Corporation Tax Bill

House of Commons

Session 2009 - 10
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Corporation Tax Bill

Corporation Tax Bill
Part 16 — Factoring of income etc
Chapter 2 — Finance arrangements
384

764
Relevant change in relation to partnership
(1)
For the purposes of this Chapter there is a relevant change in relation to a
partnership if condition A or condition B is met.
(2)
Condition A is that in connection with the arrangement the lender or a person
connected with the lender becomes a member of the partnership at any time.
5
(3)
Condition B is that—
(a)
in connection with the arrangement there is at any time a change in a
member’s share in the partnership’s profits, and
(b)
the member is the lender or a person connected with the lender or a
person who in connection with the arrangement becomes at any time
10
connected with the lender.
(4)
An event occurs in connection with the arrangement if it occurs directly or
indirectly in consequence of it or otherwise in connection with it.
(5)
If there is a relevant change in relation to a partnership, a reference in this
Chapter to the person involved in the change is—
15
(a)
if it is condition A that is met, to the person who becomes a member of
the partnership, and
(b)
if it is condition B that is met, to the member of the partnership in whose
share in the partnership’s profits there is a change.
765
Certain tax consequences not to have effect
20
(1)
This section applies if—
(a)
there is a type 2 finance arrangement, and
(b)
any relevant change in relation to the partnership would have the
relevant effect (ignoring this section).
(2)
In such a case—
25
(a)
sections 1259 to 1265 of CTA 2009 (partnerships involving companies)
are to have effect in relation to the transferor as if the relevant change
in relation to the partnership had not occurred, and
(b)
accordingly the finance arrangement is not to have the relevant effect.
(3)
The relevant effect is that—
30
(a)
an amount of income on which the transferor would otherwise have
been charged to corporation tax is not so charged,
(b)
an amount which would otherwise have been brought into account in
calculating for corporation tax purposes any income of the transferor is
not so brought into account, or
35
(c)
the transferor becomes entitled to an income deduction.
(4)
In deciding whether subsection (1)(b) is met assume that amounts of income
equal to the payments mentioned in section 763(2)(e) were payable to the
partnership before the relevant change in relation to it occurred.
(5)
An income deduction is—
40
(a)
a deduction in calculating income for corporation tax purposes, or
(b)
a deduction from total profits.

Corporation Tax Bill
Part 16 — Factoring of income etc
Chapter 2 — Finance arrangements
385

766
Deemed loan relationship
(1)
This section applies if—
(a)
there is a type 2 finance arrangement, and
(b)
the transferor is a company within the charge to corporation tax.
(2)
In relation to the company—
5
(a)
the advance is treated for the purposes of Chapter 9 of Part 5 of CTA
2009 (and the other provisions of that Part (loan relationships)) as a
money debt owed by the partnership, and
(b)
the arrangement is treated as a transaction for the lending of money
from which the debt is treated as arising for those purposes.
10
(3)
Any amount which in accordance with generally accepted accounting practice
is recorded in the partnership’s accounts as a finance charge in respect of the
advance is treated as interest payable by the company under the transaction.
(4)
The reference in subsection (3) to the partnership’s accounts includes a
reference to the transferor’s accounts.
15
(5)
If an amount is treated as interest (“deemed interest”) under subsection (3), to
find out when it is paid—
(a)
treat the payments mentioned in section 763(2)(e) as consisting of
amounts for repaying the advance and amounts (“the interest
elements”) in respect of interest on the advance,
20
(b)
treat the interest elements of the payments as paid when the payments
are paid, and
(c)
treat the deemed interest as paid at the times when the interest
elements are treated as paid.
Type 3 arrangements
25
767
Type 3 finance arrangement defined
(1)
For the purposes of this Chapter an arrangement is a type 3 finance
arrangement if conditions A and B are met.
(2)
Condition A is that—
(a)
a partnership holds an asset (“the security”) as a partnership asset at
30
any time before the arrangement is made,
(b)
under the arrangement the partnership receives money or another asset
(“the advance”) from another person (“the lender”),
(c)
there is a relevant change in relation to the partnership (see section 764),
and
35
(d)
under the arrangement the share in the partnership’s profits of the
person involved in the change is determined by reference (wholly or
partly) to payments in respect of the security.
(3)
Condition B is that in accordance with generally accepted accounting
practice—
40
(a)
the partnership’s accounts for the period in which the advance is
received record a financial liability in respect of it, and
(b)
the payments reduce the amount of the financial liability.

Corporation Tax Bill
Part 16 — Factoring of income etc
Chapter 2 — Finance arrangements
386

(4)
The reference to the partnership’s accounts includes a reference to the accounts
of any person who is a member of the partnership immediately before the
arrangement is made.
768
Certain tax consequences not to have effect
(1)
This section applies if—
5
(a)
there is a type 3 finance arrangement, and
(b)
any relevant change in relation to the partnership would have the
relevant effect (ignoring this section).
(2)
The relevant effect is that—
(a)
an amount of income on which a relevant member would otherwise
10
have been charged to corporation tax is not so charged,
(b)
an amount which would otherwise have been brought into account in
calculating for corporation tax purposes any income of a relevant
member is not so brought into account, or
(c)
a relevant member becomes entitled to an income deduction.
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(3)
A relevant member is a person who—
(a)
was a member of the partnership immediately before the relevant
change in relation to it occurred, and
(b)
is not the lender.
(4)
If this section applies—
20
(a)
sections 1259 to 1265 of CTA 2009 (partnerships involving companies)
are to have effect in relation to any relevant member as if the relevant
change in relation to the partnership had not occurred, and
(b)
accordingly the finance arrangement is not to have the relevant effect.
(5)
In deciding whether subsection (1)(b) is met assume that amounts of income
25
equal to the payments mentioned in section 767(2)(d) were payable to the
partnership before the relevant change in relation to it occurred.
(6)
An income deduction is—
(a)
a deduction in calculating income for corporation tax purposes, or
(b)
a deduction from total profits.
30
769
Deemed loan relationship
(1)
This section applies if—
(a)
there is a type 3 finance arrangement, and
(b)
a relevant member is a company within the charge to corporation tax.
(2)
In relation to the company—
35
(a)
the advance is treated for the purposes of Chapter 9 of Part 5 of CTA
2009 (and the other provisions of that Part (loan relationships)) as a
money debt owed by the partnership, and
(b)
the arrangement is treated as a transaction for the lending of money
from which the debt is treated as arising for those purposes.
40
(3)
Any amount which in accordance with generally accepted accounting practice
is recorded in the partnership’s accounts as a finance charge in respect of the
advance is treated as interest payable by the partnership under the transaction.

Corporation Tax Bill
Part 16 — Factoring of income etc
Chapter 2 — Finance arrangements
387

(4)
The reference in subsection (3) to the partnership’s accounts includes a
reference to the accounts of any relevant member.
(5)
If an amount is treated as interest (“deemed interest”) under subsection (3), to
find out when it is paid—
(a)
treat the payments mentioned in section 767(2)(d) as consisting of
5
amounts for repaying the advance and amounts (“the interest
elements”) in respect of interest on the advance,
(b)
treat the interest elements of the payments as paid when the payments
are paid, and
(c)
treat the deemed interest as paid at the times when the interest
10
elements are treated as paid.
(6)
A relevant member is a person who—
(a)
was a member of the partnership immediately before the relevant
change in relation to it occurred, and
(b)
is not the lender.
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Exceptions
770
Exceptions: preliminary
(1)
Sections 771 to 773 make provision for finance arrangement codes not to apply
in certain circumstances.
(2)
For the purposes of those sections each of the following groups of provisions is
20
a finance arrangement code—
(a)
sections 758 to 762 (type 1 arrangements),
(b)
sections 763 to 766 (type 2 arrangements), and
(c)
sections 767 to 769 (type 3 arrangements).
771
Exceptions
25
(1)
A finance arrangement code does not apply if the whole of the advance under
the arrangement—
(a)
is charged to tax on a relevant person as an amount of income,
(b)
is brought into account in calculating for tax purposes any income of a
relevant person, or
30
(c)
is brought into account for the purposes of any provision of CAA 2001
as a disposal receipt, or proceeds from a balancing event or disposal
event, of a relevant person.
(2)
Treat subsection (1)(c) as not met if—
(a)
the receipt gives rise, or proceeds give rise, to a balancing charge, and
35
(b)
the amount of the balancing charge is limited by any provision of CAA
2001.
(3)
A finance arrangement code does not apply if at all times the whole of the
advance under the arrangement—
(a)
is a debtor relationship of a relevant person for the purposes of Part 5
40
of CTA 2009 (loan relationships), or
(b)
would be a debtor relationship of a relevant person for those purposes
if that person were a company within the charge to corporation tax.

Corporation Tax Bill
Part 16 — Factoring of income etc
Chapter 2 — Finance arrangements
388

(4)
In subsection (3) references to a debtor relationship do not include references
to a relationship to which Chapter 2 of Part 6 of CTA 2009 applies (relevant
non-lending relationships).
(5)
A finance arrangement code does not apply so far as—
(a)
section 263A of TCGA 1992 applies in relation to the arrangement
5
(agreements for sale and repurchase of securities), or
(b)
Schedule 13 to FA 2007 or Chapter 10 of Part 6 of CTA 2009 applies in
relation to the arrangement (sale and repurchase of securities, and
repos).
(6)
A finance arrangement code does not apply so far as Chapter 6 of Part 6 of CTA
10
2009, Part 10A of ITA 2007 or Chapter 4 of Part 4 of TCGA 1992 has effect in
relation to the arrangement (alternative finance arrangements).
(7)
A finance arrangement code does not apply so far as the security is plant or
machinery which is the subject of a sale and finance leaseback.
(8)
For the purposes of subsection (7) apply section 221 of CAA 2001 to determine
15
whether plant or machinery is the subject of a sale and finance leaseback.
(9)
A finance arrangement code does not apply so far as sections 228B and 228C of
CAA 2001 (finance leaseback) apply in relation to the arrangement.
(10)
Section 772 defines a relevant person for the purposes of this section.
772
Exceptions: relevant person
20
(1)
This section defines a relevant person for the purposes of section 771.
(2)
If (apart from sections 771 and 773) sections 758 to 762 would apply, each of the
following is a relevant person—
(a)
the borrower, and
(b)
a person connected with the borrower or (if the borrower is a
25
partnership) a member of the partnership.
(3)
If (apart from sections 771 and 773) sections 763 to 766 would apply, the
transferor is a relevant person.
(4)
If (apart from sections 771 and 773) sections 767 to 769 would apply, a relevant
member as there defined is a relevant person.
30
(5)
For the purposes of subsection (2)(b) the persons connected with the borrower
include any persons who under section 1122 (meaning of “connected”) are
connected with the borrower.
773
Power to make further exceptions
(1)
The Treasury may make regulations prescribing other circumstances in which
35
a finance arrangement code is not to apply.
(2)
The regulations may amend sections 771 and 772.
(3)
The power to make regulations includes—
(a)
power to make provision that has effect in relation to times before the
making of the regulations (but not times before 6 June 2006),
40
(b)
power to make different provision for different cases or different
purposes, and

Corporation Tax Bill
Part 16 — Factoring of income etc
Chapter 3 — Loan or credit transactions
389

(c)
power to make incidental, supplemental, consequential and
transitional provision and savings.
Supplementary
774
Accounts
(1)
This section applies for the purposes of this Chapter.
5
(2)
A reference to the accounts of a person includes (if the person is a company) a
reference to the consolidated group accounts of a group of companies of which
it is a member.
(3)
In determining whether accounts record an amount as a financial liability in
respect of an advance, assume that the period in which the advance is received
10
ended immediately after the receipt of the advance.
(4)
If a person does not draw up accounts in accordance with generally accepted
accounting practice, assume that the person drew up the accounts in
accordance with that practice.
775
Arrangements
15
A reference in this Chapter to an arrangement includes a reference to an
agreement or understanding (whether or not legally enforceable).
776
Assets
(1)
This section applies for the purposes of this Chapter.
(2)
A reference to a person receiving an asset includes—
20
(a)
a reference to the person obtaining (directly or indirectly) the value of
an asset or otherwise deriving (directly or indirectly) a benefit from it,
and
(b)
a reference to the discharge (in whole or part) of a liability of the person.
(3)
A reference to a disposal of an asset includes a reference to anything
25
constituting a disposal of it for the purposes of TCGA 1992.
(4)
A reference to payments in respect of an asset includes—
(a)
a reference to payments in respect of another asset substituted for it
under the arrangement, and
(b)
a reference to obtaining (directly or indirectly) the value of an asset or
30
otherwise deriving (directly or indirectly) a benefit from it.
Chapter 3
Loan or credit transactions
777
Loan or credit transaction defined
(1)
This section defines a loan or credit transaction for the purposes of sections 778
35
and 779.
(2)
A transaction is a loan or credit transaction if it is—

Corporation Tax Bill
Part 16 — Factoring of income etc
Chapter 3 — Loan or credit transactions
390

(a)
effected with reference to the lending of money or the varying of the
terms on which money is lent, or
(b)
effected with a view to enabling or facilitating an arrangement
concerning the lending of money or the varying of the terms on which
money is lent.
5
(3)
A transaction is a loan or credit transaction if it is—
(a)
effected with reference to the giving of credit or the varying of the terms
on which credit is given, or
(b)
effected with a view to enabling or facilitating an arrangement
concerning the giving of credit or the varying of the terms on which
10
credit is given.
(4)
Subsection (2) has effect whether the transaction is effected—
(a)
between the lender and the borrower,
(b)
between either of them and a person connected with the other, or
(c)
between a person connected with one and a person connected with the
15
other.
(5)
Subsection (3) has effect whether the transaction is effected—
(a)
between the creditor and the debtor,
(b)
between either of them and a person connected with the other, or
(c)
between a person connected with one and a person connected with the
20
other.
778
Certain payments treated as interest
(1)
This section applies if a loan or credit transaction provides for a payment
which is not interest but is—
(a)
an annuity or other annual payment falling within Part 5 of ITTOIA
25
2005 and chargeable to income tax otherwise than as relevant foreign
income, or
(b)
an annuity or other annual payment which is from a source in the
United Kingdom and chargeable to corporation tax under Chapter 5 of
Part 10 of CTA 2009 (distributions from unauthorised unit trusts) or
30
Chapter 7 of that Part (annual payments not otherwise charged).
(2)
The payment must be treated for the purposes of the Corporation Tax Acts as
if it were a payment of interest.
779
Tax charged on income transferred
(1)
This section applies if—
35
(a)
under a loan or credit transaction a company transfers income arising
from property,
(b)
the company is not, as a result of Chapter 2 (finance arrangements),
chargeable to corporation tax on the income transferred, and
(c)
the company is within the charge to corporation tax.
40
(2)
In such a case, the company which transfers the income is charged to
corporation tax, under the charge to corporation tax on income, on an amount
equal to the income transferred.
(3)
This section does not prejudice the liability of any other person to tax.