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Finance Bill
Schedule 30 — Financial arrangements avoidance

271

 

advantage, they will produce a broadly compensatory amount, the

arrangements are to be regarded for the purposes of subsection (2) as

making provision for securing the production of a post-tax

advantage in those circumstances.

(6)   

“Produce a broadly compensatory amount” means give rise to a sum

5

or sums payable as mentioned in subsection (3) of an amount (or

aggregate amount) which, after making the appropriate tax

adjustments, is not significantly less than the relevant amount.

(7)   

For the purposes of subsections (3) and (6) causing the value of an

asset to be obtainable, directly or indirectly, by a person is to be

10

treated as equivalent to giving rise to a sum payable to the person of

an amount equal to that value.

(8)   

To make the appropriate tax adjustments for the purpose of

subsection (3) or (6)—

(a)   

if A exceeds B, deduct the amount of the excess from the

15

amount (or aggregate amount), and

(b)   

if B exceeds A, add the amount of the excess to the amount (or

aggregate amount).

(9)   

For the purposes of subsection (8)—

A is the amount of any income tax, any capital gains tax and any

20

tax under the law of a territory outside the United Kingdom

to which the borrower is liable in consequence of the

arrangements, and

B is the amount by which the borrower’s liability to income tax

and capital gains tax is (or apart from subsection (1) would

25

be) reduced in consequence of the arrangements.

(10)   

Arrangements seem to have been designed to reduce any income tax

or capital gains tax to which the borrower (or any person whose

circumstances are like those of the borrower) would be liable apart

from the arrangements if (and only if) it would be reasonable to

30

assume from either or both of—

(a)   

the likely effect of the arrangements, and

(b)   

the circumstances in which the arrangements, or any parts of

the arrangements, are entered into or effected,

   

that the arrangements, or any parts of the arrangements, are

35

designed to do so.

(11)   

In this section “arrangements” means arrangements consisting of

any number of agreements, understandings, schemes, transactions

or other arrangements (whether or not legally enforceable); but in

subsections (1)(a), (2), (5) and (9) the references to arrangements also

40

include any related transactions.

(12)   

In subsection (11) “related transactions” means transactions in the

case of which it is reasonable to assume from either or both of—

(a)   

the likely effect of the transactions, and

(b)   

the circumstances in which the transactions are entered into

45

or effected,

   

that the transactions would not have been entered into or effected

independently of the arrangements.

 
 

Finance Bill
Schedule 30 — Financial arrangements avoidance

272

 

(13)   

Transactions are not prevented from being related transactions just

because the transactions—

(a)   

are not between the same parties, or

(b)   

are not between parties to the arrangements.”

      (2)  

The amendment made by sub-paragraph (1) has effect in relation to interest

5

paid on or after 19 March 2009.

Amounts not fully recognised for accounting purposes

2     (1)  

Section 311 of CTA 2009 (loan relationships: amounts not fully recognised

for accounting purposes) is amended as follows.

      (2)  

In subsection (2), for paragraphs (b) and (c) substitute—

10

“(b)   

condition A, B or C is met, and

(c)   

an amount is not fully recognised for the period in respect of

the creditor relationship as a result of the application of

generally accepted accounting practice in relation to the

creditor relationship and the debtor relationship,

15

contribution or securities referred to in the condition that is

met.”

      (3)  

In subsection (3)(b), after “to the” insert “creditor relationship and the

debtor”.

      (4)  

In paragraph (b) of subsection (4), after “to the” insert “creditor relationship

20

and the relevant capital”.

      (5)  

After that subsection insert—

“(4A)   

Condition C is that—

(a)   

the company has issued securities that form part of its capital

for the period, and

25

(b)   

an amount is not fully recognised for the period in respect of

the securities as a result of the application of generally

accepted accounting practice in relation to the creditor

relationship and the securities.”

      (6)  

In subsection (6)—

30

(a)   

for “or a relevant capital contribution to it” substitute “, a

contribution to it or securities issued by it”, and

(b)   

for “or contribution” (in both places) substitute “, contribution or

securities”.

      (7)  

In section 317(5) of CTA 2009 (carrying value), before paragraph (a) insert—

35

“(za)   

sections 311 and 312 (amounts not fully recognised for

accounting purposes),”.

      (8)  

The amendments made by this paragraph have effect in relation to periods

of account beginning on or after 22 April 2009.

      (9)  

But for the purposes of sub-paragraph (8) a period of account beginning

40

before, and ending on or after, 22 April 2009 is to be treated as if so much of

the period as falls before that date, and so much of the period as falls on or

after that date, were separate periods of account.

 
 

Finance Bill
Schedule 30 — Financial arrangements avoidance

273

 

3     (1)  

In CTA 2009, after section 599 insert—

“599A   

 Amounts not fully recognised for accounting purposes: introduction

(1)   

Section 599B applies for the purpose of determining the credits and

debits which a company is to bring into account for a period for the

purposes of this Part in the following case.

5

(2)   

The case is where—

(a)   

the company is, or is treated as, a party to a derivative

contract in the period,

(b)   

condition A or B is met, and

(c)   

an amount is not fully recognised for the period in respect of

10

the contract as a result of the application of generally

accepted accounting practice in relation to the contract and

the contribution or securities referred to in the condition that

is met.

(3)   

Condition A is that—

15

(a)   

an amount (a “relevant capital contribution”) has at any time

been contributed to the company which forms part of its

capital for the period, and

(b)   

an amount is not fully recognised for the period in respect of

the relevant capital contribution as a result of the application

20

of generally accepted accounting practice in relation to the

derivative contract and the relevant contribution.

(4)   

It does not matter for the purposes of subsection (3) whether the

contribution forms part of the company’s share capital or other

capital for the period.

25

(5)   

Condition B is that—

(a)   

the company has issued securities that form part of its capital

for the period, and

(b)   

an amount is not fully recognised for the period in respect of

the securities as a result of the application of generally

30

accepted accounting practice in relation to the derivative

contract and the securities.

(6)   

For the purposes of this section an amount is not fully recognised for

a period in respect of a contract of a company, a contribution to it or

securities issued by it if—

35

(a)   

no amount in respect of the contract, contribution or

securities is recognised in determining its profit or loss for the

period, or

(b)   

an amount is so recognised in respect of only part of the

contract, contribution or securities.

40

599B    

 Determination of credits and debits where amounts not fully

recognised

(1)   

In determining the credits and debits which a company is to bring

into account for the period referred to in section 599A(1) for the

purposes of this Part in respect of the derivative contract mentioned

45

in section 599A(2), the assumption in subsection (2) is to be made.

 
 

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Schedule 30 — Financial arrangements avoidance

274

 

(2)   

The assumption is that an amount in respect of the whole of the

contract in question is recognised in determining the company’s

profit or loss for the period.

(3)   

The credits and debits which are to be brought into account for the

purposes of this Part by the company in respect of the contract are to

5

be determined on the basis of fair value accounting.”

      (2)  

In section 702(3) of CTA 2009 (carrying value), before paragraph (c) insert—

“(ca)   

sections 599A and 599B (amounts not fully recognised for

accounting purposes),”.

      (3)  

The amendments made by this paragraph have effect in relation to periods

10

of account beginning on or after 22 April 2009.

      (4)  

But for the purposes of sub-paragraph (3) a period of account beginning

before, and ending on or after, 22 April 2009 is to be treated as if so much of

the period as falls before that date, and so much of the period as falls on or

after that date, were separate periods of account.

15

Loan relationships involving connected debtor and creditor where debits exceed credits

4     (1)  

Section 418 of CTA 2009 (loan relationships treated differently by connected

debtor and creditor) is amended as follows.

      (2)  

In subsection (1)(b), for “A, B and C” substitute “A and B”.

      (3)  

For subsections (2) to (4) substitute—

20

“(2)   

Condition A is that the rights under the loan relationship include

provision by virtue of which the creditor company—

(a)   

is or may become entitled, or

(b)   

is or may be required,

   

to acquire (whether by conversion or exchange or otherwise) any

25

shares in any company.

(3)   

Condition B is that—

(a)   

the debits brought into account by the debtor under this Part

in respect of the loan relationship for any accounting period,

exceed

30

(b)   

the credits brought into account (otherwise than as a result of

this section) by the creditor in respect of the loan relationship

for the corresponding accounting period or periods of the

creditor.”

      (4)  

After subsection (6) insert—

35

“(6A)   

For the purposes of this section the creditor is to be treated as

continuing to be a party to the loan relationship even though the

creditor has disposed of the creditor’s rights under the loan

relationship to another person—

(a)   

under a repo or stock lending arrangement, or

40

(b)   

under a transaction which is treated as not involving any

disposal as a result of section 26 of TCGA 1992 (mortgages

and charges not to be treated as disposals).

 
 

Finance Bill
Schedule 30 — Financial arrangements avoidance

275

 

(6B)   

For the purposes of this section the creditor is to be treated as

continuing to be a party to the loan relationship even though the

creditor has disposed of the creditor’s rights under the loan

relationship to another person if the disposal was made with the

relevant avoidance intention.

5

(6C)   

The relevant avoidance intention is the intention of eliminating or

reducing the credits to be brought into account for the purposes of

this Part.”

      (5)  

In subsection (7), for “Section 419 supplements” substitute “Sections 418A

and 419 supplement”.

10

      (6)  

In the heading, for “treated differently by connected debtor and creditor

substitute “involving connected debtor and creditor where debits exceed

credits”.

      (7)  

After section 418 insert—

“418A   

 Cases involving host contract

15

(1)   

This section applies where the debtor or the creditor, in accordance

with generally accepted accounting practice, treats the rights and

liabilities under the loan relationship as divided between—

(a)   

rights and liabilities under a loan relationship (“the host

contract”), and

20

(b)   

rights and liabilities under one or more derivative financial

instruments or equity instruments.

(2)   

Where the debtor, in accordance with generally accepted accounting

practice, treats the rights and liabilities under the loan relationship as

so divided, section 418 has effect as if the reference to the loan

25

relationship in subsection (3)(a) were to the host contract.

(3)   

Where the creditor, in accordance with generally accepted

accounting practice, treats the rights and liabilities under the loan

relationship as so divided, section 418 has effect as if the reference to

the loan relationship in subsection (3)(b) were to the host contract.

30

(4)   

In this section “the debtor” and “the creditor” have the same meaning

as in section 418.”

      (8)  

The amendments made by this paragraph have effect in relation to debits

and credits arising on or after 22 April 2009.

Credits and debits for manufactured interest

35

5     (1)  

In section 540(3) of CTA 2009 (manufactured interest treated as interest

under loan relationship), insert at the end “and the credits and debits to be

brought into account in respect of manufactured interest for any period are

those that are recognised in determining the company’s profit or loss for the

period in accordance with generally accepted accounting practice (but

40

subject to the provisions of Part 5, including, in particular, section 307(3) and

to paragraph 7A of Schedule 23A to ICTA).”

      (2)  

In section 97(2) of FA 1996 (equivalent provision for accounting periods

ending before 1 April 2009), insert at the end “and the credits and debits to

be brought into account in respect of manufactured interest for any period

45

 
 

Finance Bill
Schedule 31 — Sale of lessor companies etc: anti-avoidance

276

 

are those that are recognised in determining the company’s profit or loss for

the period in accordance with generally accepted accounting practice (but

subject to the provisions of this Chapter (including, in particular, section

84(1)) and to paragraph 7A of Schedule 23A to the Taxes Act 1988).”

      (3)  

The amendments made by this paragraph have effect in relation to

5

manufactured interest whenever paid, apart from payments treated under

section 737A(5) of ICTA as made before 27 January 2009.

Schedule 31

Section 62

 

Sale of lessor companies etc: anti-avoidance

Introduction

10

1          

Schedule 10 to FA 2006 (sale etc of lessor companies etc) is amended as

follows.

Paragraph 6

2          

In paragraph 6(3) (meaning of “business of leasing plant or machinery”:

condition A), for “accounting value of the plant or machinery owned by the

15

relevant company on the relevant day” substitute “relevant plant or

machinery value”.

Paragraph 7

3     (1)  

Paragraph 7 (provision for purposes of condition A) is amended as follows.

      (2)  

For sub-paragraphs (2) and (3) substitute—

20

    “(2)  

The relevant plant or machinery value is the aggregate of the

amounts in sub-paragraph (3), but subject to paragraph 7A.

      (3)  

The amounts are—

(a)   

the amounts (if any) which would be shown in respect of

plant or machinery in the appropriate balance sheet of the

25

relevant company drawn up as at the start of the relevant

day, and

(b)   

the amounts (if any) which would be shown in the

appropriate balance sheet of the relevant company drawn

up as at the end of the relevant day in respect of relevant

30

transferred plant or machinery.

     (3A)  

For the purposes of sub-paragraph (3)(b) plant or machinery is

“relevant transferred plant or machinery” if an amount in respect

of it would be shown in the appropriate balance sheet of an

associated company drawn up as at the start of the relevant day.”

35

      (3)  

In sub-paragraph (4), for “this purpose” substitute “the purposes of this

paragraph”.

      (4)  

In sub-paragraph (8)(a), omit “as at the start of the relevant day”.

 
 

Finance Bill
Schedule 31 — Sale of lessor companies etc: anti-avoidance

277

 

      (5)  

Insert at the end—

   “(10)  

References in this Part of this Schedule to an associated company

are to a company which is an associated company of the relevant

company on the relevant day (as to which, see paragraph 9).”

Paragraph 7A

5

4          

After paragraph 7 insert—

“7A   (1)  

Where this paragraph applies in relation to any plant or

machinery—

(a)   

any amount included in the aggregate mentioned in

paragraph 7(2) in respect of the plant or machinery is to be

10

deducted from that aggregate, and

(b)   

the market value of the plant or machinery as at the

relevant day is to be added to that aggregate (or, if that

aggregate is nil, is to constitute the relevant plant or

machinery value).

15

      (2)  

This paragraph applies in relation to plant or machinery if

condition A or B is met.

      (3)  

Condition A is that—

(a)   

the plant or machinery falls within sub-paragraph (4) at

the start of the relevant day, or

20

(b)   

the plant or machinery falls within that sub-paragraph at

the end of the relevant day, having been acquired by the

relevant company from an associated company on that

day.

      (4)  

Plant or machinery falls within this sub-paragraph if the relevant

25

company—

(a)   

is the lessee of the plant or machinery under a long funding

finance lease, or

(b)   

is treated as the owner of the plant or machinery under

section 67 of CAA 2001 (hire purchase and similar

30

contracts).

      (5)  

Condition B is that—

(a)   

the relevant company is the lessee of the plant or

machinery under a long funding operating lease at the

start of the relevant day, or

35

(b)   

the relevant company is the lessee of the plant or

machinery under such a lease at the end of the relevant day

and the plant or machinery was acquired by the relevant

company from an associated company on that day.”

Paragraph 17

40

5     (1)  

Paragraph 17 (meaning of “PM” in paragraph 16) is amended as follows.

      (2)  

In sub-paragraph (1)—

(a)   

after “paragraph” insert “and paragraph 17A”, and

 
 

 
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