Finance Bill

House of Commons

Session 2009 - 10
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Finance Bill

Finance Bill
Schedule 17 — Risk transfer schemes
139

(3)
In this Part “the relevant group” means—
(a)
company A, and
(b)
each company other than company A in relation to which the
condition in subsection (2) is met.
(4)
In its application in relation to single company schemes, this Part
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applies subject to the following modifications.
(5)
The modifications are that—
(a)
references to the relevant group, a member of the relevant
group, or the members of the relevant group, are treated as
references to company A, and
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(b)
sections 937E(2) and 937L(2) are treated as omitted.
Basic definitions
937C
Meaning of “risk transfer scheme”
(1)
A scheme to which a company (“company A”) is a party is a “risk
transfer scheme” if conditions 1 to 3 are met.
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(2)
Condition 1 is that the purpose, or one of the main purposes, of any
member of the relevant group on entering into the scheme is to
obtain a financial advantage for the relevant group that it is
reasonable to assume could not otherwise have been obtained
without the relevant group becoming subject to (or incurring the cost
20
of avoiding) a relevant risk.
(3)
In subsection (2) “a relevant risk” means a risk that the relevant
group would make economic losses in one or more accounting
periods of company A as a result of fluctuations in—
(a)
the rate of exchange between any two currencies,
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(b)
the retail prices index (or any similar general index of prices)
or any other index, or
(c)
any price or other value.
(4)
Condition 2 is that, as a result of the scheme, and disregarding the
effect of this Part, the relevant group—
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(a)
is not subject to the relevant risk, or
(b)
is subject only to a negligible proportion of that risk.
(5)
Condition 3 is that, disregarding the effect of the provisions of the
Corporation Tax Acts, condition 2 would not be met.
(6)
For the purposes of this section the relevant group obtains a
35
“financial advantage” from a scheme if, taking into account the effect
of the scheme on each member of the group, the scheme—
(a)
increases the return on any investment,
(b)
reduces the costs of any borrowing, or
(c)
has an effect economically equivalent to that mentioned in
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paragraph (a) or (b).

Finance Bill
Schedule 17 — Risk transfer schemes
140

937D
Meaning of “the scheme rate, index or value”

In this Part “the scheme rate, index or value”, in relation to a risk
transfer scheme, means the rate, index or value mentioned in section
937C(3)(a), (b) or (c) in relation to the relevant risk for the scheme.
937E
Scheme losses and scheme profits
5
(1)
A loss or profit made by a company in an accounting period is a
“scheme loss” or “scheme profit” in relation to a risk transfer scheme
to which the company is a party at any time in the period if the loss
or profit—
(a)
is from a loan relationship, or derivative contract, that is part
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of the scheme,
(b)
would, apart from this Part, be brought into account in
determining a debit or credit for the purposes of Part 5 of
CTA 2009 (loan relationships) or Part 7 of that Act (derivative
contracts), and
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(c)
arises as a result of fluctuations in the scheme rate, index or
value.
(2)
References in this Part to a scheme loss or scheme profit made by a
company in a period that is not an accounting period of that
company are to the scheme loss or scheme profit that the company
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would have made in the period from the loan relationship or
derivative contract in question if the period had been an accounting
period of the company.
(3)
References in this section to a loss or profit from a loan relationship
or a derivative contract include—
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(a)
a loss or profit from a related transaction, and
(b)
a loss or profit of a capital nature.
(4)
In subsection (3)(a) “related transaction” has the meaning given by—
(a)
section 304 of CTA 2009 (in relation to a loan relationship), or
(b)
section 596 of that Act (in relation to a derivative contract).
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937F
Ring-fenced scheme losses and relevant scheme profits
(1)
Subsection (2) applies if—
(a)
a company makes one or more scheme losses in an
accounting period in relation to a risk transfer scheme, and
(b)
disregarding any profits or losses made otherwise than as a
35
result of the scheme, the relevant group makes a pre-tax
economic loss in the period as a result of fluctuations in the
scheme rate, index or value.
(2)
The relevant proportion of each scheme loss made by the company
in the accounting period is a “ring-fenced scheme loss”.
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(3)
For this purpose “the relevant proportion” means—

where—
A is the total of the scheme losses made in the period in relation
to the scheme by the members of the relevant group,

Finance Bill
Schedule 17 — Risk transfer schemes
141

B is the total of the scheme profits made in the period in relation
to the scheme by the members of the relevant group, and
C is the pre-tax economic loss referred to in subsection (1)(b).
(4)
Subsection (5) applies if—
(a)
a company makes one or more scheme profits in an
5
accounting period in relation to a risk transfer scheme, and
(b)
disregarding any profits or losses made otherwise than as a
result of the scheme, the relevant group makes a pre-tax
economic profit in the period as a result of fluctuations in the
scheme rate, index or value.
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(5)
The relevant proportion of each scheme profit made by the company
in the accounting period is a “relevant scheme profit”.
(6)
For this purpose “the relevant proportion” means—

where—
A is the total of the scheme profits made in the period in relation
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to the scheme by the members of the relevant group,
B is the total of the scheme losses made in the period in relation
to the scheme by the members of the relevant group, and
C is the pre-tax economic profit referred to in subsection (4)(b).
Treatment of ring-fenced scheme losses
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937G
Ring-fenced scheme loss: treatment in period in which made
(1)
This section applies for the purpose of determining the amount (if
any) of a ring-fenced scheme loss that may be brought into account
by a company in the accounting period in which it is made.
(2)
If the amount of the company’s profits pool for the scheme as at the
25
beginning of the period is nil, the ring-fenced scheme loss may not be
brought into account.
(3)
If the amount of the company’s profits pool for the scheme as at the
beginning of the period is—
(a)
greater than nil, and
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(b)
less than the total of the ring-fenced scheme losses made in
the period in relation to the scheme by the company,

only the relevant proportion of the ring-fenced scheme loss may be
brought into account.
(4)
For this purpose “the relevant proportion” means—
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where—
A is the amount of the company’s profits pool as at the
beginning of the period, and
B is the total of the ring-fenced scheme losses made in the period
in relation to the scheme by the company.
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Finance Bill
Schedule 17 — Risk transfer schemes
142

(5)
If the amount of the company’s profits pool for the scheme as at the
beginning of the period is equal to or greater than the total of the
ring-fenced scheme losses made in the period in relation to the
scheme by the company, the ring-fenced scheme loss may be brought
into account in full.
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(6)
A reference in this paragraph to bringing a ring-fenced scheme loss
into account is to bringing it into account in determining a debit or
credit for the purposes of Part 5 of CTA 2009 (loan relationships) or
Part 7 of that Act (derivative contracts).
937H
Ring-fenced scheme loss: treatment in subsequent periods
10
(1)
This section applies where—
(a)
a company makes one or more scheme profits in an
accounting period in relation to a risk transfer scheme,
(b)
disregarding any profits or losses made otherwise than as a
result of the scheme, the relevant group makes a pre-tax
15
economic profit in the period as a result of fluctuations in the
scheme rate, index or value, and
(c)
the amount of the company’s losses pool for the scheme as at
the beginning of the period is greater than nil.
(2)
The company may bring into account, as if it were a loss made in the
20
period from a loan relationship—

where—
A is so much of the amount of the company’s losses pool as at
the beginning of the period as does not exceed the total of the
relevant scheme profits made in the period in relation to the
25
scheme by the company, and
B is the proportion of the total of the relevant scheme profits
made in the period in relation to the scheme by the company
that consists of profits made from its loan relationships.
(3)
The company may bring into account, as if it were a loss made in the
30
period from a derivative contract—

where—
A has the same meaning as in subsection (2), and
C is the proportion of the total of the relevant scheme profits
made in the period in relation to the scheme by the company
35
that consists of profits made from its derivative contracts.
(4)
A reference in this section to bringing an amount into account is to
bringing it into account in determining a debit or credit for the
purposes of Part 5 of CTA 2009 (loan relationships) or Part 7 of that
Act (derivative contracts).
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