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
Schedule 3 — Leasing arrangements: finance leases and loans
Part 1 — New Part 11A of ITA 2007
247

(2)
L is treated as if trading receipts arose to L from the trade in question
on the relevant occasion.
(3)
The amount of those receipts is equal to the lesser of—
(a)
the amount or value of the major lump sum, and
(b)
the deductions previously allowed.
5
614BV
Capital allowances deductions: films and sound recordings
(1)
This section applies if—
(a)
any relevant deduction has been allowed to the current lessor
(“L”) in respect of expenditure incurred in connection with
the leased asset, and
10
(b)
the amount or value of the major lump sum exceeds so much
of that sum as was treated as receipts of a revenue nature
under section 134(2) of ITTOIA 2005 (disposal proceeds of
original master version of film or sound recording treated as
receipt of a revenue nature).
15
(2)
In subsection (1) “relevant deduction” means any deduction as a
result of—
(a)
section 135 of ITTOIA 2005 (allocation of expenditure on
master versions of films or sound recordings to periods), or
(b)
section 138, 138A, 139 or 140 of that Act (relief for production
20
or acquisition expenditure in respect of films).
(3)
L is treated as if receipts of a revenue nature arose to L from the trade
or business in question on the relevant occasion.
(4)
The amount of those receipts is equal to the excess mentioned in
subsection (1)(b).
25
614BW
Contributors to capital expenditure
(1)
This section applies if—
(a)
section 614BS or 614BT applies in relation to a leased asset,
(b)
allowances are or have been made to a person (“the
contributor”) as a result of sections 537 to 542 of CAA 2001
30
(allowances in respect of contributions to capital
expenditure), and
(c)
those allowances are or were in respect of the contributor’s
contribution of a capital sum to expenditure on the provision
of the leased asset.
35
(2)
Section 614BS or, as the case may be, section 614BT has effect in
relation to the contributor and those allowances as it has effect in
relation to the current lessor and allowances in respect of capital
expenditure incurred by the current lessor in respect of the leased
asset.
40
Schemes to which this Chapter does not at first apply
614BX
Pre-26 November 1996 schemes where this Chapter does not at first
apply
(1)
This section applies if—

Taxation (International and Other Provisions) Bill
Schedule 3 — Leasing arrangements: finance leases and loans
Part 1 — New Part 11A of ITA 2007
248

(a)
the lease of an asset forms part of a pre-26 November 1996
scheme, but
(b)
the conditions in section 614BC become met after 26
November 1996.
(2)
For the meaning of “forming part of a pre-26 November 1996
5
scheme”, see section 614D.
(3)
This Part has effect as if—
(a)
a period of account (“period 1”) of the current lessor (“L”)
ended immediately before the time at which those conditions
become met,
10
(b)
another period of account of L (“period 2”) began
immediately before that time and ended immediately after
that time, and
(c)
another period of account of L began immediately after that
time.
15
(4)
If, on the continuous application assumption (see subsection (9)),
there would be an amount of cumulative accountancy rental excess
for period 2, that amount is the cumulative accountancy rental excess
for period 2.
(5)
If subsection (4) applies, L is treated for income tax purposes as if in
20
period 1 L had been entitled to, and there had arisen to L, rent from
the lease of an amount equal to that cumulative accountancy rental
excess.
(6)
The amount of rent mentioned in subsection (5)—
(a)
is in addition to any other rent from the lease for period 1, and
25
(b)
is left out of account for the purposes of section 614BF
(current lessor taxed by reference to accountancy rental
earnings).
(7)
Rent within subsection (5) is treated for income tax purposes as if it
had accrued and L had become entitled to it immediately before the
30
end of period 1.
(8)
If, on the continuous application assumption, there would be an
amount of cumulative normal rental excess for period 2, that amount
is the cumulative normal rental excess for period 2.
(9)
In this section “the continuous application assumption” means the
35
assumption that this Chapter (other than this section) had applied in
the case of the lease at all times on or after 26 November 1996.
(10)
If at any time the person who was the lessor at that time was a person
within the charge to corporation tax on income, the reference in
subsection (9) to this Chapter (other than this section) includes a
40
reference to Chapter 2 of Part 21 of CTA 2010 (other than section 923
of that Act).
614BY
Post-25 November 1996 schemes to which Chapter 3 applied first
(1)
This section applies if—
(a)
the conditions in section 614BC become met in the case of the
45
lease of the asset, and

Taxation (International and Other Provisions) Bill
Schedule 3 — Leasing arrangements: finance leases and loans
Part 1 — New Part 11A of ITA 2007
249

(b)
immediately before those conditions become met, Chapter 3
applied.
(2)
Subsection (3) applies for the purpose of determining—
(a)
the cumulative accountancy rental excess for any period of
account ending after those conditions become met, or
5
(b)
the cumulative normal rental excess for any such period.
(3)
This Part has effect as if this Chapter had applied in relation to the
lease at any time when Chapter 3 applied in relation to it.
(4)
If at any time the person who was the lessor at that time was a person
within the charge to corporation tax on income—
10
(a)
the reference in subsection (1)(a) to the conditions in section
614BC becoming met at that time includes a reference to the
conditions in section 902 of CTA 2010 becoming so met,
(b)
the reference in subsection (1)(b) to Chapter 3 applying
immediately before that time includes a reference to Chapter
15
3 of Part 21 of that Act so applying, and
(c)
the reference in subsection (3) to Chapter 3 applying at that
time includes a reference to Chapter 3 of that Part so
applying.”
4
After section 614BY insert—
20
“Chapter 3
Other finance leases
Introduction
614C
Introduction to Chapter
(1)
This Chapter applies to arrangements involving the lease of an asset
25
that—
(a)
fall to be treated, in accordance with generally accepted
accounting practice, as a finance lease or loan, but
(b)
are not arrangements to which Chapter 2 applies.
(2)
It does not matter whether the arrangements are or have been
30
entered into by companies or other persons.
614CA
Purpose of this Chapter
(1)
The main purpose of this Chapter where there are arrangements to
which this Chapter applies is to charge a person entitled to the
lessor’s interest under the lease of the asset to income tax on amounts
35
of income determined as mentioned in subsection (2).
(2)
The amounts referred to in subsection (1) are determined by
reference to the amounts that fall for accounting purposes to be
treated, in accordance with generally accepted accounting practice,
as the income return on and after 26 November 1996 on investment
40
in respect of the finance lease or loan.

Taxation (International and Other Provisions) Bill
Schedule 3 — Leasing arrangements: finance leases and loans
Part 1 — New Part 11A of ITA 2007
250

(3)
The amounts referred to in subsection (1) are also determined taking
into account the substance of the matter as a whole, including, in
particular, the state of affairs—
(a)
as between connected persons, or
(b)
within a group of companies,
5

as reflected or falling to be reflected in accounts of any of those
persons or in consolidated group accounts.
Leases to which this Chapter applies
614CB
Leases to which this Chapter applies
(1)
This Chapter applies if—
10
(a)
a lease of an asset is or has been granted on or after 26
November 1996,
(b)
the lease forms part of a post-25 November 1996 scheme,
(c)
condition A in section 614BC is or has been met at some time
on or after 26 November 1996 in relation to the lease in a
15
period of account of the current lessor (“L”), and
(d)
Chapter 2 does not apply in relation to the lease because of
the other conditions in that section not all being, or having
been, met as mentioned in section 614BB.
(2)
For the meaning of “forming part of a post-25 November 1996
20
scheme”, see section 614D.
(3)
This Chapter does not apply so far as, in relation to L, the lease falls
to be regarded as a long funding lease for the purposes of Part 2 of
CAA 2001 (plant and machinery allowances) in accordance with
Chapter 6A of that Part (interpretation of provisions about long
25
funding leases) (see section 70G of that Act).
(4)
If condition A in section 614BC has been met at any time on or after
26 November 1996 in a period of account of the person who was at
that time the lessor, it is taken to continue to be met unless and until
one of the conditions in subsection (5) is met.
30
(5)
The conditions are that—
(a)
the asset ceases to be leased under the lease, or
(b)
the lessor’s interest under the lease is assigned to a person
who is not connected with any of the persons specified in
subsection (6).
35
(6)
Those persons are—
(a)
the assignor,
(b)
any person who was the lessor at some time before the
assignment, and
(c)
any person who at some time after the assignment becomes
40
the lessor pursuant to arrangements made by a person who
was the lessor, or was connected with the lessor, at some time
before the assignment.
(7)
If at any time the person who was the lessor at that time was a person
within the charge to corporation tax on income—
45

Taxation (International and Other Provisions) Bill
Schedule 3 — Leasing arrangements: finance leases and loans
Part 1 — New Part 11A of ITA 2007
251

(a)
the reference in subsection (4) to condition A in section 614BC
having been met at that time includes a reference to condition
A in section 902 of CTA 2010 having been so met, and
(b)
the reference in subsection (1)(d) to the other conditions in
section 614BC not having been met as mentioned in section
5
614BB includes a reference to the other conditions in section
902 of that Act not having been met as mentioned in section
901 of that Act.
(8)
Nothing in subsection (4) prevents this Chapter from applying again
in relation to the lease where the lessor’s interest is assigned if the
10
conditions for its application are met after the assignment.
Current lessor taxed by reference to accountancy rental earnings
614CC
Current lessor taxed by reference to accountancy rental earnings
(1)
This section applies if, in the case of any period of account of the
current lessor (“L”)—
15
(a)
this Chapter applies in relation to the lease, and
(b)
the accountancy rental earnings in respect of the lease for that
period of account exceed the normal rent for that period.
(2)
For income tax purposes, L is treated as if in that period of account L
had been entitled to, and there had arisen to L, rent from the lease of
20
an amount equal to those accountancy rental earnings (instead of the
normal rent referred to in subsection (1)(b)).
(3)
Such rent from the lease of an asset is treated for income tax
purposes—
(a)
as if it had accrued at an even rate throughout so much of the
25
period of account as falls within the period for which the
asset is leased, and
(b)
as if L had become entitled to it as it accrued.
Application of provisions of Chapter 2 for purposes of this Chapter
614CD
Application of provisions of Chapter 2 for purposes of this Chapter
30
Sections 614BG to 614BQ apply for the purposes of this Chapter as
they apply for the purposes of Chapter 2, but taking the references in
sections 614BH(1) and 614BK(1)(a) to section 614BF as references to
section 614CC.”
5
After section 614CD insert—
35
“Chapter 4
Supplementary provisions
614D
Pre-26 November 1996 schemes and post-25 November 1996 schemes
(1)
For the purposes of this Part, a lease of an asset—
(a)
forms part of a pre-26 November 1996 scheme if (and only if)
40
the conditions in subsection (2) or (3) are met, and

Taxation (International and Other Provisions) Bill
Schedule 3 — Leasing arrangements: finance leases and loans
Part 1 — New Part 11A of ITA 2007
252

(b)
in any other case, forms part of a post-25 November 1996
scheme.
(2)
The conditions in this subsection are that—
(a)
a contract in writing for the lease of the asset was made before
26 November 1996,
5
(b)
either—
(i)
the contract was unconditional, or
(ii)
if the contract was conditional, the conditions were
met before that date, and
(c)
no terms remain to be agreed on or after that date.
10
(3)
The conditions in this subsection are that—
(a)
a contract in writing for the lease of the asset was made before
26 November 1996,
(b)
the condition in subsection (2)(b) or (c) was not met in the
case of the contract,
15
(c)
either—
(i)
the contract was unconditional, or
(ii)
if the contract was conditional, the conditions were
met before the end of the finalisation period or within
such further period as the Commissioners for Her
20
Majesty’s Revenue and Customs may allow in the
particular case,
(d)
no terms remain to be agreed after the end of the finalisation
period or such further period as those Commissioners may so
allow, and
25
(e)
the contract in its final form was not materially different from
the contract as it stood when it was made before 26
November 1996.
(4)
In subsection (3) “the finalisation period” means the period which
ended with the later of—
30
(a)
31 January 1997, and
(b)
the end of the period of six months beginning with the day
after that on which the contract was made as mentioned in
subsection (3)(a).
614DA
Time apportionment where periods of account do not coincide
35
(1)
Subsection (2) applies if a period of account of the lessor (“L”) does
not coincide with a period of account of a person connected with L.
(2)
Any amount which falls for the purposes of this Part to be found for
L’s period of account but by reference to the connected person is
found by making such apportionments as may be necessary between
40
two or more periods of account of the connected person.
(3)
Subsection (4) applies if a period of account of L does not coincide
with a period for which consolidated group accounts of a group of
companies of which L is a member fall to be prepared.
(4)
Any amount which falls for the purposes of this Part to be found for
45
L’s period of account but by reference to the consolidated group
accounts is found by making such apportionments as may be

Taxation (International and Other Provisions) Bill
Schedule 3 — Leasing arrangements: finance leases and loans
Part 1 — New Part 11A of ITA 2007
253

necessary between two or more periods for which consolidated
group accounts of the group fall to be prepared.
(5)
Any apportionment under subsection (2) or (4) must be made in
proportion to the number of days in the respective periods that fall
within L’s period of account.
5
614DB
Periods of account and related periods of account and tax years
(1)
In this Part “period of account” means a period for which accounts
are made up.
(2)
Except for the purposes of sections 614BB to 614BE and subsection
(3), in this Part “period of account” does not include a period that
10
begins before 26 November 1996.
(3)
But this Part applies in relation to a period of account that begins
before 26 November 1996 and ends on or after that date as if—
(a)
so much of the period as falls before that date, and
(b)
so much of the period as falls on or after that date,
15

were separate periods of account.
(4)
For the purposes of this Part, a tax year is related to a period of
account if the tax year consists of or includes the whole or any part
of the period of account.
(5)
For the purposes of this Part a period of account is related to a tax
20
year if the tax year is related to the period of account.
614DC
Connected persons
(1)
For the purposes of this Part in its application as a result of any
leasing arrangements, if a person (“A”) is connected with another
(“B”) at some time during the relevant period A is treated as being
25
connected with B throughout that period.
(2)
The relevant period is the period that—
(a)
begins at the earliest time at which any of the arrangements
were made, and
(b)
ends when the current lessor finally ceases to have an interest
30
in the asset or any arrangements relating to it.
614DD
Assets which represent the leased asset
(1)
For the purposes of this Part, the assets described in subsection (2)
are treated as representing the leased asset.
(2)
Those assets are—
35
(a)
any asset derived from the leased asset or created out of it,
(b)
any asset from which the leased asset was derived or out of
which the leased asset was created,
(c)
any asset derived from or created out of an asset within
paragraph (b), and
40
(d)
any asset that derives the whole or a substantial part of its
value from the leased asset or an asset that itself represents
the leased asset.