Finance Bill

House of Commons

Session 2008 - 09
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Other Bills before Parliament

Finance Bill

Finance Bill
Schedule 15 — Tax treatment of financing costs and income
Part 2 — Application of this Schedule
153

      (2)
For the purposes of this paragraph the “relevant liabilities” of the worldwide
group as at any date are the amounts that are disclosed in the balance sheet
of the group as at that date in respect of—
(a)
amounts borrowed (whether by way of overdraft or other short term
or long term borrowing),
5
(b)
liabilities in respect of finance leases, or
(c)
amounts of such other description as may be specified in regulations
made by the Commissioners.
      (3)
Expressions used in sub-paragraph (2)(a) and (b) have the meaning for the
time being given by the accounting standards in accordance with which the
10
financial statements of the group are drawn up.
      (4)
For provision about references in this Schedule to financial statements of the
worldwide group, and amounts disclosed in financial statements, see
paragraphs 87 to 90.
References to amounts disclosed in balance sheet of relevant group company
15
6     (1)
This paragraph applies for the purpose of construing references in
paragraph 4 to amounts disclosed in the balance sheet of a relevant group
company as at any date (“the relevant date”).
      (2)
Where the company—
(a)
is not a foreign company, and
20
(b)
does not draw up a balance sheet as at the relevant date,

the references are to the amounts that would be disclosed in a balance sheet
of the company as at that date, were one drawn up in accordance with
generally accepted accounting practice.
      (3)
Where the company—
25
(a)
is a foreign company, and
(b)
draws up a balance sheet (“a UK permanent establishment balance
sheet”) as at the relevant date in respect of the company’s permanent
establishment in the United Kingdom that treats the establishment as
a distinct and separate enterprise,
30

the references are to amounts in that balance sheet.
      (4)
Where the company—
(a)
is a foreign company, and
(b)
does not draw up a UK permanent establishment balance sheet as at
the relevant date,
35

the references are to the amounts that would be disclosed in a UK permanent
establishment balance sheet as at that date, were one drawn up in
accordance with generally accepted accounting practice.
      (5)
For the purposes of this paragraph a relevant group company is a “foreign
company” if it is not resident in the United Kingdom and is carrying on a
40
trade in the United Kingdom through a permanent establishment in the
United Kingdom.
Qualifying financial services groups
7     (1)
The worldwide group is a qualifying financial services group in a period of
account if the trading income condition—
45

Finance Bill
Schedule 15 — Tax treatment of financing costs and income
Part 2 — Application of this Schedule
154

(a)
is met in relation to that period, or
(b)
is not met in relation to that period, but only because of losses
incurred by the group in respect of activities that are normally
reported on a net basis in financial statements prepared in
accordance with international accounting standards.
5
      (2)
The trading income condition is met in relation to a period of account if—
(a)
all or substantially all of the UK trading income of the worldwide
group for that period, or
(b)
all or substantially all of the worldwide trading income of the
worldwide group for that period,
10

is derived from qualifying activities (see paragraph 8).
      (3)
In this Part, in relation to a period of account of the worldwide group—
“UK trading income” means the sum of the trading income for that
period of each company that was a relevant group company at any
time during that period (see paragraph 12);
15
“worldwide trading income” means the trading income for that period
of the worldwide group (see paragraph 13).
Qualifying activities
8
In this Part “qualifying activities” means—
(a)
lending activities and activities that are ancillary to lending activities
20
(see paragraph 9),
(b)
insurance activities and insurance-related activities (see paragraph
10), and
(c)
relevant dealing in financial instruments (see paragraph 11).
Lending activities and activities ancillary to lending activities
25
9     (1)
In this Part “lending activities” means any of the following activities—
(a)
acceptance of deposits or other repayable funds;
(b)
lending of money, including consumer credit, mortgage credit,
factoring (with or without recourse) and financing of commercial
transactions (including forfeiting);
30
(c)
finance leasing (as lessor);
(d)
issuing and administering means of payment;
(e)
provision of guarantees or commitments to provide money;
(f)
money transmission services;
(g)
provision of alternative finance arrangements;
35
(h)
other activities carried out in connection with activities falling within
any of paragraphs (a) to (g).
      (2)
Activities that are ancillary to lending activities are not qualifying activities
for the purposes of this Part if the income derived from the ancillary
activities forms a significant part of the total of—
40
(a)
that income, and
(b)
the income derived from lending activities of the worldwide group
in the period of account.
      (3)
In sub-paragraph (2) “income” means the gross income or net income that
would be taken into account for the purposes of paragraph 7 in calculating
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Finance Bill
Schedule 15 — Tax treatment of financing costs and income
Part 2 — Application of this Schedule
155

the UK or worldwide trading income of the worldwide group for the period
of account.
      (4)
The Commissioners may by order—
(a)
amend sub-paragraph (1), and
(b)
make other amendments of this paragraph in consequence of any
5
amendment of sub-paragraph (1).
      (5)
In sub-paragraph (1)(h), and in the references to ancillary activities in this
paragraph and paragraph 8(a), “activities” includes buying, holding,
managing and selling assets.
      (6)
In this paragraph “alternative finance arrangements” has the same meaning
10
as in Chapter 6 of Part 6 of CTA 2009.
Insurance activities and insurance related activities
10    (1)
In this Part “insurance activities” means—
(a)
the effecting or carrying out of contracts of insurance by a regulated
insurer, and
15
(b)
investment business that arises directly from activities falling within
paragraph (a).
      (2)
In this Part “insurance-related activities” means—
(a)
activities that are ancillary to insurance activities, and
(b)
activities that—
20
(i)
are of the same kind as activities carried out for the purposes
of insurance activities,
(ii)
are not actually carried out for those purposes, and
(iii)
would not be carried out but for insurance activities being
carried out.
25
      (3)
Sub-paragraph (2) is subject to sub-paragraph (4).
      (4)
Activities that fall within sub-paragraph (2)(a) or (b) (“the relevant
activities”) are not insurance-related activities if the income derived from the
relevant activities forms a significant part of the total of—
(a)
that income, and
30
(b)
the income derived from insurance activities of the worldwide group
in the period of account.
      (5)
In sub-paragraph (4) “income” means the gross income or net income that
would be taken into account for the purposes of paragraph 7 in calculating
the UK or worldwide trading income of the worldwide group for the period
35
of account.
      (6)
In this paragraph—
“activities” includes buying, holding, managing and selling assets;
“contract of insurance” has the same meaning as in Chapter 1 of Part 12
of ICTA;
40
“regulated insurer” means a member of the worldwide group that—
(a)
is authorised under the law of any territory to carry on
insurance business, or
(b)
is a member of a body or organisation that is so authorised.

Finance Bill
Schedule 15 — Tax treatment of financing costs and income
Part 2 — Application of this Schedule
156

Relevant dealing in financial instruments
11    (1)
In this Part “financial instrument” means anything that is a financial
instrument for any purpose of the FSA Handbook.
      (2)
For the purposes of this Part, a dealing in a financial instrument is a
“relevant dealing” if—
5
(a)
it is a dealing other than in the capacity of a broker, and
(b)
profits or losses on the dealing form part of the trading profits or
losses of a business.
      (3)
In this paragraph “broker” includes any person offering to sell securities to,
or purchase securities from, members of the public generally.
10
UK trading income of the worldwide group
12    (1)
This paragraph applies in relation to paragraph 7 for calculating the UK
trading income of the worldwide group for a period of account.
      (2)
The trading income for that period of a relevant group company is the
aggregate of—
15
(a)
the gross income calculated in accordance with sub-paragraph (3),
and
(b)
the net income calculated in accordance with sub-paragraph (4).
      (3)
The income referred to in sub-paragraph (2)(a) is the gross income—
(a)
arising from the activities of the relevant group company (other than
20
net-basis activities), and
(b)
accounted for as such under generally accepted accounting practice,

without taking account of any deductions (whether for expenses or
otherwise).
      (4)
The income referred to in sub-paragraph (2)(b) is the net income arising from
25
the net-basis activities of the relevant group company that—
(a)
is accounted for as such under generally accepted accounting
practice, or
(b)
would be accounted for as such if income arising from such activities
were accounted for under generally accepted accounting practice.
30
      (5)
Sub-paragraphs (3) and (4) are subject to sub-paragraph (6).
      (6)
In a case where a proportion of an accounting period of a relevant group
company does not fall within the period of account of the worldwide group,
the gross income or net income for that accounting period of the company is
to be reduced, for the purposes of this paragraph, by that proportion.
35
      (7)
Gross income or net income is to be disregarded for the purposes of sub-
paragraph (2) if the income arises in respect of an amount payable by
another member of the worldwide group that is either a UK group company
or a relevant group company.
      (8)
In this paragraph “net-basis activity” means activity that is normally
40
reported on a net basis in financial statements prepared in accordance with
generally accepted accounting practice.

Finance Bill
Schedule 15 — Tax treatment of financing costs and income
Part 2 — Application of this Schedule
157

Worldwide trading income of the worldwide group
13    (1)
This paragraph applies in relation to paragraph 7 for calculating the
worldwide trading income of the worldwide group for a period of account.
      (2)
The trading income for that period of the worldwide group is the aggregate
of—
5
(a)
the gross income calculated in accordance with sub-paragraph (3),
and
(b)
the net income calculated in accordance with sub-paragraph (4).
      (3)
The income referred to in sub-paragraph (2)(a) is the gross income—
(a)
arising from the activities of worldwide group (other than net-basis
10
activities), and
(b)
disclosed as such in the financial statements of the worldwide group,

without taking account of any deductions (whether for expenses or
otherwise).
      (4)
The income referred to in sub-paragraph (2)(b) is the net income arising from
15
the net-basis activities of the worldwide group that—
(a)
is accounted for as such under international accounting standards, or
(b)
would be accounted for as such if income arising from such activities
were accounted for under international accounting standards.
      (5)
In this paragraph “net-basis activity” means activity that is normally
20
reported on a net basis in financial statements prepared in accordance with
international accounting standards.
      (6)
For provision about references in this Schedule to financial statements of the
worldwide group, and amounts disclosed in financial statements, see
paragraphs 87 to 90.
25
Foreign currency accounting
14    (1)
Subject to the following provisions of this paragraph, references in this Part
to an amount disclosed in a balance sheet of a relevant group company, or
of the worldwide group, as at any date are, where the amount is expressed
in a currency other than sterling, to that amount translated into its sterling
30
equivalent, translated by reference to the spot rate of exchange for that date.
      (2)
Sub-paragraph (3) applies in relation to a period of account of the worldwide
group if all the amounts disclosed in balance sheets (whether of relevant
group companies, or of the worldwide group) that are relevant to a
calculation under this Part in relation to that period are expressed in the
35
same currency (“the relevant foreign currency”) and that currency is not
sterling.
      (3)
Where this sub-paragraph applies—
(a)
references in this Schedule to an amount disclosed in a balance sheet
of a relevant group company, or of the worldwide group, are to that
40
amount expressed in the relevant foreign currency, and
(b)
for the purposes of determining under paragraph 3 the net debt
amount of a company, the reference in sub-paragraph (3) of that
paragraph to £3 million is to be read as a reference to the relevant
amount.
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Finance Bill
Schedule 15 — Tax treatment of financing costs and income
Part 3 — Disallowance of deductions
158

      (4)
For this purpose “the relevant amount” means the average of—
(a)
£3 million expressed in the relevant foreign currency, translated by
reference to the spot rate of exchange for the company’s start date,
and
(b)
£3 million expressed in the relevant foreign currency, translated by
5
reference to the spot rate of exchange for the company’s end date.
Part 3
Disallowance of deductions
Application of Part and meaning of “total disallowed amount”
15    (1)
This Part applies where, for a period of account of the worldwide group to
10
which this Schedule applies (“the relevant period of account”)—
(a)
the tested expense amount (see Part 8), exceeds
(b)
the available amount (see Part 9).
      (2)
In this Part “the total disallowed amount” means the difference between the
amounts referred to in paragraphs (a) and (b) of sub-paragraph (1).
15
Meaning of “company to which this Part applies”
16
References in this Part to a company to which this Part applies are to a
company that is a relevant group company at any time during the relevant
period of account.
Appointment of authorised company for relevant period of account
20
17    (1)
The companies to which this Part applies may appoint one of their number
to exercise functions conferred under this Part on the reporting body in
relation to the relevant period of account.
      (2)
An appointment under this paragraph is of no effect unless it is signed on
behalf of each company to which this Part applies by the appropriate person.
25
      (3)
The Commissioners may by regulations make further provision about an
appointment under this paragraph including, in particular, provision—
(a)
about the form and manner in which an appointment may be made,
(b)
about how an appointment may be revoked and the form and
manner of such revocation,
30
(c)
requiring a person to notify HMRC of the making or revocation of an
appointment and about the form and manner of such notification,
(d)
requiring a person to give information to HMRC in connection with
the making or revocation of an appointment,
(e)
imposing time limits in relation to making or revoking an
35
appointment,
(f)
providing that an appointment or its revocation is of no effect, or
ceases to have effect, if time limits or other requirements under the
regulations are not met, and
(g)
about cases where a company is not a relevant group company at all
40
times during the relevant period of account.
      (4)
In this paragraph “the appropriate person”, in relation to a company,
means—

Finance Bill
Schedule 15 — Tax treatment of financing costs and income
Part 3 — Disallowance of deductions
159

(a)
the proper officer of the company, or
(b)
such other person as may for the time being have the express,
implied or apparent authority of the company to act on its behalf for
the purposes of this Schedule.
      (5)
Subsections (3) and (4) of section 108 of TMA 1970 (responsibility of
5
company officers: meaning of “proper officer”) apply for the purposes of this
paragraph as they apply for the purposes of that section.
Meaning of “the reporting body”
18
In this Part “the reporting body” means—
(a)
in a case in which an appointment under paragraph 17 has effect in
10
relation to the relevant period of account, the company appointed
under that paragraph, and
(b)
in a case in which such an appointment does not have effect in
relation to the relevant period of account, the companies to which
this Part applies, acting jointly.
15
Statement of allocated disallowances: submission
19    (1)
The reporting body must submit a statement (a “statement of allocated
disallowances”) in relation to the relevant period of account to HMRC.
      (2)
A statement submitted under this paragraph must be received by HMRC
within 12 months of the end of the relevant period of account.
20
      (3)
A statement submitted under this paragraph must comply with the
requirements of paragraph 21.
Statement of allocated disallowances: submission of revised statement
20    (1)
Where the reporting body has submitted a statement of allocated
disallowances under paragraph 19 or this paragraph, it may submit a
25
revised statement to HMRC.
      (2)
A statement submitted under this paragraph must be received by HMRC
within 36 months of the end of the relevant period of account.
      (3)
A statement submitted under this paragraph must comply with the
requirements of paragraph 21.
30
      (4)
A statement submitted under this paragraph—
(a)
must indicate the respects in which it differs from the previous
statement, and
(b)
supersedes the previous statement.
Statement of allocated disallowances: requirements
35
21    (1)
This paragraph applies in relation to a statement of allocated disallowances
submitted under paragraph 19 or 20.
      (2)
The statement must be signed—
(a)
in a case in which an appointment under paragraph 17 has effect in
relation to the relevant period of account, by the appropriate person
40
in relation to the company appointed under that paragraph, or