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Finance Bill
Schedule 24 — Disguised interest

236

 

(b)   

there is an increase in the fair value of shares even if the

increase is realised by the payment of a distribution in respect

of the shares.

(5)   

In this section “relevant shares” means shares which, throughout the

relevant period, are—

5

(a)   

fully paid-up shares of a relevant company, or

(b)   

shares of a company, other than a relevant company, which

would be accounted for as a liability by the company in

which they are shares in accordance with generally accepted

accounting practice and which produce for the holding

10

company a return in relation to any amount which is

economically equivalent to interest (as to which see Chapter

6A).

(6)   

For the purposes of subsection (5)(a) shares are fully paid-up if there

are no actual or contingent obligations—

15

(a)   

to meet unpaid calls on the shares, or

(b)   

to make a contribution to the capital of the company in which

they are shares that could affect the value of the shares.

(7)   

For the purposes of subsection (5)(b) a company is “a relevant

company” if—

20

(a)   

it and the holding company are connected companies,

(b)   

it is a relevant joint venture company, or

(c)   

it is a relevant controlled foreign company.

(8)   

Section 466 (companies connected for an accounting period) applies

for the purposes of subsection (7)(a).

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(9)   

For the purposes of subsection (7)(b) a company is a joint venture

company if—

(a)   

the holding company is one of two persons who, taken

together, control it,

(b)   

the holding company is a person in whose case the 40% test

30

in section 755D(3) of ICTA is satisfied, and

(c)   

the other is a person in whose case the 40% test in section

755D(4) of ICTA is satisfied.

(10)   

Section 755D of ICTA (meaning of “control” etc) applies for the

purposes of subsection (9)(a) as for those of Chapter 4 of Part 17 of

35

that Act (controlled foreign companies), except that no rights and

powers are attributed to a person by subsection (6)(c) or (d) of that

section.

(11)   

For the purposes of subsection (7)(c) a company is a relevant

controlled foreign company if any of its chargeable profits (within

40

the meaning of Chapter 4 of Part 17 of ICTA)—

(a)   

are apportioned to the holding company for the relevant

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) or (3) of that

45

Act.

(12)   

Section 550(3) (repos: ignoring effect on borrower of sale of

securities) does not apply for the purposes of this section.”

 
 

Finance Bill
Schedule 24 — Disguised interest

237

 

4          

After Chapter 6 insert—

“Chapter 6A

 Shares accounted for as liabilities

521A    

Introduction to Chapter

(1)   

This Chapter contains rules for Part 5 (and the other provisions of the

5

Corporation Tax Acts) to apply in some cases as if at some times in

the accounting period of a company (“A”) which holds shares of a

certain kind in another company (“B”) the shares were rights under

a creditor relationship of A.

(2)   

See, in particular—

10

(a)   

section 521B (application of Part 5 to some shares as rights

under creditor relationship), and

(b)   

section 521C (which describes the shares to which the rules

apply).

(3)   

In this Chapter references to the investing company are to A and

15

references to the issuing company are to B.

(4)   

For the purposes of this Chapter, the definition of “share” in section

476(1) only applies so far as it provides that “share” does not include

a share in a building society.

(5)   

Section 550(3) (repos: ignoring effect on borrower of sale of

20

securities) does not apply for the purposes of this Chapter.

(6)   

See section 116B of TCGA 1992 for the effect for chargeable gains

purposes of shares beginning or ceasing to be shares to which section

521C applies.

521B    

Application of Part 5 to certain shares as rights under creditor

25

relationship

(1)   

This section applies in relation to the times in a company’s

accounting period when—

(a)   

the company holds a share in another company, and

(b)   

section 521C (shares accounted for as liabilities) applies to the

30

share.

(2)   

Part 5 (and the other provisions of the Corporation Tax Acts) apply

as if at those times—

(a)   

the share were rights under a creditor relationship of the

investing company, and

35

(b)   

any distribution in respect of the share were not a

distribution (and accordingly is within Part 5).

(3)   

Where Part 5 applies in relation to the investing company in

accordance with subsection (2) it so applies as if the issuing company

stood in the position of debtor as respects the debt in question.

40

(4)   

No debits are to be brought into account by the investing company

as respects the share but this does not affect debits to be brought into

account in respect of exchange gains or losses.

 
 

Finance Bill
Schedule 24 — Disguised interest

238

 

(5)   

Subsection (2)(b) does not affect the operation of Part 1 of Schedule

25 of ICTA (controlled foreign companies: acceptable distribution

policy) (including as it continues to have effect in accordance with

paragraph 8(1) of Schedule 36 to FA 2009).

(6)   

In this Chapter references to “the share” are to the share mentioned

5

in subsection (1).

521C    

Shares accounted for as liabilities

(1)   

This section applies to the share if—

(a)   

the share would be accounted for by the issuing company as

a liability in accordance with generally accepted accounting

10

practice,

(b)   

the share produces for the investing company a return in

relation to any amount which is economically equivalent to

interest,

(c)   

the issuing company and the investing company are not

15

connected companies,

(d)   

the condition in subsection (4) is met,

(e)   

the share is not an excepted share (see section 521D), and

(f)   

the investing company holds the share for an unallowable

purpose (see section 521E).

20

(2)   

For the purposes of this section 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

time value of that amount of money,

25

(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

unless the person by whom it falls to be produced is

30

prevented (by reason of insolvency or otherwise) from

producing it.

(3)   

In subsection (2)(c) “the relevant time” means the time when the

investing company first holds the share or, if later, when the share

begins to produce a return for the investing company.

35

(4)   

The condition mentioned in subsection (1)(d) is that the share does

not fall to be treated for the accounting period in question as if it were

rights under a creditor relationship of the investing company

because of section 490 (holdings in OEICs, unit trusts and offshore

funds treated as creditor relationship rights).

40

(5)   

Section 466 (companies connected for an accounting period) applies

for the purposes of this section.

521D    

Excepted shares

(1)   

A share is an excepted share for the purposes of section 521C if it is—

(a)   

a qualifying publicly-issued share (see subsection (2)), or

45

(b)   

a share which mirrors a public issue (see subsections (3) and

(4)).

 
 

Finance Bill
Schedule 24 — Disguised interest

239

 

(2)   

A share is a “qualifying publicly-issued share” if—

(a)   

it was issued by a company as part of an issue of shares to

persons not connected with the company, and

(b)   

less than 10% of the shares in that issue are held by the

investing company or persons connected with it.

5

(3)   

The first case where shares (“the mirroring shares”) mirror a public

issue is where—

(a)   

a company (“company A”) issues shares (“the public issue”)

to persons not connected with the company,

(b)   

within 7 days of that issue, one or more other companies

10

(“companies BB”) issue the mirroring shares to company A

on the same terms as the public issue or substantially the

same terms,

(c)   

company A and companies BB are associated companies (see

subsection (5)), and

15

(d)   

the total nominal value of the mirroring shares does not

exceed the nominal value of the public issue.

(4)   

The second case where shares (“the second level mirroring shares”)

mirror a public issue is where, in the circumstances of the first case—

(a)   

within 7 days of the public issue, one or more other

20

companies (“companies CC”) issue the second level

mirroring shares to one or more of companies BB on the same

terms as the public issue or substantially the same terms,

(b)   

company A, companies BB and companies CC are associated

companies (see subsection (5)), and

25

(c)   

the total nominal value of the second-level mirroring shares

does not exceed the nominal value of the public issue.

(5)   

For the purposes of subsections (3) and (4) companies are associated

companies if they are members of the same group of companies for

the purposes of Chapter 4 of Part 10 of ICTA (group relief) (see

30

section 413(3)(a) of that Act).

521E    

Unallowable purpose

(1)   

For the purposes of section 521C, the investing company holds the

share for an unallowable purpose if the main purpose, or one of the

main purposes for which the company holds the share is to obtain a

35

relevant tax advantage.

(2)   

But the investing company may elect that this Chapter is to apply in

relation to the share even though it would otherwise be prevented

from applying by subsection (1)(f) of that section.

(3)   

An election under subsection (2)—

40

(a)   

must be made no later than the time when the investing

company first holds the share or, if later, when the share

begins to produce a return for the investing company, and

(b)   

is irrevocable.

(4)   

In this section “obtain a relevant tax advantage” means secure that

45

the return produced by the share (or any part of it) is received in a

way that means that its treatment for corporation tax purpose is

 
 

Finance Bill
Schedule 24 — Disguised interest

240

 

more advantageous to the investing company than it would be if it

were—

(a)   

charged to corporation tax as income of the investing

company, or

(b)   

brought into account as income of the investing company for

5

corporation tax purposes,

   

at the time when amounts would be brought into account in relation

to the return in accordance with section 521B.

(5)   

Nothing in this section applies in relation to the investing company

for an accounting period if it is an excluded controlled foreign

10

company.

(6)   

For this purpose the investing company is an excluded controlled

foreign company if any of its chargeable profits (within the meaning

of Chapter 4 of Part 17 of ICTA)—

(a)   

are apportioned for the accounting period in accordance with

15

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.

521F    

Shares becoming or ceasing to be shares to which section 521B applies

(1)   

This section applies if at any time section 521B begins or ceases to

apply in the case of a share held by the investing company.

20

(2)   

The investing company is treated for the purposes of Part 5—

(a)   

as having disposed of the share immediately before that time

for consideration of an amount equal to the notional carrying

value of the share at that time, and

(b)   

as having immediately reacquired it for consideration of the

25

same amount.

(3)   

In subsection (2) “notional carrying value”, in relation to the share,

means the amount which would have been its carrying value in the

accounts of the investing company if a period of account had ended

immediately before section 521B began or ceased to apply in the case

30

of the share and the investing company.

(4)   

For the purposes of subsection (3) “carrying value” has the same

meaning as it has for the purposes of section 316 (see section 317).”

Amendments and repeals

5     (1)  

Section 116B of TCGA 1992 (shares beginning or ceasing to be shares to

35

which section 523 of CTA 2009 applies) is amended as follows.

      (2)  

In subsection (1) and the heading, for “522” substitute “521B”.

      (3)  

In subsection (1)(b), for “its fair value” substitute “the notional carrying

value of the share”.

      (4)  

In subsection (2), for the definition of “fair value” substitute—

40

““notional carrying value” has the same meaning as in

subsection (2) of section 521F of CTA 2009 (see subsection (3)

of that section),”.

      (5)  

In that subsection, in the definition of “investing company”—

 
 

Finance Bill
Schedule 24 — Disguised interest

241

 

(a)   

for “7” substitute “6A”, and

(b)   

for “with guaranteed returns) (see section 522(3)” substitute

“accounted for as liabilities) (see section 521A(3)”.

6          

In section 26 of F(No.2)A 2005 (tax arbitrage), for subsection (10) substitute—

“(10)   

This subsection applies to an amount that is brought into account by

5

virtue of Chapter 2A or 6A of Part 6 of CTA 2009 (shares treated as

loan relationships).”

7     (1)  

Schedule 4 to CTA 2009 (index of expressions) is amended as follows.

      (2)  

After the entry relating to “approved, approval (in relation to a share

incentive plan) (in Chapter 1 of Part 11)” insert—

10

 

“arrangement (in Chapter 2A of

section 486B(9)”.

 
 

Part 6)

  

      (3)  

Omit the entry relating to “the associated transactions condition (in Chapter

7 of Part 6)”.

      (4)  

After the entry relating to “effective 51% subsidiary (in Part 8)” insert—

15

 

“economically equivalent to

section 486B(2)”.

 
 

interest (in Chapter 2A of Part 6)

  

      (5)  

For the entry relating to “the investing company (in Chapter 7 of Part 5)”

substitute—

 

“the investing company (in

section 521A(3)”.

 

20

 

Chapter 6A of Part 6)

  

      (6)  

For the entry relating to “the investing company (in Chapter 7 of Part 5)”

substitute—

 

“the issuing company (in Chapter

section 521A(3)”.

 
 

6A of Part 6)

  

25

      (7)  

Omit the entries relating to “the increasing value condition (in Chapter 7 of

Part 6)” and “the redemption return condition (in Chapter 7 of Part 6)”.

      (8)  

In the entry relating to “share (in Part 5 and in Part 6 except for Chapter 7 of

that Part)”, for “7” substitute “6A”.

      (9)  

For the entries relating to “share (in Chapter 7 of Part 6)” and “the share (in

30

Chapter 7 of Part 6) substitute—

 

“share (in Chapter 6A of Part 6)

section 521A(4)

 
 
 

Finance Bill
Schedule 24 — Disguised interest

242

 
 

the share (in Chapter 6A of Part 6)

section 521B(5)”.

 
 

Repeals

8          

In consequence of the amendments made by this Schedule, omit—

(a)   

in ICTA—

(i)   

section 736C (deemed interest: cash collateral under stock

5

lending arrangement), and

(ii)   

section 736D (quasi-stock lending arrangements and quasi-

cash collateral)

(b)   

in FA 2004, sections 131 to 133 (companies in partnership),

(c)   

in CTA 2009—

10

(i)   

Chapter 7 of Part 6 (shares with guaranteed returns etc),

(ii)   

Chapter 8 of that Part (returns from partnerships), and

(iii)   

section 547 (repo under arrangement designed to produce

quasi-interest: tax avoidance).

9          

Omit the following provisions (which relate to the provisions repealed by

15

paragraph 8)—

(a)   

in ICTA, sections 736B(4) and 807A(2B),

(b)   

in TCGA 1992, section 171(3A),

(c)   

in F(No.2)A 2005, in Schedule 7, paragraphs 5 and 9,

(d)   

in FA 2006, in Schedule 6, paragraphs 3 and 4,

20

(e)   

in ITA 2007, in Schedule 1, paragraphs 172 and 373, and

(f)   

in CTA 2009, in Schedule 1, paragraphs 215 and 571 of Schedule 1.

10         

In section 542(2) of CTA 2007 (introduction to Chapter 10 of Part 6), for “547”

substitute “546”.

Commencement

25

11         

The amendments made by paragraphs 2(2) and 3 have effect in relation to

any arrangement which produces for a company a return which is

economically equivalent to interest if the company becomes a party to the

arrangement on or after 22 April 2009.

12         

The amendments (and repeals) made by paragraphs 2(3) and 4 to 10 come

30

into force on 22 April 2009.

13    (1)  

This paragraph applies where any of the provisions repealed by paragraph

8 applies in relation to anything done by a company before 22 April 2009

which amounts to becoming party to an arrangement (within the meaning

given by section 486B(7) of CTA 2009).

35

      (2)  

The company is to be treated for the purposes of Chapter 2A of CTA 2009 as

having become a party to the arrangement on that date.

      (3)  

But this paragraph does not apply in circumstances in which paragraph 14

does.

14    (1)  

This paragraph applies where Chapter 7 of Part 6 of CTA 2009 applies in

40

relation to a share held by a company immediately before 22 April 2009.

      (2)  

Section 116B(1) of TCGA 1992 is to be treated as applying as if section 523 of

CTA 2009 ceased to apply in relation to the share on that date.

 
 

 
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