Finance Bill

House of Commons

Session 2008 - 09
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Finance Bill

Finance Bill
Schedule 24 — Disguised interest
250

(3)
Where Part 5 applies in relation to the investing company in
accordance with subsection (2) it so applies as if the issuing company
stood in the position of debtor as respects the debt in question.
(4)
No debits are to be brought into account by the investing company
as respects the share but this does not affect debits to be brought into
5
account in respect of exchange gains or losses.
(5)
Subsection (2)(b) does not affect the operation of Part 1 of Schedule
25 of ICTA (controlled foreign companies: acceptable distribution
policy) (including as it continues to have effect in accordance with
paragraph 8(1) of Schedule 16 to FA 2009).
10
(6)
In this Chapter references to “the share” are to the share mentioned
in subsection (1).
521C
Shares accounted for as liabilities
(1)
This section applies to the share if—
(a)
the share would be accounted for by the issuing company as
15
a liability in accordance with generally accepted accounting
practice,
(b)
the share produces for the investing company a return in
relation to any amount which is economically equivalent to
interest,
20
(c)
the issuing company and the investing company are not
connected companies,
(d)
the condition in subsection (4) is met,
(e)
the share is not an excepted share (see section 521D), and
(f)
the investing company holds the share for an unallowable
25
purpose (see section 521E).
(2)
For the purposes of this section a return produced for a company by
an arrangement in relation to any amount is “economically
equivalent to interest” if (and only if)—
(a)
it is reasonable to assume that it is a return by reference to the
30
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
(c)
at the relevant time there is no practical likelihood that it will
cease to be produced in accordance with the arrangement
35
unless the person by whom it falls to be produced is
prevented (by reason of insolvency or otherwise) from
producing it.
(3)
In subsection (2)(c) “the relevant time” means the time when the
investing company first holds the share or, if later, when the share
40
begins to produce a return for the investing company.
(4)
The condition mentioned in subsection (1)(d) is that the share does
not fall to be treated for the accounting period in question as if it were
rights under a creditor relationship of the investing company
because of section 490 (holdings in OEICs, unit trusts and offshore
45
funds treated as creditor relationship rights).
(5)
Section 466 (companies connected for an accounting period) applies
for the purposes of this section.

Finance Bill
Schedule 24 — Disguised interest
251

521D
Excepted shares
(1)
A share is an excepted share for the purposes of section 521C if it is—
(a)
a qualifying publicly-issued share (see subsection (2)), or
(b)
a share which mirrors a public issue (see subsections (3) and
(4)).
5
(2)
A share is a “qualifying publicly-issued share” if—
(a)
it was issued by a company as part of an issue of shares to
persons not connected with the company, and
(b)
less than 10% of the shares in that issue are held by the
investing company or persons connected with it.
10
(3)
The first case where shares (“the mirroring shares”) mirror a public
issue is where—
(a)
a company (“company A”) issues shares (“the public issue”)
to persons not connected with the company,
(b)
within 7 days of that issue, one or more other companies
15
(“companies BB”) issue the mirroring shares to company A
on the same terms as the public issue or substantially the
same terms,
(c)
company A and companies BB are associated companies (see
subsection (5)), and
20
(d)
the total nominal value of the mirroring shares does not
exceed the nominal value of the public issue.
(4)
The second case where shares (“the second level mirroring shares”)
mirror a public issue is where, in the circumstances of the first case—
(a)
within 7 days of the public issue, one or more other
25
companies (“companies CC”) issue the second level
mirroring shares to one or more of companies BB on the same
terms as the public issue or substantially the same terms,
(b)
company A, companies BB and companies CC are associated
companies (see subsection (5)), and
30
(c)
the total nominal value of the second-level mirroring shares
does not exceed the nominal value of the public issue.
(5)
For the purposes of subsections (3) and (4) companies are associated
companies if they are members of the same group of companies for
the purposes of Chapter 4 of Part 10 of ICTA (group relief) (see
35
section 413(3)(a) of that Act).
521E
Unallowable purpose
(1)
For the purposes of section 521C, the investing company holds the
share for an unallowable purpose if the main purpose, or one of the
main purposes for which the company holds the share is to obtain a
40
relevant tax advantage.
(2)
But the investing company may elect that this Chapter is to apply in
relation to the share even though it would otherwise be prevented
from applying by subsection (1)(f) of that section.
(3)
An election under subsection (2)—
45

Finance Bill
Schedule 24 — Disguised interest
252

(a)
must be made no later than the time when the investing
company first holds the share or, if later, when the share
begins to produce a return for the investing company, and
(b)
is irrevocable.
(4)
In this section “obtain a relevant tax advantage” means secure that
5
the return produced by the share (or any part of it) is received in a
way that means that its treatment for corporation tax purpose is
more advantageous to the investing company than it would be if it
were—
(a)
charged to corporation tax as income of the investing
10
company, or
(b)
brought into account as income of the investing company for
corporation tax purposes,

at the time when amounts would be brought into account in relation
to the return in accordance with section 521B.
15
(5)
Nothing in this section applies in relation to the investing company
for an accounting period if it is an excluded controlled foreign
company.
(6)
For this purpose the investing company is an excluded controlled
foreign company if any of its chargeable profits (within the meaning
20
of 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.
521F
Shares becoming or ceasing to be shares to which section 521B applies
25
(1)
This section applies if at any time section 521B begins or ceases to
apply in the case of a share held by the investing company.
(2)
The investing company is treated for the purposes of Part 5—
(a)
as having disposed of the share immediately before that time
for consideration of an amount equal to the notional carrying
30
value of the share at that time, and
(b)
as having immediately reacquired it for consideration of the
same amount.
(3)
In subsection (2) “notional carrying value”, in relation to the share,
means the amount which would have been its carrying value in the
35
accounts of the investing company if a period of account had ended
immediately before section 521B began or ceased to apply in the case
of the share and the investing company.
(4)
For the purposes of subsection (3) “carrying value” has the same
meaning as it has for the purposes of section 316 (see section 317).”
40
Amendments and repeals
5     (1)
Section 116B of TCGA 1992 (shares beginning or ceasing to be shares to
which section 523 of CTA 2009 applies) is amended as follows.
      (2)
In subsection (1) and the heading, for “522” substitute “521B”.

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Schedule 24 — Disguised interest
253

      (3)
In subsection (1)(b), for “its fair value” substitute “the notional carrying
value of the share”.
      (4)
In subsection (2), for the definition of “fair value” substitute—
““notional carrying value” has the same meaning as in
subsection (2) of section 521F of CTA 2009 (see subsection (3)
5
of that section),”.
      (5)
In that subsection, in the definition of “investing company”—
(a)
for “7” substitute “6A”, and
(b)
for “with guaranteed returns) (see section 522(3)” substitute
“accounted for as liabilities) (see section 521A(3)”.
10
6
In section 26 of F(No.2)A 2005 (tax arbitrage), for subsection (10) substitute—
“(10)
This subsection applies to an amount that is brought into account by
virtue of Chapter 2A or 6A of Part 6 of CTA 2009 (shares treated as
loan relationships).”
7     (1)
Schedule 4 to CTA 2009 (index of expressions) is amended as follows.
15
      (2)
After the entry relating to “approved, approval (in relation to a share
incentive plan) (in Chapter 1 of Part 11)” insert—

“arrangement (in Chapter 2A of
section 486B(9)”.

Part 6)

      (3)
Omit the entry relating to “the associated transactions condition (in Chapter
20
7 of Part 6)”.
      (4)
After the entry relating to “effective 51% subsidiary (in Part 8)” insert—

“economically equivalent to
section 486B(2)”.

interest (in Chapter 2A of Part 6)

      (5)
For the entry relating to “the investing company (in Chapter 7 of Part 5)”
25
substitute—

“the investing company (in
section 521A(3)”.

Chapter 6A of Part 6)

      (6)
For the entry relating to “the investing company (in Chapter 7 of Part 5)”
substitute—
30

“the issuing company (in Chapter
section 521A(3)”.

6A of Part 6)

      (7)
Omit the entries relating to “the increasing value condition (in Chapter 7 of
Part 6)” and “the redemption return condition (in Chapter 7 of Part 6)”.

Finance Bill
Schedule 24 — Disguised interest
254

      (8)
In the entry relating to “share (in Part 5 and in Part 6 except for Chapter 7 of
that Part)”, for “7” substitute “6A”.
      (9)
For the entries relating to “share (in Chapter 7 of Part 6)” and “the share (in
Chapter 7 of Part 6) substitute—

“share (in Chapter 6A of Part 6)
section 521A(4)

5

the share (in Chapter 6A of Part 6)
section 521B(6)”.

Repeals
8
In consequence of the amendments made by this Schedule, omit—
(a)
in ICTA—
(i)
section 736C (deemed interest: cash collateral under stock
10
lending arrangement), and
(ii)
section 736D (quasi-stock lending arrangements and quasi-
cash collateral),
(b)
in FA 2004, sections 131 to 133 (companies in partnership), and
(c)
in CTA 2009—
15
(i)
Chapter 7 of Part 6 (shares with guaranteed returns etc),
(ii)
Chapter 8 of that Part (returns from partnerships), and
(iii)
section 547 (repo under arrangement designed to produce
quasi-interest: tax avoidance).
9
Omit the following provisions (which relate to the provisions repealed by
20
paragraph 8)—
(a)
in ICTA, sections 736B(4) and 807A(2B),
(b)
in TCGA 1992, section 171(3A),
(c)
in F(No.2)A 2005, in Schedule 7, paragraphs 5 and 9,
(d)
in FA 2006, in Schedule 6, paragraphs 3 and 4,
25
(e)
in ITA 2007, in Schedule 1, paragraphs 172 and 373, and
(f)
in CTA 2009, in Schedule 1, paragraphs 215 and 571.
10
In section 542(2) of CTA 2009 (introduction to Chapter 10 of Part 6), for “547”
substitute “546”.
Commencement
30
11
The amendments made by paragraphs 2(2) and 3 have effect in relation to
any arrangement which produces for a company a return which is
economically equivalent to interest if the company becomes a party to the
arrangement on or after 22 April 2009.
12
The amendments (and repeals) made by paragraphs 2(3) and 4 to 10 come
35
into force on 22 April 2009.
13    (1)
This paragraph applies where any of the provisions repealed by paragraph
8 applies in relation to anything done by a company before 22 April 2009
which amounts to becoming party to an arrangement (within the meaning
given by section 486B(9) of CTA 2009).
40

Finance Bill
Schedule 25 — Transfers of income streams
Part 1 — Company transferors
255

      (2)
The company is to be treated for the purposes of Chapter 2A of Part 6 of CTA
2009 as having become a party to the arrangement on that date.
      (3)
But this paragraph does not apply in circumstances in which paragraph 15
does.
14    (1)
This paragraph applies where Chapter 7 of Part 6 of CTA 2009 applies in
5
relation to a share held by a company immediately before 22 April 2009.
      (2)
Section 116B(1) of TCGA 1992 is to be treated as applying as if section 523 of
CTA 2009 ceased to apply in relation to the share on that date.
      (3)
But this paragraph does not apply if paragraph 15 applies in relation to the
share and the company.
10
15    (1)
This paragraph applies where—
(a)
Chapter 7 of Part 6 of CTA 2009 applies in relation to a share held by
a company immediately before 22 April 2009 by reason of the
redemption return condition being met (see section 529 of that Act)
(or would so apply but for the share not being designed to produce
15
a return which equates in substance to the return on an investment
of money at a commercial rate of interest), and
(b)
section 521B of CTA 2009 applies in relation to the share and the
company on 22 April 2009.
      (2)
Part 5 of CTA 2009 applies as if the company had acquired the share on 22
20
April 2009 for an amount equal to the notional carrying value of the share on
that date.
      (3)
In sub-paragraph (2) “notional carrying value” has the same meaning as in
section 521F(2) of CTA 2009 (see subsection (3) of that section).
      (4)
Section 521F of CTA 2009 does not apply by virtue of the coming into force
25
of section 521B of that Act.
16
An election under—
(a)
section 486D(2) of CTA 2009, or
(b)
section 521E(2) of that Act,

relating to a return which begins to be produced before 1 August 2009 can
30
be made at any time before that date but only in relation to any return
produced on or after the day on which the election is made.
Schedule 25
Section 49

Transfers of income streams
Part 1
35
Company transferors
Application of Part
1     (1)
This Part applies where—

Finance Bill
Schedule 25 — Transfers of income streams
Part 1 — Company transferors
256

(a)
a company within the charge to corporation tax (“the transferor”)
makes a transfer to another person (“the transferee”) of a right to
relevant receipts (see sub-paragraph (2)), and
(b)
(subject to sub-paragraph (3)) the transfer of the right is not a
consequence of the transfer to the transferee of an asset from which
5
the right to relevant receipts arises.
      (2)
“Relevant receipts” means any income—
(a)
which (but for the transfer) would be charged to corporation tax as
income of the transferor, or
(b)
which (but for the transfer) would be brought into account in
10
calculating profits of the transferor for the purposes of corporation
tax.
      (3)
Despite paragraph (b) of sub-paragraph (1), this Part applies if the transfer
of the right is a consequence of the transfer to the transferee of all rights
under an agreement for annual payments; and for the purposes of that
15
paragraph the transfer of an asset under a sale and repurchase agreement is
not to be regarded as a transfer of the asset.
      (4)
Paragraph 2 makes provision as to the consequences of this Part applying.
      (5)
For exclusions from this Part, see—
(a)
paragraph 3 (amount otherwise taxed), and
20
(b)
paragraph 4 (transfer by way of security).
      (6)
Paragraph 5 makes special provision about transfers of partnership shares.
      (7)
Paragraph 6 contains supplementary provisions.
Value of transferred income stream treated as income
2     (1)
The relevant amount (see sub-paragraph (2)) is to be treated as income of the
25
transferor chargeable to corporation tax in the same way and to the same
extent as that in which the relevant receipts—
(a)
would have been chargeable to corporation tax, or
(b)
would have been brought into account in calculating any profits for
the purposes of corporation tax,
30

but for the transfer of the right to relevant receipts.
      (2)
The relevant amount is—
(a)
(except where paragraph (b) applies) the amount of the
consideration for the transfer of the right, or
(b)
where the amount of any such consideration is substantially less
35
than the market value of the right at the time when the transfer takes
place (or where there is no consideration for the transfer of the right),
the market value of the right at that time.
      (3)
The income under sub-paragraph (1) is to be treated as arising—
(a)
to the extent that it does not exceed the amount of the consideration
40
for the transfer of the right, in the period or periods for which, in
accordance with generally accepted accounting practice, the
consideration for the transfer is recognised for accounting purposes
in a profit and loss account or income statement of the transferor, and
(b)
otherwise, in the period or periods for which, in accordance with
45
generally accepted accounting practice, the consideration for the