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 4 — Sale and lease-back etc: new Part 12A of ITA 2007
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Interpretation
681DL
Associates
(1)
This section applies for the purposes of this Chapter.
(2)
Persons are associates if they are associated with each other.
(3)
The following are associated with each other—
5
(a)
an individual and the individual’s spouse or civil partner or
relative,
(b)
an individual and a spouse or civil partner of a relative of the
individual,
(c)
an individual and a relative of the individual’s spouse or civil
10
partner,
(d)
an individual and a spouse or civil partner of a relative of the
individual’s spouse or civil partner.
(4)
The following are associated with each other—
(a)
a person as trustee of a settlement and an individual who (in
15
relation to the settlement) is a settlor, and
(b)
a person as trustee of a settlement and a person associated
with an individual who (in relation to the settlement) is a
settlor.
(5)
The following are associated with each other—
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(a)
a person and a body of persons of which the person has
control,
(b)
a person and a body of persons of which persons associated
with the person have control,
(c)
a person and a body of persons of which the person and
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persons associated with the person have control,
(d)
two or more bodies of persons associated with the same
person under paragraphs (a) to (c).
(6)
In relation to a disposal by joint owners, the joint owners and any
person associated with any of them are associated with each other.
30
(7)
For the purposes of this section—
(a)
a relative is a brother, sister, ancestor or lineal descendant,
(b)
a body of persons includes a partnership, and
(c)
“settlement” and “settlor” have the meanings given by
section 620 of ITTOIA 2005.
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681DM
Capital sum
For the purposes of this Chapter a capital sum is any sum of money,
or any money’s worth, except so far as it or any part of it—
(a)
is to be treated for income tax purposes as a receipt to be
taken into account in calculating the profits or losses of a
40
trade, profession or vocation, or
(b)
is (apart from this Chapter) chargeable to income tax under
or by virtue of any provision to which section 1016 applies.
681DN
Lease
(1)
This section applies for the purposes of this Chapter.
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(2)
A lease is (in relation to an asset) an agreement or arrangement under
which payments are made for the use of or otherwise in respect of the
asset.
(3)
In particular it includes an agreement or arrangement under which
the payments (or any of them) represent instalments of a purchase
5
price or payments towards it.
681DO
Relevant asset
For the purposes of this Chapter a relevant asset is any description of
property or rights other than land or an interest in land.
681DP
Relevant tax relief
10
For the purposes of this Chapter each of the following is a deduction
by way of relevant tax relief—
(a)
a deduction in calculating profits or losses of a trade for
corporation tax purposes,
(b)
a deduction in calculating any loss for which relief is given
15
under section 91 of CTA 2010 (losses from miscellaneous
transactions), or in calculating profits or gains chargeable to
corporation tax under or by virtue of any provision to which
section 1173 of CTA 2010 applies (miscellaneous charges),
(c)
a deduction under section 76 of ICTA (insurance companies),
20
(d)
a deduction under section 1219 of CTA 2009 (expenses of
management of a company’s investment business),
(e)
a deduction in calculating profits or losses of a trade,
profession or vocation for income tax purposes,
(f)
a deduction in calculating any loss for which relief is allowed
25
under section 152 (losses from miscellaneous transactions), or
in calculating profits or other income or gains chargeable to
income tax under or by virtue of any provision to which
section 1016 applies, and
(g)
a deduction from earnings allowed under section 336 of
30
ITEPA 2003 (expenses) or allowed in calculating losses in an
employment for income tax purposes.”
Schedule 5
Section 369

Factoring of income etc: new Chapters 5B and 5C of Part 13 of ITA 2007
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ITA 2007 is amended as follows.
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Taxation (International and Other Provisions) Bill
Schedule 5 — Factoring of income etc: new Chapters 5B and 5C of Part 13 of ITA 2007
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2
After section 809AZG insert—
“Chapter 5B
Finance arrangements
Type 1 arrangements
809BZA
Type 1 finance arrangement defined
5
(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 advance”) from another person (“the lender”),
10
(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.
15
(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.
20
(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.
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809BZB
Certain tax consequences not to have effect
(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—
30
(a)
an amount of income on which the borrower or a person
connected with the borrower would otherwise have been
charged to income tax is not so charged,
(b)
an amount which would otherwise have been brought into
account in calculating for income tax purposes any income of
35
the borrower or of a person connected with the borrower is
not so brought into account, 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—
40
(a)
an amount of income on which a member of the partnership
would otherwise have been charged to income tax is not so
charged,

Taxation (International and Other Provisions) Bill
Schedule 5 — Factoring of income etc: new Chapters 5B and 5C of Part 13 of ITA 2007
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(b)
an amount which would otherwise have been brought into
account in calculating for income 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.
5
(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 income tax purposes, or
(b)
a deduction from total income.
10
809BZC
Payments treated as borrower’s income
(1)
This section applies if—
(a)
a type 1 finance arrangement would not have the relevant
effect (ignoring section 809BZB(2)),
(b)
that arrangement would not have the corresponding
15
corporation-tax effect (ignoring section 759(2) of CTA 2010),
and
(c)
the borrower is—
(i)
within the charge to income tax, or
(ii)
a partnership at least one member of which is within
20
the charge to income tax.
(2)
The payments mentioned in section 809BZA(2)(c) must be treated for
income tax purposes as income of the borrower payable in respect of
the security.
(3)
Subsection (2) applies whether or not the payments are also the
25
income of another person for tax purposes.
(4)
Subsections (3) to (6) of section 809BZB (meaning of relevant effect)
apply for the purposes of this section as for those of that.
(5)
In subsection (1)(b) “the corresponding corporation-tax effect”
means the relevant effect as defined by section 759(3) to (6) of CTA
30
2010 (provision for corporation tax corresponding to section
809BZB(3) to (6)).
809BZD
Deemed interest if borrower is not a partnership
(1)
This section applies if—
(a)
there is a type 1 finance arrangement,
35
(b)
the borrower is not a partnership,
(c)
the arrangement is prevented by section 809BZB from having
the relevant effect in relation to the borrower, or section
809BZC applies to the borrower, and
(d)
in accordance with generally accepted accounting practice
40
the borrower’s accounts record an amount as a finance
charge in respect of the advance.
(2)
For income tax purposes the borrower may treat the amount as
interest payable on a loan.

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(3)
If an amount is treated as interest (“deemed interest”) under
subsection (2), to find out when it is paid—
(a)
treat the payments mentioned in section 809BZA(2)(c) as
consisting of amounts for repaying the advance and amounts
(“the interest elements”) in respect of interest on the advance,
5
(b)
treat the interest elements of the payments as paid when the
payments are paid, and
(c)
treat the deemed interest as paid at the times when the
interest elements are treated as paid.
809BZE
Deemed interest if borrower is a partnership
10
(1)
This section applies if each of conditions A to C is met.
(2)
Condition A is that—
(a)
there is a type 1 finance arrangement, and
(b)
the borrower is a partnership.
(3)
Condition B is that—
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(a)
the arrangement is prevented by section 809BZB from having
the relevant effect in relation to a person who is a member of
the partnership, or
(b)
section 809BZC applies to the partnership (in which event
“the person” in subsections (4) and (5) means the person
20
within the charge to income tax who is a member of the
partnership).
(4)
Condition C is that in accordance with generally accepted
accounting practice the person’s accounts, or the partnership’s
accounts, record an amount as a finance charge in respect of the
25
advance.
(5)
For income tax purposes the person may treat the amount as interest
payable by the partnership on a loan.
(6)
If an amount is treated as interest (“deemed interest”) under
subsection (5), to find out when it is paid—
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(a)
treat the payments mentioned in section 809BZA(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
35
(c)
treat the deemed interest as paid at the times when the
interest elements are treated as paid.”
3
After section 809BZE insert—
“Type 2 arrangements
809BZF
Type 2 finance arrangement defined
40
(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—

Taxation (International and Other Provisions) Bill
Schedule 5 — Factoring of income etc: new Chapters 5B and 5C of Part 13 of ITA 2007
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(a)
under the arrangement a person (“the transferor”) makes a
disposal of an asset (“the security”) to a partnership,
(b)
the transferor is a member of the partnership immediately
after the disposal (whether or not a member immediately
before it),
5
(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 809BZG), and
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(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
15
practice—
(a)
the partnership’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.
20
(4)
The reference to the partnership’s accounts includes a reference to
the transferor’s accounts.
809BZG
Relevant change in relation to partnership
(1)
For the purposes of this Chapter there is a relevant change in relation
to a partnership if condition A or condition B is met.
25
(2)
Condition A is that in connection with the arrangement the lender or
a person connected with the lender becomes a member of the
partnership at any time.
(3)
Condition B is that—
(a)
in connection with the arrangement there is at any time a
30
change in a member’s share in the partnership’s profits, and
(b)
the member is the lender or a person connected with the
lender or a person who in connection with the arrangement
becomes at any time connected with the lender.
(4)
An event occurs in connection with the arrangement if it occurs
35
directly or indirectly in consequence of it or otherwise in connection
with it.
(5)
If there is a relevant change in relation to a partnership, a reference
in this Chapter to the person involved in the change is—
(a)
if it is condition A that is met, to the person who becomes a
40
member of the partnership, and
(b)
if it is condition B that is met, to the member of the
partnership in whose share in the partnership’s profits there
is a change.
809BZH
Certain tax consequences not to have effect
45
(1)
This section applies if—
(a)
there is a type 2 finance arrangement, and

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(b)
any relevant change in relation to the partnership would
have the relevant effect (ignoring this section).
(2)
In such a case—
(a)
Part 9 of ITTOIA 2005 (partnerships) is to have effect in
relation to the transferor as if the relevant change in relation
5
to the partnership had not occurred, and
(b)
accordingly the finance arrangement is not to have the
relevant effect.
(3)
The relevant effect is that—
(a)
an amount of income on which the transferor would
10
otherwise have been charged to income tax is not so charged,
(b)
an amount which would otherwise have been brought into
account in calculating for income tax purposes any income of
the transferor is not so brought into account, or
(c)
the transferor becomes entitled to an income deduction.
15
(4)
In deciding whether subsection (1)(b) is met assume that amounts of
income equal to the payments mentioned in section 809BZF(2)(e)
were payable to the partnership before the relevant change in
relation to it occurred.
(5)
An income deduction is—
20
(a)
a deduction in calculating income for income tax purposes, or
(b)
a deduction from total income.
809BZI
Deemed interest
(1)
This section applies if—
(a)
there is a type 2 finance arrangement,
25
(b)
the transferor is a person within the charge to income tax, and
(c)
in accordance with generally accepted accounting practice
the partnership’s accounts record an amount as a finance
charge in respect of the advance.
(2)
For income tax purposes the transferor may treat the amount as
30
interest payable by the transferor on a loan.
(3)
The reference in subsection (1) to the partnership’s accounts includes
a reference to the transferor’s accounts.
(4)
If an amount is treated as interest (“deemed interest”) under
subsection (2), to find out when it is paid—
35
(a)
treat the payments mentioned in section 809BZF(2)(e) 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.”