Finance (No. 3) Bill

Session 2010 - 11
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Finance (No. 3) Bill

Finance (No. 3) Bill
Schedule 5 — Group mismatch schemes
137

Schedule 5
Section 30

Group mismatch schemes
Insertion of new Part 21B of CTA 2010 and consequential amendments
1
In section 1(4) of CTA 2010 (overview of Act), omit the “and” at the end of
paragraph (h), and after paragraph (i) insert—
5
“(j)
group mismatch schemes (see Part 21B).”
2
After Part 21A of that Act insert—
“Part 21B
Group mismatch schemes
938A
Losses and profits from group mismatch schemes to be disregarded
10
(1)
This section applies to a company that—
(a)
is (at any time) a party to a group mismatch scheme, and
(b)
is a member of the scheme group.
(2)
No scheme loss or profit made by the company in any accounting
period in relation to the scheme is to be brought into account as a
15
debit or credit for the purposes of Part 5 of CTA 2009 (loan
relationships) or Part 7 of that Act (derivative contracts).
(3)
An amount that would, apart from this section, be brought into
account for the purposes of Part 5 or 7 of that Act as respects any
matter—
20
(a)
is treated, for the purposes of section 464(1) or (as the case
may be) 699(1) of that Act (priority of Part 5 or 7 for
corporation tax purposes) as if it were so brought into
account, and
(b)
accordingly, may not be brought into account for any other
25
corporation tax purposes as respects that matter.
938B
Meaning of “a group mismatch scheme” and “the scheme group”
(1)
A scheme is “a group mismatch scheme” if—
(a)
the parties to the scheme are, or include, members of the
same group, and
30
(b)
condition A or B is met.
(2)
Condition A is that, at the time the scheme is entered into, there is no
practical likelihood that the scheme will fail to secure a relevant tax
advantage of £2 million or more.
(3)
The Treasury may by order substitute a higher amount for the
35
amount for the time being specified in subsection (2).
(4)
Any such substitution is to have effect in relation to schemes entered
into on or after the day on which the order comes into force.
(5)
Condition B is that—
(a)
the purpose, or one of the main purposes, of any member of
40
the scheme group in entering into the scheme is to obtain the

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chance of securing a relevant tax advantage (of any amount),
and
(b)
at the time the scheme is entered into—
(i)
there is no chance that the scheme will secure a
relevant tax disadvantage, or
5
(ii)
there is such a chance, but the expected value of the
scheme is nevertheless a positive amount.
(6)
If, at the time the company enters into the scheme, there are chances
that the scheme would, if carried out, secure different relevant tax
advantages or disadvantages in different circumstances, the
10
amounts and probabilities of each must be taken into account in
determining the expected value of the scheme.
(7)
In determining whether condition A or B is met, it is to be assumed
that the parties to the scheme carry it out.
(8)
Where, at the time the scheme is entered into, the length of the
15
scheme period is uncertain, condition A or B is met if it would be met
on any reasonable assumption as to the length of the scheme period.
(9)
In determining whether condition A or B is met, section 938A
(scheme profits and losses to be left out of account) is to be
disregarded.
20
(10)
In this Part “the scheme group” means the group mentioned in
subsection (1)(a).
938C
Meaning of “scheme loss” and “scheme profit”
(1)
A loss or profit made by a company in an accounting period is a
“scheme loss” or “scheme profit” in relation to a group mismatch
25
scheme if the loss or profit—
(a)
arises from a transaction, or series of transactions, that forms
part of the scheme,
(b)
is, or is comprised in, an amount that is brought into account
as a debit or credit for the purposes of Part 5 or 7 of CTA 2009,
30
and
(c)
meets the first or second asymmetry condition.
(2)
The first asymmetry condition is that the loss or profit affects the
amount of any relevant tax advantage secured by the scheme.
(3)
Where, at the end of the accounting period—
35
(a)
it is not certain whether the scheme will secure a relevant tax
advantage, or
(b)
it is not certain what the amount of the relevant tax
advantage secured by the scheme will be,

a loss or profit is to be treated as meeting the first asymmetry
40
condition if, at that time, there is a chance that the scheme will secure
a relevant tax advantage and that the loss or profit will affect its
amount.
(4)
Where—
(a)
a loss or profit meets the conditions in subsection (1)(a) and
45
(b), and

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(b)
a part, but not the whole, of the loss or profit meets the first
asymmetry condition,

only that part of the loss or profit is a “scheme loss” or “scheme
profit”.
(5)
The second asymmetry condition is that the loss or profit—
5
(a)
does not meet the first asymmetry condition, but
(b)
arises from a transaction, or series of transactions, that might
(if events had turned out differently) have given rise to a loss
or profit that would have done so.
(6)
References in this section to a loss or profit include a loss or profit
10
arising in respect of interest or expenses.
(7)
In determining whether the condition in subsection (1)(b) or the first
or second asymmetry condition is met, section 938A (scheme profits
and losses to be left out of account) is to be disregarded.
938D
Meaning of “relevant tax advantage” etc and “the scheme period”
15
(1)
In this Part “relevant tax advantage”, in relation to a scheme, means
an economic profit that—
(a)
is made by the scheme group over the scheme period,
(b)
meets the condition in subsection (3), and
(c)
is not negligible.
20
(2)
In this Part “relevant tax disadvantage”, in relation to a scheme,
means an economic loss that—
(a)
is made by the scheme group over the scheme period,
(b)
meets the condition in subsection (3), and
(c)
is not negligible.
25
(3)
The condition is that the economic profit or loss arises as a result of
asymmetries in the way different members of the scheme group
bring, or do not bring, amounts into account as debits and credits for
the purposes of Part 5 or 7 of CTA 2009.
(4)
A reference in this section to asymmetries includes, in particular—
30
(a)
asymmetries relating to quantification, and
(b)
asymmetries relating to timing.
(5)
In this section—
(a)
a reference to an economic profit includes an increase in an
economic profit and a decrease in an economic loss, and
35
(b)
a reference to an economic loss includes an increase in an
economic loss and a decrease in an economic profit.
(6)
In this Part “the scheme period”, in relation to a scheme, means the
period during which the scheme has effect.
938E
Meaning of “group”
40
(1)
For the purposes of this Part a company (“company A”) is a member
of a group, in relation to a scheme, if any other company is at any
time in the scheme period associated with company A.

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(2)
The group consists of company A and each company in relation to
which the condition in subsection (1) is met.
(3)
For the purposes of this section a company (“company B”) is
associated with company A at a time (“the relevant time”) if any of
the following five conditions is met.
5
(4)
The first condition is that the financial results of company A and
company B, for a period that includes the relevant time, meet the
consolidation condition.
(5)
The second condition is that there is a connection between company
A and company B for the accounting period of company A in which
10
the relevant time falls.
(6)
The third condition is that, at the relevant time, company A has a
major interest in company B or company B has a major interest in
company A.
(7)
The fourth condition is that—
15
(a)
the financial results of company A and a third company, for
a period that includes the relevant time, meet the
consolidation condition, and
(b)
at the relevant time the third company has a major interest in
company B.
20
(8)
The fifth condition is that—
(a)
there is a connection between company A and a third
company for the accounting period of company A in which
the relevant time falls, and
(b)
at the relevant time the third company has a major interest in
25
company B.
(9)
In this section, the financial results of any two companies for any
period meet “the consolidation condition” if—
(a)
they are required to be comprised in group accounts,
(b)
they would be required to be comprised in such accounts but
30
for the application of an exemption, or
(c)
they are in fact comprised in such accounts.
(10)
In subsection (9), “group accounts” means accounts prepared
under—
(a)
section 399 of the Companies Act 2006, or
35
(b)
any corresponding provision of the law of a territory outside
the United Kingdom.
(11)
The following provisions apply for the purposes of this section—
sections 466 to 471 of CTA 2009 (companies connected for
accounting period), and
40
sections 473 and 474 of CTA 2009 (meaning of “major interest”).
938F
Meaning of references to economic profits and losses
(1)
An economic profit or loss is to be computed for the purposes of this
Part taking into account, in particular—
(a)
profits and losses made as a result of the operation of the
45
Corporation Tax Acts, and

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(b)
any adjustments required to reflect the time value of money.
(2)
A reference in this Part to an economic profit or loss made by the
scheme group over the scheme period is to an economic profit or loss
made in that period by the members of the group considered
together.
5
(3)
In determining for the purposes of this Part the amount of an
economic profit or loss made by the scheme group over the scheme
period, profits and losses made by a member of the group are to be
taken into account only to the extent that they are attributable to
times at which the member is a party to the scheme.
10
938G
Tax capacity assumption
(1)
This section applies for the purpose of determining whether a
scheme will, or might, secure a relevant tax advantage.
(2)
The economic profits and losses made by the scheme group over the
scheme period must be calculated on the assumption that each
15
company that is at any time a party to the scheme—
(a)
obtains the full tax benefit of any loss made by that company
in relation to a loan relationship or a derivative contract
during the period, and
(b)
incurs the full tax cost of any profit made by that company in
20
relation to a loan relationship or a derivative contract during
the period.
(3)
The “full tax benefit” of a loss is the reduction in the liability of the
company to corporation tax that would result if—
(a)
the loss were brought into account as a debit or as a reduction
25
in a credit for the purposes of Part 5 or 7 of CTA 2009, and
(b)
the company’s profits chargeable to corporation tax,
disregarding the loss, were equal to the debit (or the
reduction in the credit) determined by reference to the loss.
(4)
The “full tax cost” of a profit is the increase in the liability of the
30
company to corporation tax that would result if—
(a)
the profit were brought into account as a credit or as a
reduction in a debit for the purposes of Part 5 or 7 of CTA
2009, and
(b)
the company’s profits chargeable to corporation tax,
35
disregarding the profit, were nil.
938H
Meaning of “scheme”

In this Part “scheme” includes any scheme, arrangements or
understanding of any kind whatever, whether or not legally
enforceable, involving a single transaction or two or more
40
transactions.
938I
Schemes involving repos or quasi-repos
(1)
This section applies where—
(a)
a scheme includes an arrangement under which a member of
the scheme group has a debtor repo or a debtor quasi-repo,
45
and

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(b)
the advance under that arrangement is received, directly or
indirectly, from a member of the scheme group.
(2)
References in this Part to amounts brought into account, or not
brought into account, as debits or credits for the purposes of Part 5 of
CTA 2009 include amounts brought into account, or not brought into
5
account, for the purposes of any other provision so far as it applies
the charge to corporation tax on income to the repayment of the
advance.
(3)
Sections 548 and 549 of CTA 2009 (meaning of debtor repo and
debtor quasi-repo) apply for the purposes of this section.
10
(4)
For the purposes of subsection (2) “the repayment of the advance”
means the consideration given on the purchase of securities
mentioned in condition D in section 548 or 549 of CTA 2009.
938J
Schemes involving finance arrangements
(1)
This section applies in relation to a scheme if—
15
(a)
it includes a type 1, 2 or 3 finance arrangement under which
a member of the scheme group is the borrower, and
(b)
the advance under that arrangement is received, directly or
indirectly, from a member of the scheme group.
(2)
References in this Part to amounts brought into account, or not
20
brought into account, as debits or credits for the purposes of Part 5 of
CTA 2009 include amounts brought into account, or not brought into
account, for the purposes of any other provision so far as it applies
the charge to corporation tax on income to the repayment of the
advance.
25
(3)
Sections 758, 763 and 767 of this Act (meaning of type 1, 2 and 3
finance arrangements) apply for the purposes of this section.
(4)
For the purposes of subsection (2) “the repayment of the advance”
means the payments mentioned in condition A in section 758, 763 or
767 of this Act.
30
938K
Trading income

References in this Part to amounts brought into account, or not
brought into account, as debits or credits for the purposes of Part 5
or 7 of CTA 2009 include amounts brought into account, or not
brought into account, as expenses or receipts of a trade by virtue of
35
section 297 or 573 of that Act (trading credits and debits to be
brought into account under Part 3).
938L
Foreign companies and foreign permanent establishments
(1)
References in this Part to a company not bringing amounts into
account as debits or credits for the purposes of Part 5 or 7 of CTA
40
2009 do not include the company not bringing amounts into account
by virtue of—
(a)
the company being non-UK resident, or
(b)
an election under section 18A of CTA 2009 (profits or losses
of foreign permanent establishments).
45
(2)
See section 938M for provision about controlled foreign companies.