Clause 274: Application of Chapter and meaning of “total disallowed amount”

550.     This clause applies the Chapter if, for any period of account (“the relevant period of account”) of the “worldwide group”, the “tested expense amount” exceeds the “available amount”. It is based on paragraph 15 of Schedule 15 to FA 2009.

Clause 275: Meaning of “company to which this Chapter applies”

551.     This clause provides that the Chapter applies to a company that is a relevant group company at any time during the relevant period of account and is based on paragraph 16 of Schedule 15 to FA 2009.

Clause 276: Appointment of authorised company for relevant period of account

552.     This clause provides that the companies to which the Chapter applies may appoint one of their number to act on their behalf for the relevant period of account in respect of matters governed by the Chapter. The clause is based on paragraph 17 of Schedule 15 to FA 2009.

Clause 277: Meaning of “the reporting body”

553.     This clause defines the term “the reporting body” for the purposes of this Chapter as the company appointed under clause 276 for the relevant period of account, or the companies to which this Part applies (acting jointly) if no such appointment has effect. It is based on paragraph 18 of Schedule 15 to FA 2009.

Clause 278: Statement of allocated disallowances: submission

554.     This clause requires the reporting body to send a “statement of allocated disallowances” for the relevant period of account to HMRC. It is based on paragraph 19 of Schedule 15 to FA 2009.

Clause 279: Statement of allocated disallowances: submission of revised statement

555.     This clause allows the reporting body to submit a revised statement to HMRC, with subsequent revisions also being allowed. It is based on paragraph 20 of Schedule 15 to FA 2009.

Clause 280: Statement of allocated disallowances: requirements

556.     This clause sets out the requirements of a statement of allocated disallowances and is based on paragraph 21 of Schedule 15 to FA 2009.

Clause 281: Statement of allocated disallowances: effect

557.     This clause gives the effect of the statement of allocated disallowances, namely that a financing expense amount of a company specified in a statement is not to be brought into account by the company for corporation tax purposes. It is based on paragraph 22 of Schedule 15 to FA 2009.

Clause 282: Company tax returns

558.     This clause provides that where a company has delivered a company tax return for the relevant period, and as a result of a revised statement either the amount of profits on which corporation tax is chargeable for a relevant accounting period of a company changes, or any other information contained in the return is rendered incorrect, then the company is treated as having amended its return for the accounting period so as to reflect the change or correct the information. It is based on paragraph 23 of Schedule 15 to FA 2009.

Clause 283: Power to make regulations about statement of allocated disallowances

559.     This clause provides a regulation-making power to allow the Commissioners for HMRC to introduce rules governing a statement of allocated disallowances, and mentions matters that may be covered in particular circumstances. It is based on paragraph 24 of Schedule 15 to FA 2009.

Clause 284: Failure of reporting body to submit statement of allocated disallowances

560.     This clause sets out the consequences of a failure by a reporting body to submit a statement of allocated disallowances that complies with the requirements of clause 280. It is based on paragraph 25 of Schedule 15 to FA 2009.

Clause 285: Powers to make regulations in relation to reductions under section 284

561.     This clause provides a regulation-making power to allow the Commissioners for HMRC to introduce rules to ensure that a company in relation to which a financing expense amount is reduced under clause 284 has sufficient information to determine its amount and describes matters that may be covered in particular. It is based on paragraph 26 of Schedule 15 to FA 2009.

Chapter 4: Exemption of financing income

Overview

562.     This Chapter sets out how the group should notify HMRC of the allocation of the exemption between the group companies by submitting an allocation statement, providing an alternative procedure on failure to do so.

Clause 286: Application of Chapter and meaning of “total disallowed amount”

563.     This clause applies this Chapter to deal with the exemption of financing income for a period of account of the worldwide group where the tested expense amount exceeds the available amount. It is based on paragraph 27 of Schedule 15 to FA 2009.

Clause 287: Meaning of “company to which this Chapter applies”

564.     This clause provides that this Chapter applies to a company that is a UK group company at any time during the period of account of the worldwide group. It is based on paragraph 28 of Schedule 15 to FA 2009.

Clause 288: Appointment of authorised company for relevant period of account

565.     This clause provides a regulation-making power to allow the Commissioners for HMRC to introduce rules governing a statement of allocated exemptions, mentioning matters that may be covered in particular. It is based on paragraph 29 of Schedule 15 to FA 2009.

Clause 289: Meaning of “the reporting body”

566.     This clause gives the meaning of “the reporting body” and is based on paragraph 30 of Schedule 15 to FA 2009.

Clause 290: Statement of allocated exemptions: submission

567.     This clause requires a statement of allocated exemptions to be submitted to HMRC and is based on paragraph 31 of Schedule 15 to FA 2009.

Clause 291: Statement of allocated exemptions: submission of revised statement

568.     This clause allows the reporting body to submit a revised statement to HMRC and is based on paragraph 32 of Schedule 15 to FA 2009.

Clause 292: Statement of allocated exemptions: requirements

569.     This clause sets out the requirements of a statement of allocated exemptions in terms of the information it must contain and is based on paragraph 33 of Schedule 15 to FA 2009.

Clause 293: Statement of allocated exemptions: effect

570.     This clause gives the effect of the statement of allocated exemptions and is based on paragraph 34 of Schedule 15 to FA 2009.

Clause 294: Company tax returns

571.     This clause provides that where a company has delivered a company tax return and there is a change in the profits as a result of a revised statement of allocated exemptions or other information in the return is rendered incorrect, the company is treated as having amended its return for the accounting period concerned. It is based on paragraph 35 of Schedule 15 to FA 2009.

Clause 295: Power to make regulations about statement of allocated exemptions

572.     This clause provides a regulation-making power to allow the Commissioners for HMRC to introduce rules governing a statement of allocated exemptions and mentions matters which may be covered in particular. It is based on paragraph 36 of Schedule 15 to FA 2009.

Clause 296: Failure of reporting body to submit statement of allocated exemptions

573.     This clause sets out the consequences of a failure by a reporting body to submit a statement of allocated exemptions that complies with the requirements of clause 292. It is based on paragraph 37 of Schedule 15 to FA 2009.

Clause 297: Power to make regulations in relation to reductions under section 296

574.     This clause provides a regulation-making power to allow the Commissioners for HMRC to introduce rules to ensure that a company to which a financing income amount is reduced under clause 296 has sufficient information to determine its amount and mentions matters that may be covered in particular. It is based on paragraph 38 of Schedule 15 to FA 2009.

Clause 298: Balancing payments between group companies: no tax charge or relief

575.     This clause provides that, where in certain defined circumstances one company makes a payment to another company as a result of an adjustment to taxable income or expenses made under this Part, then those amounts are not taken into account in computing the taxable profits of either company. It is based on paragraph 39 of Schedule 15 to FA 2009.

Chapter 5: Intra-group financing income where payer denied deduction

Overview

576.     Chapter 5 allows intra-group financing income received from a company resident in the EEA, excluding the United Kingdom, to be exempt from corporation tax. To the extent that tax relief is not available for finance costs within the EEA other than the United Kingdom, the income is not brought into account for the purposes of corporation tax in the hands of the recipient.

Clause 299: Tax exemption for certain financing income received from EEA companies

577.     This clause gives an exemption for an amount of financing income received from a group company that is resident in the EEA, excluding the United Kingdom. Exemption is subject to meeting all the conditions A to C which are defined in subsequent clauses. It is based on paragraph 40 of Schedule 15 to FA 2009.

Clause 300: Meaning of “relevant associate”

578.     This clause defines “relevant associate” for the purposes of the Chapter and is based on paragraph 41 of Schedule 15 to FA 2009.

Clause 301: Meaning of “tax-resident” and “EEA territory”

579.     This clause defines “tax resident” and “EEA territory” for the purposes of this Chapter and is based on paragraph 42 of Schedule 15 to FA 2009.

Clause 302: Qualifying EEA tax relief for payment in current or previous period

580.     This clause defines the requirement set out in the first of the two elements of condition C of clause 299. Both parts of condition C must be met to fulfil the condition that no relief is available in respect of the financing income. The clause is based on paragraph 43 of Schedule 15 to FA 2009.

Clause 303: Qualifying EEA tax relief for payment in future period

581.     This clause sets out the second requirement of condition C in clause 299. It is similar to the first requirement described in the previous clause except that it refers in each case to a future period. The clause is based on paragraph 44 of Schedule 15 to FA 2009.

Clause 304: References to tax of a territory

582.     This clause defines the term “tax” for the purposes of this Chapter and is based on paragraph 45 of Schedule 15 to FA 2009.

Clause 305: Financing income amounts of a company

583.     This clause defines the term “financing income amount”, which is the term used in clause 299 to describe the amount that is exempt in the hands of a company subject to conditions A to C of that clause. It is based on paragraph 46 of Schedule 15 to FA 2009.

Chapter 6: Tax avoidance

Overview

584.     This Chapter provides anti-avoidance rules for the Part. The first rule is targeted at avoidance schemes that manipulate the rules in Chapter 2 in order to avoid the application of the Part to a group of companies that would not otherwise have met the ‘gateway’ conditions in clause 261. The second targets schemes to reduce the amount of a disallowance under the debt cap, whether by decreasing the tested expense amount or by increasing the available amount or the tested income amount, or any combination of these. The third rule counters manipulation of the Chapter 5 rules which disregard certain intra-group financing income.

Clause 306: Schemes involving manipulation of rules in Chapter 2

585.     This clause counters schemes that attempt to manipulate the “gateway” conditions. For example, a group that would otherwise fail the test in clause 261 (so that the debt cap rules applied) might borrow from a bank at the end of its period of account to boost the “worldwide gross debt” amount defined in clause 264, repaying the loan the next day. The clause is based on paragraph 47 of Schedule 15 to FA 2009.

Clause 307: Schemes involving manipulation of rules in Chapters 3 and 4

586.     This clause is directed at schemes manipulating the tested expense amount, the tested income amount or the available amount, or any combination of these three by considering the aggregate effect of these three amounts - the “relevant net deduction” - defined in clause 308. It is based on paragraph 48 of Schedule 15 to FA 2009.

Clause 308: Meaning of “relevant net deduction”

587.     This clause defines the “relevant net deduction” for the purposes of clause 307(2). This is so much of the total disallowed amount (the tested expense amount less the available amount) as cannot be covered by a disregard of financing income of UK group companies. The relevant amount may be nil. The clause is based on paragraph 49 of Schedule 15 to FA 2009.

Clause 309: Calculation of amounts

588.     This clause sets out the assumptions to be made for the purposes clause 307 and is based on paragraph 50 of Schedule 15 to FA 2009.

Clause 310: Meaning of “carried-back amount” and “carried-forward amount”

589.     This clause defines the “carried-back amount” and “carried-forward amount” for the purposes clause 307 and is based on paragraph 51 of Schedule 15 to FA 2009.

Clause 311: Schemes involving manipulation of rules in Chapter 5

590.     This clause deals with schemes that manipulate the rules in Chapter 5. Under clause 299 financing income received by a United Kingdom company is disregarded for corporation tax purposes where three conditions are met and this clause requires that the scheme has the effect of securing that any of these three clause 299 conditions are met and that that is the main purpose or one of the main purposes of the scheme. It is based on paragraph 52 of Schedule 15 to FA 2009.

Clause 312: Meaning of “scheme” and “excluded scheme”

591.     This clause defines the “scheme” and “excluded scheme” for the purposes of this Chapter and is based on paragraph 53 of Schedule 15 to FA 2009.

Chapter 7: “Financing expense amount” and “financing income amount”

Overview

592.     This Chapter explains what is meant by “financing expense amount” and “financing income amount” of a company. These amounts are used in Chapter 8 to compute the “tested expense amount” and “tested income amount” which in turn are used, together with the “available amount” (defined in Chapter 9), to calculate the amounts, if any, of the financing expense incurred by relevant group companies to be disallowed and of the financing income receivable by UK group companies to be exempted. In setting the basic rules for the “financing expense amount” this Chapter includes specific activities or certain types of finance amount.

Clause 313: The financing expense amounts of a company

593.     This clause provides that a “financing expense amount” of a worldwide group company for a period of account is an amount that is brought into account for corporation tax purposes in accordance with conditions A, B or C. It is based on paragraph 54 of Schedule 15 to FA 2009.

Clause 314: The financing income amounts of a company

594.     This clause provides that a “financing income amount” of a worldwide group company for a period of account is an amount that is brought into account for corporation tax purposes in accordance with conditions A, B or C. It is based on paragraph 55 of Schedule 15 to FA 2009.

Clause 315: Interpretation of sections 313 and 314

595.     This clause provides that various terms used in clauses 313 and 314 have the same meaning as they do in the loan relationships rules in CTA 2009. It is based on paragraph 56 of Schedule 15 to FA 2009.

Clause 316: Group treasury companies

596.     This clause excludes the financing expenses or income amounts if the company is a group treasury company during the worldwide group’s period of account. It is based on paragraph 57 of Schedule 15 to FA 2009.

Clause 317: Real estate investment trusts

597.     This clause provides for an exclusion from financing expenses or income amounts for amounts taken into account in computing profits exempted from tax by virtue of the special rules applying to real estate investment trusts. It is based on paragraph 58 of Schedule 15 to FA 2009.

Clause 318: Companies engaged in oil extraction activities

598.     This clause excludes the financing expense or income amounts if a company is engaged in oil extraction activities within the meaning of clause 277 of CTB2. It is based on paragraph 59 of Schedule 15 to FA 2009.

Clause 319: Intra-group short-term finance: financing expense

599.     This clause prevents an intra-group short-term financing expense which meets condition A in clause 313 from being treated as a finance expense. It is based on paragraph 60 of Schedule 15 to FA 2009.

Clause 320: Intra-group short-term finance: financing income

600.     This clause excludes intra-group short-term financing income from being treated as such if the corresponding finance expense is not treated as a financing expense in accordance with clause 319. It is based on paragraph 61 of Schedule 15 to FA 2009.

Clause 321: Short-term loan relationships

601.     This clause explains which finance arrangements can be treated as short-term loan arrangements for the purposes of clause 319. It is based on paragraph 62 of Schedule 15 to FA 2009.

Clause 322: Stranded deficits in non-trading loan relationships: financing expense

602.     This clause deals with stranded deficits in non-trading loan relationships from the perspective of the company incurring the financing expense and prevents a financing expenses which meets condition A in clause 313 from being treated as such. It is based on paragraph 63 of Schedule 15 to FA 2009.

Clause 323: Stranded deficits in non-trading loan relationships: financing income

603.     This clause prevents an amount from being treated as financing income if the corresponding financing expense is not treated as such under clause 322. It is based on paragraph 64 of Schedule 15 to FA 2009.

Clause 324: Stranded management expenses in non-trading loan relationships: financing expense

604.     This clause deals with stranded management expenses in non-trading loan relationships from the perspective of the company incurring the financing expense and prevents a financing expenses which meets condition A in clause 313 from being treated as such. It is based on paragraph 65 of Schedule 15 to FA 2009.

Clause 325: Stranded management expenses in non-trading loan relationships: financing income

605.     This clause prevents an amount from being treated as financing income if the corresponding financing expense is not treated as such under clause 324. It is based on paragraph 66 of Schedule 15 to FA 2009.

Clause 326: Charities

606.     This clause excludes relevant amounts paid to charities from being taken into account in computing any disallowance under this Part. This prevents a disallowance being made where a corresponding disregard of amounts receivable is not available because of the tax status of the receiving body. The clause is based on paragraph 67 of Schedule 15 to FA 2009.

Clause 327: Educational and public bodies

607.     This clause excludes relevant amounts paid to certain educational and public bodies from being taken into account in computing any disallowance under this Part. This prevents a disallowance being made where a corresponding disregard of amounts receivable is not available because of the tax status of the receiving body. The clause is based on paragraph 68 of Schedule 15 to FA 2009.

Clause 328: Interpretation of sections 316 to 327

608.     This clause defines “finance arrangement” for the purposes of clauses 316 to 327. It is based on paragraph 69 of Schedule 15 to FA 2009.

Chapter 8: “Tested expense amount” and “tested income amount”

Overview

609.     This Chapter sets out how two key amounts, the “tested expense amount” and the “tested income amount”, are to be calculated. The “tested expense amount” must be calculated so that, by comparison with the “available amount” dealt with in Chapter 9, it can be determined whether the adjustments provided for by Chapters 3 and 4 are necessary. In calculating the amount of financing income the “tested income amount” is exempted from corporation tax by Chapter 4.

Clause 329: The tested expense amount

610.     Under this clause the “tested expense amount” for a worldwide group is built up from the sum of each relevant group company’s “net financing deduction” (explained in subsections (2) to (5)). It is based on paragraph 70 of Schedule 15 to FA 2009.

Clause 330: The tested income amount

611.     Under this clause the “tested income amount” for a worldwide group is built up from the sum of each UK group company’s “net financing income” (explained in subsections (2) to (5)). It is based on paragraph 71 of Schedule 15 to FA 2009.

Clause 331: Companies with net financing deduction or net financing income that is small

612.     This clause provides the figure used to determine whether a relevant group company’s net financing deduction or a UK group company’s net financing income is “small” (less than £500,000) and allows the amount to be increased or decreased by Treasury order. It is based on paragraph 72 of Schedule 15 to FA 2009.