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 5 — Factoring of income etc: new Chapters 5B and 5C of Part 13 of ITA 2007
286

4
After section 809BZI insert—
“Type 3 arrangements
809BZJ
Type 3 finance arrangement defined
(1)
For the purposes of this Chapter an arrangement is a type 3 finance
arrangement if conditions A and B are met.
5
(2)
Condition A is that—
(a)
a partnership holds an asset (“the security”) as a partnership
asset at any time before the arrangement is made,
(b)
under the arrangement the partnership receives money or
another asset (“the advance”) from another person (“the
10
lender”),
(c)
there is a relevant change in relation to the partnership (see
section 809BZG), and
(d)
under the arrangement the share in the partnership’s profits
of the person involved in the change is determined by
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reference (wholly or partly) to payments in respect of the
security.
(3)
Condition B is that in accordance with generally accepted accounting
practice—
(a)
the partnership’s accounts for the period in which the
20
advance is received record a financial liability in respect of it,
and
(b)
the payments reduce the amount of the financial liability.
(4)
The reference to the partnership’s accounts includes a reference to
the accounts of any person who is a member of the partnership
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immediately before the arrangement is made.
809BZK
Certain tax consequences not to have effect
(1)
This section applies if—
(a)
there is a type 3 finance arrangement, and
(b)
any relevant change in relation to the partnership would
30
have the relevant effect (ignoring this section).
(2)
The relevant effect is that—
(a)
an amount of income on which a relevant member would
otherwise have been charged to income tax is not so charged,
(b)
an amount which would otherwise have been brought into
35
account in calculating for income tax purposes any income of
a relevant member is not so brought into account, or
(c)
a relevant member becomes entitled to an income deduction.
(3)
A relevant member is a person who—
(a)
was a member of the partnership immediately before the
40
relevant change in relation to it occurred, and
(b)
is not the lender.
(4)
If this section applies—

Taxation (International and Other Provisions) Bill
Schedule 5 — Factoring of income etc: new Chapters 5B and 5C of Part 13 of ITA 2007
287

(a)
Part 9 of ITTOIA 2005 (partnerships) is to have effect in
relation to any relevant member as if the relevant change in
relation to the partnership had not occurred, and
(b)
accordingly the finance arrangement is not to have the
relevant effect.
5
(5)
In deciding whether subsection (1)(b) is met assume that amounts of
income equal to the payments mentioned in section 809BZJ(2)(d)
were payable to the partnership before the relevant change in
relation to it occurred.
(6)
An income deduction is—
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(a)
a deduction in calculating income for income tax purposes, or
(b)
a deduction from total income.
809BZL
Deemed interest
(1)
This section applies if—
(a)
there is a type 3 finance arrangement,
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(b)
a relevant member 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.
20
(2)
For income tax purposes the relevant member may treat the amount
as interest payable by the partnership on a loan.
(3)
The reference in subsection (1) to the partnership’s accounts includes
a reference to the accounts of any relevant member.
(4)
If an amount is treated as interest (“deemed interest”) under
25
subsection (2), to find out when it is paid—
(a)
treat the payments mentioned in section 809BZJ(2)(d) 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
30
payments are paid, and
(c)
treat the deemed interest as paid at the times when the
interest elements are treated as paid.
(5)
A relevant member is a person who—
(a)
was a member of the partnership immediately before the
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relevant change in relation to it occurred, and
(b)
is not the lender.”
5
After section 809BZL insert—
“Exceptions
809BZM
Exceptions: preliminary
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(1)
Sections 809BZN to 809BZP make provision for finance arrangement
codes not to apply in certain circumstances.
(2)
For the purposes of those sections each of the following groups of
provisions is a finance arrangement code—

Taxation (International and Other Provisions) Bill
Schedule 5 — Factoring of income etc: new Chapters 5B and 5C of Part 13 of ITA 2007
288

(a)
sections 809BZA to 809BZE (type 1 arrangements),
(b)
sections 809BZF to 809BZI (type 2 arrangements), and
(c)
sections 809BZJ to 809BZL (type 3 arrangements).
809BZN
Exceptions
(1)
A finance arrangement code does not apply if the whole of the
5
advance under the arrangement—
(a)
is charged to tax on a relevant person as an amount of
income,
(b)
is brought into account in calculating for tax purposes any
income of a relevant person, or
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(c)
is brought into account for the purposes of any provision of
CAA 2001 as a disposal receipt, or proceeds from a balancing
event or disposal event, of a relevant person.
(2)
Treat subsection (1)(c) as not met if—
(a)
the receipt gives rise, or proceeds give rise, to a balancing
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charge, and
(b)
the amount of the balancing charge is limited by any
provision of CAA 2001.
(3)
A finance arrangement code does not apply if at all times the whole
of the advance under the arrangement—
20
(a)
is a debtor relationship of a relevant person for the purposes
of Part 5 of CTA 2009 (loan relationships), or
(b)
would be a debtor relationship of a relevant person for those
purposes if that person were a company within the charge to
corporation tax.
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(4)
In subsection (3) references to a debtor relationship do not include
references to a relationship to which Chapter 2 of Part 6 of CTA 2009
applies (relevant non-lending relationships).
(5)
A finance arrangement code does not apply so far as—
(a)
section 263A of TCGA 1992 applies in relation to the
30
arrangement (agreements for sale and repurchase of
securities), or
(b)
Schedule 13 to FA 2007 or Chapter 10 of Part 6 of CTA 2009
applies in relation to the arrangement (sale and repurchase of
securities, and repos).
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(6)
A finance arrangement code does not apply so far as Part 10A of this
Act, Chapter 4 of Part 4 of TCGA 1992 or Chapter 6 of Part 6 of CTA
2009 has effect in relation to the arrangement (alternative finance
arrangements).
(7)
A finance arrangement code does not apply so far as the security is
40
plant or machinery which is the subject of a sale and finance
leaseback.
(8)
For the purposes of subsection (7) apply section 221 of CAA 2001 to
determine whether plant or machinery is the subject of a sale and
finance leaseback.
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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
289

(9)
A finance arrangement code does not apply so far as sections 228B
and 228C of CAA 2001 (finance leaseback) apply in relation to the
arrangement.
(10)
Section 809BZO defines a relevant person for the purposes of this
section.
5
809BZO
Exceptions: relevant person
(1)
This section defines a relevant person for the purposes of section
809BZN.
(2)
If (apart from sections 809BZN and 809BZP) sections 809BZA to
809BZE would apply, each of the following is a relevant person—
10
(a)
the borrower, and
(b)
a person connected with the borrower or (if the borrower is a
partnership) a member of the partnership.
(3)
If (apart from sections 809BZN and 809BZP) sections 809BZF to
809BZI would apply, the transferor is a relevant person.
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(4)
If (apart from sections 809BZN and 809BZP) sections 809BZJ to
809BZL would apply, a relevant member as there defined is a
relevant person.
(5)
For the purposes of subsection (2)(b) the persons connected with the
borrower include any persons who under section 993 (meaning of
20
“connected”) are connected with the borrower.
809BZP
Power to make further exceptions
(1)
The Treasury may make regulations prescribing other circumstances
in which a finance arrangement code is not to apply.
(2)
The regulations may amend sections 809BZN and 809BZO.
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(3)
The power to make regulations includes—
(a)
power to make provision that has effect in relation to times
before the making of the regulations (but not times before 6
June 2006),
(b)
power to make different provision for different cases or
30
different purposes, and
(c)
power to make incidental, supplemental, consequential and
transitional provision and savings.”
6
After section 809BZP insert—
“Supplementary
35
809BZQ
Accounts
(1)
This section applies for the purposes of this Chapter.
(2)
A reference to the accounts of a person includes (if the person is a
company) a reference to the consolidated group accounts of a group
of companies of which it is a member.
40
(3)
In determining whether accounts record an amount as a financial
liability in respect of an advance, assume that the period in which the

Taxation (International and Other Provisions) Bill
Schedule 5 — Factoring of income etc: new Chapters 5B and 5C of Part 13 of ITA 2007
290

advance is received ended immediately after the receipt of the
advance.
(4)
If a person does not draw up accounts in accordance with generally
accepted accounting practice, assume that the person drew up the
accounts in accordance with that practice.
5
809BZR
Arrangements
A reference in this Chapter to an arrangement includes a reference to
an agreement or understanding (whether or not legally enforceable).
809BZS
Assets
(1)
This section applies for the purposes of this Chapter.
10
(2)
A reference to a person receiving an asset includes—
(a)
a reference to the person obtaining (directly or indirectly) the
value of an asset or otherwise deriving (directly or indirectly)
a benefit from it, and
(b)
a reference to the discharge (in whole or part) of a liability of
15
the person.
(3)
A reference to a disposal of an asset includes a reference to anything
constituting a disposal of it for the purposes of TCGA 1992.
(4)
A reference to payments in respect of an asset includes—
(a)
a reference to payments in respect of another asset
20
substituted for it under the arrangement, and
(b)
a reference to obtaining (directly or indirectly) the value of an
asset or otherwise deriving (directly or indirectly) a benefit
from it.”
7
After section 809BZS insert—
25
“Chapter 5C
Loan or credit transactions
809CZA
Loan or credit transaction defined
(1)
This section defines a loan or credit transaction for the purposes of
sections 809CZB and 809CZC.
30
(2)
A transaction is a loan or credit transaction if it is—
(a)
effected with reference to the lending of money or the
varying of the terms on which money is lent, or
(b)
effected with a view to enabling or facilitating an
arrangement concerning the lending of money or the varying
35
of the terms on which money is lent.
(3)
A transaction is a loan or credit transaction if it is—
(a)
effected with reference to the giving of credit or the varying
of the terms on which credit is given, or
(b)
effected with a view to enabling or facilitating an
40
arrangement concerning the giving of credit or the varying of
the terms on which credit is given.

Taxation (International and Other Provisions) Bill
Schedule 5 — Factoring of income etc: new Chapters 5B and 5C of Part 13 of ITA 2007
291

(4)
Subsection (2) has effect whether the transaction is effected—
(a)
between the lender and borrower,
(b)
between either of them and a person connected with the
other, or
(c)
between a person connected with one and a person
5
connected with the other.
(5)
Subsection (3) has effect whether the transaction is effected—
(a)
between the creditor and debtor,
(b)
between either of them and a person connected with the
other, or
10
(c)
between a person connected with one and a person
connected with the other.
809CZB
Certain payments treated as yearly interest
(1)
This section applies if a loan or credit transaction provides for a
payment which is not interest but is—
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(a)
an annuity or other annual payment falling within Part 5 of
ITTOIA 2005 and chargeable to income tax otherwise than as
relevant foreign income, or
(b)
an annuity or other annual payment which is from a source
in the United Kingdom and chargeable to corporation tax
20
under Chapter 5 of Part 10 of CTA 2009 (distributions from
unauthorised unit trusts) or Chapter 7 of that Part (annual
payments not otherwise charged).
(2)
The payment must be treated for the purposes of the Income Tax
Acts as if it were a payment of yearly interest (see, in particular,
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section 874).
809CZC
Tax charged on income transferred
(1)
This section applies if—
(a)
under a loan or credit transaction a person transfers income
arising from property,
30
(b)
the person is not, as a result of Chapter 5B (finance
arrangements), chargeable to income tax on the income
transferred, and
(c)
the person is within the charge to income tax.
(2)
In such a case—
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(a)
income tax is charged under this section,
(b)
the tax is charged on an amount equal to the full amount of
the income transferred,
(c)
the tax is charged for the tax year in which the transfer takes
place, and
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(d)
the person who transfers the income is liable for the tax.
(3)
This section does not prejudice the liability of any other person to tax.
(4)
For the purposes of this section a person transfers income if the
person surrenders, waives or forgoes it.
(5)
Subsection (6) applies for the purposes of this section if—
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(a)
credit is given for the purchase price of property, and

Taxation (International and Other Provisions) Bill
Schedule 6 — UK Representatives of non-UK residents
Part 1 — New Chapters 2B and 2C of Part 14 of ITA 2007
292

(b)
the rights attaching to the property are such that the buyer’s
rights to income from the property are suspended or
restricted during the life of the debt.
(6)
The buyer must be treated as surrendering income of an amount
equal to the income the buyer in effect forgoes by obtaining the
5
credit.
(7)
For the purposes of this section an amount of income payable subject
to deduction of income tax must be taken as the amount before
deduction of tax.”
Schedule 6
10
Section 370

UK Representatives of non-UK residents
Part 1
New Chapters 2B and 2C of Part 14 of ITA 2007
1
After section 835A of ITA 2007 insert—
“Chapter 2B
15
UK representative of non-UK resident
Introduction
835C
Overview of Chapter
(1)
This Chapter provides for a branch or agency to be treated as the UK
representative of a non-UK resident in respect of certain amounts
20
chargeable to income tax.
(2)
For obligations and liabilities in relation to income tax imposed on a
branch or agency which under this Chapter is treated as the UK
representative of a non-UK resident, see Chapter 2C.”
2
After section 835C insert—
25
“835D
Income tax chargeable on company’s income: application
This Chapter does not apply in relation to income tax chargeable on
income of a company otherwise than as a trustee.”
3
After section 835D insert—
“Branches and agencies
30
835E
Branch or agency treated as UK representative
(1)
This section applies if a non-UK resident carries on (alone or in
partnership) any trade, profession or vocation through a branch or
agency in the United Kingdom.