Taxation (International and Other Provisions) Bill

House of Commons

Session 2009 - 10
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Other Bills before Parliament

Taxation (International and Other Provisions) Bill

Taxation (International and Other Provisions) Bill
Part 7 — Tax treatment of financing costs and income
Chapter 7 — “Financing expense amount” and “financing income amount”
170

accounting period of the company in respect of the financing income implicit
in amounts received under finance leases.
(5)
Condition C is that the amount is an amount that would, apart from this Part,
be brought into account for the purposes of corporation tax in a relevant
accounting period of the company in respect of the financing income receivable
5
on debt factoring, or any similar transaction.
(6)
If—
(a)
a credit or other amount would, apart from this Part, be brought into
account in an accounting period, and
(b)
a proportion of that period does not fall within the period of account of
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the worldwide group,

the credit or other amount is to be reduced, for the purposes of this section, by
the same proportion.
(7)
This section is subject to sections 316 to 327.
315
Interpretation of sections 313 and 314
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In sections 313 and 314 the following expressions have the same meaning as
they have in Part 5 of CTA 2009 (loan relationships)—
“exchange gain” and “exchange loss”,
“impairment”,
“impairment loss”, and
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“related transaction”.
316
Group treasury companies
(1)
This section applies if, apart from this section, an amount (“the relevant
amount”) is—
(a)
a financing expense amount of a group treasury company because of
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meeting condition A, B or C in section 313, or
(b)
a financing income amount of a group treasury company because of
meeting condition A, B or C in section 314.
(2)
The relevant amount, and all other amounts that are relevant amounts in
respect of the group treasury company and the relevant period, are treated as
30
not being a financing expense amount or a financing income amount of the
group treasury company, but only if that company makes an election for the
purposes of this section in respect of the relevant period.
(3)
An election under this section must be made within 3 years after the end of the
relevant period.
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(4)
If two or more members of the worldwide group are group treasury companies
in the relevant period, an election under this section made by any of them is not
valid unless each of them makes such an election in respect of the relevant
period before the end of the 3 year period mentioned in subsection (3).
(5)
A company is a group treasury company in the relevant period if conditions 1,
40
2 and 3 are met.
(6)
Condition 1 is that the company is a member of the worldwide group.

Taxation (International and Other Provisions) Bill
Part 7 — Tax treatment of financing costs and income
Chapter 7 — “Financing expense amount” and “financing income amount”
171

(7)
Condition 2 is that the company undertakes treasury activities for the
worldwide group in the relevant period (whether or not it also undertakes
other activities).
(8)
Condition 3 is that—
(a)
if the company is the only company to meet conditions 1 and 2 in the
5
relevant period, or the only other companies to meet those conditions
are not UK group companies, at least 90% of the relevant income of the
company for the relevant period is group treasury revenue, or
(b)
if the company and one or more other companies each of which is a UK
group company meet conditions 1 and 2 in the relevant period, at least
10
90% of the aggregate relevant income of those companies for the
relevant period is group treasury revenue.
(9)
For the purposes of this section, a company undertakes treasury activities for
the worldwide group in the relevant period if, in that period, it does one or
more of the following things in relation to, or on behalf of, the worldwide
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group or any of its members—
(a)
managing surplus deposits of money or overdrafts,
(b)
making or receiving deposits of money,
(c)
lending money,
(d)
subscribing for or holding shares in another company which is a UK
20
group company and a group treasury company,
(e)
investing in debt securities, and
(f)
hedging assets, liabilities, income or expenses.
(10)
For the purposes of this section “group treasury revenue”, in relation to a
company, means revenue—
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(a)
arising from the treasury activities that the company undertakes for the
worldwide group, and
(b)
accounted for as such under generally accepted accounting practice,

before any deduction (whether for expenses or otherwise).
(11)
But revenue consisting of a dividend or other distribution is not group treasury
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revenue unless it is a dividend or distribution from a company that is, in the
relevant period—
(a)
a UK group company, and
(b)
a group treasury company.
(12)
In this section—
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“debt security” has the same meaning as in the FSA Handbook,
“relevant income”, in relation to a company, means income—
(a)
arising from the activities of the company, and
(b)
accounted for as such under generally accepted accounting
practice,
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before any deduction (whether for expenses or otherwise), and
“relevant period” means the period of account of the worldwide group to
which the relevant amount relates.
317
Real estate investment trusts
(1)
This section applies if, apart from this section, an amount (“the relevant
45
amount”) is—

Taxation (International and Other Provisions) Bill
Part 7 — Tax treatment of financing costs and income
Chapter 7 — “Financing expense amount” and “financing income amount”
172

(a)
a financing expense amount of a company because of meeting
condition A in section 313, or
(b)
a financing income amount of a company because of meeting condition
A in section 314.
(2)
The relevant amount is treated as not being a financing expense amount or a
5
financing income amount of the company if the finance arrangement is one to
which section 211 of CTA 2009 does not apply because of section 599(3)(a) of
CTA 2010.
318
Companies engaged in oil extraction activities
(1)
This section applies if, apart from this section, an amount (“the relevant
10
amount”) is—
(a)
a financing expense amount of a company because of meeting
condition A or condition B in section 313, or
(b)
a financing income amount of a company because of meeting condition
A or condition B in section 314.
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(2)
The relevant amount is treated as not being a financing expense amount or a
financing income amount of the company if conditions 1 and 2 are met.
(3)
Condition 1 is that the company is treated, in the accounting period in which
the amount is brought into account, as carrying on a ring fence trade (see
section 277 of CTA 2010).
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(4)
Condition 2 is that the amount falls to be brought into account in calculating
the profits of that trade for that accounting period.
319
Intra-group short-term finance: financing expense
(1)
This section applies if, apart from this section, an amount (“the relevant
amount”) is a financing expense amount of a company (“company A”) because
25
of meeting condition A in section 313.
(2)
The relevant amount is treated as not being a financing expense amount of
company A, but only if an election is made for this purpose.
(3)
Such an election may not be made unless conditions 1 and 2 are met.
(4)
Condition 1 is that company A and the other party to the loan relationship
30
(“company B”) are both members of the worldwide group.
(5)
Condition 2 is that the finance arrangement is a short-term loan relationship as
respects the period of account of the worldwide group.
(6)
An election under this section may only be made—
(a)
jointly by company A and company B, and
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(b)
within 36 months of the end of the period of account of the worldwide
group to which the relevant amount relates.
(7)
An election under this section is irrevocable.
(8)
In this section “short-term loan relationship” has the meaning given in section
321.
40

Taxation (International and Other Provisions) Bill
Part 7 — Tax treatment of financing costs and income
Chapter 7 — “Financing expense amount” and “financing income amount”
173

320
Intra-group short-term finance: financing income
(1)
This section applies if—
(a)
under section 319, the relevant amount is treated as not being a
financing expense amount of company A, and
(b)
apart from this section, the relevant amount is a financing income
5
amount of company B because of meeting condition A in section 314.
(2)
The relevant amount is treated as not being a financing income amount of
company B.
(3)
In this section “company A” and “company B” have the same meaning as in
section 319.
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321
Short-term loan relationships
(1)
For the purposes of section 319, the finance arrangement is a short-term loan
relationship as respects the period of account of the worldwide group (“the
relevant period”) if—
(a)
regulations made by the Commissioners provide for it to be so, or
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(b)
condition A or B is met.
(2)
Condition A is that the finance arrangement does not terminate during the
relevant period and—
(a)
to the extent that the finance arrangement provides for the creation of
money debt, its terms require all money debt created under it to be
20
settled within 12 months of money debt first being created under it, and
(b)
to the extent that the finance arrangement is otherwise a loan
relationship, its terms provide for it to terminate within 12 months of
its coming into force.
(3)
Condition B is that the finance arrangement terminates during, or after the end
25
of, the relevant period and—
(a)
to the extent that the relationship provided for the creation of money
debt, all money debt created under it was settled within 12 months of
money debt first being created under it, and
(b)
to the extent that the relationship was otherwise a loan relationship, it
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terminated within 12 months of its coming into force.
(4)
The Treasury may, by regulations, make provision about other circumstances
in which the finance arrangement is to be taken not to be a short-term loan
relationship as respects—
(a)
the relevant period, or
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(b)
any part or parts of the relevant period.
(5)
Regulations under subsection (4) may include provision for the finance
arrangement to be taken never to have been a short-term loan relationship as
respects the relevant period or the part or parts of it.
(6)
Regulations under subsection (4) may only be made if a draft of the statutory
40
instrument containing the regulations has been laid before and approved by a
resolution of the House of Commons.
(7)
The Commissioners may by regulations make provision (including provision
conferring a discretion on the Commissioners) about circumstances in which

Taxation (International and Other Provisions) Bill
Part 7 — Tax treatment of financing costs and income
Chapter 7 — “Financing expense amount” and “financing income amount”
174

regulations under subsection (4) are not to apply in relation to the finance
arrangements.
322
Stranded deficits in non-trading loan relationships: financing expense
(1)
This section applies if, apart from this section, an amount (“the relevant
amount”) is a financing expense amount of a company (“company A”) because
5
of meeting condition A in section 313.
(2)
The relevant amount is treated as not being a financing expense amount of
company A, but only if an election is made for this purpose.
(3)
Such an election may not be made unless each of conditions 1 to 4 is met.
(4)
Condition 1 is that company A and the other party to the loan relationship
10
(“company B”) are both members of the worldwide group.
(5)
Condition 2 is that company B—
(a)
is resident in the United Kingdom, or
(b)
is not resident in the United Kingdom and is carrying on a trade in the
United Kingdom through a permanent establishment in the United
15
Kingdom.
(6)
Condition 3 is that, under section 457 of CTA 2009, company B carries forward
an amount of non-trading deficit and sets it off against non-trading profits of
an accounting period that falls wholly or partly within the period of account of
the worldwide group.
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(7)
Condition 4 is that the amount of non-trading deficit carried forward and set
off is equal to, or greater than, the relevant amount.
(8)
An election under this section may only be made—
(a)
jointly by company A and company B, and
(b)
within 36 months of the end of the period of account of the worldwide
25
group to which the relevant amount relates.
323
Stranded deficits in non-trading loan relationships: financing income
(1)
This section applies if—
(a)
under section 322, the relevant amount is treated as not being a
financing expense amount of company A, and
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(b)
apart from this section, the relevant amount is a financing income
amount of company B because of meeting condition A in section 314.
(2)
The relevant amount is treated as not being a financing income amount of
company B.
(3)
In this section “company A” and “company B” have the same meaning as in
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section 322.
324
Stranded management expenses in non-trading loan relationships: financing
expense
(1)
This section applies if, apart from this section, an amount (“the relevant
amount”) is a financing expense amount of a company (“company A”) because
40
of meeting condition A in section 313.

Taxation (International and Other Provisions) Bill
Part 7 — Tax treatment of financing costs and income
Chapter 7 — “Financing expense amount” and “financing income amount”
175

(2)
The relevant amount is treated as not being a financing expense amount of
company A, but only if an election is made for this purpose.
(3)
Such an election may not be made unless each of conditions 1 to 5 is met.
(4)
Condition 1 is that company A and the other party to the finance arrangement
(“company B”) are both members of the worldwide group.
5
(5)
Condition 2 is that company B is a company with investment business (within
the meaning of Part 16 of CTA 2009) and—
(a)
is resident in the United Kingdom, or
(b)
is not resident in the United Kingdom and is carrying on a trade in the
United Kingdom through a permanent establishment in the United
10
Kingdom.
(6)
Condition 3 is that company B is allowed a deduction under section 1219 of
CTA 2009 (expenses of management of a company’s investment business) in
respect of an accounting period that falls wholly or partly within the period of
account of the worldwide group (“the relevant period”).
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(7)
Condition 4 is that the amount of the deduction allowed is equal to, or greater
than, the relevant amount.
(8)
Condition 5 is that the calculation of company B’s total profits for the relevant
period for the purposes of corporation tax results in a loss if company B’s credit
is not included in that calculation.
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(9)
An election under this section may only be made—
(a)
jointly by company A and company B, and
(b)
within 36 months of the end of the period of account of the worldwide
group to which the relevant amount relates.
(10)
In this section “company B’s credit” means the credit to company B that arises
25
from the debit to company A as a result of which condition A in section 313 is
met.
325
Stranded management expenses in non-trading loan relationships: financing
income
(1)
This section applies if—
30
(a)
under section 324, the relevant amount is treated as not being a
financing expense amount of company A, and
(b)
apart from this section, the relevant amount is a financing income
amount of company B because of meeting condition A in section 314.
(2)
The relevant amount is treated as not being a financing income amount of
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company B.
(3)
In this section “company A” and “company B” have the same meaning as in
section 324.
326
Charities
(1)
This section applies if, apart from this section, an amount (“the relevant
40
amount”) is a financing expense amount of a company because of meeting
condition A, B or C in section 313.

Taxation (International and Other Provisions) Bill
Part 7 — Tax treatment of financing costs and income
Chapter 7 — “Financing expense amount” and “financing income amount”
176

(2)
The relevant amount is treated as not being a financing expense amount of the
company if the creditor is a charity.
(3)
In this section—
“charity” means any body of persons or trust established for charitable
purposes only, and
5
“creditor” means—
(a)
if the relevant amount is a debit that meets condition A in
section 313, the loan creditor who receives the payment in
relation to which the relevant amount arises, and
(b)
if the relevant amount meets condition B or C in section 313, the
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recipient of the payment in relation to which the relevant
amount arises.
327
Educational and public bodies
(1)
This section applies if, apart from this section, an amount (“the relevant
amount”) is a financing expense amount of a company because of meeting
15
condition A, B or C in section 313.
(2)
The relevant amount is treated as not being a financing expense amount of the
company if the creditor is—
(a)
a designated educational establishment,
(b)
a health service body,
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(c)
a local authority, or
(d)
a person that is prescribed, or is of a description of persons prescribed,
in an order made by the Commissioners for the purposes of this section.
(3)
The Commissioners may not prescribe a person, or a description of persons, for
the purposes of this section unless they are satisfied that the person, or each of
25
the persons within the description, has functions some or all of which are of a
public nature.
(4)
In this section—
“creditor” means—
(a)
if the relevant amount is a debit that meets condition A in
30
section 313, the loan creditor who receives the payment in
relation to which the relevant amount arises, and
(b)
if the relevant amount meets condition B or C in section 313, the
recipient of the payment in relation to which the relevant
amount arises,
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“designated educational establishment” has the same meaning as in
section 105 of CTA 2009, and
“health service body” has the same meaning as in section 985 of CTA 2010.
328
Interpretation of sections 316 to 327
In sections 316 to 327 “finance arrangement” means—
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(a)
in the case of an amount that is a debit or credit that meets the condition
in section 313(2) or 314(2), the loan relationship to which the debit or
credit relates,
(b)
in the case of an amount that meets the condition in section 313(4) or
314(4), the finance lease to which the amount relates, and
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