Corporation Tax Bill

House of Commons

Session 2009 - 10
Internet Publications
Other Bills before Parliament

Corporation Tax Bill

Corporation Tax Bill
Part 15 — Transactions in securities
378

Appeals
750
Appeals against counteraction notices
(1)
A company on which a counteraction notice has been served may appeal on the
grounds that—
(a)
section 733 (company liable to counteraction of corporation tax
5
advantage) does not apply to the company in respect of the transaction
or transactions in question, or
(b)
the adjustments directed to be made are inappropriate.
(2)
Such an appeal may be made only by giving notice to the Commissioners for
Her Majesty’s Revenue and Customs within 30 days of the service of the
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counteraction notice.
(3)
On an appeal under this section the tribunal may—
(a)
affirm, vary or cancel the counteraction notice, or
(b)
affirm, vary or quash an assessment made in accordance with the
notice.
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(4)
But the bringing of an appeal under this section does not affect—
(a)
the validity of the counteraction notice, or
(b)
the validity of any other thing done under or in accordance with section
746 (counteraction notices),

pending the determination of the proceedings.
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Interpretation
751
Interpretation of Part
In this Part—
“company” includes any body corporate,
“dividends” includes references to other qualifying distributions and to
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interest,
“securities”—
(a)
includes shares and stock, and
(b)
in relation to a company not limited by shares (whether or not
it has a share capital) also includes a reference to the interest of
30
a member of the company as such, whatever the form of that
interest,
“trading stock” has the meaning given by section 163 of CTA 2009, and
“transaction in securities” means transactions, of whatever description,
relating to securities, and in particular—
35
(a)
the purchase, sale or exchange of securities,
(b)
issuing or securing the issue of new securities,
(c)
applying or subscribing for new securities, and
(d)
altering or securing the alteration of the rights attached to
securities.
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Corporation Tax Bill
Part 16 — Factoring of income etc
Chapter 1 — Transfers of income streams
379

Part 16
Factoring of income etc
Chapter 1
Transfers of income streams
752
Application of Chapter
5
(1)
This Chapter applies if—
(a)
a company within the charge to corporation tax (“the transferor”)
makes a transfer to another person (“the transferee”) of a right to
relevant receipts (see subsection (2)), and
(b)
(subject to subsection (3)) the transfer of the right is not a consequence
10
of the transfer to the transferee of an asset from which the right to
relevant receipts arises.
(2)
“Relevant receipts” means any income—
(a)
which (but for the transfer) would be charged to corporation tax as
income of the transferor, or
15
(b)
which (but for the transfer) would be brought into account in
calculating profits of the transferor for the purposes of corporation tax.
(3)
Despite subsection (1)(b), this Chapter applies if the transfer of the right is a
consequence of the transfer to the transferee of all rights under an agreement
for annual payments; and for the purposes of subsection (1)(b) the transfer of
20
an asset under a sale and repurchase agreement is not to be regarded as a
transfer of the asset.
(4)
Section 753 makes provision as to the consequences of this Chapter applying.
(5)
For exclusions from this Chapter, see—
(a)
section 754 (amount otherwise taxed), and
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(b)
section 755 (transfer by way of security).
(6)
Section 756 makes special provision about transfers of partnership shares.
(7)
Section 757 contains supplementary provisions.
753
Value of transferred income stream treated as income
(1)
The relevant amount (see subsection (2)) is to be treated as income of the
30
transferor chargeable to corporation tax in the same way and to the same extent
as that in which the relevant receipts—
(a)
would have been chargeable to corporation tax, or
(b)
would have been brought into account in calculating any profits for the
purposes of corporation tax,
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but for the transfer of the right to relevant receipts.
(2)
The relevant amount is—
(a)
(except where paragraph (b) applies) the amount of the consideration
for the transfer of the right, or
(b)
where the amount of any such consideration is substantially less than
40
the market value of the right at the time when the transfer takes place

Corporation Tax Bill
Part 16 — Factoring of income etc
Chapter 1 — Transfers of income streams
380

(or where there is no consideration for the transfer of the right), the
market value of the right at that time.
(3)
The income under subsection (1) is to be treated as arising—
(a)
to the extent that it does not exceed the amount of the consideration for
the transfer of the right, in the period or periods for which, in
5
accordance with generally accepted accounting practice, the
consideration for the transfer is recognised for accounting purposes in
a profit and loss account or income statement of the transferor, and
(b)
otherwise, in the period or periods for which, in accordance with
generally accepted accounting practice, the consideration for the
10
transfer would be so recognised if it were of an amount equal to the
market value of the right at the time when the transfer takes place.
(4)
But if at any time it becomes reasonable to assume that the income (to any
extent) is not, or would not be, treated by subsection (3) as arising in an
accounting period of the transferor, the income is to that extent to be treated as
15
arising immediately before that time.
754
Exception: amount otherwise taxed
This Chapter does not apply if and to the extent that the income under section
753(1) is (apart from this Chapter)—
(a)
charged to tax as income of the transferor,
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(b)
brought into account as income in calculating the profits of the
transferor, or
(c)
brought into account under CAA 2001.
755
Exception: transfer by way of security
(1)
This Chapter does not apply if—
25
(a)
the consideration for the transfer is the advance under a type 1 finance
arrangement, and
(b)
the transferor is, or is a member of a partnership which is, the borrower
in relation to the arrangement.
(2)
This Chapter does not apply if—
30
(a)
the consideration for the transfer is the advance under a type 2 finance
arrangement or a type 3 finance arrangement, and
(b)
the transferor is a member of the partnership which receives that
advance under the arrangement.
(3)
In this section—
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“type 1 finance arrangement” has the meaning given for the purposes of
Chapter 2 by section 758,
“type 2 finance arrangement” has the meaning given for the purposes of
Chapter 2 by section 763, and
“type 3 finance arrangement” has the meaning given for the purposes of
40
Chapter 2 by section 767.
756
Partnership shares
(1)
For the purposes of this Chapter a transfer of a right to relevant receipts
consisting of the reduction in the transferor’s share in the profits or losses of a

Corporation Tax Bill
Part 16 — Factoring of income etc
Chapter 2 — Finance arrangements
381

partnership is to be regarded as a consequence of a transfer of an asset from
which the right arose (that is, the partnership property) if condition A or B is
met.
(2)
Condition A is that there is a reduction of the transferor’s share in the
partnership property and the reduction in the transferor’s share in the profits
5
or losses is proportionate to that reduction.
(3)
Condition B is that it is not the main purpose, or one of the main purposes, of
the transfer to secure that the relevant receipts are not charged to corporation
tax or income tax as income of any partner or brought into account as income
of any partner for the purpose of either of those taxes.
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757
Interpretation of Chapter
(1)
For the purposes of this Chapter—
(a)
the grant or surrender of a lease of land is to be regarded as a transfer
of the land,
(b)
the disposal of an interest in an oil licence (within the meaning of
15
section 809 of CTA 2009) is to be regarded as a transfer of the oil licence,
and
(c)
the grant or disposal of an interest in intellectual property (within the
meaning of section 712(3) of CTA 2009) which constitutes a pre-FA 2002
asset (within the meaning of section 881 of that Act) is to be regarded as
20
a transfer of that intellectual property.
(2)
The Treasury may by order make other provision for securing that other
transactions are to be regarded as transfers of assets for those purposes.
(3)
In this Chapter—
(a)
references to a transfer include sale, exchange, gift and assignment and
25
any other arrangement which equates in substance to a transfer, and
(b)
references to a transfer taking place are, in the case of an arrangement
other than a sale, exchange, gift or assignment, to the making of the
arrangement.
(4)
A transfer to or by any partnership of which the transferor or transferee is a
30
member, and a transfer to the trustees of any trust of which the transferor is a
beneficiary, counts as a transfer in relation to which this Chapter applies.
Chapter 2
Finance arrangements
Type 1 arrangements
35
758
Type 1 finance arrangement defined
(1)
For the purposes of this Chapter an arrangement is a type 1 finance
arrangement if conditions A and B are met.
(2)
Condition A is that under the arrangement—
(a)
a person (“the borrower”) receives money or another asset (“the
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advance”) from another person (“the lender”),

Corporation Tax Bill
Part 16 — Factoring of income etc
Chapter 2 — Finance arrangements
382

(b)
the borrower or a person connected with the borrower makes a
disposal of an asset (“the security”) to or for the benefit of the lender or
a person connected with the lender, and
(c)
the lender or a person connected with the lender is entitled to payments
in respect of the security.
5
(3)
Condition B is that in accordance with generally accepted accounting
practice—
(a)
the borrower’s accounts for the period in which the advance is received
record a financial liability in respect of it, and
(b)
the payments reduce the amount of the financial liability.
10
(4)
If the borrower is a partnership the reference to the borrower’s accounts
includes a reference to the accounts of any member of the partnership.
(5)
For the purposes of this section the borrower and the lender are not connected
with one another.
759
Certain tax consequences not to have effect
15
(1)
This section applies if a type 1 finance arrangement would have the relevant
effect (ignoring this section).
(2)
The arrangement is not to have that effect.
(3)
The relevant effect is that—
(a)
an amount of income on which the borrower or a person connected
20
with the borrower would otherwise have been charged to corporation
tax is not so charged,
(b)
an amount which would otherwise have been brought into account in
calculating for corporation tax purposes any income of the borrower or
of a person connected with the borrower is not so brought into account,
25
or
(c)
the borrower or a person connected with the borrower becomes entitled
to an income deduction.
(4)
But if the borrower is a partnership the relevant effect is that—
(a)
an amount of income on which a member of the partnership would
30
otherwise have been charged to corporation tax is not so charged,
(b)
an amount which would otherwise have been brought into account in
calculating for corporation tax purposes any income of a member of the
partnership is not so brought into account, or
(c)
a member of the partnership becomes entitled to an income deduction.
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(5)
For the purposes of this section the borrower and the lender are not connected
with one another.
(6)
An income deduction is—
(a)
a deduction in calculating income for corporation tax purposes, or
(b)
a deduction from total profits.
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760
Payments treated as borrower’s income
(1)
This section applies if—

Corporation Tax Bill
Part 16 — Factoring of income etc
Chapter 2 — Finance arrangements
383

(a)
a type 1 finance arrangement would not have the relevant effect
(ignoring section 759(2)),
(b)
that arrangement would not have the corresponding income-tax effect
(ignoring section 809BZB(2) of ITA 2007), and
(c)
the borrower is—
5
(i)
a company within the charge to corporation tax, or
(ii)
a partnership at least one member of which is a company within
the charge to corporation tax.
(2)
The payments mentioned in section 758(2)(c) must be treated for corporation
tax purposes as income of the borrower payable in respect of the security.
10
(3)
Subsection (2) applies whether or not the payments are also the income of
another person for tax purposes.
(4)
Subsections (3) to (6) of section 759 (meaning of relevant effect) apply for the
purposes of this section as for those of that.
(5)
In subsection (1)(b) “the corresponding income-tax effect” means the relevant
15
effect as defined by section 809BZB(3) to (6) of ITA 2007 (provision for income
tax corresponding to section 759(3) to (6)).
761
Deemed loan relationship if borrower is a company
(1)
This section applies if—
(a)
there is a type 1 finance arrangement,
20
(b)
the borrower is a company, and
(c)
either—
(i)
the arrangement is prevented by section 759 from having the
relevant effect in relation to the company, or
(ii)
section 760 applies to the company.
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(2)
For the purposes of Part 5 of CTA 2009 (loan relationships)—
(a)
the advance is treated in relation to the company as a money debt owed
by it, and
(b)
the arrangement is treated in relation to the company as a loan
relationship of the company (as a debtor relationship).
30
(3)
Any amount which in accordance with generally accepted accounting practice
is recorded in the company’s accounts as a finance charge in respect of the
advance is treated as interest payable under the loan relationship.
(4)
If an amount is treated as interest (“deemed interest”) under subsection (3), to
find out when it is paid—
35
(a)
treat the payments mentioned in section 758(2)(c) as consisting of
amounts for repaying the advance and amounts (“the interest
elements”) in respect of interest on the advance,
(b)
treat the interest elements of the payments as paid when the payments
are paid, and
40
(c)
treat the deemed interest as paid at the times when the interest
elements are treated as paid.
762
Deemed loan relationship if borrower is partnership with corporate member
(1)
This section applies if—

Corporation Tax Bill
Part 16 — Factoring of income etc
Chapter 2 — Finance arrangements
384

(a)
there is a type 1 finance arrangement,
(b)
the borrower is a partnership, and
(c)
either—
(i)
the arrangement is prevented by section 759 from having the
relevant effect in relation to a company that is a member of the
5
partnership, or
(ii)
section 760 applies to the partnership (in which event “the
company” in subsections (2) and (3) means the company within
the charge to corporation tax that is a member of the
partnership).
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(2)
For the purposes of Part 5 of CTA 2009 (loan relationships)—
(a)
the advance is treated in relation to the company as a money debt owed
by the partnership, and
(b)
the arrangement is treated in relation to the company as a loan
relationship of the partnership (as a debtor relationship).
15
(3)
Any amount which in accordance with generally accepted accounting practice
is recorded in the company’s accounts, or the partnership’s accounts, as a
finance charge in respect of the advance is treated as interest payable under the
loan relationship by the partnership.
(4)
If an amount is treated as interest (“deemed interest”) under subsection (3), to
20
find out when it is paid—
(a)
treat the payments mentioned in section 758(2)(c) as consisting of
amounts for repaying the advance and amounts (“the interest
elements”) in respect of interest on the advance,
(b)
treat the interest elements of the payments as paid when the payments
25
are paid, and
(c)
treat the deemed interest as paid at the times when the interest
elements are treated as paid.
Type 2 arrangements
763
Type 2 finance arrangement defined
30
(1)
For the purposes of this Chapter an arrangement is a type 2 finance
arrangement if conditions A and B are met.
(2)
Condition A is that—
(a)
under the arrangement a person (“the transferor”) makes a disposal of
an asset (“the security”) to a partnership,
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(b)
the transferor is a member of the partnership immediately after the
disposal (whether or not a member immediately before it),
(c)
under the arrangement the partnership receives money or another asset
(“the advance”) from another person (“the lender”),
(d)
there is a relevant change in relation to the partnership (see section 764),
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and
(e)
under the arrangement the share in the partnership’s profits of the
person involved in the change is determined by reference (wholly or
partly) to payments in respect of the security.
(3)
Condition B is that in accordance with generally accepted accounting
45
practice—