Taxation (International and Other Provisions) Bill

House of Commons

Session 2009 - 10
Internet Publications
Other Bills before Parliament

Taxation (International and Other Provisions) Bill

Taxation (International and Other Provisions) Bill
Schedule 2 — Alternative finance arrangements
Part 2 — New Chapter 4 of Part 4 of TCGA 1992
221

(a)
they are entered into between two persons (“the first
purchaser” and “the second purchaser”), one or both of
whom are financial institutions, and
(b)
under the arrangements—
(i)
the first purchaser purchases an asset and sells it to
5
the second purchaser,
(ii)
the sale occurs immediately after the purchase or in
the circumstances mentioned in subsection (2),
(iii)
all or part of the second purchase price is not required
to be paid until a date later than that of the sale,
10
(iv)
the second purchase price exceeds the first purchase
price, and
(v)
the excess equates, in substance, to the return on an
investment of money at interest.
(2)
The circumstances are that—
15
(a)
the first purchaser is a financial institution, and
(b)
the asset referred to in subsection (1)(b)(i) was purchased by
the first purchaser for the purpose of entering into
arrangements within this section.
(3)
In this section—
20
“the first purchase price” means the amount paid by the first
purchaser in respect of the purchase, and
“the second purchase price” means the amount payable by the
second purchaser in respect of the sale.
(4)
This section is subject to section 151O (provision not at arm’s length:
25
exclusion of arrangements from this section and sections 151K to
151N).”
31
After section 151J insert—
“151K
Diminishing shared ownership arrangements
(1)
This section applies to arrangements if under them—
30
(a)
a financial institution (“the first owner”) acquires a beneficial
interest in an asset,
(b)
another person (“the eventual owner”) also acquires a
beneficial interest in it,
(c)
the eventual owner is to make payments to the first owner
35
amounting in aggregate to the consideration paid for the
acquisition of the first owner’s beneficial interest (but subject
to any adjustment required for such a reduction as is
mentioned in subsection (5)),
(d)
the eventual owner is to acquire the first owner’s beneficial
40
interest (whether or not in stages) as a result of those
payments,
(e)
the eventual owner is to make other payments to the first
owner (whether under a lease forming part of the
arrangements or otherwise),
45
(f)
the eventual owner has the exclusive right to occupy or
otherwise to use the asset, and

Taxation (International and Other Provisions) Bill
Schedule 2 — Alternative finance arrangements
Part 2 — New Chapter 4 of Part 4 of TCGA 1992
222

(g)
the eventual owner is exclusively entitled to any income,
profit or gain arising from or attributable to the asset
(including, in particular, an increase in its value).
(2)
For the purposes of subsection (1)(a) it does not matter if—
(a)
the first owner acquires its beneficial interest from the
5
eventual owner,
(b)
the eventual owner, or another person who is not the first
owner, also has a beneficial interest in the asset, or
(c)
the first owner also has a legal interest in it.
(3)
Subsection (1)(f) does not prevent the eventual owner from granting
10
an interest or right in relation to the asset if the conditions in
subsection (4) are met.
(4)
The conditions are that—
(a)
the grant is not to—
(i)
the first owner,
15
(ii)
a person controlled by the first owner, or
(iii)
a person controlled by a person who also controls the
first owner, and
(b)
the grant is not required by the first owner or arrangements
to which the first owner is a party.
20
(5)
Subsection (1)(g) does not prevent the first owner from—
(a)
having responsibility for any reduction in the asset’s value,
or
(b)
having a share in a loss arising out of any such reduction.
(6)
Section 1124 of CTA 2010 (meaning of “control”) applies for the
25
purposes of this section.
(7)
This section is subject to section 151O (provision not at arm’s length:
exclusion of arrangements from section 151J, this section and
sections 151L to 151N).”
32
After section 151K insert—
30
“151L
Deposit arrangements
(1)
This section applies to arrangements if under them—
(a)
a person (“the depositor”) deposits money with a financial
institution,
(b)
the money, together with money deposited with the
35
institution by other persons, is used by it with a view to
producing a profit,
(c)
from time to time the institution makes or credits a payment
to the depositor out of profit resulting from the use of the
money,
40
(d)
the payment is in proportion to the amount deposited by the
depositor, and
(e)
the payments so made or credited by the institution equate,
in substance, to the return on an investment of money at
interest.
45

Taxation (International and Other Provisions) Bill
Schedule 2 — Alternative finance arrangements
Part 2 — New Chapter 4 of Part 4 of TCGA 1992
223

(2)
This section is subject to section 151O (provision not at arm’s length:
exclusion of arrangements from sections 151J, 151K, this section and
sections 151M and 151N).”
33
After section 151L insert—
“151M
Profit share agency arrangements
5
(1)
This section applies to arrangements if under them—
(a)
a person (“the principal”) appoints an agent,
(b)
one or both of the principal and agent is a financial
institution,
(c)
the agent uses money provided by the principal with a view
10
to producing a profit,
(d)
the principal is entitled, to a specified extent, to profits
resulting from the use of the money,
(e)
the agent is entitled to any additional profits resulting from
its use (and may also be entitled to a fee paid by the
15
principal), and
(f)
payments made because of the principal’s entitlement to
profits equate, in substance, to the return on an investment of
money at interest.
(2)
This section is subject to section 151O (provision not at arm’s length:
20
exclusion of arrangements from sections 151J to 151L, this section
and section 151N).”
34
After section 151M insert—
“151N
Investment bond arrangements
(1)
This section applies to arrangements if—
25
(a)
they provide for one person (“the bond-holder”) to pay a sum
of money (“the capital”) to another (“the bond-issuer”),
(b)
they identify assets, or a class of assets, which the bond-issuer
will acquire for the purpose of generating income or gains
directly or indirectly (“the bond assets”),
30
(c)
they specify a period at the end of which they cease to have
effect (“the bond term”),
(d)
the bond-issuer undertakes under the arrangements—
(i)
to dispose at the end of the bond term of any bond
assets which are still in the bond-issuer’s possession,
35
(ii)
to make a repayment of the capital (“the redemption
payment”) to the bond-holder during or at the end of
the bond-term (whether or not in instalments), and
(iii)
to pay to the bond-holder other payments on one or
more occasions during or at the end of the bond term
40
(“additional payments”),
(e)
the amount of the additional payments does not exceed an
amount which would be a reasonable commercial return on
a loan of the capital,
(f)
under the arrangements the bond-issuer undertakes to
45
arrange for the management of the bond assets with a view to
generating income sufficient to pay the redemption payment
and additional payments,

Taxation (International and Other Provisions) Bill
Schedule 2 — Alternative finance arrangements
Part 2 — New Chapter 4 of Part 4 of TCGA 1992
224

(g)
the bond-holder is able to transfer the rights under the
arrangements to another person (who becomes the bond-
holder because of the transfer),
(h)
the arrangements are a listed security on a recognised stock
exchange, and
5
(i)
the arrangements are wholly or partly treated in accordance
with international accounting standards as a financial
liability of the bond-issuer, or would be if the bond-issuer
applied those standards.
(2)
For the purposes of subsection (1)—
10
(a)
the bond-issuer may acquire bond assets before or after the
arrangements take effect,
(b)
the bond assets may be property of any kind, including rights
in relation to property owned by someone other than the
bond-issuer,
15
(c)
the identification of the bond assets mentioned in subsection
(1)(b) and the undertakings mentioned in subsection (1)(d)
and (f) may (but need not) be described as, or accompanied
by a document described as, a declaration of trust,
(d)
a reference to the management of assets includes a reference
20
to disposal,
(e)
the bond-holder may (but need not) be entitled under the
arrangements to terminate them, or participate in
terminating them, before the end of the bond term,
(f)
the amount of the additional payments may be—
25
(i)
fixed at the beginning of the bond term,
(ii)
determined wholly or partly by reference to the value
of or income generated by the bond assets, or
(iii)
determined in some other way,
(g)
if the amount of the additional payments is not fixed at the
30
beginning of the bond term, the reference in subsection (1)(e)
to the amount of the additional payments is a reference to the
maximum amount of the additional payments,
(h)
the amount of the redemption payment may (but need not)
be subject to reduction in the event of a fall in the value of the
35
bond assets or in the rate of income generated by them, and
(i)
entitlement to the redemption payment may (but need not)
be capable of being satisfied (whether or not at the option of
the bond-issuer or the bond-holder) by the issue or transfer of
shares or other securities.
40
(3)
This section is subject to section 151O (provision not at arm’s length:
exclusion of arrangements from sections 151J to 151M and this
section).”
35
After section 151N insert—
“151O
Provision not at arm’s length: exclusion of arrangements from
45
sections 151J to 151N
(1)
Arrangements to which this section applies are not—
(a)
purchase and resale arrangements,
(b)
diminishing shared ownership arrangements,

Taxation (International and Other Provisions) Bill
Schedule 2 — Alternative finance arrangements
Part 2 — New Chapter 4 of Part 4 of TCGA 1992
225

(c)
deposit arrangements,
(d)
profit share agency arrangements, or
(e)
investment bond arrangements.
(2)
This section applies to arrangements if—
(a)
apart from this section they would be alternative finance
5
arrangements,
(b)
subsection (3) or (5) of section 147 of TIOPA 2010 (tax
calculations to be based on arm’s length, not actual,
provision) requires the profits and losses of a person who is a
party to the arrangements to be calculated for tax purposes as
10
if the arm’s length provision (within the meaning of that
section) had been made or imposed rather than in accordance
with the arrangements,
(c)
any person who is an affected person for the purposes of Part
4 of that Act (“the affected person”) is entitled to—
15
(i)
relevant return in relation to the arrangements, or
(ii)
an amount representing relevant return in relation to
them, and
(d)
the affected person is not subject—
(i)
to income tax or corporation tax, or
20
(ii)
to any corresponding tax under the law of a territory
outside the United Kingdom,

on the relevant return or the amount representing it.
(3)
In this section “relevant return”, in relation to arrangements, means
any amount which would be alternative finance return if the
25
arrangements were alternative finance arrangements.”
36
After section 151O insert—
“Meaning of “alternative finance return”
151P
Purchase and resale arrangements
(1)
In the case of purchase and resale arrangements, so much of the
30
second purchase price as is specified under the following provisions
of this section is alternative finance return for the purposes of this
Chapter.
(2)
If under the arrangements the whole of the second purchase price is
paid on one day, the alternative finance return equals the amount by
35
which the second purchase price exceeds the first purchase price.
(3)
If under the arrangements the second purchase price is paid by
instalments, the alternative finance return in each instalment equals
the appropriate amount.
(4)
The appropriate amount is an amount equal to the interest which
40
would have been included in the instalment on the assumptions in
subsection (5).
(5)
The assumptions are that—
(a)
interest is payable on a loan by the first purchaser to the
second purchaser of an amount equal to the first purchase
45
price,

Taxation (International and Other Provisions) Bill
Schedule 2 — Alternative finance arrangements
Part 2 — New Chapter 4 of Part 4 of TCGA 1992
226

(b)
the total interest payable on the loan is equal to the amount
by which the second purchase price exceeds the first
purchase price,
(c)
the instalment is a part repayment of the principal of the loan
with interest, and
5
(d)
the loan is made on arm’s length terms and accounted for
under generally accepted accounting practice.
(6)
In this section expressions used in section 151J have the same
meaning as in that section.”
37
After section 151P insert—
10
“151Q
Purchase and resale arrangements where return in foreign currency
(1)
If, in the case of purchase and resale arrangements, alternative
finance return is paid in a currency other than sterling—
(a)
by or to a person other than a company, and
(b)
otherwise than for the purposes of a trade, profession or
15
vocation or a property business,

subsections (2) and (3) apply as respects that person.
(2)
The alternative finance return for the purposes of section 151P and
the appropriate amount for the purposes of section 151P(3) are to be
calculated in that other currency.
20
(3)
The amount of each payment of alternative finance return is to be
translated into sterling at a spot rate of exchange for the day on
which the payment is made.”
38
After section 151Q insert—
“151R
Diminishing shared ownership arrangements
25
(1)
In the case of diminishing shared ownership arrangements,
payments by the eventual owner under the arrangements are
alternative finance return for the purposes of this Chapter, except so
far as subsection (2) or (3) applies to them.
(2)
This subsection applies to the payments so far as they amount to
30
payments of the kind described in section 151K(1)(c) (payments to be
made by the eventual owner to the institution, amounting to the
consideration paid for the acquisition of the institution’s beneficial
interest).
(3)
This subsection applies to the payments so far as they amount to
35
payments in respect of any arrangement fee or legal or other
expenses which the eventual owner is required under the
arrangements to pay.
(4)
In this section “the eventual owner” has the same meaning as in
section 151K.”
40
39
After section 151R insert—
“151S
Other arrangements
(1)
In the case of deposit arrangements, amounts paid or credited as
mentioned in section 151L(1)(c) by a financial institution under the

Taxation (International and Other Provisions) Bill
Schedule 2 — Alternative finance arrangements
Part 2 — New Chapter 4 of Part 4 of TCGA 1992
227

arrangements (payments to depositor out of profits resulting from
use of money) are alternative finance return for the purposes of this
Chapter.
(2)
In the case of profit share agency arrangements, amounts paid or
credited by a financial institution in accordance with such an
5
entitlement as is mentioned in section 151M(1)(d) (principal’s
entitlement to profits under the arrangements) are alternative
finance return for the purposes of this Chapter.
(3)
In the case of investment bond arrangements, the additional
payments under the arrangements are alternative finance return for
10
the purposes of this Chapter.
(4)
In this section “additional payments” has the same meaning as in
section 151N (see subsection (1)(d)(iii) of that section).”
40
After section 151S insert—
“Special rules for investment bond arrangements
15
151T
Investment bond arrangements are qualifying corporate bonds
(1)
For the purposes of section 117, investment bond arrangements are a
corporate bond, issued on the date on which the arrangements are
entered into, if each of conditions A to D is met.
(2)
Condition A is that the capital is expressed in sterling.
20
(3)
Condition B is that the arrangements do not include provision for the
redemption payment to be in a currency other than sterling.
(4)
Condition C is that entitlement to the redemption payment is not
capable of conversion (directly or indirectly) into an entitlement to
the issue of securities apart from other arrangements to which
25
section 151N applies.
(5)
Condition D is that the additional payments are not determined
wholly or partly by reference to the value of the bond assets.
(6)
Section 117(2) applies for the purposes of this section as it applies for
the purposes of section 117(1).”
30
41
After section 151T insert—
“151U
Treatment of bond-holder and bond-issuer
(1)
This section applies for the purposes of this Act and any other
enactment about capital gains tax and irrespective of the position for
other purposes.
35
(2)
The bond-holder under investment bond arrangements is not treated
as having a legal or beneficial interest in the bond assets.
(3)
The bond-issuer under such arrangements is not treated as a trustee
of the bond assets.
(4)
Gains accruing to the bond-issuer in connection with the bond assets
40
are gains of the bond-issuer and not of the bond-holder (and do not
arise to the bond-issuer in a fiduciary or representative capacity).