Corporation Tax Bill

House of Commons

Session 2009 - 10
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Corporation Tax Bill

Corporation Tax Bill
Part 12 — Real Estate Investment Trusts
Chapter 10 — Joint ventures
301

589
Effect of notice under section 587
(1)
If a notice is given under section 587(1), this Part applies in relation to the
property rental business carried on by the member or members of the joint
venture group as if each member of the group were a member of the venturing
group.
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(2)
If a notice is given under section 587(2), this Part applies in relation to the
property rental business carried on by the member or members of the joint
venture group as if the venturing company and each member of the group
were the members of a new group UK REIT (a “deemed UK REIT”).
(3)
For the purposes of subsections (1) and (2) references in this Part to a company
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which is a member of a group UK REIT include references to—
(a)
each member of the joint venture group, and
(b)
in a case within subsection (2), the venturing company.
(4)
For the purposes of subsection (3)—
(a)
references in this Part to a UK company which is a member of a group
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UK REIT include references to a member of the joint venture group if
the member is—
(i)
UK resident, and
(ii)
not resident in another place in accordance with the law of that
place relating to taxation, and
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(b)
references in this Part to a non-UK company which is a member of a
group UK REIT include references to any member of the joint venture
group not within paragraph (a).
(5)
For the purposes of subsections (1) and (2) any reference in this Part to—
(a)
entry, or
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(b)
a company becoming a member of a group UK REIT,

is to be read in relation to a member of a joint venture group as a reference to
the date specified under section 587(6)(c).
(6)
For the purposes of subsection (2)—
(a)
references in this Part to a UK REIT (or group UK REIT) include
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references to the deemed UK REIT, and
(b)
references in this Part to the principal company of a group are to be
read as references to the venturing company.
590
Duration of notice under section 586 or 587
(1)
A notice given under section 586(1) ceases to have effect if—
35
(a)
the venturing group ceases to meet either of the 40% tests in relation to
the joint venture company, or
(b)
the venturing group ceases to be a UK REIT.
(2)
A notice given under section 586(2) ceases to have effect if—
(a)
the venturing company ceases to meet either of the 40% tests in relation
40
to the joint venture company, or
(b)
the venturing company ceases to be a UK REIT.
(3)
A notice given under section 587(1) ceases to have effect if—
(a)
the venturing group ceases to meet the 40% tests in relation to the joint
venture group, or
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Corporation Tax Bill
Part 12 — Real Estate Investment Trusts
Chapter 10 — Joint ventures
302

(b)
the venturing group ceases to be a UK REIT.
(4)
A notice given under section 587(2) ceases to have effect if—
(a)
the venturing company ceases to meet the 40% tests in relation to the
joint venture group, or
(b)
the venturing company ceases to be a UK REIT.
5
(5)
If a notice under section 586 or 587 ceases to have effect, this Part ceases to
apply as mentioned in section 588 or 589 (as the case may be) in relation to the
joint venture company or joint venture group.
(6)
But section 581 (early exit) continues to apply to a joint venture company or to
the members of a joint venture group despite subsection (5).
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(7)
For the meaning of “the 40% tests” see—
(a)
section 586, in the case of a notice given under that section, and
(b)
section 587, in the case of a notice given under that section.
Specific requirements and modifications
591
Conditions as to balance of business
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(1)
This section applies if—
(a)
a notice is given under section 586 in respect of a joint venture
company, or
(b)
a notice is given under section 587 in respect of a joint venture group.
(2)
Condition A in section 531 (balance of business: profits) must be met in respect
20
of the company or group in relation to each accounting period in relation to
which the notice has effect.
(3)
Condition B in section 531 (balance of business: assets) must be met in respect
of the company or group at the beginning of each accounting period in relation
to which the notice has effect.
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(4)
For the purposes of this section, section 531 applies—
(a)
in the case of a joint venture company, as if it were a company which
had given a notice under section 524, and
(b)
in the case of a joint venture group, as if it were a group in respect of
which a notice had been given under section 523.
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592
Joint venture groups: financial statements
(1)
This section applies if a notice is given under section 587 in respect of a joint
venture group.
(2)
The principal company of the joint venture group must prepare financial
statements for the group for each accounting period in relation to which the
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notice has effect.
(3)
The reference in subsection (2) to financial statements is a reference to financial
statements of a kind required under section 532(2).
(4)
Sections 532(3) and 533 apply to the financial statements under subsection (2)
as they apply to financial statements under section 532(2).
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Corporation Tax Bill
Part 12 — Real Estate Investment Trusts
Chapter 10 — Joint ventures
303

(5)
Financial statements prepared under subsection (2) must be submitted to an
officer of Revenue and Customs.
(6)
Financial statements under subsection (2) are in addition to the provision
required in respect of the members of the joint venture group (as a result of the
application of this Part to the group) in financial statements under section 532.
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593
Financial statements under section 532: joint venture groups
(1)
This section applies if a notice is given under section 587 in respect of a joint
venture group.
(2)
The amount to be included in the financial statements under section 532(2) in
relation to a member of a joint venture group is the relevant percentage of
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profits, expenses, gains, losses, assets and liabilities of the member.
(3)
“The relevant percentage” means—
(a)
in a case where a notice was given under section 587(1), the percentage
of the beneficial interest in the member that is held by members of the
venturing group, and
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(b)
in a case where a notice was given under section 587(2), the percentage
of the beneficial interest in the member that is held by the venturing
company.
(4)
Section 533 accordingly has effect in relation to the member as if for subsection
(3) there were substituted subsections (2) and (3) of this section.
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594
Modifications of Chapter 3
(1)
Section 534(4) (profits) has effect in relation to a joint venture company or a
member of a joint venture group as if for the words from “is to be treated” to
the end there were substituted “is to be ignored for the purposes of this
section”.
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(2)
Section 535(7) (gains) has effect in relation to a joint venture company or a
member of a joint venture group as if for the words from “is to be treated” to
the end there were substituted “is to be ignored for the purposes of this
section”.
Additional entry charge due in some cases
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595
Joint venture company liable for additional charge
(1)
A joint venture company is chargeable to tax under section 538 (entry charge)
if, after the giving of a notice under section 586(2) in respect of the company,
condition A or B is met.
(2)
Condition A is met if—
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(a)
the company that gave the notice under section 586(2) becomes the
principal company of a group UK REIT,
(b)
it gives a notice under section 586(1) in respect of the joint venture
company, and
(c)
its shareholding in the joint venture company has increased (but not to
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75% or more) between the giving of the two notices.
(3)
Condition B is met if the company that gave the notice under section 586(2)—

Corporation Tax Bill
Part 12 — Real Estate Investment Trusts
Chapter 10 — Joint ventures
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(a)
increases its shareholding in the joint venture company to at least 75%,
and
(b)
gives a notice under section 523 (such that the joint venture company
becomes a member of the new group UK REIT resulting from the
notice).
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(4)
A joint venture company is chargeable to tax under section 538 if, after the
giving of a notice under section 586(1) in respect of the company, the venturer
holding in the company increases to at least 75% (and accordingly the company
becomes a member of the venturing group).
(5)
“The venturer holding” means the sum of the beneficial interests in the joint
10
venture company held by members of the venturing group.
(6)
Tax is chargeable as a result of subsection (1) or (4) in respect of the reduced
notional amount.
(7)
“The reduced notional amount” means—
(a)
an amount of notional income calculated in accordance with section
15
539, less
(b)
the amount of notional income already charged to tax under section 538
when the notice under 586(1) or (2) (as the case may be) was first given
in relation to the joint venture company.
596
Member of joint venture group liable for additional charge
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(1)
A member of a joint venture group (“MJVG”) is chargeable to tax under section
538 if, after the giving of a notice under section 587(2) in respect of the group,
condition A or B is met.
(2)
Condition A is that—
(a)
the company that gave the notice under section 587(2) becomes the
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principal company of a group UK REIT,
(b)
it gives a notice under section 587(1) in respect of the joint venture
group, and
(c)
its shareholding in MJVG has increased (but not to 75% or more)
between the giving of the two notices.
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(3)
Condition B is that the company that gave the notice under section 587(2)—
(a)
increases its shareholding in MJVG to at least 75%, and
(b)
gives a notice under section 523 (such that MJVG becomes a member of
the new group UK REIT resulting from the notice).
(4)
A member of a joint venture group (“MJVG”) is chargeable to tax under section
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538 (entry charge) if a venturing group increases its shareholding in MJVG to
at least 75% (and accordingly MJVG becomes a member of the venturing
group).
(5)
Tax is chargeable as a result of subsection (1) or (4) in respect of the reduced
notional amount.
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(6)
“The reduced notional amount” means—
(a)
the amount of notional income calculated in accordance with section
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Corporation Tax Bill
Part 12 — Real Estate Investment Trusts
Chapter 11 — Part 12: supplementary
305

(b)
the amount of notional income already charged to tax under section 538
when the notice under section 587(1) or (2) was given or (as the case
may be) when MJVG became a member of the joint venture group.
597
Cases where no additional charge due
(1)
A joint venture company is not chargeable to tax under section 538 (entry
5
charge) in a case where—
(a)
a company which has given a notice under section 586(2) (“notice A”)
in respect of the joint venture company becomes the principal company
of a group UK REIT,
(b)
the company gives a notice under section 586(1) (“notice B”) in respect
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of the joint venture company, and
(c)
the company’s shareholding in the joint venture company has not
changed between the giving of notice A and notice B.
(2)
A member of a joint venture group is not chargeable to tax under section 538
in a case where—
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(a)
a company which has given a notice under section 587(2) (“notice A”)
in respect of the joint venture group becomes the principal company of
a group UK REIT,
(b)
the company gives a notice under section 587(1) (“notice B”) in respect
of the joint venture group, and
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(c)
the company’s shareholding in the member of the joint venture group
has not changed between the giving of notice A and notice B.
Supplementary
598
Chapter 10: supplementary
(1)
References in this Chapter to an “equity holder”, in relation to a company, are
25
to a person who—
(a)
holds ordinary shares in the company, or
(b)
is a loan creditor of the company in relation to a loan other than a
normal commercial loan (as defined by section 162).
(2)
Percentages of beneficial interest for the purposes of this Chapter are to be
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determined by reference to beneficial entitlement to profits available for
distribution to equity holders.
Chapter 11
Part 12: supplementary
Miscellaneous
35
599
Calculation of profits
(1)
This section is about the calculation of profits for the purposes of any provision
of this Part which provides that profits are to be calculated in accordance with
this section.

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Chapter 11 — Part 12: supplementary
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(2)
Profits are to be calculated in the same way as profits of a UK property business
are calculated for the purposes of the charge to tax under Chapter 3 of Part 4 of
CTA 2009 (as to which see, in particular, section 210 of that Act).
(3)
Section 211(1) of CTA 2009 (property businesses: disregard of credits and
debits from loan relationships and derivative contracts) does not apply in
5
respect of—
(a)
a loan relationship so far as it relates to property rental business,
(b)
a hedging derivative contract so far as it relates to property rental
business, or
(c)
embedded derivatives so far as the host contract is entered into for the
10
purposes of property rental business.
(4)
For the purposes of subsection (3)—
(a)
a derivative contract is hedging in relation to a company so far as—
(i)
it is acquired as a hedge of risk in relation to an asset by the
exploitation of which property rental business is conducted, or
15
(ii)
it is acquired as a hedge of risk in relation to a liability incurred
in connection with property rental business,
(b)
a designation of a contract as wholly or partly hedging for the purposes
of a company’s accounts is conclusive,
(c)
“embedded derivatives” is to be read in accordance with section 584 or
20
586 (as the case may be) of CTA 2009, and
(d)
“the host contract” means—
(i)
the contract mentioned in section 584(1)(a) of CTA 2009, or
(ii)
the contract mentioned in section 586(1)(a) of that Act,

as the case may be.
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(5)
In subsection (4)(a)(i) the reference to an asset includes a reference to—
(a)
the value of an asset, and
(b)
profits attributable to it.
(6)
Profits are to be calculated without regard to items giving rise to credits or
debits which would be within Part 7 of CTA 2009 (derivative contracts) but for
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section 589(2)(b) and (c) of that Act (exclusion of share-based and unit trust-
based contracts).
(7)
Income and expenditure relating partly to property rental business and partly
to residual business are to be apportioned on a just and reasonable basis.
(8)
Section 3(1) of CAA 2001 (claims for capital allowances) does not apply; and
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any allowance which could be claimed under that provision is to be made
automatically and reflected in the calculation of profits.
600
Power to make regulations about cases involving related persons
(1)
If they consider it expedient in the public interest the Treasury may make
regulations about the application of this Part to activities or situations which
40
involve, or arise in connection with, a relationship between a REIT company
and another person.
(2)
In subsection (1) “REIT company” means—
(a)
a company UK REIT, or
(b)
a company which is a member of a group UK REIT.
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(3)
The regulations may, in particular—
(a)
treat a specified person, or a person in specified circumstances, as
forming part of a group UK REIT for specified purposes;
(b)
provide for a specified provision which applies in respect of a members
of a group UK REIT also to apply, with or without modifications, in
5
respect of a specified person or a person in specified circumstances.
(4)
Regulations under this section may make provision in relation to accounting
periods ending on or after the date on which the regulations are made.
(5)
No regulations may be made under this section unless a draft of the statutory
instrument containing them has been laid before and approved by a resolution
10
of the House of Commons.
601
Availability of group reliefs
(1)
In the application of a provision specified in subsection (2) to a group of
companies, the group so far as it carries on property rental business while it is
a UK REIT is to be treated as a separate group, distinct from—
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(a)
the pre-entry group,
(b)
the group so far as it carries on residual business while it is a UK REIT,
and
(c)
the post-cessation group.
(2)
The provisions mentioned in subsection (1) are—
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(a)
section 171 of TCGA 1992 (transfer of assets within group),
(b)
sections 171A to 171C of TCGA (reallocation of gain or loss within
group),
(c)
sections 179A and 179B of TCGA 1992 (degrouping: reallocation of gain
or loss, or rollover of gain, within group),
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(d)
Chapters 4 and 6 to 8 of Part 5 of CTA 2009 (loan relationships),
(e)
Part 7 of that Act (derivative contracts),
(f)
Part 8 of that Act (intangible assets), and
(g)
Part 5 of this Act (group relief),
602
Effect of deemed disposal and reacquisition
30
A deemed disposal and reacquisition of an asset under this Part is to be taken
into account for the purposes of any subsequent disposal (whether actual or
deemed).
603
Regulations
Regulations under this Part—
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(a)
may make provision which applies generally or only in specified cases
or circumstances,
(b)
may make different provision for different cases or circumstances, and
(c)
may contain incidental, supplemental, consequential and transitional
provision and savings.
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