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 7 — “Financing expense amount” and “financing income amount”
181

(b)
apart from this paragraph, the relevant amount is a financing income
amount of company B by virtue of meeting condition A in paragraph
55.
      (2)
The relevant amount is treated as not being a financing income amount of
company B.
5
      (3)
In this paragraph “company A” and “company B” have the same meanings
as in paragraph 65.
Charities
67    (1)
This paragraph applies where, apart from this paragraph, an amount (“the
relevant amount”) is a financing expense amount of a company by virtue of
10
meeting condition A, B or C in paragraph 54.
      (2)
The relevant amount is treated as not being a financing expense amount of
the company if the creditor is a charity.
      (3)
In this paragraph—
“charity” means any body of persons or trust established for charitable
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purposes only;
“creditor” means—
(a)
in a case where the relevant amount is a debit that meets
condition A in paragraph 54, the loan creditor who receives
the payment in relation to which the relevant amount arises;
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(b)
in a case where the relevant amount meets condition B or C
in paragraph 54, the recipient of the payment in relation to
which the relevant amount arises.
Educational and public bodies
68    (1)
This paragraph applies where, apart from this paragraph, an amount (“the
25
relevant amount”) is a financing expense amount of a company by virtue of
meeting condition A, B or C in paragraph 54.
      (2)
The relevant amount is treated as not being a financing expense amount of
the company if the creditor is—
(a)
a designated educational establishment,
30
(b)
a health service body,
(c)
a local authority, or
(d)
a person that is prescribed, or is of a description of persons
prescribed, in an order made by the Commissioners for the purposes
of this paragraph.
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      (3)
The Commissioners may not prescribe a person, or a description of persons,
for the purposes of this paragraph unless they are satisfied that the person,
or each of the persons within the description, has functions some or all of
which are of a public nature.
      (4)
In this paragraph—
40
“creditor” means—
(a)
in a case where the relevant amount is a debit that meets
condition A in paragraph 54, the loan creditor who receives
the payment in relation to which the relevant amount arises;

Finance Bill
Schedule 15 — Tax treatment of financing costs and income
Part 8 — The “tested expense amount” and “tested income amount”
182

(b)
in a case where the relevant amount meets condition B or C
in paragraph 54, the recipient of the payment in relation to
which the relevant amount arises;
“designated educational establishment” has the same meaning as in
section 105 of CTA 2009;
5
“health service body” has the same meaning as in section 519A of ICTA.
Interpretation of paragraphs 57 to 68
69
In paragraphs 57 to 68 “finance arrangement” means—
(a)
in the case of an amount that is a debit or credit that meets the
condition in paragraph 54(2) or 55(2), the loan relationship to which
10
the debit or credit relates;
(b)
in the case of an amount that meets the condition in paragraph 54(4)
or 55(4), the finance lease to which the amount relates;
(c)
in the case of an amount that meets the condition in paragraph 54(5)
or 55(5), the debt factoring or similar transaction to which the
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amount relates.
Part 8
The “tested expense amount” and “tested income amount”
The tested expense amount
70    (1)
References in this Schedule to the “tested expense amount” for a period of
20
account of the worldwide group are to the sum of the net financing
deductions of each relevant group company.
      (2)
References in this Schedule to the “net financing deduction” of a company
for a period of account of the worldwide group are to—
(a)
the sum of the company’s financing expense amounts for the period
25
(see paragraph 54), less
(b)
the sum of the company’s financing income amounts for the period
(see paragraph 55).
      (3)
References in sub-paragraph (2) to a company’s financing expense amounts
or financing income amounts for a period of account of the worldwide
30
group do not include any amount that arises as a result of a transaction that
takes place at a time at which the company is not a relevant group company.
      (4)
Where the amount determined in accordance with sub-paragraph (2) is
negative, the net financing deduction of the company for the period is nil.
      (5)
Where the amount determined in accordance with sub-paragraph (2) is
35
small (see paragraph 72), the net financing deduction of the company for the
period is nil.
The tested income amount
71    (1)
References in this Schedule to the “tested income amount” for the period of
account of the worldwide group are to the sum of the net financing incomes
40
of each UK group company.
      (2)
The reference in sub-paragraph (1) to the “net financing income” of a
company for a period of account of the worldwide group is to—

Finance Bill
Schedule 15 — Tax treatment of financing costs and income
Part 9 — The “available amount”
183

(a)
the sum of the company’s financing income amounts for the period
(see paragraph 55), less
(b)
the sum of the company’s financing expense amounts for the period
(see paragraph 54).
      (3)
References in sub-paragraph (2) to a company’s financing expense amounts
5
or financing income amounts for a period of account of the worldwide
group do not include any amount that arises as a result of a transaction that
takes place at a time at which the company is not a UK group company.
      (4)
Where the amount determined in accordance with sub-paragraph (2) is
negative, the net financing income of the company for the period is nil.
10
      (5)
Where the amount determined in accordance with sub-paragraph (2) is
small (see paragraph 72), the net financing income of the company for the
period is nil.
Companies with net financing deduction or net financing income that is small
72    (1)
An amount determined in accordance with paragraph 70(2) or 71(2) is
15
“small” if it is less than £500,000.
      (2)
The Treasury may by order amend sub-paragraph (1) by substituting a
higher or lower amount for the amount for the time being specified there.
      (3)
No order may be made under sub-paragraph (2) unless a draft of the
statutory instrument containing it has been laid before, and approved by a
20
resolution of, the House of Commons.
      (4)
An order under sub-paragraph (2) may only have effect in relation to
periods of account of the worldwide group beginning after the date on
which the order is made.
Part 9
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The “available amount”
The available amount
73    (1)
References in this Schedule to the “available amount” for a period of account
of the worldwide group are to the sum of the amounts disclosed in the
financial statements of the group for that period in respect of—
30
(a)
interest payable on amounts borrowed,
(b)
amortisation of discounts relating to amounts borrowed,
(c)
amortisation of premiums relating to amounts borrowed,
(d)
amortisation of ancillary costs relating to amounts borrowed,
(e)
the financing cost implicit in payments made under finance leases,
35
(f)
the financing cost relating to debt factoring, or
(g)
amounts of such other description as may be specified in regulations
made by the Commissioners.
      (2)
An amount that falls within any of paragraphs (a) to (g) of sub-paragraph (1)
is to be disregarded for the purposes of that sub-paragraph to the extent
40
that—
(a)
the amount represents a dividend payable in respect of preference
shares, and

Finance Bill
Schedule 15 — Tax treatment of financing costs and income
Part 9 — The “available amount”
184

(b)
those shares are recognised as a liability in the financial statements
of the group for the period.
Group members with income from oil extraction subject to particular tax treatment in UK
74    (1)
In calculating the available amount, an amount disclosed in the financial
statements of the worldwide group (“the external finance amount”) must be
5
disregarded if the following conditions are met.
      (2)
Condition A is that a member of the worldwide group is treated in a relevant
accounting period as carrying on a ring fence trade (see section 502 of ICTA).
      (3)
Condition B is that the external finance amount falls to be brought into
account for the purposes of corporation tax in calculating the profits of that
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trade for that accounting period.
      (4)
In this paragraph “relevant accounting period”, in relation to a member of
the worldwide group, means an accounting period of the member that falls
wholly or partly within the period of account.
Group members with income from shipping subject to particular tax treatment in UK
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75    (1)
In calculating the available amount, an amount disclosed in the financial
statements of the worldwide group (“the external finance amount”) must be
disregarded if the following conditions are met.
      (2)
Condition A is that a member of the worldwide group is, for a relevant
accounting period, a tonnage tax company for the purposes of Schedule 22
20
to FA 2000.
      (3)
Condition B is that the external finance amount—
(a)
is taken into account in computing relevant shipping profits of that
company for that accounting period, or
(b)
comprises deductible finance costs outside the ring fence, to the
25
extent that they are adjusted under paragraph 61 or 62 of Schedule
22 to FA 2000.
      (4)
In this paragraph—
“relevant accounting period”, in relation to a member of the worldwide
group, means an accounting period of the member that falls wholly
30
or partly within the period of account;
“relevant shipping profits” has the same meaning as in Schedule 22 to
FA 2000 (see Part 6 of that Schedule).
Group members with income from property rental subject to particular tax treatment in UK
76    (1)
In calculating the available amount, an amount disclosed in the financial
35
statements of the worldwide group (“the external finance amount”) must be
disregarded if the following conditions are met.
      (2)
Condition A is that a member of the worldwide group is treated in a relevant
accounting period as carrying on a separate business under section 113 of FA
2006 (ring-fencing of tax exempt business).
40
      (3)
Condition B is that the external finance amount falls to be brought into
account in calculating the profits arising from that business in that
accounting period.

Finance Bill
Schedule 15 — Tax treatment of financing costs and income
Part 10 — Other interpretative provisions
185

      (4)
In this paragraph “relevant accounting period”, in relation to a member of
the worldwide group, means an accounting period of the member that falls
wholly or partly within the period of account.
Meaning of accounting expressions used in this Part
77
Subject to any provision to the contrary, expressions used in this Part have
5
the meaning for the time being given by international accounting standards.
Part 10
Other interpretative provisions
The worldwide group
78
In this Schedule “the worldwide group” means any group of entities that—
10
(a)
is large, and
(b)
contains one or more relevant group companies.
Meaning of “group”
79    (1)
Subject to sub-paragraphs (2) and (3), in this Schedule “group” has the
meaning for the time being given by international accounting standards.
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      (2)
Where a group would (apart from this sub-paragraph) contain more than
one ultimate parent, each of those ultimate parents, together with its
subsidiaries, is to be treated as a separate group.
      (3)
An entity that is a parent of the ultimate parent of a group is to be treated as
not being a member of the group.
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      (4)
Sub-paragraphs (2) and (3) do not apply for the purposes of paragraph 80.
Meaning of “ultimate parent”
80    (1)
For the purposes of this Schedule “ultimate parent”, in relation to a group,
means an entity that—
(a)
is a member of the group,
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(b)
is a corporate entity or a relevant non-corporate entity,
(c)
is not a subsidiary (whether direct or indirect) of a corporate entity
or a relevant non-corporate entity, and
(d)
is not a collective investment scheme.
      (2)
In this paragraph “collective investment scheme” has the meaning given by
30
section 235 of FISMA 2000.
Meaning of “corporate entity”
81    (1)
In this Schedule “corporate entity” means (subject to sub-paragraph (4))—
(a)
a body corporate incorporated under the laws of any part of the
United Kingdom or any other country or territory, or
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(b)
any other entity that meets conditions A and B.
      (2)
Condition A is that the person or persons who have an interest in the entity
hold shares in the entity, or interests corresponding to shares.

Finance Bill
Schedule 15 — Tax treatment of financing costs and income
Part 10 — Other interpretative provisions
186

      (3)
Condition B is that the amount of profits to which each person who has an
interest in the entity is entitled depends upon a decision that—
(a)
is taken by the entity or members of the entity, and
(b)
is taken after the period in which the profits arise.
      (4)
The following are not corporate entities for the purposes of this Schedule—
5
(a)
the Crown,
(b)
a Minister of the Crown,
(c)
a government department,
(d)
a Northern Ireland department, or
(e)
a foreign sovereign power.
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Meaning of “relevant non-corporate entity”
82    (1)
In this Schedule “relevant non-corporate entity” means an entity—
(a)
that is not a corporate entity, and
(b)
in relation to which conditions A and B are met.
      (2)
Condition A is that shares or other interests in the entity are listed on a
15
recognised stock exchange.
      (3)
Condition B is that the shares or other interests in the entity are sufficiently
widely held.
      (4)
For this purpose shares or other interests in an entity are “sufficiently widely
held” if no participator in the entity holds more than 10% by value of all the
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shares or other interests in the entity.
      (5)
Section 417(1) of ICTA (meaning of participator) applies for the purposes of
this paragraph.
      (6)
In the application of that provision for those purposes, references to a
company are to be treated as references to an entity.
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Treatment of entities stapled to corporate entities or relevant non-corporate entities
83    (1)
Where a corporate entity is stapled to another entity, the two entities are
treated for the purposes of this Schedule as if—
(a)
they were one entity, and
(b)
that one entity were a corporate entity.
30
      (2)
Where a relevant non-corporate entity is stapled to another entity, the two
entities are treated as if—
(a)
they were one entity, and
(b)
that one entity were a relevant non-corporate entity.
      (3)
For the purposes of this paragraph an entity (“entity A”) is “stapled” to
35
another (“entity B”) if, in consequence of the nature of the rights attaching to
the shares or other interests in entity A (including any terms or conditions
attaching to the right to transfer the interests), it is necessary or
advantageous for a person who has, disposes of or acquires shares or other
interests in entity A also to have, to dispose of or to acquire shares or other
40
interests in entity B.

Finance Bill
Schedule 15 — Tax treatment of financing costs and income
Part 10 — Other interpretative provisions
187

Treatment of business combinations
84    (1)
This paragraph applies where two corporate entities are—
(a)
not subsidiaries of the same entity, but
(b)
are treated under international accounting standards as a single
economic entity by reason of being a business combination achieved
5
by contract.
      (2)
The two entities are treated for the purposes of this Schedule as if—
(a)
they were one entity, and
(b)
that one entity were a corporate entity.
Meaning of “large” in relation to a group
10
85    (1)
For the purposes of this Schedule a group is “large” at any time if (and only
if) any member of the group is not at that time within the category of micro,
small and medium-sized enterprises as defined in the Annex to Commission
Recommendation 2003/361/EC of 6 May 2003 (“the Annex”).
      (2)
In its application by virtue of sub-paragraph (1), the Annex has effect subject
15
to the following qualifications.
      (3)
Where a member of the group is in liquidation or administration, the rights
of the liquidator or administrator (in that capacity) are to be left out of
account when applying Article 3(3)(b).
      (4)
Article 3 has effect with the omission of paragraph (5) (declaration in good
20
faith where control cannot be determined etc).
      (5)
The first sentence of Article 4(1) has effect as if the reference to the latest
approved accounting period of a member of the group were to the current
accounting period of that member.
      (6)
Article 4 has effect with the omission of—
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(a)
the second sentence of paragraph (1) (data to be taken into account
from date of closure of accounts),
(b)
paragraph (2) (no change of status unless ceilings exceeded for two
consecutive periods), and
(c)
paragraph (3) (estimate in case of newly established enterprise).
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Meaning of “UK group company” and “relevant group company”
86    (1)
This paragraph applies for the purposes of this Schedule.
      (2)
A company is a “UK group company” if—
(a)
it meets condition A, and
(b)
it is a member of the worldwide group.
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      (3)
A company is a “relevant group company” if—
(a)
it meets condition A, and
(b)
it meets condition B.
      (4)
Condition A is that the company—
(a)
is resident in the United Kingdom, or
40