Corporation Tax Bill

House of Commons

Session 2009 - 10
Internet Publications
Other Bills before Parliament

Corporation Tax Bill

Corporation Tax Bill
Part 5 — Group relief
Chapter 6 — Equity holders and profits or assets available for distribution
88

162
Meaning of “normal commercial loan”
(1)
For the purposes of sections 158(1)(b) and 159(4)(b) “normal commercial loan”
means a loan—
(a)
which is of or includes new consideration, and
(b)
in relation to which each of conditions A to D is met.
5
(2)
Condition A is that the loan does not carry any right to conversion into shares
or securities other than a right to conversion into—
(a)
shares to which section 164(1) applies,
(b)
securities to which section 164(2) applies, or
(c)
shares or securities in the relevant company’s quoted parent company
10
(see section 164(3) to (7)).
(3)
Condition B is that the loan does not carry any right to the acquisition of shares
or securities.
(4)
Condition C is that the loan does not entitle the loan creditor to any amount by
way of interest which—
15
(a)
depends to any extent on the results of the relevant company’s business
or on the results of any part of that business,
(b)
depends to any extent on the value of any of the relevant company’s
assets, or
(c)
exceeds a reasonable commercial return on the new consideration lent.
20

This subsection needs to be read with section 163.
(5)
Condition D is that the loan is a loan in relation to which the loan creditor is
entitled, on repayment, to an amount which—
(a)
does not exceed the new consideration lent, or
(b)
is reasonably comparable with the amount generally repayable (in
25
relation to an equal amount of new consideration) under the terms of
issue of securities listed on a recognised stock exchange.
163
Normal commercial loans: company’s results or value of assets
(1)
Interest is not within section 162(4)(a) by reason only that the terms of the loan
provide for the rate of interest—
30
(a)
to be reduced if the results of the relevant company’s business or any
part of the business improve, or
(b)
to be increased if such results worsen.
(2)
Interest is not within section 162(4)(b) by reason only that the terms of the loan
provide for the rate of interest—
35
(a)
to be reduced if the value of any of the relevant company’s assets
increases, or
(b)
to be increased if the value of any such assets decreases.
(3)
Subsection (4) applies if—
(a)
a loan is made to the relevant company for the purpose of facilitating
40
the acquisition of land,
(b)
the loan is made on the basis mentioned in subsection (5), and
(c)
none of the land that the loan is used to acquire is acquired with a view
to resale at a profit.

Corporation Tax Bill
Part 5 — Group relief
Chapter 6 — Equity holders and profits or assets available for distribution
89

(4)
Interest on the loan is not within section 162(4)(b) by reason only that the terms
of the loan are such that the only way the loan creditor can enforce payment of
an amount due is by exercising rights granted by way of security over the land
that the loan is used to acquire.
(5)
The basis referred to in subsection (3)(b) is that—
5
(a)
the whole of the loan is to be applied in the acquisition of land by the
relevant company or in meeting incidental costs incurred wholly and
exclusively for the purpose of obtaining the loan or providing security
for the loan,
(b)
the payment of any amount due in connection with the loan to the
10
person making it is to be secured on the land that the loan is used to
acquire, and
(c)
no other security is to be required for the payment of any such amount.
(6)
“Incidental costs” means expenditure on fees, commissions, advertising,
printing or other incidental matters.
15
164
Sections 160 and 162: supplementary
(1)
This subsection applies to any shares—
(a)
in relation to which conditions A, C, D and E in section 160 are met, and
(b)
which do not carry any rights to conversion into shares or securities
other than rights to conversion into shares or securities in the relevant
20
company’s quoted parent company (see subsections (3) to (6)).
(2)
This subsection applies to any securities—
(a)
which represent a loan of or including new consideration,
(b)
in relation to which conditions B, C and D in section 162 are met, and
(c)
which do not carry any rights to conversion into shares or securities
25
other than rights to conversion into shares or securities in the relevant
company’s quoted parent company.
(3)
For the purposes of this section and sections 160 and 162 a company (“the
candidate company”) is the relevant company’s quoted parent company if
(and only if)—
30
(a)
the relevant company is a 75% subsidiary of the candidate company,
(b)
the candidate company is not a 75% subsidiary of any company, and
(c)
the candidate company’s ordinary shares are listed on a recognised
stock exchange.
(4)
If the candidate company’s ordinary share capital is divided into two or more
35
classes, subsection (3)(c) is met only if its ordinary shares of each class are listed
on a recognised stock exchange.
(5)
In subsections (3) and (4) “ordinary shares” means shares forming part of
ordinary share capital.
(6)
Subsection (7) applies if, in determining under subsection (3)(a) whether the
40
relevant company is a 75% subsidiary of the candidate company, it is necessary
to know, for the purposes of subsection (1)(b) or (2)(c) or section 160(4)(c) or
162(2)(c), whether the candidate company is the relevant company’s quoted
parent company.
(7)
It is to be assumed for those purposes that the candidate company is the
45
relevant company’s quoted parent company.

Corporation Tax Bill
Part 5 — Group relief
Chapter 6 — Equity holders and profits or assets available for distribution
90

Company’s entitlement to profits or assets available for distribution: basic provisions
165
Proportion of profits available for distribution to which company is entitled
(1)
This section applies for the purpose of determining the proportion to which a
company (“company A”) is, at any time, beneficially entitled of any profits
available for distribution to the equity holders of another company (“company
5
B”).
(2)
The proportion is the proportion to which company A would, at that time, be
beneficially entitled on a distribution in money to the equity holders of
company B (“the profit distribution”) of—
(a)
an amount of profits equal to company B’s total profits of the relevant
10
accounting period (see section 168), or
(b)
if there are no such total profits, profits of £100.
(3)
It does not matter for the purposes of subsection (2) if any of company B’s total
profits are not actually distributed.
(4)
If company B is non-UK resident, company B’s total profits are to be calculated
15
as if it were UK resident.
(5)
For the purposes of the profit distribution, it is to be assumed that no payment
is made by way of repayment of share capital or of the principal secured by any
loan unless that payment is a distribution.
(6)
Subject to subsection (5), if an equity holder is entitled as such to a payment
20
which (apart from this subsection) would not be a distribution, the equity
holder is nevertheless to be treated as entitled to the payment on the profit
distribution.
166
Proportion of assets available for distribution to which company is entitled
(1)
This section applies for the purpose of determining the proportion to which a
25
company (“company A”) would, at any time, be beneficially entitled of any
assets available for distribution to the equity holders of another company
(“company B”) on a winding up.
(2)
The proportion is the proportion to which company A would, at that time, be
beneficially entitled if company B were to be wound up and on that winding
30
up (“the notional winding up”) the value of assets available for distribution to
company B’s equity holders were equal to—
(a)
the assets amount minus the liabilities amount, or
(b)
if the assets amount does not exceed the liabilities amount or if
company B’s balance sheet is prepared to a date other than the end of
35
the relevant accounting period (see section 168), £100.
(3)
The “assets amount” is the amount of company B’s assets as shown in its
balance sheet as at the end of the relevant accounting period.
(4)
The “liabilities amount” is the amount of company B’s liabilities as shown in
that balance sheet but excluding liabilities to equity holders as such.
40
(5)
If, on the notional winding up, an equity holder would be entitled as such to
an amount of assets which (apart from this subsection) would not be a
distribution of assets, the equity holder is nevertheless treated as entitled to the
amount on the distribution of assets on the notional winding up.

Corporation Tax Bill
Part 5 — Group relief
Chapter 6 — Equity holders and profits or assets available for distribution
91

(6)
Subsection (7) applies if—
(a)
an equity holder (“E”) of company B provided new consideration for
any shares or securities in company B in relation to which E is an equity
holder,
(b)
company B makes a loan to E or any person connected with E or
5
acquires shares or securities in E or any person so connected, and
(c)
in making that loan or acquiring those shares or securities, company B
applies, directly or indirectly, an amount (“the returned amount”)
corresponding to the whole or any part of the new consideration.
(7)
The following amounts are to be reduced by the returned amount—
10
(a)
the assets amount, and
(b)
the amount of assets to which E is beneficially entitled on the notional
winding up.
167
Profits or assets available for distribution and entitlement: supplementary
(1)
References to profits or assets available for distribution to equity holders of a
15
company do not include references to any profits or assets available for
distribution to any equity holder otherwise than as an equity holder.
(2)
References to a company being beneficially entitled to profits or assets are
references to the company being so entitled—
(a)
directly,
20
(b)
through another company or other companies, or
(c)
partly directly and partly through another company or other
companies.
(3)
If a person is an equity holder in relation to shares or securities as a result of
section 159, that person (and no other) is to be treated as being beneficially
25
entitled to any distribution of profits or assets attributable to those shares or
securities.
168
Meaning of “the relevant accounting period”
(1)
For the purpose of determining the proportion of profits or assets to which
company A would be beneficially entitled as mentioned in section 165(2) or
30
166(2) at any time, “the relevant accounting period” is the accounting period of
company B in which that time falls.
(2)
If company B is non-UK resident and is not within the charge to corporation
tax, the relevant accounting period is to be determined using the assumption
in subsection (3).
35
(3)
The assumption is that company B became UK resident (and, therefore, within
the charge to corporation tax) at the time it became a 75% subsidiary (as
mentioned in section 136) ignoring section 151(4).