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 8 — “Tested expense amount” and “tested income amount”
177

(c)
in the case of an amount that meets the condition in section 313(5) or
314(5), the debt factoring or similar transaction to which the amount
relates.
Chapter 8
“Tested expense amount” and “tested income amount”
5
329
The tested expense amount
(1)
References in this Part to the “tested expense amount” for a period of account
of the worldwide group are to the sum of the net financing deductions of each
relevant group company.
(2)
References in this Part to the “net financing deduction” of a company for a
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period of account of the worldwide group are to—
(a)
the sum of the company’s financing expense amounts for the period
(see section 313), less
(b)
the sum of the company’s financing income amounts for the period (see
section 314).
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(3)
References in subsection (2) to a company’s financing expense amounts or
financing income amounts for a period of account of the worldwide group do
not include any amount that arises as a result of a transaction that takes place
at a time at which the company is not a relevant group company.
(4)
If the amount determined in accordance with subsection (2) is negative, the net
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financing deduction of the company for the period is nil.
(5)
If the amount determined in accordance with subsection (2) is small (see
section 331), the net financing deduction of the company for the period is nil.
330
The tested income amount
(1)
References in this Part to the “tested income amount” for the period of account
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of the worldwide group are to the sum of the net financing incomes of each UK
group company.
(2)
The reference in subsection (1) to the “net financing income” of a company for
a period of account of the worldwide group is to—
(a)
the sum of the company’s financing income amounts for the period (see
30
section 314), less
(b)
the sum of the company’s financing expense amounts for the period
(see section 313).
(3)
References in subsection (2) to a company’s financing expense amounts or
financing income amounts for a period of account of the worldwide group do
35
not include any amount that arises as a result of a transaction that takes place
at a time at which the company is not a UK group company.
(4)
If the amount determined in accordance with subsection (2) is negative, the net
financing income of the company for the period is nil.
(5)
If the amount determined in accordance with subsection (2) is small (see
40
section 331), the net financing income of the company for the period is nil.

Taxation (International and Other Provisions) Bill
Part 7 — Tax treatment of financing costs and income
Chapter 9 — “Available amount”
178

331
Companies with net financing deduction or net financing income that is small
(1)
An amount determined in accordance with section 329(2) or 330(2) is “small” if
it is less than £500,000.
(2)
The Treasury may by order amend subsection (1) by substituting a higher or
lower amount for the amount for the time being specified there.
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(3)
An order under subsection (2) may only be made if a draft of the statutory
instrument containing the order has been laid before and approved by a
resolution of the House of Commons.
(4)
An order under subsection (2) may only have effect in relation to periods of
account of the worldwide group beginning after the date on which the order is
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made.
Chapter 9
“Available amount”
332
The available amount
(1)
References in this Part to the “available amount” for a period of account of the
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worldwide group are to the sum of the amounts disclosed in the financial
statements of the group for that period in respect of—
(a)
interest payable on amounts borrowed,
(b)
amortisation of discounts relating to amounts borrowed,
(c)
amortisation of premiums relating to amounts borrowed,
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(d)
amortisation of ancillary costs relating to amounts borrowed,
(e)
the financing cost implicit in payments made under finance leases,
(f)
the financing cost relating to debt factoring, or
(g)
matters of such other description as may be specified in regulations
made by the Commissioners.
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(2)
An amount that falls within any of paragraphs (a) to (g) of subsection (1) is to
be disregarded for the purposes of that subsection to the extent that—
(a)
the amount represents a dividend payable in respect of preference
shares, and
(b)
those shares are recognised as a liability in the financial statements of
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the group for the period.
333
Group members with income from oil extraction subject to particular tax
treatment in UK
(1)
In calculating the available amount, an amount disclosed in the financial
statements of the worldwide group (“the external finance amount”) must be
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disregarded if conditions A and B are met.
(2)
Condition A is that a member of the worldwide group is treated in a relevant
accounting period as carrying on a ring fence trade (see section 277 of CTA
2010).
(3)
Condition B is that the external finance amount falls to be brought into account
40
for the purposes of corporation tax in calculating the profits of that trade for
that accounting period.

Taxation (International and Other Provisions) Bill
Part 7 — Tax treatment of financing costs and income
Chapter 9 — “Available amount”
179

(4)
In this section “relevant accounting period”, in relation to a member of the
worldwide group, means an accounting period of the member that falls wholly
or partly within the period of account of the worldwide group.
334
Group members with income from shipping subject to particular tax
treatment in UK
5
(1)
In calculating the available amount, an amount disclosed in the financial
statements of the worldwide group (“the external finance amount”) must be
disregarded if conditions A and B are met.
(2)
Condition A is that a member of the worldwide group is, for a relevant
accounting period, a tonnage tax company for the purposes of Schedule 22 to
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FA 2000.
(3)
Condition B is that the external finance amount—
(a)
is taken into account in computing relevant shipping profits of that
company for that accounting period, or
(b)
comprises deductible finance costs outside the ring fence, to the extent
15
that they are adjusted under paragraph 61 or 62 of Schedule 22 to FA
2000.
(4)
In this section—
“relevant accounting period”, in relation to a member of the worldwide
group, means an accounting period of the member that falls wholly or
20
partly within the period of account of the worldwide group, and
“relevant shipping profits” has the same meaning as in Schedule 22 to FA
2000 (see Part 6 of that Schedule).
335
Group members with income from property rental subject to particular tax
treatment in UK
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(1)
In calculating the available amount, an amount disclosed in the financial
statements of the worldwide group (“the external finance amount”) must be
disregarded if conditions A and B are met.
(2)
Condition A is that a member of the worldwide group is treated in a relevant
accounting period as carrying on a separate business under section 541 of CTA
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2010 (ring-fencing of property rental business).
(3)
Condition B is that the external finance amount falls to be brought into account
in calculating the profits arising from that business in that accounting period.
(4)
In this section “relevant accounting period”, in relation to a member of the
worldwide group, means an accounting period of the member that falls wholly
35
or partly within the period of account of the worldwide group.
336
Meaning of accounting expressions used in this Chapter
Subject to any provision to the contrary, expressions used in this Chapter have
the meaning for the time being given by international accounting standards.

Taxation (International and Other Provisions) Bill
Part 7 — Tax treatment of financing costs and income
Chapter 10 — Other interpretative provisions
180

Chapter 10
Other interpretative provisions
337
The worldwide group
In this Part “the worldwide group” means any group of entities that—
(a)
is large, and
5
(b)
contains one or more relevant group companies.
338
Meaning of “group”
(1)
Subject to subsections (2) and (3), in this Part “group” has the meaning for the
time being given by international accounting standards.
(2)
If a group would (apart from this subsection) contain more than one ultimate
10
parent, each of those ultimate parents, together with its subsidiaries, is to be
treated as a separate group.
(3)
An entity that is a parent of the ultimate parent of a group is to be treated as
not being a member of the group.
(4)
Subsections (2) and (3) do not apply for the purposes of section 339.
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339
Meaning of “ultimate parent”
(1)
For the purposes of this Part, “ultimate parent”, in relation to a group, means
an entity that—
(a)
is a member of the group,
(b)
is a corporate entity or a relevant non-corporate entity,
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(c)
is not a subsidiary (whether direct or indirect) of a corporate entity or a
relevant non-corporate entity, and
(d)
is not a collective investment scheme.
(2)
In this section “collective investment scheme” has the meaning given by
section 235 of FISMA 2000.
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340
Meaning of “corporate entity”
(1)
In this Part “corporate entity” means (subject to subsection (4))—
(a)
a body corporate incorporated under the laws of any part of the United
Kingdom or any other country or territory, or
(b)
any other entity that meets conditions A and B.
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(2)
Condition A is that the person or persons who have an interest in the entity
hold shares in the entity, or interests corresponding to shares.
(3)
Condition B is that the amount of profits to which each person who has an
interest in the entity is entitled depends upon a decision that—
(a)
is taken by the entity or members of the entity, and
35
(b)
is taken after the period in which the profits arise.
(4)
The following are not corporate entities for the purposes of this Part—
(a)
the Crown,
(b)
a Minister of the Crown,

Taxation (International and Other Provisions) Bill
Part 7 — Tax treatment of financing costs and income
Chapter 10 — Other interpretative provisions
181

(c)
a government department,
(d)
a Northern Ireland department, or
(e)
a foreign sovereign power.
341
Meaning of “relevant non-corporate entity”
(1)
In this Part “relevant non-corporate entity” means an entity—
5
(a)
that is not a corporate entity, and
(b)
in relation to which conditions A and B are met.
(2)
Condition A is that shares or other interests in the entity are listed on a
recognised stock exchange.
(3)
Condition B is that the shares or other interests in the entity are sufficiently
10
widely held.
(4)
For this purpose shares or other interests in an entity are “sufficiently widely
held” if no participator in the entity holds more than 10% by value of all the
shares or other interests in the entity.
(5)
Section 454 of CTA 2010 (meaning of participator) applies for the purposes of
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this section.
(6)
In the application of that provision for those purposes, references to a company
are to be treated as references to an entity.
342
Treatment of entities stapled to corporate, or relevant non-corporate, entities
(1)
If a corporate entity is stapled to another entity, the two entities are treated for
20
the purposes of this Part as if—
(a)
they were one entity, and
(b)
that one entity were a corporate entity.
(2)
If a relevant non-corporate entity is stapled to another entity, the two entities
are treated as if—
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(a)
they were one entity, and
(b)
that one entity were a relevant non-corporate entity.
(3)
For the purposes of this section, an entity (“entity A”) is “stapled” to another
(“entity B”) if, in consequence of the nature of the rights attaching to the shares
or other interests in entity A (including any terms or conditions attaching to the
30
right to transfer the interests), it is necessary or advantageous for a person who
has, disposes of or acquires shares or other interests in entity A also to have, to
dispose of or to acquire shares or other interests in entity B.
343
Treatment of business combinations
(1)
This section applies if two corporate entities are—
35
(a)
not subsidiaries of the same entity, but
(b)
are treated under international accounting standards as a single
economic entity by reason of being a business combination achieved by
contract.
(2)
The two entities are treated for the purposes of this Part as if—
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(a)
they were one entity, and

Taxation (International and Other Provisions) Bill
Part 7 — Tax treatment of financing costs and income
Chapter 10 — Other interpretative provisions
182

(b)
that one entity were a corporate entity.
344
Meaning of “large” in relation to a group
(1)
For the purposes of this Part, a group is “large” at any time if (and only if) any
member of the group is not at that time within the category of micro, small and
medium-sized enterprises as defined in the Annex to Commission
5
Recommendation 2003/361/EC of 6 May 2003 (“the Annex”).
(2)
In its application as a result of subsection (1), the Annex has effect subject to the
following qualifications.
(3)
If a member of the group is in liquidation or administration, the rights of the
liquidator or administrator (in that capacity) are to be left out of account when
10
applying Article 3(3)(b).
(4)
Article 3 has effect with the omission of paragraph (5) (declaration in good faith
where control cannot be determined etc).
(5)
The first sentence of Article 4(1) has effect as if the reference to the latest
approved accounting period of a member of the group were to the current
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accounting period of that member.
(6)
Article 4 has effect with the omission of—
(a)
the second sentence of paragraph (1) (data to be taken into account
from date of closure of accounts),
(b)
paragraph (2) (no change of status unless ceilings exceeded for two
20
consecutive periods), and
(c)
paragraph (3) (estimate in case of newly established enterprise).
345
Meaning of “UK group company” and “relevant group company”
(1)
This section applies for the purposes of this Part.
(2)
A company is a “UK group company” if—
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(a)
it meets condition A, and
(b)
it is a member of the worldwide group.
(3)
A company is a “relevant group company” if—
(a)
it meets condition A, and
(b)
it meets condition B.
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(4)
Condition A is that the company—
(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
Kingdom.
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(5)
Condition B is that the company is either—
(a)
the ultimate parent of the worldwide group, or
(b)
a relevant subsidiary of the ultimate parent of the worldwide group.
(6)
A company is a “relevant subsidiary” of the ultimate parent of the worldwide
group if the company is a member of the worldwide group and—
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(a)
the company is a 75% subsidiary of the ultimate parent,

Taxation (International and Other Provisions) Bill
Part 7 — Tax treatment of financing costs and income
Chapter 10 — Other interpretative provisions
183

(b)
the ultimate parent is beneficially entitled to at least 75% of any profits
available for distribution to equity holders of the company, or
(c)
the ultimate parent would be beneficially entitled to at least 75% of any
assets of the company available for distribution to its equity holders on
a winding-up.
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(7)
Chapter 6 of Part 5 of CTA 2010 (equity holders and profits or assets available
for distribution) applies for the purposes of subsection (6)(b) and (c) as it
applies for the purposes of section 151(4) of that Act.
346
Financial statements of the worldwide group
(1)
This section applies for the purposes of this Part.
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(2)
References to financial statements of the worldwide group are to consolidated
financial statements of the ultimate parent and its subsidiaries; and references
to a balance sheet of the worldwide group are to be read accordingly.
(3)
References to a period of account of the worldwide group are to a period in
respect of which financial statements of the worldwide group are drawn up.
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347
Non-compliant financial statements of the worldwide group
(1)
This section applies if—
(a)
financial statements of the worldwide group are drawn up in respect of
a period,
(b)
those financial statements are not acceptable, and
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(c)
the amounts disclosed in those financial statements are materially
different from those that would be disclosed in IAS financial statements
for the period.
(2)
This Part (apart from this section) applies as if IAS financial statements had
been drawn up in respect of the period.
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(3)
For the purposes of this section, financial statements are “acceptable” if—
(a)
they are drawn up in accordance with international accounting
standards,
(b)
they meet such conditions relating to accounting standards, or
accounting principles or practice, as may be specified in regulations
30
made by the Commissioners, or
(c)
conditions A, B and C are met.
(4)
Condition A is that—
(a)
the companies whose results are included in the financial statements,
and
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(b)
the companies whose results would be included in IAS financial
statements of the worldwide group for the same period, were such
statements drawn up,

are the same.
(5)
Condition B is that—
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(a)
the transactions whose results are reflected in the amounts mentioned
in section 332(1)(a) to (g) in the financial statements, and