Finance (No. 2) Bill

House of Commons

Session 2010 - 11
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Other Bills before Parliament

Finance (No. 2) Bill

Finance (No. 2) Bill
Schedule 5 — Financing costs and income of group companies
43

(6)
For the purposes of subsections (3) and (4) a return produced for a
person by an arrangement in relation to any amount is “economically
equivalent to interest” if (and only if)—
(a)
it is reasonable to assume that it is a return by reference to the
time value of that amount of money,
5
(b)
it is at a rate reasonably comparable to what is (in all the
circumstances) a commercial rate of interest, and
(c)
at the relevant time there is no practical likelihood that it will
cease to be produced in accordance with the arrangement
unless the person by whom it falls to be produced is
10
prevented (by reason of insolvency or otherwise) from
producing it.
(7)
In subsection (6)(c) “the relevant time” means the time when the
company becomes party to the arrangement.
(8)
For the purposes of subsections (3) and (4) an arrangement is “short
15
term” if it terminates, or its terms provide for it to terminate, within
12 months of its coming into force.
(9)
In this section the following expressions have the meaning for the
time being given by generally accepted accounting practice—
“cash”,
20
“cash equivalent”,
“equity interest”,
“finance lease”,
“financial asset”,
“financial liability”,
25
“net cash investment”, in relation to a finance lease, and
“net investment”, in relation to a finance lease.”
5     (1)
Section 264 (worldwide gross debt) is amended as follows.
      (2)
In subsection (1), for “The reference in section 261” substitute “A reference
in this Chapter”.
30
      (3)
In subsection (2), for paragraphs (a) to (c) substitute—
“(a)
borrowing (whether short term or long term and including
borrowing by way of overdraft),
(b)
liabilities in respect of finance leases,
(c)
arrangements not within paragraph (a) or (b) that—
35
(i)
are financial liabilities,
(ii)
produce for any person a return in relation to any
amount which is economically equivalent to interest,
and
(iii)
are not short term, or
40
(d)
such other matters as may be specified in regulations made
by the Commissioners.”
      (4)
For subsections (3) and (4) substitute—
“(3)
But an amount disclosed in the balance sheet of the group in respect
of the share capital of any member of the group is not a “relevant
45
liability” for the purposes of this section.

Finance (No. 2) Bill
Schedule 5 — Financing costs and income of group companies
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(4)
For the purposes of subsection (2) a return produced for a person by
an arrangement in relation to any amount is “economically
equivalent to interest” if (and only if)—
(a)
it is reasonable to assume that it is a return by reference to the
time value of that amount of money,
5
(b)
it is at a rate reasonably comparable to what is (in all the
circumstances) a commercial rate of interest, and
(c)
at the relevant time there is no practical likelihood that it will
cease to be produced in accordance with the arrangement
unless the person by whom it falls to be produced is
10
prevented (by reason of insolvency or otherwise) from
producing it.
(5)
In subsection (4)(c) “the relevant time” means the time when any
member of the group becomes party to the arrangement.
(6)
For the purposes of subsection (2) an arrangement is “short term” if
15
it terminates, or its terms provide for it to terminate, within 12
months of its coming into force.
(7)
In this section the following expressions have the meaning for the
time being given by the accounting standards in accordance with
which the financial statements of the group are drawn up—
20
“finance lease”, and
“financial liability”.
(8)
For provision about references in this Part to financial statements of
the worldwide group, and amounts disclosed in financial
statements, see sections 346 to 349.”
25
6     (1)
Section 265 (references to amounts disclosed in balance sheet) is amended as
follows.
      (2)
In the heading, for “relevant group” substitute “a”.
      (3)
In subsections (1) and (5), omit “relevant group”.
7
After section 265 insert—
30
“265A
Different accounting treatment used at company and group levels
(1)
This section applies where—
(a)
for the purposes of the computation of the UK net debt of the
worldwide group, the amount of a relevant liability of a
company (“the company-level relevant liability”) is
35
determined in accordance with section 263,
(b)
for the purposes of the computation of the worldwide gross
debt of the group, the amount of a relevant liability of the
worldwide group (“the group-level relevant liability”) is
determined in accordance with section 264,
40
(c)
the company-level relevant liability is an amount in respect
of the same matter as—
(i)
the group-level relevant liability, or
(ii)
a liability comprised in the group-level relevant
liability, and
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Finance (No. 2) Bill
Schedule 5 — Financing costs and income of group companies
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(d)
the amount of the company-level relevant liability would not,
apart from this section, be the same as the amount of the
liability mentioned in paragraph (c)(i) or (ii).
(2)
For the purposes of the computation mentioned in subsection (1)(a),
the amount of the company-level relevant liability is the amount of
5
the liability mentioned in subsection (1)(c)(i) or (ii).”
8
In section 266(3) (qualifying financial services groups), in the definition of
“UK trading income”, after “relevant group company” insert “or a group
securitisation company”.
9
In section 270 (relevant dealing in financial instruments), for subsection (1)
10
substitute—
“(1)
In this Chapter “financial instrument” means—
(a)
anything that is a financial instrument for any purpose of the
FSA handbook, or
(b)
an instrument not within paragraph (a) that is an option,
15
future or contract for differences.
(1A)
In this section “option”, “future” and “contract for differences” have
the same meaning as in Part 7 of CTA 2009 (see sections 580 to 582 of
that Act).”
10    (1)
Section 271 (UK trading income of the worldwide group) is amended as
20
follows.
      (2)
In subsections (2), (3), (4) and (6), omit “relevant group”.
      (3)
In subsection (7), for “relevant group company” substitute “group
securitisation company”.
11
In section 273 (foreign currency accounting), in subsections (1), (2) and (3)(a),
25
omit “relevant group”.
12
After section 273 insert—
“273A
Meaning of “group securitisation company”
For the purposes of this Chapter, a company is a “group
securitisation company” at any time during a period of account of the
30
worldwide group if—
(a)
it is, at that time, a securitisation company within the
meaning of section 83(2) of FA 2005 or section 623 of CTA
2010, and
(b)
its results are disclosed in the financial statements of the
35
worldwide group for the period.”
Amendments of Chapter 3 (disallowance of deductions)
13
After section 275 (meaning of “company to which this Chapter applies”)
insert—
“275A
Meaning of “dual resident investing company”
40
For the purposes of this Chapter, a company is a “dual resident
investing company” in relation to the relevant period of account if
that period, or any part of it, is a period in respect of which the

Finance (No. 2) Bill
Schedule 5 — Financing costs and income of group companies
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company is prevented, because of section 109(2) of CTA 2010
(restriction on losses etc surrenderable by dual resident), from
surrendering losses under Chapter 2 of Part 5 of that Act (group
relief).”
14
After section 280 (statement of allocated disallowances: requirements),
5
insert—
“280A
Statement of allocated disallowances: dual resident investing
companies
(1)
This section applies in relation to a statement of allocated
disallowances submitted under section 278 or 279 that (pursuant to
10
section 280(4)) lists, and specifies an amount or amounts in relation
to, a dual resident investing company.
(2)
The statement does not comply with section 280(4) unless—
(a)
the companies listed pursuant to paragraph (a) of that
provision include each company to which this Chapter
15
applies that—
(i)
is not a dual resident investing company, and
(ii)
has one or more financing expense amounts for the
relevant period of account, and
(b)
the financing expense amounts specified pursuant to
20
paragraph (b) of that provision include, in relation to each
such company, each such financing expense amount.”
15    (1)
Section 284 (failure of reporting body to submit statement of allocated
disallowances) is amended as follows.
      (2)
In subsection (2), for “Each company to which this Chapter applies that has
25
a net financing deduction for the relevant period of account that is greater
than nil” substitute “Where a company to which this Chapter applies
(“company A”) has a net financing deduction for the relevant period of
account that is greater than nil, it”.
      (3)
After subsection (2) insert—
30
   “(2A)
The total of the reductions required to be made by company A
because of subsection (2) is—
(a)
where company A or any other company to which this
Chapter applies is a dual resident investing company, the
amount determined in accordance with section 284A, and
35
(b)
otherwise, the amount determined in accordance with
subsection (3).”
      (4)
In subsection (3)—
(a)
for “total of the reductions required to be made by a company
because of subsection (2)” substitute “amount referred to in
40
subsection (2A)(b)”, and
(b)
in the definition of NFD, for “the company” substitute “company A”.
16
After section 284 insert—
“284A
Section 284: supplementary
(1)
This section contains provision for determining the total of the
45
reductions required to be made by company A because of section

Finance (No. 2) Bill
Schedule 5 — Financing costs and income of group companies
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284(2) in a case in which company A, or any other company to which
this Chapter applies, is a dual resident investing company.
(2)
If company A is not a dual resident investing company, the total of
the reductions required to be made by company A is—

or, if lower, NFD.
5
(3)
If company A is a dual resident investing company, the total of the
reductions required to be made by company A is—

or, if that amount is negative or zero, nil.
(4)
In subsections (2) and (3)—
NFD, TEA and TDA have the same meaning as in section 284(3),
10
and
X is the total of the net financing deductions of all the companies
to which this Chapter applies that are dual resident investing
companies.”
Amendment of Chapter 4 (exemption of financing income)
15
17
In section 292(5)(a) (statement of allocated exemptions: requirements), for
“and C” substitute “, C and D”.
Amendments of Chapter 5 (intra-group financing income where payer denied deduction)
18    (1)
Section 305 (financing income amounts of a company) is amended as
follows.
20
      (2)
In subsection (1), for “or C” substitute “, C or D”.
      (3)
After subsection (5) insert—
“(5A)
Condition D is that the amount is an amount that would, apart from
this Chapter, be brought into account by the company for the
purposes of corporation tax in respect of income that—
25
(a)
is receivable from another company, and
(b)
is in consideration of the provision of a guarantee of any
borrowing of that other company.”
      (4)
In subsection (6), for “or C” (in both places) substitute “, C or D”.
      (5)
After that subsection insert—
30
“(7)
In this section the following expressions have the same meaning as
they have in Part 5 of CTA 2009 (loan relationships)—
“exchange gain”,
“impairment loss”, and
“related transaction”.”
35

Finance (No. 2) Bill
Schedule 5 — Financing costs and income of group companies
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Amendments of Chapter 7 (“financing expense amount” and “financing income amount”)
19    (1)
Section 314 (financing income amounts of a company) is amended as
follows.
      (2)
In subsection (1), for “or C” substitute “, C or D”.
      (3)
After subsection (5) insert—
5
“(5A)
Condition D is that the amount is an amount that would, apart from
this Part, be brought into account for the purposes of corporation tax
in a relevant accounting period of the company in respect of income
that—
(a)
is receivable from another company, and
10
(b)
is in consideration of the provision of a guarantee of any
borrowing of that other company.”
20
In section 315 (interpretation of sections 313 and 314), omit ““impairment”,”.
21    (1)
Section 316 (group treasury companies) is amended as follows.
      (2)
In subsection (1)(b), for “or C” substitute “, C or D”.
15
      (3)
For subsection (8) substitute—
“(8)
Condition 3 is that at least 90% of the relevant income of the
company for the relevant period is group treasury revenue.”
22
After section 318 (companies engaged in oil extraction activities) insert—
“318A
Industrial and provident societies
20
(1)
This section applies if, apart from this section, an amount (“the
relevant amount”) is—
(a)
a financing expense amount of a company because of
meeting condition A in section 313, or
(b)
a financing income amount of a company because of meeting
25
condition A in section 314.
(2)
The relevant amount is treated as not being a financing expense
amount or a financing income amount of the company if it is such an
amount only because of section 499 of CTA 2009 (industrial and
provident society payments treated as interest under loan
30
relationship).”
23
In section 321 (short-term loan relationships)—
(a)
in subsection (4), omit “other”, and
(b)
omit subsection (7).
24    (1)
Section 327 (educational and public bodies) is amended as follows.
35
      (2)
In subsection (2), omit the “or” at the end of paragraph (c) and after that
paragraph insert—
“(ca)
a relevant public body, or”.
      (3)
In subsection (4), omit the “and” after the definition of “designated
educational establishment” and after the definition of “health service body”
40
insert “, and
“relevant public body” means a body that—

Finance (No. 2) Bill
Schedule 5 — Financing costs and income of group companies
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(a)
is not within subsection (2)(a) to (c) and is not a
government department,
(b)
acts under any enactment for public purposes and not
for its own profit, and
(c)
is not within the charge to corporation tax.”
5
      (4)
After that subsection insert—
“(5)
In this section “enactment” includes—
(a)
an enactment contained in subordinate legislation (within the
meaning of the Interpretation Act 1978), and
(b)
an enactment contained in, or in an instrument made
10
under—
(i)
an Act of the Scottish Parliament,
(ii)
Northern Ireland legislation, or
(iii)
a Measure or Act of the National Assembly for
Wales.”
15
Amendment of Chapter 8 (the “tested expense amount” and “tested income amount”)
25
After section 331 (companies with net financing deduction or net financing
income that is small) insert—
“331A
Mismatches between tax treatment and accounting treatment
(1)
The Commissioners may make regulations for the purpose of
20
altering the way in which the tested expense amount or the tested
income amount is calculated in a case in which an accounts amount
in respect of a matter is not equal to the tax amount in respect of that
matter.
(2)
For this purpose—
25
(a)
the “accounts amount” in respect of a matter is—
(i)
the amount disclosed in the financial statements of
the worldwide group in respect of the matter, or
(ii)
if no amount is so disclosed, nil, and
(b)
the “tax amount” in respect of a matter is—
30
(i)
the amount of the deduction to which a member of
the worldwide group is entitled under a provision of
the Corporation Tax Acts in respect of the matter,
(ii)
if more than one member is entitled to such a
deduction, the total such deductions, or
35
(iii)
if no member is entitled to such a deduction, nil.
(3)
Regulations under this section may amend any provision of this Part.
(4)
Regulations under this section may have effect in relation to periods
of account of the worldwide group beginning on or after the
beginning of the calendar year in which the regulations are made.
40
(5)
Regulations under this section may include provision for the
worldwide group to elect that the regulations (or any of them)—
(a)
are not to apply in relation to the group, or