financing-arrangement-funded
transfers: companies with unrepaid contingent loan liabilities before first
period of account beginning on or after 1 January 2008), in the definition of
“R”, after “(7)(a) of that section” insert “in respect of amounts brought into
40
account as transfers to non-technical account for periods of account
beginning on or after 1 January 2008”.
      (2)
The amendment made by sub-paragraph (1) has effect in relation to periods
of account beginning on or after 1 January 2008.

Finance Bill
Schedule 24 — Disguised interest
232

Apportionment: foreign business assets
5     (1)
Section 432E of ICTA (section 432B apportionment: participating funds) is
amended as follows.
      (2)
In subsection (3)(a), omit “and foreign business assets”.
      (3)
In subsection (4), in the definition of “A”, omit “and foreign business assets”.
5
      (4)
In subsection (4A), omit “or foreign business assets”.
6
In consequence of the amendments made by paragraph 5, omit—
(a)
paragraph 19(4)(a) and (6) of Schedule 7 to FA 2007, and
(b)
paragraph 10(3)(c) of Schedule 17 to FA 2008.
7     (1)
The amendments made by paragraphs 5 and 6 have effect in relation to
10
periods of account beginning on or after 1 January 2009 and ending on or
after 22 April 2009.
      (2)
But an insurance company may, in its company tax return for—
(a)
an accounting period beginning on or after 1 January 2008 but before
1 January 2009, or
15
(b)
an accounting period beginning on or after 1 January 2009 and
ending before 22 April 2009,

elect that the amendments made by paragraphs 5 and 6 have effect in
relation to that accounting period.
Value shifting attributable to transfer of business
20
8     (1)
In section 32(1) of TCGA 1992 (value shifting: disposals within group
followed by disposal of shares), after “171(1)” insert “or 211”.
      (2)
The amendment made by sub-paragraph (1) has effect for determining
whether section 30 of TCGA 1992 has effect as respects a disposal on or after
22 April 2009.
25
Schedule 24
Section 48

Disguised interest
Amendments of Part 6 of CTA 2009
1
Part 6 of CTA 2009 (relationships treated as loan relationships etc) is
amended as follows.
30
2     (1)
Section 477(2) (overview of Part 6) is amended as follows.
      (2)
After paragraph (a) insert—
“(aa)
Chapter 2A (disguised interest),”.
      (3)
For paragraph (f) substitute—
“(f)
Chapter 6A (shares accounted for as liabilities),”.
35

Finance Bill
Schedule 24 — Disguised interest
233

3
After Chapter 2 insert—
“Chapter 2A
Disguised interest
486A
Introduction to Chapter
(1)
This Chapter provides for Part 5 to apply in relation to returns which
5
are economically equivalent to interest (see section 485B).
(2)
For exclusions from this Chapter, see—
(a)
section 486C (return otherwise taxable),
(b)
section 486D (arrangement having no tax avoidance
purpose), and
10
(c)
section 486E (excluded shares).
486B
Disguised interest to be regarded as profit from loan relationship
(1)
Where a company is party to an arrangement which produces for the
company a return in relation to any amount which is economically
equivalent to interest, Part 5 applies as if the return were a profit
15
arising to the company from a loan relationship.
(2)
For the purposes of this Chapter a return produced for a company by
an arrangement in relation to any amount is “economically
equivalent to interest” if (and only if)—
(a)
it is reasonable to assume that it is a return by reference to the
20
time value of that amount of money,
(b)
it is at a rate reasonably comparable to what is (in all the
circumstances) a commercial rate of interest, and
(c)
at the relevant time there is no practical likelihood that it will
cease to be produced in accordance with the arrangement
25
unless the person by whom it falls to be produced is
prevented (by reason of insolvency or otherwise) from
producing it.
(3)
In subsection (2)(c) “the relevant time” means the time when the
company becomes party to the arrangement or, if later, when the
30
arrangement begins to produce a return for the company.
(4)
The credits and debits to be brought into account for the purposes of
Part 5 in respect of the return must be determined on an amortised
cost basis of accounting.
(5)
But if any of the return is not recognised in determining the
35
company’s profit or loss for any period it is to be treated as
recognised using an amortised cost basis of accounting.
(6)
Where two or more persons are party to an arrangement which
produces a return such as is mentioned in subsection (1)—
(a)
for the persons (when taken together), but
40
(b)
not for either (or any) of them individually,

this section applies as if there were a profit arising to such (if any) of
them as are companies from a loan relationship of so much of the
return as is just and reasonable.

Finance Bill
Schedule 24 — Disguised interest
234

(7)
The only amounts which may be brought into account for
corporation tax purposes in relation to a return such as is mentioned
in subsection (1) in the case of any company are those which are
brought into account in accordance with this section (but see section
486C).
5
(8)
In subsection (4) “credits” and “debits” include exchange gains and
losses arising as a result of translating at different times the carrying
value of the return or the amount by reference to which the return
falls to be produced.
(9)
In this Chapter “arrangement” includes any agreement,
10
understanding, scheme, transaction or series of transactions
(whether or not legally enforceable), other than one which
constitutes a finance lease (within the meaning given by section 219
of CAA 2001).
486C
Exclusion where return otherwise taxable
15
(1)
This Chapter does not apply to an arrangement which produces a
return for a company if or to the extent that the return—
(a)
is charged to corporation tax as income of the company or
brought into account as income of the company for
corporation tax purposes no later than the time when
20
amounts are brought into account in relation to the return in
accordance with section 486B,
(b)
arises from anything that would produce credits or debits in
relation to the company under Part 7 (derivative contracts) or
Part 8 (intangible fixed assets) but for any exception relating
25
to particular credits or debits, or
(c)
arises from anything that would produce credits or debits in
relation to the company under Part 5 apart from this Chapter
but for any exception relating to particular credits or debits.
(2)
Subsection (1)(b) does not disapply this Chapter in the case of a
30
return in relation to which section 641 (derivative contracts taxed on
chargeable gains basis) applies.
486D
Exclusion where arrangement has no tax avoidance purpose
(1)
This Chapter does not apply in relation to a return produced by an
arrangement to which a company is a party unless it is reasonable to
35
assume that the main purpose, or one of the main purposes, of the
company being a party to the arrangement is to obtain a relevant tax
advantage.
(2)
But a company for which a return is produced by an arrangement to
which this Chapter would otherwise be prevented from applying by
40
subsection (1) may elect that this Chapter is to apply in relation to the
return.
(3)
An election under subsection (2)—
(a)
may not be made by a company if section 486B applies to the
company in relation to the return in accordance with
45
subsection (6) of that section,
(b)
must be made no later than the time when the arrangement
begins to produce a return for the company, and

Finance Bill
Schedule 24 — Disguised interest
235

(c)
is irrevocable.
(4)
In this section “obtain a relevant tax advantage” means secure that
the return (or any part of it) is produced in a way which means that
its treatment for corporation tax purposes is more advantageous to
the company than it would be if it were—
5
(a)
charged to corporation tax as income of the company, or
(b)
brought into account as income of the company for
corporation tax purposes,

at the time when amounts would be brought into account in relation
to the return in accordance with section 486B.
10
(5)
Nothing in this section applies in relation to a company for an
accounting period if the company is an excluded controlled foreign
company.
(6)
For this purpose a company is an excluded controlled foreign
company if any of its chargeable profits (within the meaning of
15
Chapter 4 of Part 17 of ICTA)—
(a)
are apportioned for the accounting period in accordance with
section 752 of ICTA by virtue of section 747(3) of that Act, or
(b)
are not so apportioned because of section 748(1) of that Act.
486E
Excluded shares
20
(1)
This Chapter does not apply in relation to an accounting period (“the
relevant accounting period”) of a company (“the holding company”)
for which an arrangement produces a return for the company if the
arrangement involves only relevant shares held by the company
throughout the relevant period.
25
(2)
In this section “the relevant period” means the period—
(a)
beginning with the later of—
(i)
the time when the holding company becomes party to
the arrangement, and
(ii)
the time when the arrangement begins to produce a
30
return for the company, and
(b)
ending with the earliest of—
(i)
the end of the relevant accounting period,
(ii)
the time when the holding company ceases to be
party to the arrangement, and
35
(iii)
the time when the arrangement ceases to produce a
return for the company.
(3)
For the purposes of this section an arrangement “involves only”
relevant shares if (and only if) the return produced reflects only an
increase in the fair value of the shares.
40
(4)
For the purposes of subsection (3)—
(a)
“fair value”, in relation to relevant shares held by the holding
company, means an amount which the company would
obtain from a knowledgeable and willing purchaser of the
shares dealing at arm’s length, and
45