Finance Bill

House of Commons

Session 2008 - 09
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Finance Bill

Finance Bill
Schedule 29 — Manufactured overseas dividends
256

Schedule 29
Section 58

Manufactured overseas dividends
Repos
1     (1)
Schedule 23A to ICTA (manufactured dividends and interest) is amended as
follows.
5
      (2)
In paragraph 4, in sub-paragraph (4)—
(a)
in paragraph (a), for “the amount deducted under section 922(2) of
ITA 2007 or (as the case may be)” substitute “the relevant amount in
relation to the amount deducted under section 922(2) of ITA 2007 or
the whole of the amount”,
10
(b)
in paragraph (b), for “the amount so deducted or” substitute “the
relevant amount in relation to the amount so deducted or the whole
of the amount”, and
(c)
insert at the end—

“For the meaning of references in this paragraph to the
15
relevant amount in relation to an amount deducted under
section 922(2) of ITA 2007, see paragraph 4A.”
      (3)
After that paragraph insert—
“4A   (1)
A reference in paragraph 4(4)(a) or (b) to the relevant amount in
relation to an amount deducted under section 922(2) of ITA 2007
20
is—
(a)
where the deduction is made in respect of a manufactured
overseas dividend that is treated as paid under paragraph
13(1) of Schedule 13 to FA 2007 (sale and repurchase of
securities), to amount A, and
25
(b)
otherwise, to the amount deducted under section 922(2) of
ITA 2007.
      (2)
Amount A is—
(a)
in a case to which sub-paragraph (3) applies, the amount
deducted under section 922(2) of ITA 2007,
30
(b)
in a case to which sub-paragraph (4) applies—
(i)
the amount deducted under section 922(2) of ITA
2007, less
(ii)
the excess mentioned in that sub-paragraph, and
(c)
in any other case, nil.
35
      (3)
This sub-paragraph applies to a case in which—
(a)
an amount is actually paid by way of manufactured
overseas dividend,
(b)
the amount so paid equals the relevant net amount, and
(c)
it is reasonable to assume that, in deciding the repurchase
40
price of the securities, no account was taken of the fact that
the amount would be so paid.
      (4)
This sub-paragraph applies to a case in which—
(a)
an amount is actually paid by way of manufactured
overseas dividend,
45

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Schedule 29 — Manufactured overseas dividends
257

(b)
the amount so paid exceeds the relevant net amount, and
(c)
it is reasonable to assume that, in deciding the repurchase
price of the securities, no account was taken of the fact that
the amount would be so paid.
      (5)
In this section “the repurchase price” of the securities means the
5
price at which the payer of the manufactured overseas dividend is
entitled or obliged to sell the securities, or similar securities, to the
recipient of the manufactured overseas dividend.
      (6)
In this section “the securities” means the securities in respect of
which the overseas dividend of which the manufactured overseas
10
dividend is representative is paid.
      (7)
In this section “the relevant net amount” means—
(a)
the gross amount of the overseas dividend of which the
manufactured overseas dividend is representative, less
(b)
the amount deducted under section 922(2) of ITA 2007.”
15
Stock lending
2     (1)
Section 736B of ICTA (deemed manufactured payments in the case of stock
lending arrangements) is amended as follows.
      (2)
In subsection (2), for “subsection (2A)” substitute “subsections (2A) and
(2B)”.
20
      (3)
After subsection (2A) insert—
“(2B)
In its application by virtue of subsection (2), paragraph 4(4) of
Schedule 23A has effect as if—
(a)
in paragraph (a), the words from “but paid after” to the end
were omitted, and
25
(b)
paragraph (b) were omitted.”
Commencement
3     (1)
The amendments made by paragraph 1 have effect in relation to overseas
dividends paid on or after 22 April 2009.
      (2)
The amendments made by paragraph 2 have effect in relation to interest on
30
securities paid on or after 22 April 2009
      (3)
In this paragraph—
“interest” has the same meaning as in section 736B of ICTA;
“overseas dividend” has the same meaning as in Schedule 23A to ICTA.

Finance Bill
Schedule 30 — Financial arrangements avoidance
258

Schedule 30
Section 61

Financial arrangements avoidance
Interest payments: arrangements appearing very likely to produce post-tax advantage
1     (1)
In ITA 2007, after section 384 insert—
“384A
Restriction on relief where arrangements minimise risk to borrower
5
(1)
Relief is not to be given under this Chapter for interest paid by a
person on a loan if—
(a)
the loan is made to the person (“the borrower”) as part of
arrangements which appear very likely to produce a post-tax
advantage, and
10
(b)
the arrangements seem to have been designed to reduce any
income tax or capital gains tax to which the borrower (or any
person whose circumstances are like those of the borrower)
would be liable apart from the arrangements.
(2)
Arrangements “appear very likely” to produce a post-tax advantage
15
if (and only if) it would be reasonable to assume from either or both
of—
(a)
the likely effect of the arrangements, and
(b)
the circumstances in which the arrangements, or any parts of
the arrangements, are entered into or effected,
20

that there is no risk, or only an insignificant risk, that they will not
produce a post-tax advantage.
(3)
“Produce a post-tax advantage” means give rise to a sum or sums—
(a)
payable to the borrower or a person connected with the
borrower, or
25
(b)
payable to any other person for the benefit of the borrower or
a person connected with the borrower,

of an amount (or aggregate amount) which, after making the
appropriate tax adjustments, is equal to or greater than the relevant
amount.
30
(4)
“The relevant amount” is the aggregate of—
(a)
the amount required to meet the borrower’s obligations in
respect of the loan, and
(b)
any amount which is used by the borrower in the same way
as that which entitles the borrower to relief under this
35
Chapter in respect of the loan and is not money lent to the
borrower under any loan.
(5)
If, with a view to securing that the condition in subsection (1)(a) is
not met, the arrangements make provision for securing that, in all or
any circumstances in which they do not produce a post-tax
40
advantage, they will produce a broadly compensatory amount, the
arrangements are to be regarded for the purposes of subsection (2) as
making provision for securing the production of a post-tax
advantage in those circumstances.
(6)
“Produce a broadly compensatory amount” means give rise to a sum
45
or sums payable as mentioned in subsection (3) of an amount (or

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Schedule 30 — Financial arrangements avoidance
259

aggregate amount) which, after making the appropriate tax
adjustments, is not significantly less than the relevant amount.
(7)
For the purposes of subsections (3) and (6) causing the value of an
asset to be obtainable, directly or indirectly, by a person is to be
treated as equivalent to giving rise to a sum payable to the person of
5
an amount equal to that value.
(8)
To make the appropriate tax adjustments for the purpose of
subsection (3) or (6)—
(a)
if A exceeds B, deduct the amount of the excess from the
amount (or aggregate amount), and
10
(b)
if B exceeds A, add the amount of the excess to the amount (or
aggregate amount).
(9)
For the purposes of subsection (8)—
A is the amount of any income tax, any capital gains tax and any
tax under the law of a territory outside the United Kingdom
15
to which the borrower is liable in consequence of the
arrangements, and
B is the amount by which the borrower’s liability to income tax
and capital gains tax is (or apart from subsection (1) would
be) reduced in consequence of the arrangements.
20
(10)
Arrangements seem to have been designed to reduce any income tax
or capital gains tax to which the borrower (or any person whose
circumstances are like those of the borrower) would be liable apart
from the arrangements if (and only if) it would be reasonable to
assume from either or both of—
25
(a)
the likely effect of the arrangements, and
(b)
the circumstances in which the arrangements, or any parts of
the arrangements, are entered into or effected,

that the arrangements, or any parts of the arrangements, are
designed to do so.
30
(11)
In this section “arrangements” means arrangements consisting of
any number of agreements, understandings, schemes, transactions
or other arrangements (whether or not legally enforceable); but in
subsections (1)(a), (2), (5) and (9) the references to arrangements also
include any related transactions.
35
(12)
In subsection (11) “related transactions” means transactions in the
case of which it is reasonable to assume from either or both of—
(a)
the likely effect of the transactions, and
(b)
the circumstances in which the transactions are entered into
or effected,
40

that the transactions would not have been entered into or effected
independently of the arrangements.
(13)
Transactions are not prevented from being related transactions just
because the transactions—
(a)
are not between the same parties, or
45
(b)
are not between parties to the arrangements.”
      (2)
The amendment made by sub-paragraph (1) has effect in relation to interest
paid on or after 19 March 2009.

Finance Bill
Schedule 30 — Financial arrangements avoidance
260

Amounts not fully recognised for accounting purposes
2     (1)
Section 311 of CTA 2009 (loan relationships: amounts not fully recognised
for accounting purposes) is amended as follows.
      (2)
In subsection (2), for paragraphs (b) and (c) substitute—
“(b)
condition A, B or C is met, and
5
(c)
an amount is not fully recognised for the period in respect of
the creditor relationship as a result of the application of
generally accepted accounting practice in relation to the
creditor relationship and the debtor relationship,
contribution or securities referred to in the condition that is
10
met.”
      (3)
In subsection (3)(b), after “to the” insert “creditor relationship and the
debtor”.
      (4)
In paragraph (b) of subsection (4), after “to the” insert “creditor relationship
and the relevant capital”.
15
      (5)
After that subsection insert—
“(4A)
Condition C is that—
(a)
the company has issued securities that form part of its capital
for the period, and
(b)
an amount is not fully recognised for the period in respect of
20
the securities as a result of the application of generally
accepted accounting practice in relation to the creditor
relationship and the securities.”
      (6)
In subsection (6)—
(a)
for “or a relevant capital contribution to it” substitute “, a
25
contribution to it or securities issued by it”, and
(b)
for “or contribution” (in both places) substitute “, contribution or
securities”.
      (7)
In section 317(5) of CTA 2009 (carrying value), before paragraph (a) insert—
“(za)
sections 311 and 312 (amounts not fully recognised for
30
accounting purposes),”.
      (8)
The amendments made by this paragraph have effect in relation to periods
of account beginning on or after 22 April 2009.
      (9)
But for the purposes of sub-paragraph (8) a period of account beginning
before, and ending on or after, 22 April 2009 is to be treated as if so much of
35
the period as falls before that date, and so much of the period as falls on or
after that date, were separate periods of account.
3     (1)
In CTA 2009, after section 599 insert—
“599A
Amounts not fully recognised for accounting purposes: introduction
(1)
Section 599B applies for the purpose of determining the credits and
40
debits which a company is to bring into account for a period for the
purposes of this Part in the following case.
(2)
The case is where—

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Schedule 30 — Financial arrangements avoidance
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(a)
the company is, or is treated as, a party to a derivative
contract in the period,
(b)
condition A or B is met, and
(c)
an amount is not fully recognised for the period in respect of
the contract as a result of the application of generally
5
accepted accounting practice in relation to the contract and
the contribution or securities referred to in the condition that
is met.
(3)
Condition A is that—
(a)
an amount (a “relevant capital contribution”) has at any time
10
been contributed to the company which forms part of its
capital for the period, and
(b)
an amount is not fully recognised for the period in respect of
the relevant capital contribution as a result of the application
of generally accepted accounting practice in relation to the
15
derivative contract and the relevant contribution.
(4)
It does not matter for the purposes of subsection (3) whether the
contribution forms part of the company’s share capital or other
capital for the period.
(5)
Condition B is that—
20
(a)
the company has issued securities that form part of its capital
for the period, and
(b)
an amount is not fully recognised for the period in respect of
the securities as a result of the application of generally
accepted accounting practice in relation to the derivative
25
contract and the securities.
(6)
For the purposes of this section an amount is not fully recognised for
a period in respect of a contract of a company, a contribution to it or
securities issued by it if—
(a)
no amount in respect of the contract, contribution or
30
securities is recognised in determining its profit or loss for the
period, or
(b)
an amount is so recognised in respect of only part of the
contract, contribution or securities.
599B
Determination of credits and debits where amounts not fully
35
recognised
(1)
In determining the credits and debits which a company is to bring
into account for the period referred to in section 599A(1) for the
purposes of this Part in respect of the derivative contract mentioned
in section 599A(2), the assumption in subsection (2) is to be made.
40
(2)
The assumption is that an amount in respect of the whole of the
contract in question is recognised in determining the company’s
profit or loss for the period.
(3)
The credits and debits which are to be brought into account for the
purposes of this Part by the company in respect of the contract are to
45
be determined on the basis of fair value accounting.”

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Schedule 30 — Financial arrangements avoidance
262

      (2)
In section 702(3) of CTA 2009 (carrying value), before paragraph (c) insert—
“(ca)
sections 599A and 599B (amounts not fully recognised for
accounting purposes),”.
      (3)
The amendments made by this paragraph have effect in relation to periods
of account beginning on or after 22 April 2009.
5
      (4)
But for the purposes of sub-paragraph (3) a period of account beginning
before, and ending on or after, 22 April 2009 is to be treated as if so much of
the period as falls before that date, and so much of the period as falls on or
after that date, were separate periods of account.
Loan relationships involving connected debtor and creditor where debits exceed credits
10
4     (1)
Section 418 of CTA 2009 (loan relationships treated differently by connected
debtor and creditor) is amended as follows.
      (2)
In subsection (1)(b), for “A, B and C” substitute “A and B”.
      (3)
For subsections (2) to (4) substitute—
“(2)
Condition A is that the rights under the loan relationship include
15
provision by virtue of which the creditor company—
(a)
is or may become entitled, or
(b)
is or may be required,

to acquire (whether by conversion or exchange or otherwise) any
shares in any company.
20
(3)
Condition B is that—
(a)
the debits brought into account by the debtor under this Part
in respect of the loan relationship for any accounting period,
exceed
(b)
the credits brought into account (otherwise than as a result of
25
this section) by the creditor in respect of the loan relationship
for the corresponding accounting period or periods of the
creditor.”
      (4)
After subsection (6) insert—
“(6A)
For the purposes of this section the creditor is to be treated as
30
continuing to be a party to the loan relationship even though the
creditor has disposed of the creditor’s rights under the loan
relationship to another person—
(a)
under a repo or stock lending arrangement, or
(b)
under a transaction which is treated as not involving any
35
disposal as a result of section 26 of TCGA 1992 (mortgages
and charges not to be treated as disposals).
(6B)
For the purposes of this section the creditor is to be treated as
continuing to be a party to the loan relationship even though the
creditor has disposed of the creditor’s rights under the loan
40
relationship to another person if the disposal was made with the
relevant avoidance intention.
(6C)
The relevant avoidance intention is the intention of eliminating or
reducing the credits to be brought into account for the purposes of
this Part.”
45