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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

 
 

 
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