Finance (No. 3) Bill

Session 2010 - 11
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Finance (No. 3) Bill

Finance (No. 3) Bill
Schedule 6 — Leasing businesses
150

has no liabilities), after subsection (6) insert—
“(7)
Except for subsection (6), this section applies to a partnership as it
applies to a company, and references to “company” are to be read
accordingly.”
General interpretation of sales of lessors Chapters
5
20
Chapter 6 of Part 9 of CTA 2010 (sales of lessors: general interpretation) is
amended as follows.
21
In section 437, omit subsection (9) (definition of “market value”).
22
After that section insert—
“437A
Determining the ascribed value of plant or machinery
10
(1)
For the purposes of the sales of lessors Chapters, the ascribed value
of plant or machinery at any given time (“the relevant time”) is the
value determined in accordance with this section.
(2)
Subsection (3) applies to plant or machinery if—
(a)
it is subject to a plant or machinery lease at the relevant time,
15
(b)
the relevant company or partnership is a lessor under the
lease, and
(c)
subsection (5) does not apply to it.
(3)
The ascribed value of plant or machinery to which this subsection
applies is the higher of—
20
(a)
the market value of the plant or machinery at the relevant
time, and
(b)
the present value at that time of the lease referred to in
subsection (2).
(4)
Subsection (5) applies to plant or machinery if—
25
(a)
it is subject to a plant or machinery lease at the relevant time,
(b)
the lease is an equipment lease within the meaning of
Chapter 14 of Part 2 of CAA 2001 (fixtures),
(c)
the relevant company or partnership is the equipment lessor
in respect of the lease (see section 174 of that Act), and
30
(d)
the equipment lessor is treated at that time as the owner of
the plant or machinery by virtue of an election made in
reliance on section 177(1)(a)(i) of that Act (which permits
elections if the conditions in section 178 are met in relation to
the lease).
35
(5)
The ascribed value of plant or machinery to which this subsection
applies is the present value at the relevant time of the lease referred
to in subsection (4).
(6)
The ascribed value of plant or machinery to which neither subsection
(3) nor subsection (5) applies is the market value of the plant or
40
machinery at the relevant time.
437B
Section 437A: supplementary
(1)
This section supplements section 437A.

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(2)
Market value is to be determined on the assumption of a disposal by
an absolute owner free from all leases and other encumbrances
(including any agreement or arrangement that is or includes a plant
or machinery lease).
(3)
If plant or machinery is a fixture, its market value is so much of the
5
market value of the relevant land and the fixture together as is
attributable to the fixture on a just and reasonable apportionment.
(4)
“Relevant land” has the meaning given in section 173(2) of CAA
2001.
437C
Present value of a lease
10
(1)
For the purposes of section 437A, the present value of a lease is the
present value of the amounts mentioned in subsection (2).
(2)
The amounts are—
(a)
the amounts payable under the lease after the relevant time,
and
15
(b)
any residual amount.
(3)
Subsection (2)(a) does not apply to amounts payable by the lessor or
to amounts that represent—
(a)
charges for services, or
(b)
qualifying UK or foreign tax to be paid by the lessor.
20
(4)
Present value is to be calculated by using the interest rate implicit in
the lease.
(5)
The interest rate implicit in the lease is the interest rate that would
apply in accordance with normal commercial criteria, including, in
particular, generally accepted accounting practice (where
25
applicable).
(6)
But if a rate cannot be determined in accordance with subsection (5),
the interest rate implicit in the lease is taken to be 1% above LIBOR.
(7)
For this purpose—
(a)
LIBOR means the London interbank offered rate on the
30
applicable day for deposits for a term of 12 months in the
applicable currency,
(b)
the applicable day is the day comprising or including the
relevant time (or, if that day is not a business day, the first
business day after it), and
35
(c)
the applicable currency is the currency in which payments
under the lease are payable.
(8)
If—
(a)
the lessee has an option to continue the lease for a period after
expiry of its initial term, and
40
(b)
it is reasonably certain at the relevant time that the lessee will
exercise that option,

references in this section to amounts payable under the lease include
amounts payable under the lease as continued for any such period.

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(9)
If the lease also relates to land or assets that are not plant or
machinery, the present value of the lease is so much of the present
value of the amounts mentioned in subsection (2) as is attributable to
the plant or machinery on a just and reasonable apportionment.
(10)
In this section, “qualifying UK or foreign tax” and “residual amount”
5
have the meaning given in section 70YE of CAA 2001.”
Consequential amendments
23
In section 267A of CAA 2001 (restriction on effect of election), in subsection
(2), for “is qualifying leased plant or machinery” substitute “falls within
section 387(7) of CTA 2010 (if the business is carried on otherwise than in
10
partnership) or within section 410(6) of that Act (if the business is carried on
in partnership)”.
24
In section 948 of CTA 2010 (modified application of CAA 2001), in
subsection (6), before paragraph (a) insert—
“(za)
section 398G of this Act (sale of lessors: transfers into and out
15
of A after election under section 398A),”.
25    (1)
Section 950 of CTA 2010 (transfers of trades involving business of leasing
plant or machinery) is amended as follows.
      (2)
In subsection (5), for the words from “its market value” to the end substitute
“the higher of—
20
(a)
its ascribed value immediately before the transfer of the
trade, and
(b)
the disposal value that the predecessor would be required to
bring into account under Part 2 of CAA 2001 in respect of it
as a result of the transfer of the trade.”
25
      (3)
In subsection (6)—
(a)
before the definition of “business of leasing plant or machinery”
insert—
““ascribed value”, in relation to plant or machinery, is to
be read in accordance with section 437A (but reading
30
the reference to the relevant company or partnership
as a reference to the predecessor);”, and
(b)
omit the definition of “market value”.
26    (1)
In Schedule 4 to CTA 2010 (index of defined expressions), omit the entry for
“market value (in relation to plant or machinery) (in Chapters 3 to 6 of Part
35
9)”.
      (2)
In that Schedule, insert the following entry at the appropriate place—

“ascribed value (in relation to plant or
section 437A”.

machinery) (in Chapters 3 to 6 of Part 9)

Application of new provisions
40
27    (1)
The amendments made by paragraphs 2 to 5 and 7 to 15, and the general
paragraphs so far as relevant to those amendments, have effect where the

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relevant day (as defined for the purposes of the amended provision) falls on
or after 23 March 2011.
      (2)
The amendment made by paragraph 6(3), and the general paragraphs so far
as relevant to that amendment, have effect in relation to disposal events
taking place on or after 23 March 2011 (including in cases where the election
5
was made before that date).
      (3)
The amendments made by paragraphs 6(2) and 23 to 25, and the general
paragraphs so far as relevant to those amendments, have effect in relation to
transfers or successions taking place on or after 23 March 2011 (including, in
the case of the amendment made by paragraph 6(2), where the election was
10
made before that date).
      (4)
The general paragraphs are—
(a)
paragraph 1,
(b)
paragraphs 16 to 22, and
(c)
paragraph 26.
15
Schedule 7
Section 34

Investment companies
Amendments of Chapter 4 of Part 2 of CTA 2010
1     (1)
Section 6 of CTA 2010 (UK resident company operating in sterling and
preparing accounts in another currency) is amended as follows.
20
      (2)
In subsection (1), after “company” insert “(other than a UK resident
investment company)”.
      (3)
After that subsection insert—
“(1A)
This section also applies if, for a period of account, a UK resident
investment company—
25
(a)
in accordance with generally accepted accounting practice,
prepares its accounts in a currency other than sterling, and
(b)
either—
(i)
has sterling as its designated currency for that period
of account (see sections 9A and 9B), or
30
(ii)
if it does not have a designated currency for that
period, in those accounts identifies sterling as its
functional currency in accordance with generally
accepted accounting practice.”
2     (1)
Section 7 of that Act (UK resident company operating in currency other than
35
sterling and preparing accounts in another currency) is amended as follows.
      (2)
In subsection (1), in paragraph (a), after “company” insert “(other than a UK
resident investment company)”.
      (3)
After that subsection insert—
“(1A)
This section also applies if, for a period of account, a UK resident
40
investment company—

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(a)
in accordance with generally accepted accounting practice,
prepares its accounts in one currency,
(b)
either—
(i)
has another currency as its designated currency for
that period (see sections 9A and 9B), or
5
(ii)
if it does not have a designated currency for that
period, in those accounts identifies another currency
as its functional currency in accordance with
generally accepted accounting practice, and
(c)
that other currency is not sterling.”
10
      (4)
In subsection (2), in step 1, for “functional” substitute “relevant”.
      (5)
In subsection (3) for “functional” substitute “relevant”.
      (6)
After that subsection insert—
“(4)
In subsections (2) and (3) “the relevant currency” means the currency
other than sterling referred to in subsection (1)(c) or (1A)(c).”
15
3
After section 9 of that Act insert—
“9A
Designated currency of a UK resident investment company
(1)
The designated currency of a UK resident investment company is the
currency which the company elects as its designated currency.
(2)
A company (“X”) may elect a currency as its designated currency
20
only if—
(a)
at the time the election is made condition A or B is met, or
(b)
the election is made in the period (if any) beginning with the
company’s incorporation and ending immediately before its
first accounting period.
25
(3)
But an election made under subsection (2)(b) is void if, at the time X’s
first accounting period begins, neither condition A nor condition B is
met.
(4)
Condition A is that a significant proportion of X’s assets and
liabilities are denominated in the currency.
30
(5)
Condition B is that—
(a)
the currency is the functional currency of another company,
and
(b)
it is reasonable to assume that the two companies will meet
the consolidation condition.
35
(6)
X and another company (“Y”) meet the consolidation condition at
any time if—
(a)
for a period which includes that time, the financial results of
X are comprised in financial statements of Y’s group
prepared in accordance with acceptable accounting practice,
40
or
(b)
if no financial statements of the group are prepared in
accordance with acceptable accounting practice for a period
which includes that time, the financial results of X would be
comprised in financial statements of Y’s group for a period
45

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which includes that time if such statements were prepared in
accordance with international accounting standards.
(7)
In subsection (6)—
“financial statements of the group” means consolidated
financial statements of Y and its subsidiaries (within the
5
meaning of section 351 of TIOPA 2010),
“Y’s group” means a group of which Y is the ultimate parent
(and for this purpose “group” and “ultimate parent” have the
same meaning as they have for the purposes of Part 7 of that
Act (see sections 338 and 339)), and
10
“acceptable accounting practice” means—
(a)
international accounting standards,
(b)
UK generally accepted accounting practice, or
(c)
accounting practice which is generally accepted in the
country in which Y is resident.
15
(8)
A currency is the designated currency of X for a period of account if
the election in respect of that currency has effect throughout that
period (see section 9B).
9B
Period for which an election under section 9A has effect
(1)
An election under section 9A(2)(a) takes effect at the beginning of the
20
first period of account of X beginning after the election is made.
(2)
An election under section 9A(2)(b) is treated as taking effect at the
time of X’s incorporation.
(3)
An election has effect until the end of the first period of account of X
in which—
25
(a)
X makes another election, or
(b)
a revocation event occurs.
(4)
A revocation event occurs in a period of account (other than a period
to which subsection (5) applies) if, at any time during that period—
(a)
it is not the case that a significant proportion of X’s assets and
30
liabilities are denominated in the currency to which the
election relates, and
(b)
it is not the case that the currency is the functional currency
of another company which, with X, met the consolidation
condition (within the meaning of section 9A(6)) at any time
35
during the preceding period of account.
(5)
Where the election is made under section 9A(2)(b), a revocation
event occurs in the period of account in which X’s first accounting
period begins only if—
(a)
Condition A and not Condition B is satisfied at the beginning
40
of that accounting period, and
(b)
the condition in subsection (4)(a) is met at any time during
the period of account but after the first accounting period
begins.
(6)
In this section references to “X” are to be construed in accordance
45
with section 9A.”

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4
In section 17 of that Act (interpretation of Chapter 4 of Part 2), after
subsection (3) insert—
“(3A)
In this Chapter “investment company” means a company whose
business consists wholly or mainly in the making of investments and
the principal part of whose income is derived from those
5
investments.”
Amendments of CTA 2009
5     (1)
Section 328 of CTA 2009 (loan relationships: exchange gains and losses) is
amended as follows.
      (2)
In subsection (2), after “subsections” insert “(2A),”.
10
      (3)
After that subsection insert—
“(2A)
Subsection (1) does not apply to an exchange gain or loss of an
investment company (within the meaning of section 17 of CTA 2010)
which would not have arisen but for—
(a)
an election made by the company under section 9A of that
15
Act (designated currency of investment companies) taking
effect, or ceasing to have effect, from the beginning of the
period of account of the company in which the gain or loss
arises, or
(b)
a change from the preceding period of account to that period
20
in the currency identified in the company’s accounts as its
functional currency (within the meaning of section 17(4) of
that Act).”
6     (1)
Section 606 of that Act (derivative contracts: exchange gains and losses) is
amended as follows.
25
      (2)
In subsection (2), after “subsections” insert “(2A),”.
      (3)
After that subsection insert—
“(2A)
Subsection (1) does not apply to an exchange gain or loss of an
investment company (within the meaning of section 17 of CTA 2010)
which would not have arisen but for—
30
(a)
an election made by the company under section 9A of that
Act (designated currency of investment companies) taking
effect or ceasing to have effect from the beginning of the
period of account of the company in which the gain or loss
arises, or
35
(b)
a change from the preceding period of account to that period
in the currency identified in the company’s accounts as its
functional currency (within the meaning of section 17(4) of
that Act).”
Commencement
40
7     (1)
The amendments made by this Schedule have effect in relation to periods of
account beginning on or after 1 April 2011.
      (2)
An election may be made or revoked for the purposes of section 9A of CTA
2010 (as inserted by paragraph 3) at any time on or after 9 December 2010.