Finance Bill

House of Commons

Session 2008 - 09
Internet Publications
Other Bills before Parliament

Finance Bill

Finance Bill
Schedule 15 — Tax treatment of financing costs and income
Part 5 — Intra-group financing income where payer denied deduction
167

Balancing payments between group companies: no charge to, or relief from, tax
39    (1)
This paragraph applies where—
(a)
one or more financing income amounts of a company (“company A”)
for the relevant period of account are—
(i)
by virtue of paragraph 34, not brought into account, or
5
(ii)
by virtue of paragraph 37, reduced,
(b)
one or more financing expense amounts of another company
(“company B”) for the relevant period of account are—
(i)
by virtue of paragraph 22, not brought into account, or
(ii)
by virtue of paragraph 25, reduced,
10
(c)
company A makes one or more payments (“the balancing
payments”) to company B, and
(d)
the sole or main reason for making the balancing payments is that the
conditions in paragraphs (a) and (b) are met.
      (2)
To the extent that the sum of the balancing payments does not exceed the
15
amount specified in sub-paragraph (3), those payments—
(a)
are not to be taken into account in computing profits or losses of
either company A or company B for the purposes of corporation tax,
and
(b)
are not to be regarded as distributions for any of the purposes of the
20
Corporation Tax Acts.
      (3)
The amount referred to in sub-paragraph (2) is the lower of—
(a)
the sum of the financing income amounts mentioned in sub-
paragraph (1)(a), and
(b)
the sum of the financing expense amounts mentioned in sub-
25
paragraph (1)(b).
Part 5
Intra-group financing income where payer denied deduction
Exemption from tax for certain financing income received from certain EEA companies
40    (1)
A financing income amount of a company that is a member of the worldwide
30
group (“the recipient”) is not to be brought into account for the purposes of
corporation tax if—
(a)
it arises as a result of a payment by another company that is a
member of the worldwide group (“the payer”),
(b)
the payment is received during a period of account of the worldwide
35
group to which this Schedule applies, and
(c)
conditions A, B and C are met.
      (2)
Condition A is that, at the time the payment is received, the payer is a
relevant associate of the recipient (see paragraph 41).
      (3)
Condition B is that, at the time the payment is received—
40
(a)
the payer is tax-resident in an EEA territory (see paragraph 42), and
(b)
the payer is liable to a tax of that territory that is chargeable by
reference to profits, income or gains arising to the payer.
      (4)
Condition C is that—

Finance Bill
Schedule 15 — Tax treatment of financing costs and income
Part 5 — Intra-group financing income where payer denied deduction
168

(a)
qualifying EEA tax relief for the payment is not available to the payer
in the period in which the payment is made (“the current period”) or
any previous period (see paragraph 43), and
(b)
qualifying EEA tax relief for the payment is not available to the payer
in any period after the current period (see paragraph 44).
5
      (5)
For the meaning of “financing income amount”, see paragraph 46.
Meaning of “relevant associate”
41
For the purposes of this Part the payer is a “relevant associate” of the
recipient if—
(a)
the payer is a parent of the recipient,
10
(b)
the payer is a 75% subsidiary of the recipient, or
(c)
the payer is a 75% subsidiary of a parent of the recipient.
Meaning of “tax-resident” and “EEA territory”
42    (1)
For the purposes of this Part the payer is “tax-resident” in a territory if it is
liable, under the law of that territory, to tax by reason of domicile, residence
15
or place of management.
      (2)
In this Part “EEA territory” means a territory outside the United Kingdom
that is within the European Economic Area.
Qualifying EEA tax relief for payment in the current period or a previous period
43    (1)
For the purposes of this Part, qualifying EEA tax relief for a payment is not
20
available to the payer in the current period or a previous period if conditions
A and B are met in relation to the payment.
      (2)
Condition A is that no deduction calculated by reference to the payment can
be taken into account in calculating any profits, income or gains that—
(a)
arise to the payer in the current period or any previous period, and
25
(b)
are chargeable to any tax of the United Kingdom or an EEA territory
for the current period or any previous period.
      (3)
Condition B is that no relief determined by reference to the payment can be
given in the current period or any previous period for the purposes of any
tax of the United Kingdom or an EEA territory by—
30
(a)
the payment of a credit,
(b)
the elimination or reduction of a tax liability, or
(c)
any other means of any kind.
      (4)
Conditions A and B are not met in relation to the payment unless every step
is taken (whether by the payer or any other person) to secure that deductions
35
are taken into account as mentioned in sub-paragraph (2) and reliefs are
given as mentioned in sub-paragraph (3).
      (5)
Conditions A and B are not met in relation to the payment unless they would
be met disregarding a failure to obtain a deduction or relief by virtue of—
(a)
this Schedule, or
40
(b)
provision made as a result of double taxation arrangements between
any two territories (including provision sanctioned by associated
enterprise rules contained in such arrangements).

Finance Bill
Schedule 15 — Tax treatment of financing costs and income
Part 5 — Intra-group financing income where payer denied deduction
169

      (6)
For this purpose—
(a)
arrangements are “double taxation arrangements” if they are
arrangements made between any two territories with a view to
affording relief from double taxation, and
(b)
“associated enterprise rules” means —
5
(i)
rules that, on the passing of this Act, were contained in
Article 9 of the Model Tax Convention on Income and on
Capital published by the Organisation for Economic Co-
operation and Development, or
(ii)
any rules in the same or equivalent terms.
10
Qualifying EEA tax relief for payment in future period
44    (1)
For the purposes of this Part, qualifying EEA tax relief for a payment is not
available to the payer in a period after the current period if conditions A and
B are met in relation to the payment.
      (2)
Condition A is that no deduction calculated by reference to the payment can
15
be taken into account in calculating any profits, income or gains that—
(a)
might arise to the payer in any period after the current period, and
(b)
would, if they did so arise, be chargeable to any tax of the United
Kingdom or an EEA territory for any period after the current period.
      (3)
Condition B is that no relief determined by reference to the payment can be
20
given in any period after the current period for the purposes of any tax of the
United Kingdom or an EEA territory by—
(a)
the payment of a credit,
(b)
the elimination or reduction of a tax liability, or
(c)
any other means of any kind.
25
      (4)
The question whether a deduction can be taken into account as mentioned
in sub-paragraph (2) or a relief can be given as mentioned in sub-paragraph
(3), is to be determined by reference to the position immediately after the
end of the current period.
      (5)
Conditions A and B are not met in relation to the payment unless they would
30
be met disregarding a failure to obtain a deduction or relief by virtue of—
(a)
this Schedule, or
(b)
provision made as a result of double taxation arrangements between
any two territories (including provision sanctioned by associated
enterprise rules contained in such arrangements).
35
      (6)
For this purpose—
(a)
arrangements are “double taxation arrangements” if they are
arrangements made between any two territories with a view to
affording relief from double taxation, and
(b)
“associated enterprise rules” means—
40
(i)
rules that, on the passing of this Act, were contained in
Article 9 of the Model Tax Convention on Income and on
Capital published by the Organisation for Economic Co-
operation and Development, or
(ii)
any rules in the same or equivalent terms.
45

Finance Bill
Schedule 15 — Tax treatment of financing costs and income
Part 5 — Intra-group financing income where payer denied deduction
170

References to tax of a territory
45    (1)
References in this Part to a tax of the United Kingdom are to income tax or
corporation tax.
      (2)
References in this Part to a tax of a territory outside the United Kingdom are
to a tax chargeable under the law of that territory that—
5
(a)
is charged on income and corresponds to United Kingdom income
tax, or
(b)
is charged on income or chargeable gains or both and corresponds to
United Kingdom corporation tax.
      (3)
For the purposes of this paragraph, a tax chargeable under the law of a
10
territory outside the United Kingdom does not fail to correspond to income
or corporation tax just because—
(a)
it is chargeable under the law of a province, state or other part of a
country, or
(b)
it is levied by or on behalf of a municipality or other local body.
15
Financing income amounts of a company
46    (1)
References in this Part to a “financing income amount” of a company are
(subject to sub-paragraph (6)) to any amount that meets condition A, B or C.
      (2)
Condition A is that the amount is a credit that—
(a)
would, apart from this Part, be brought into account by the company
20
for the purposes of corporation tax,
(b)
would be so brought into account in respect of a loan relationship—
(i)
under Part 3 of CTA 2009 by virtue of section 297 of that Act
(loan relationships for purposes of trade), or
(ii)
under Part 5 of that Act (other loan relationships), and
25
(c)
is not an excluded credit.
      (3)
A credit is “excluded” if it is in respect of—
(a)
the reversal of an impairment loss,
(b)
an exchange gain, or
(c)
a profit from a related transaction.
30
      (4)
Condition B is that the amount is an amount that would, apart from this Part,
be brought into account by the company for the purposes of corporation tax
in respect of the financing income implicit in amounts received under
finance leases.
      (5)
Condition C is that the amount is an amount that would, apart from this
35
Part, be brought into account by the company for the purposes of
corporation tax in respect of the financing income receivable on debt
factoring, or any similar transaction.
      (6)
The provisions of Part 7 apply in relation to an amount that is a financing
income amount of a company by virtue of meeting condition A, B or C in this
40
paragraph as they apply in relation to an amount that is a financing income
amount of a relevant group company by virtue of meeting condition A, B or
C in paragraph 55.

Finance Bill
Schedule 15 — Tax treatment of financing costs and income
Part 6 — Anti-avoidance
171

Part 6
Anti-avoidance
Schemes involving manipulation of rules in Part 2
47    (1)
A period of account of the worldwide group that, apart from this paragraph,
is not within paragraph 2(1) is treated as within that provision if conditions
5
A to C are met.
      (2)
Condition A is that—
(a)
at any time before the end of the period, a scheme is entered into, and
(b)
if the scheme had not been entered into, the period would have been
within paragraph 2(1).
10
      (3)
Condition B is that the main purpose, or one of the main purposes, of any
party to the scheme on entering into the scheme is to secure that the period
is not within paragraph 2(1).
      (4)
Condition C is that the scheme is not an excluded scheme.
Schemes involving manipulation of rules in Parts 3 and 4
15
48    (1)
Where conditions A to C are met in relation to a period of account of the
worldwide group (“the relevant period of account”), the tested expense
amount, the tested income amount and the available amount for the period
are to be calculated in accordance with paragraph 50.
      (2)
Condition A is that—
20
(a)
at any time before the end of the relevant period of account, a scheme
is entered into, and
(b)
the main purpose, or one of the main purposes, of any party to the
scheme on entering into it is to secure that the amount of the relevant
net deduction (within the meaning given by paragraph 49) is lower
25
than it would be if that amount were calculated in accordance with
paragraph 50.
      (3)
Condition B is that a result of the scheme is that—
(a)
the sum of the profits of UK group companies that arise in relevant
accounting periods and that are chargeable to corporation tax is less
30
than it would be if that sum were determined in accordance with
paragraph 50, or
(b)
the sum of the losses of UK group companies that arise in relevant
accounting periods (other than any taken into account in calculating
profits within paragraph (a)) and that are capable of being a carried-
35
back amount or a carried-forward amount is higher than it would be
if that sum were determined in accordance with paragraph 50.
      (4)
Condition C is that the scheme is not an excluded scheme.
      (5)
In a case where—
(a)
a profit or loss arises in an accounting period of a UK group
40
company, and
(b)
a proportion of that period does not fall within the relevant period of
account,

Finance Bill
Schedule 15 — Tax treatment of financing costs and income
Part 6 — Anti-avoidance
172


the profit or loss is to be reduced, for the purposes of condition B, by the
same proportion.
Meaning of “relevant net deduction”
49    (1)
In paragraph 48(2) the “relevant net deduction” means—
(a)
the amount by which the total disallowed amount exceeds the tested
5
income amount, or
(b)
if the total disallowed amount does not exceed the tested income
amount, nil.
      (2)
In this paragraph the “total disallowed amount” means—
(a)
the amount by which the tested expense amount exceeds the
10
available amount, or
(b)
if the tested expense amount does not exceed the available amount,
nil.
Calculation of amounts
50    (1)
References in paragraph 48 to the calculation of any amount or sum in
15
accordance with this paragraph are to the calculation of that amount or sum
on the following assumptions.
      (2)
The assumptions are that—
(a)
the scheme in question was not entered into, and
(b)
instead, anything that it is more likely than not would have been
20
done or not done had this Schedule not had effect in relation to the
relevant period of account, was done or not done.
Meaning of “carried-back amount” and “carried-forward amount”
51    (1)
In paragraph 48 “carried-back amount” means—
(a)
an amount carried back under section 393A(1)(b) of ICTA (trading
25
losses),
(b)
an amount carried back by virtue of a claim under section 459(1)(b)
of CTA 2009 (non-trading deficits from loan relationships), or
(c)
an amount carried back under section 389(2) of CTA 2009 (deficits of
insurance companies).
30
      (2)
In paragraph 48 “carried-forward amount” means—
(a)
an amount carried forward under section 76(12) or (13) of ICTA
(certain expenses of insurance companies),
(b)
an amount carried forward under section 392A(2) or (3) of ICTA (UK
property business losses),
35
(c)
an amount carried forward under section 392B(1)(b) of ICTA
(overseas property business losses),
(d)
an amount carried forward under section 393(1) of ICTA (trading
losses),
(e)
an amount carried forward under section 396(1) of ICTA (losses from
40
miscellaneous transactions),
(f)
an amount carried forward under section 436A(4) of ICTA
(insurance companies: losses from gross roll-up business),

Finance Bill
Schedule 15 — Tax treatment of financing costs and income
Part 6 — Anti-avoidance
173

(g)
an amount carried forward under section 8(1)(b) of TCGA 1992
(allowable losses),
(h)
an amount carried forward under section 391(2) of CTA 2009
(deficits of insurance companies),
(i)
an amount carried forward under section 457(3) of CTA 2009 (non-
5
trading deficits from loan relationships),
(j)
an amount carried forward under section 753(3) of CTA 2009 (non-
trading loss on intangible fixed assets),
(k)
an amount carried forward under section 925(3) of CTA 2009 (patent
income: relief for expenses), or
10
(l)
an amount carried forward under section 1223 of CTA 2009
(expenses of management and other amounts).
Schemes involving manipulation of rules in Part 5
52    (1)
This paragraph applies to a financing income amount of a company received
during a period of account of the worldwide group if—
15
(a)
apart from this paragraph, the financing income amount would, by
virtue of paragraph 40, not be brought into account for the purposes
of corporation tax, and
(b)
conditions A to C are met.
      (2)
Condition A is that, at any time before the financing income amount is
20
received, a scheme is entered into that secures that any of the conditions in
sub-paragraphs (2) to (4) of paragraph 40 (“the relevant paragraph 40
condition”) is met in relation to the amount.
      (3)
Condition B is that the purpose, or one of the main purposes, of any party to
the scheme on entering into the scheme is to secure that the relevant
25
paragraph 40 condition is met.
      (4)
Condition C is that the scheme is not an excluded scheme.
      (5)
Where this paragraph applies to a financing income amount, the relevant
paragraph 40 condition is treated as not met in relation to the amount.
      (6)
Paragraph 46 (meaning of references to a “financing income amount” of a
30
company) applies for the purposes of this paragraph.
Meaning of “scheme” and “excluded scheme”
53    (1)
For the purposes of this Part “scheme” includes any scheme, arrangements
or understanding of any kind whatever, whether or not legally enforceable,
involving a single transaction or two or more transactions.
35
      (2)
For the purposes of this Part a scheme is “excluded” if it is of a description
specified in regulations made by the Commissioners.
      (3)
Regulations under sub-paragraph (2) may make different provision for
different purposes.