Finance Bill

House of Commons

Session 2008 - 09
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Finance Bill

Finance Bill
Schedule 23 — Insurance companies
243

period of account (as reduced by any amount which has had
effect to reduce relief for losses for a previous accounting
period), and
(b)
“relevant reduction”, in relation to a non-profit fund, means
the reduction of the relevant admissible value of assets of the
5
non-profit fund (other than structural assets) which is
attributable to the arrangements (as so reduced).
(4)
The amount mentioned in subsection (1)(c) is—
(a)
if the relevant period of account is the current period of
account, the amount referred to in section 434AZA(3) in the
10
case of the non-profit fund, or of each of the non-profit funds,
to which there has been a relevant addition in the relevant
period of account, and
(b)
otherwise, so much of the amount shown in line 31 of the
Form 58 of the non-profit fund or non-profit funds in the
15
periodical return for the current period of account as is
attributable to the amount so referred to.
434AZC
Sections 434AZA and 434AZB: supplementary
(1)
For the purposes of sections 434AZA and 434AZB, a non-profit fund
required to support a with-profits fund is to be treated as not being
20
a non-profit fund.
(2)
Sections 434AZA and 434AZB apply to a non-profit part of a with-
profits fund as if references to something shown in the Form 14 or
Form 58 of the non-profit fund in a periodical return were to what
would be so shown if there were a Form 14 or Form 58 of the non-
25
profit part of the with-profits fund in the periodical return.
(3)
In sections 434AZA and 434AZB—
“arrangements” includes any agreement, understanding,
scheme, transaction or series of transactions (whether or not
legally enforceable), and
30
“structural assets” has the same meaning as in section 83XA of
the Finance Act 1989 (see subsection (3) of that section and
any regulations made under it).”
      (2)
The amendment made by sub-paragraph (1) has effect in relation to
accounting periods ending on or after 22 April 2009 unless—
35
(a)
to the extent that section 434AZA would otherwise apply because
condition A in that section is met in relation to a non-profit fund, the
relevant addition to the non-profit fund was made before that date,
or
(b)
to the extent that section 434AZA would otherwise apply because
40
condition B in that section is so met, the relevant addition to the non-
profit fund and the arrangements were both made before that date.
FAFTS and contingent loans
4     (1)
In paragraph 4(5) of Schedule 17 to FA 2008 (financing-arrangement-funded
transfers: companies with unrepaid contingent loan liabilities before first
45
period of account beginning on or after 1 January 2008), in the definition of
“R”, after “(7)(a) of that section” insert “in respect of amounts brought into

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Schedule 24 — Disguised interest
244

account as transfers to non-technical account for periods of account
beginning on or after 1 January 2008”.
      (2)
The amendment made by sub-paragraph (1) has effect in relation to periods
of account beginning on or after 1 January 2008.
Apportionment: foreign business assets
5
5     (1)
Section 432E of ICTA (section 432B apportionment: participating funds) is
amended as follows.
      (2)
In subsection (3)(a), omit “and foreign business assets”.
      (3)
In subsection (4), in the definition of “A”, omit “and foreign business assets”.
      (4)
In subsection (4A), omit “or foreign business assets”.
10
6
In consequence of the amendments made by paragraph 5, omit—
(a)
paragraph 19(4)(a) and (6) of Schedule 7 to FA 2007, and
(b)
paragraph 10(3)(c) of Schedule 17 to FA 2008.
7     (1)
The amendments made by paragraphs 5 and 6 have effect in relation to
periods of account beginning on or after 1 January 2009 and ending on or
15
after 22 April 2009.
      (2)
But an insurance company may, in its company tax return for—
(a)
an accounting period beginning on or after 1 January 2008 but before
1 January 2009, or
(b)
an accounting period beginning on or after 1 January 2009 and
20
ending before 22 April 2009,

elect that the amendments made by paragraphs 5 and 6 have effect in
relation to that accounting period.
Value shifting attributable to transfer of business
8     (1)
In section 32(1) of TCGA 1992 (value shifting: disposals within group
25
followed by disposal of shares), after “171(1)” insert “or 211”.
      (2)
The amendment made by sub-paragraph (1) has effect for determining
whether section 30 of TCGA 1992 has effect as respects a disposal on or after
22 April 2009.
Schedule 24
30
Section 48

Disguised interest
Amendments of Part 6 of CTA 2009
1
Part 6 of CTA 2009 (relationships treated as loan relationships etc) is
amended as follows.
2     (1)
Section 477(2) (overview of Part 6) is amended as follows.
35
      (2)
After paragraph (a) insert—
“(aa)
Chapter 2A (disguised interest),”.

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Schedule 24 — Disguised interest
245

      (3)
For paragraph (f) substitute—
“(f)
Chapter 6A (shares accounted for as liabilities),”.
3
After Chapter 2 insert—
“Chapter 2A
Disguised interest
5
486A
Overview
(1)
This Chapter provides for Part 5 to apply in relation to returns which
are economically equivalent to interest (see section 486B).
(2)
For exclusions from this Chapter, see—
(a)
section 486C (return otherwise taxable),
10
(b)
section 486D (arrangement having no tax avoidance
purpose), and
(c)
section 486E (excluded shares).
486B
Disguised interest to be regarded as profit from loan relationship
(1)
Where a company is party to an arrangement which produces for the
15
company a return in relation to any amount which is economically
equivalent to interest, Part 5 applies as if the return were a profit
arising to the company from a loan relationship.
(2)
For the purposes of this Chapter a return produced for a company by
an arrangement in relation to any amount is “economically
20
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,
(b)
it is at a rate reasonably comparable to what is (in all the
circumstances) a commercial rate of interest, and
25
(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
prevented (by reason of insolvency or otherwise) from
producing it.
30
(3)
In subsection (2)(c) “the relevant time” means the time when the
company becomes party to the arrangement or, if later, when the
arrangement begins to produce a return for the company.
(4)
The credits and debits to be brought into account for the purposes of
Part 5 in respect of the return must be determined on an amortised
35
cost basis of accounting.
(5)
But if any of the return is not recognised in determining the
company’s profit or loss for any period it is to be treated as
recognised using an amortised cost basis of accounting.
(6)
Where two or more persons are party to an arrangement which
40
produces a return such as is mentioned in subsection (1)—
(a)
for the persons (when taken together), but
(b)
not for either (or any) of them individually,

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Schedule 24 — Disguised interest
246


this section applies as if there were a profit arising to such (if any) of
them as are companies from a loan relationship of so much of the
return as is just and reasonable.
(7)
The only amounts which may be brought into account for
corporation tax purposes in relation to a return such as is mentioned
5
in subsection (1) in the case of any company are those which are
brought into account in accordance with this section (but see section
486C).
(8)
In subsection (4) “credits” and “debits” include exchange gains and
losses arising as a result of translating at different times the carrying
10
value of the return or the amount by reference to which the return
falls to be produced.
(9)
In this Chapter “arrangement” includes any agreement,
understanding, scheme, transaction or series of transactions
(whether or not legally enforceable), other than one which
15
constitutes a finance lease (within the meaning given by section 219
of CAA 2001).
486C
Exclusion where return otherwise taxable
(1)
This Chapter does not apply to an arrangement which produces a
return for a company if or to the extent that the return—
20
(a)
is charged to corporation tax as income of the company or
brought into account as income of the company for
corporation tax purposes no later than the time when
amounts are brought into account in relation to the return in
accordance with section 486B,
25
(b)
arises from anything that would produce credits or debits in
relation to the company under Part 7 (derivative contracts) or
Part 8 (intangible fixed assets) but for any exception relating
to particular credits or debits, or
(c)
arises from anything that would produce credits or debits in
30
relation to the company under Part 5 apart from this Chapter
but for any exception relating to particular credits or debits.
(2)
Subsection (1)(b) does not disapply this Chapter in the case of a
return in relation to which section 641 (derivative contracts taxed on
chargeable gains basis) applies.
35
486D
Exclusion where arrangement has no tax avoidance purpose
(1)
This Chapter does not apply in relation to a return produced by an
arrangement to which a company is a party unless it is reasonable to
assume that the main purpose, or one of the main purposes, of the
company being a party to the arrangement is to obtain a relevant tax
40
advantage.
(2)
But a company for which a return is produced by an arrangement to
which this Chapter would otherwise be prevented from applying by
subsection (1) may elect that this Chapter is to apply in relation to the
return.
45
(3)
An election under subsection (2)—

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Schedule 24 — Disguised interest
247

(a)
may not be made by a company if section 486B applies to the
company in relation to the return in accordance with
subsection (6) of that section,
(b)
must be made no later than the time when the arrangement
begins to produce a return for the company, and
5
(c)
is irrevocable.
(4)
In this section “obtain a relevant tax advantage” means secure that
the return (or any part of it) is produced in a way which means that
its treatment for corporation tax purposes is more advantageous to
the company than it would be if it were—
10
(a)
charged to corporation tax as income of the company, or
(b)
brought into account as income of the company for
corporation tax purposes,

at the time when amounts would be brought into account in relation
to the return in accordance with section 486B.
15
(5)
Nothing in this section applies in relation to a company for an
accounting period if the company is an excluded controlled foreign
company.
(6)
For this purpose a company is an excluded controlled foreign
company if any of its chargeable profits (within the meaning of
20
Chapter 4 of Part 17 of ICTA)—
(a)
are apportioned for the 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) of that Act.
486E
Excluded shares
25
(1)
This Chapter does not apply in relation to an accounting period (“the
relevant accounting period”) of a company (“the holding company”)
for which an arrangement produces a return for the company if the
arrangement involves only relevant shares held by the company
throughout the relevant period.
30
(2)
In this section “the relevant period” means the period—
(a)
beginning with the later of—
(i)
the time when the holding company becomes party to
the arrangement, and
(ii)
the time when the arrangement begins to produce a
35
return for the company, and
(b)
ending with the earliest of—
(i)
the end of the relevant accounting period,
(ii)
the time when the holding company ceases to be
party to the arrangement, and
40
(iii)
the time when the arrangement ceases to produce a
return for the company.
(3)
For the purposes of this section an arrangement “involves only”
relevant shares if (and only if) the return produced reflects only an
increase in the fair value of the shares.
45
(4)
For the purposes of subsection (3)—

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248

(a)
“fair value”, in relation to relevant shares held by the holding
company, means an amount which the company would
obtain from a knowledgeable and willing purchaser of the
shares dealing at arm’s length, and
(b)
there is an increase in the fair value of shares even if the
5
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—
(a)
fully paid-up shares of a relevant company, or
10
(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
company a return in relation to any amount which is
15
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—
(a)
to meet unpaid calls on the shares, or
20
(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) a company is “a relevant
company” if—
(a)
it and the holding company are connected companies,
25
(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).
(9)
For the purposes of subsection (7)(b) a company is a relevant joint
30
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
in section 755D(3) of ICTA is satisfied, and
35
(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
that Act (controlled foreign companies), except that no rights and
40
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
the meaning of Chapter 4 of Part 17 of ICTA)—
45
(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

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Schedule 24 — Disguised interest
249

(b)
are not so apportioned because of section 748(1) or (3) of that
Act.
(12)
Section 550(3) (repos: ignoring effect on borrower of sale of
securities) does not apply for the purposes of this section.”
4
After Chapter 6 insert—
5
“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
Corporation Tax Acts) to apply in some cases as if at some times in
10
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—
(a)
section 521B (application of Part 5 to some shares as rights
15
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
references to the issuing company are to B.
20
(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
securities) does not apply for the purposes of this Chapter.
25
(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
relationship
30
(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
share.
35
(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
(b)
any distribution in respect of the share were not a
40
distribution (and accordingly is within Part 5).