Corporation Tax Bill

House of Commons

Session 2009 - 10
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Corporation Tax Bill

Corporation Tax Bill
Schedule 2 — Transitionals and savings etc
Part 5 — Losses on disposal of shares
687

Relief after an exchange of shares for shares in another company
37    (1)
In relation to new shares issued before 1 April 2010, section 87 applies with
the omission of subsection (3)(a).
      (2)
In relation to new shares issued before 6 April 2007, section 87 applies with
the substitution for subsection (1)(e) of—
5
“(e)
before the issue of the new shares, the Commissioners for Her
Majesty’s Revenue and Customs have, on the application of
the new company or the old company, notified that company
that the exchange of shares—
(i)
will be effected for genuine commercial reasons, and
10
(ii)
will not form part of any such scheme or arrangement
as is mentioned in section 137(1) of TCGA 1992.”
      (3)
Section 87 does not apply in relation to shares issued before 6 April 1998.
Substitution of new shares for old shares
38
Section 88 does not apply in relation to shares issued before 6 April 1998.
15
Interpretation of Chapter
39    (1)
In relation to shares issued before 1 April 2010, the definition of “investment
company” in section 90(1) is to be read as including (so as to be within the
meaning of the definition) a relevant savings bank.
      (2)
In relation to shares issued before 6 April 2010, the definition of “investment
20
company” in section 151(1) of ITA 2007, as amended by Schedule 1 to this
Act, is to be read as including (so as to be within the meaning of the
definition) a relevant savings bank.
      (3)
In this paragraph a “relevant savings bank” means, subject to sub-paragraph
(4), a savings bank or other bank for savings (other than any such bank that
25
is a successor or further successor to a trustee savings bank for the purposes
of the Trustee Savings Banks Act 1985).
      (4)
A savings bank or other bank for savings that is the holding company of a
trading group is not a “relevant savings bank” for the purposes of this
paragraph.
30
40
In relation to shares issued before 6 April 1998, section 90 applies with the
following modifications—
(a)
in the definition of “excluded company” in subsection (1), the
substitution for “in land, in commodities or futures or in shares,
securities or other financial instruments” of “in shares, securities,
35
land, trades or commodity futures”,
(b)
in subsection (6), the insertion after “excluded company” of “or is a
non-UK resident”.
Meaning of “qualifying 90% subsidiary”
41    (1)
This paragraph applies in relation to shares issued before 6 April 2007.
40
      (2)
Section 83 has effect in relation to a relevant time or a relevant period as if
subsections (1A) to (1C) of section 190 of ITA 2007 (as applied for the

Corporation Tax Bill
Schedule 2 — Transitionals and savings etc
Part 5 — Losses on disposal of shares
688

purposes of the definition of “qualifying 90% subsidiary” by section 83(2) of
this Act) were omitted.
      (3)
For the purposes of sub-paragraph (2)—
(a)
a “relevant time” is any time relevant for the purposes of condition A
in section 78(2) falling before 6 April 2007, and
5
(b)
a “relevant period” is any period relevant for the purposes of
condition B in section 78(3) ending before that date (but see also sub-
paragraph (4)).
      (4)
In the case of a period relevant for the purposes of condition B in section
78(3) that ends on or after 6 April 2007 but begins before that date, the part
10
of the period falling before that date is a “relevant period” for the purposes
of sub-paragraph (2).
Meaning of “qualifying subsidiary”
42
In relation to shares issued before 17 March 2004, section 191 of ITA 2007 (as
applied by sections 79(7), 81(4), 82(2) and 84(4) of this Act) applies with the
15
following modifications—
(a)
in subsection (1), the insertion at the end of “and, except as provided
by subsection (3), continue to be met until the time that is relevant for
the purposes of section 78(2) of CTA 2010”,
(b)
in subsection (2), the substitution for paragraph (a) of—
20
“(a)
the relevant company, or another of its subsidiaries,
possesses at least 75% of the issued share capital of,
and at least 75% of the voting power in, the
subsidiary,
(aa)
the relevant company, or another of its subsidiaries,
25
would in the event of a winding up of the subsidiary,
or in any other circumstances, be beneficially entitled
to receive at least 75% of the assets of the subsidiary
which would then be available for distribution to the
equity holders of the subsidiary,
30
(ab)
the relevant company, or another of its subsidiaries, is
beneficially entitled to at least 75% of any profits of
the subsidiary which are available for distribution to
the equity holders of the subsidiary,”,
(c)
in paragraph (c) of subsection (2), the substitution for “either of the
35
conditions in paragraphs (a) and (b)” of “any of the conditions in
paragraphs (a), (aa), (ab) and (b)”,
(d)
in subsection (3), the substitution for “any other company” of “the
relevant company” and the substitution for the words from “the
winding up or dissolution” to the end of that subsection of—
40
“(a)
the winding up or dissolution is for genuine
commercial reasons, and not part of a scheme or
arrangement the main purpose or one of the main
purposes of which is the avoidance of tax, and
(b)
the net assets, if any, of the subsidiary or, as the case
45
may be, the relevant company are distributed to its
members, or dealt with as bona vacantia, before the
time that is relevant for the purposes of section 78(2)
of CTA 2010 or, in the case of a winding up, the end

Corporation Tax Bill
Schedule 2 — Transitionals and savings etc
Part 5 — Losses on disposal of shares
689

(if later) of 3 years from the commencement of the
winding up.”,
(e)
the omission of subsection (4),
(f)
in subsection (5), the substitution for “arrangements are in existence
for” of “of” and the insertion after “another subsidiary” of “within the
5
continuous period that is relevant for the purposes of section 78(3) of
CTA 2010”,
(g)
in subsection (5)(a), the omission of “to be”,
(h)
in subsection (5)(b), the substitution for “is not to be” of “not”, and
(i)
after subsection (5), the insertion of—
10
“(6)
The persons who are equity holders of a subsidiary, and the
percentage of the assets of a subsidiary to which an equity
holder would be entitled, are to be determined in accordance
with Chapter 6 of Part 5 of CTA 2010, taking references in that
Chapter to a winding up as including references to any other
15
circumstances in which assets of the subsidiary are available
for distribution to its equity holders.”
Meaning of “excluded activities”
43    (1)
In relation to shares issued before 6 April 2008, section 192 of ITA 2007 (as
applied by section 79(7) of this Act) applies with the omission of the
20
following—
(a)
in subsection (1), paragraphs (ia), (ib) and (ic), and
(b)
in subsection (2), paragraphs (da), (db) and (dc).
      (2)
In relation to shares issued before 7 March 2001, section 192(1) of ITA 2007
(as applied by section 79(7) of this Act) applies with the insertion after
25
paragraph (c) of—
“(ca)
oil extraction activities (within the meaning of Part 8 of CTA
2010),”.
Excluded activities: wholesale and retail distribution
44
In relation to shares issued before 6 April 2007, section 193(5)(b) of ITA 2007
30
(as applied by section 79(7) of this Act) applies with the following
modifications—
(a)
the insertion after “held” of “by the company”, and
(b)
the substitution for “the trader” of “a vendor”.
Excluded activities: leasing of ships
35
45    (1)
In relation to shares issued before 6 April 2007, section 194 of ITA 2007 (as
applied by the definition of “non-qualifying activities” in section 79(7) of this
Act) applies with the omission of subsection (7).
      (2)
In relation to shares issued before 6 April 2004, section 194 of ITA 2007 (as
applied by section 79(7) of this Act) applies with the following
40
modifications—
(a)
in subsection (1), the substitution for “offshore installations” of “oil
rigs”,
(b)
in subsection (2), the substitution for “offshore installation” of “oil
rig”, and
45

Corporation Tax Bill
Schedule 2 — Transitionals and savings etc
Part 5 — Losses on disposal of shares
690

(c)
in subsection (8), the insertion after “this section” of—
““oil rig” means any ship which is an offshore installation for the
purposes of the Mineral Workings (Offshore Installations) Act
1971,”.
Excluded activities: receipt of royalties and licence fees
5
46    (1)
Sub-paragraph (3) applies, in the circumstances mentioned in sub-
paragraph (2), for the purpose of modifying the effect of section 195 of ITA
2007 (as applied for the purposes of the definition of “excluded activities” by
section 79(7) of this Act) in relation to a relevant time or a relevant period.
      (2)
Sub-paragraph (3) applies if—
10
(a)
shares in or securities of a company (“the company”) were issued
before 6 April 2007,
(b)
immediately before that date—
(i)
the right to exploit an intangible asset (“the asset”) was vested
in the company or a subsidiary of it (in either case, whether
15
alone or jointly with others), and
(ii)
the asset was a relevant intangible asset,
(c)
at any time on or after that date, an activity carried on by the
company or a subsidiary of it would be an excluded activity by
reason only of the receipt of royalties or licence fees attributable to
20
the exploitation of the asset, and
(d)
the activity would not be an excluded activity if the amendments
made by Part 3 of Schedule 16 to FA 2007 had not been made.
      (3)
The activity is to be treated, in relation to those shares or securities, as not
being an excluded activity at that time.
25
      (4)
For the purposes of sub-paragraph (1)—
(a)
a “relevant time” is any time relevant for the purposes of condition A
in section 78(2) falling on or after 6 April 2007, and
(b)
a “relevant period” is any period relevant for the purposes of
condition B in section 78(3) beginning on or after that date (but see
30
also sub-paragraph (5)).
      (5)
In the case of a period that begins before 6 April 2007 but ends on or after
that date, the part of the period falling on or after that date is a “relevant
period” for the purposes of sub-paragraph (1).
      (6)
In sub-paragraph (2), “intangible asset” and “relevant intangible asset” have
35
the same meanings as in section 195 of ITA 2007.
47    (1)
This paragraph applies in relation to shares issued on or after 6 April 2000
but before 6 April 2007.
      (2)
Section 79 has effect in relation to a relevant time or a relevant period as if
the following modifications were made to section 195 of ITA 2007 (as
40
applied for the purposes of the definition of “excluded activities” by section
79(7) of this Act)—
(a)
in subsection (4), the substitution for paragraphs (a) and (b) of—
“(a)
by the company carrying on the trade, or
(b)
by a company which at all times during which it
45
created the intangible asset was—

Corporation Tax Bill
Schedule 2 — Transitionals and savings etc
Part 5 — Losses on disposal of shares
691

(i)
the holding company of the company carrying
on the trade, or
(ii)
a qualifying subsidiary of that holding
company.”,
(b)
in subsection (6), the insertion of the following definition—
5
““holding company” means a company that—
(a)
has one or more 51% subsidiaries, but
(b)
is not itself a 51% subsidiary of another
company,”, and
(c)
the omission of subsection (7).
10
      (3)
In a case where section 79 has effect as if the modifications in sub-paragraph
(2) were made to section 195 of ITA 2007—
(a)
section 79 of this Act applies with the omission of subsection (9), and
(b)
section 88 applies with the omission of subsection (3).
      (4)
For the purposes of sub-paragraph (2)—
15
(a)
a “relevant time” is any time relevant for the purposes of condition A
in section 78(2) falling before 6 April 2007, and
(b)
a “relevant period” is any period relevant for the purposes of
condition B in section 78(3) ending before 6 April 2007 (but see also
sub-paragraph (5)).
20
      (5)
In the case of a period relevant for the purposes of condition B in section
78(3) that ends on or after 6 April 2007 but begins before that date, the part
of the period falling before that date is a “relevant period” for the purposes
of sub-paragraph (2).
48
In relation to shares issued before 6 April 2000, section 79 has effect as if, for
25
the purposes of the definition of “excluded activities” in section 79(7), the
following section was substituted for section 195 of ITA 2007—
“195
Excluded activities: receipt of royalties and licence fees
(1)
This section supplements section 192(1)(e) (receipt of royalties and
licence fees).
30
(2)
A trade is not to be regarded as consisting in the carrying on of
excluded activities within section 192(1)(e) as a result only of it
consisting to a substantial extent in the receiving of royalties or
licence fees if—
(a)
the company carrying on the trade is engaged throughout the
35
relevant period in—
(i)
the production of films, or
(ii)
the production of films and the distribution of films
produced by it in the relevant period, and
(b)
all royalties and licence fees received by it in the relevant
40
period are in respect of films produced by it in that period or
sound recordings in relation to such films or other products
arising from such films.
(3)
A trade is not to be regarded as consisting in the carrying on of
excluded activities within section 192(1)(e) as a result only of it
45
consisting to a substantial extent in the receiving of royalties or
licence fees if—

Corporation Tax Bill
Schedule 2 — Transitionals and savings etc
Part 5 — Losses on disposal of shares
692

(a)
the company carrying on the trade is engaged in research and
development throughout the relevant period, and
(b)
all royalties and licence fees received by it in the relevant
period are attributable to research and development which it
has carried out.
5
(4)
In this section “the relevant period” means the continuous period
that is relevant for the purposes of section 78(3) of CTA 2010.”
Excluded activities: provision of services or facilities for another business
49
In relation to shares issued before 6 April 2007, section 199 of ITA 2007 (as
applied by section 79(7) of this Act) applies with the following
10
modifications—
(a)
in subsections (1) to (4), the substitution of “trade” for “business”,
wherever it occurs, and
(b)
in subsection (5) the substitution for paragraph (b) of—
“(b)
references to a trade, in relation to the provider of the
15
services or facilities, are to be read without regard to
the definition of “trade” in section 989, and
(c)
“trade”, in relation to the other person, includes any
business, profession or vocation”.
Meaning of a company being “in administration”
20
50    (1)
Sub-paragraph (2) applies in relation to—
(a)
an administration order under Part 3 of the Insolvency (Northern
Ireland) Order 1989 (S.I. 1989/2405 (N.I.19)) the petition for which
was presented before 6 April 2007, or
(b)
any corresponding order under the law of a country or territory
25
outside the United Kingdom the proceedings for which were
instituted before that date.
      (2)
Section 252 of ITA 2007 (as it applies for the purposes of Chapter 5 of Part 4
of this Act) applies with the substitution for subsection (2) of—
“(2)
A company is “in administration” if—
30
(a)
it is in administration within the meaning of Schedule B1 to
the Insolvency Act 1986, or
(b)
there is in force in relation to it—
(i)
an administration order under Part 3 of the
Insolvency (Northern Ireland) Order 1989, or
35
(ii)
any corresponding order under the law of a country
or territory outside the United Kingdom.”
      (3)
For the purposes of sub-paragraph (2), section 252 of ITA 2007 applies for the
purposes of Chapter 5 of Part 4 of this Act in any case where—
(a)
it is applied by section 80(5) of this Act,
40
(b)
it applies for the purposes of section 190 of ITA 2007 as applied by
section 83(2) of this Act, or
(c)
it applies for the purposes of section 191 of ITA 2007 as applied by
section 79(7), 81(4), 82(2) or 84(4) of this Act.
      (4)
In relation to an administration order under Part 2 of the Insolvency Act 1986
45

Corporation Tax Bill
Schedule 2 — Transitionals and savings etc
Part 6 — Group Relief
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the petition for which was presented before 15 September 2003, section 252
of ITA 2007 (as applied by section 80(5) of this Act) applies with the
substitution for subsection (2) of—
“(2)
A company is “in administration” if there is in force in relation to it—
(a)
an administration order under Part 2 of the Insolvency Act
5
1986 or Part 3 of the Insolvency (Northern Ireland) Order
1989, or
(b)
any corresponding order under the law of a country or
territory outside the United Kingdom.”
      (5)
Section 252 of ITA 2007 (as applied by section 80(5) of this Act) does not
10
apply in relation to shares issued before 21 March 2000.
Application in relation to corresponding bonus shares
51    (1)
For the purposes of this Part of this Schedule, if—
(a)
any shares (“the original shares”) have been issued to a company
before a particular date, or are treated under this paragraph as
15
having been issued to the company before a particular date, and
(b)
any corresponding bonus shares are issued to the company on or
after that date,

the bonus shares are treated as having been issued at the time the original
shares were issued to the company or are treated as having been so issued.
20
      (2)
In this paragraph “bonus shares” and “corresponding bonus shares” have
the same meaning as in Chapter 5 of Part 4.
Part 6
Group Relief
52
In section 127 “arrangements” covers only—
25
(a)
arrangements made on or after 20 February 2006, or
(b)
arrangements made before that date if—
(i)
the amount (or part) would (apart from that section) first
qualify for group relief on or after that date, or (as the case
may be)
30
(ii)
the amount (or part) arises on or after that date.
53
Section 175 has effect in relation to an accounting period of company B (see
section 165(1) or 166(1)) where either of the following events occurs in that
period or occurred in a previous period—
(a)
shares or securities of company B are issued on or after 15th
35
November 1991 in circumstances where they carry both rights
referred to in section 170(1) and rights referred to in section 171(2), or
(b)
shares or securities of company B issued before 15th November 1991
begin to carry on or after that date both rights referred to in section
170(1) and rights referred to in section 171(2) (whether or not they
40
previously carried rights referred to in one of those sections).
54
Sections 173 to 178 have effect where the option arrangements concerned are
made on or after 15th November 1991.
55    (1)
Sub-paragraph (2) applies in relation to shares issued by a company—