Finance (No. 3) Bill

Session 2010 - 11
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Finance (No. 3) Bill

Finance (No. 3) Bill
Schedule 9 — Value shifting
161

Schedule 9
Section 44

Value shifting
Amendments of TCGA 1992
1
In section 30 of TCGA 1992 (tax-free benefits)—
(a)
in subsection (1)(a) omit “or a relevant asset”,
5
(b)
for subsection (2) substitute—
“(2)
But, for the purposes of corporation tax, this section does not
have effect if the disposal of the asset is a disposal by a
company of shares in, or securities of, another company (as to
which see section 31).”, and
10
(c)
omit subsection (8).
2
For sections 31 to 34 of TCGA 1992 (which make provision about disposals
by companies of shares in or securities of other companies) substitute—
“31
Disposal of shares or securities by a company
(1)
For the purposes of corporation tax, subsection (2) has effect as
15
respects the disposal by a company (“the disposing company”) of
shares in, or securities of, another company if—
(a)
arrangements have been made whereby the value of those
shares or securities, or any relevant asset, is materially
reduced,
20
(b)
the main purpose, or one of the main purposes of the
arrangements is to obtain a tax advantage, and
(c)
the arrangements do not consist solely of the making of an
exempt distribution.
(2)
Any allowable loss or chargeable gain accruing on the disposal is to
25
be calculated as if the consideration for the disposal were increased
by such amount as is just and reasonable having regard to—
(a)
the arrangements, and
(b)
any charge to, or relief from, corporation tax that, in the
absence of this section, would arise in consequence of the
30
disposal or the arrangements.
(3)
For the purposes of subsection (1)—
(a)
an asset is a relevant asset if, at the time of the disposal, it is
owned by a company which is a member of the same group
as the disposing company, and
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(b)
it does not matter whether the tax advantage is obtained for
the disposing company or any other person.
(4)
In relation to a case in which the disposal of the shares or securities
precedes their acquisition, the reference in subsection (1)(a) to a
reduction is to be read as including a reference to an increase.
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(5)
Where, but for arrangements to which subsection (6) applies, a
transaction would, by virtue of section 29(2), be treated as a disposal
of shares by a company, that transaction is to be treated as if it were,
by virtue of section 29(2), a disposal of those shares.

Finance (No. 3) Bill
Schedule 9 — Value shifting
162

(6)
The arrangements to which this subsection applies are
arrangements—
(a)
whereby the value of the shares or securities is materially
reduced, and
(b)
the main purpose, or one of the main purposes of which is to
5
obtain a tax advantage (whether for the company or any
other person).
(7)
In this section—
“arrangements” includes any agreement, understanding,
scheme, transaction or series of transactions (whether or not
10
legally enforceable);
“exempt distribution” means a distribution which—
(a)
for the purposes of section 931D of CTA 2009
(exemption from charge to tax: distributions received
by companies that are not small), falls within an
15
exempt class by virtue of section 931H of that Act
(dividends derived from transactions not designed to
reduce tax), or
(b)
would be within paragraph (a) but for the recipient
being a small company (within the meaning of section
20
931S of that Act) in the accounting period of the
recipient in which the distribution was received;
“group” is to be construed in accordance with section 170;
“securities” has the same meaning as in section 132;
“tax advantage” means the avoidance of a liability to
25
corporation tax in respect of chargeable gains.”
3
In section 176 of TCGA 1992 (depreciatory transactions within a group), in
subsection (1) for “on or after 31st March 1982” substitute “within the period
of 6 years ending with the disposal”.
4
In section 179 of TCGA 1992 (company ceasing to be member of group), in
30
subsection (9)(b), after “section 30” insert “or 31”.
Consequential repeals
5
The following provisions are repealed—
(a)
in Schedule 20 to FA 1996, paragraph 47(b) and (c),
(b)
Schedule 9 to FA 1999,
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(c)
in Schedule 29 to FA 2000, paragraph 17,
(d)
in Schedule 9 to FA 2002, paragraph 5(2) and (3),
(e)
in Schedule 30 to that Act, paragraph 6,
(f)
in Schedule 1 to CTA 2009, paragraph 361, and
(g)
in Schedule 23 to FA 2009, paragraph 8.
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Commencement and transitionals
6     (1)
The amendments made by paragraphs 1 to 3 and 5 have effect in relation to
disposals of shares or securities by companies made on or after the day on
which this Act is passed (“the commencement day”).
      (2)
But nothing in paragraph 1, 2 or 5 prevents section 31A of TCGA 1992 (asset-
45
holding company leaving group), as it had effect immediately before the

Finance (No. 3) Bill
Schedule 10 — Company ceasing to be member of group
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commencement day, continuing to have effect on or after that day in relation
to cases where the section 30 disposal to which that section refers occurred
before that day.
      (3)
The amendment made by paragraph 4 has effect in relation to disposals of
shares or securities treated under section 179 of TCGA 1992 as taking place
5
on or after the commencement day.
      (4)
In this paragraph “securities” has the same meaning as in section 132 of
TCGA 1992.
Schedule 10
Section 45

Company ceasing to be member of group
10
Degrouping
1
In section 139 of TCGA 1992 (reconstruction involving transfer of business),
after subsection (1A) insert—
“(1B)
Nothing in section 179(3D) prevents the two companies being
treated as mentioned in subsection (1).”
15
2
In section 171A of TCGA 1992 (election to reallocate gain or loss to another
member of the group), omit subsection (7).
3     (1)
Section 179 of TCGA 1992 (company ceasing to be member of group) is
amended as follows.
      (2)
In subsection (1)(a) for “company B is a member of a group” substitute
20
“company A and company B are members of the same group”.
      (3)
In subsection (1A) omit the words from “For this purpose” to the end.
      (4)
For subsection (2) substitute—
“(2)
Where two companies cease to be members of the group at the same
time, subsection (1) does not have effect as respects the acquisition of
25
an asset by one of the companies from the other if condition A or B is
met.
(2ZA)
Condition A is that the companies—
(a)
are both 75 per cent subsidiaries and effective 51 per cent
subsidiaries of another company on the date of the
30
acquisition, and
(b)
remain both 75 per cent subsidiaries and effective 51 per cent
subsidiaries of that other company until immediately after
they cease to be members of the group.
(2ZB)
Condition B is that one of the companies—
35
(a)
is both a 75 per cent subsidiary and an effective 51 per cent
subsidiary of the other on the date of the acquisition, and
(b)
remains both a 75 per cent subsidiary and an effective 51 per
cent subsidiary of the other until immediately after the
companies cease to be members of the group.”
40

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      (5)
For subsection (2A)(a) substitute—
“(a)
a company (“company A”) acquired an asset from another
company (“company B”) at a time when both company A and
company B were members of the same group (“the first
group”),
5
(aa)
company A has ceased to be a member of the first group,”.
      (6)
After subsection (3) insert—
“(3A)
Any chargeable gain or allowable loss which would otherwise
accrue to company A on the sale referred to in subsection (3) does not
so accrue if—
10
(a)
company A ceases to be a member of the group in
consequence of—
(i)
a disposal of shares in company A or another member
of the group made by a member of the group, or
(ii)
two or more such disposals,
15
(b)
either—
(i)
subsection (3B) applies to the disposal or, if there is
more than one disposal, to at least one of them, or
(ii)
sub-paragraph (i) does not apply but had subsection
(3B) applied to the disposal or, if there is more than
20
one disposal, to each of them, any gain arising on the
disposal or disposals would not have been a
chargeable gain by virtue of Schedule 7AC, and
(c)
in the absence of this subsection, section 535 of CTA 2010 (UK
REITS: exemption of gains) would not apply to the
25
chargeable gain or allowable loss which would accrue to
company A on the sale.
(3B)
This subsection applies to a disposal of shares if—
(a)
the company making the disposal is resident in the United
Kingdom at the time of the disposal,
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(b)
the shares are chargeable assets in relation to that company
immediately before that time, or
(c)
any part of the chargeable gain or allowable loss accruing on
the disposal is treated as a gain or loss accruing to a person
by virtue of section 13(2) (attribution of gains to members of
35
non-resident companies).

In this section “group disposal” means a disposal within subsection
(3A)(a) to which this subsection applies and the company making the
disposal is referred to as “the transferor company”.
(3C)
For the purposes of subsections (3A) and (3B), the question whether
40
there is a disposal is to be determined ignoring section 127 (share
reorganisations etc treated as not involving disposal).
(3D)
If subsection (3A) applies, any chargeable gain or allowable loss
accruing to the transferor company on a group disposal (other than
a group disposal to which section 127 applies) is to be calculated—
45
(a)
where a chargeable gain would accrue to company A in the
absence of subsection (3A), as if the amount of the
consideration for the group disposal were increased by the
amount of the gain, and

Finance (No. 3) Bill
Schedule 10 — Company ceasing to be member of group
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(b)
where an allowable loss would accrue to company A in the
absence of subsection (3A), as if an amount equal to the
amount of the loss were a sum allowable under section 38 as
a deduction in the computation of the gain or loss accruing on
the group disposal.
5
(3E)
If subsection (3A) applies, and section 127 applies to a group
disposal, any chargeable gain or allowable loss accruing to the
transferor company on a disposal of the new holding arising from
the group disposal (or any part of that holding) is to be calculated—
(a)
where a chargeable gain would accrue to company A in the
10
absence of subsection (3A)—
(i)
as if an amount equal to the amount of the gain were
excluded from the expenditure allowable as a
deduction under section 38 in the computation of the
gain or loss accruing on the disposal (but not so as to
15
reduce that expenditure below nil), and
(ii)
where (ignoring sub-paragraph (i)) the amount of the
gain exceeds the expenditure allowable as such a
deduction, as if a gain equal to that excess accrued on
the disposal of the new holding (or, if the disposal is
20
of a part of the new holding, a gain equal to the
corresponding part of that excess accrued on that
disposal), in addition to any gain or loss that actually
accrues on the disposal of the new holding or part,
and
25
(b)
where an allowable loss would accrue to company A in the
absence of subsection (3A), as if an amount equal to the
amount of the loss were a sum allowable under section 38 as
a deduction in the computation of the gain or loss accruing on
the disposal.
30

In this subsection “new holding” has the meaning given by section
126.
(3F)
If there is more than one group disposal, the references in
subsections (3D) and (3E) to the amount of the gain or loss which
would accrued to company A in the absence of subsection (3A) are to
35
be read, in relation to each disposal, as references to—
(a)
such proportion of that amount as the transferor companies
in relation to the group disposals jointly elect as the
appropriate proportion in relation to the disposal in question,
or
40
(b)
where no election is made, the proportion of that amount
attributable to that disposal if that amount is divided equally
between the group disposals.
(3G)
An election under subsection (3F) must—
(a)
specify the appropriate proportion in relation to each group
45
disposal, and
(b)
be made, by notice to an officer of Revenue and Customs, no
later than 2 years after the end of the first accounting period
of a company in which any chargeable gain or allowable loss
on a group disposal accrues.
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Finance (No. 3) Bill
Schedule 10 — Company ceasing to be member of group
166

(3H)
If a group disposal by a company consists of shares of more than one
class, then, for the purposes of subsections (3D) and (3E), the
company may apportion any increase or deduction to be made
between the classes of shares in such manner as it considers
appropriate.”
5
      (7)
For subsection (5) substitute—
“(5)
Subsections (6) to (8) apply where—
(a)
in the absence of subsection (6), company A would be treated
by virtue of subsection (3) as selling an asset at any time, by
reason of ceasing to be a member of the group, and
10
(b)
company A ceases to be a member of the group by reason
only of the fact that the principal company of that group
becomes a member of another group.”
      (8)
In subsection (6)—
(a)
for “The company” to “but” substitute “Subsection (3) does not apply
15
to treat company A as selling the asset at that time; but”, and
(b)
for “the company in question” (in each place) substitute “company
A”.
      (9)
In subsection (7) for “the company” (in both places) substitute “company A”.
     (10)
After that subsection insert—
20
“(7A)
Any chargeable gain or allowable loss which would otherwise
accrue to company A on the sale referred to in subsection (6) does not
so accrue if—
(a)
company A ceases at the relevant time to satisfy the
conditions in subsection (7) in consequence of—
25
(i)
a disposal of shares in company A, or another
member of the other group mentioned in subsection
(5)(b), made by a member of that other group, or
(ii)
two or more such disposals,
(b)
either—
30
(i)
subsection (3B) applies to the disposal or, if there is
more than one disposal, to at least one of them, or
(ii)
sub-paragraph (i) does not apply but had subsection
(3B) applied to the disposal or, if there is more than
one disposal, to each of them, any gain arising on the
35
disposal or disposals would not have been a
chargeable gain by virtue of Schedule 7AC, and
(c)
in the absence of this subsection, section 535 of CTA 2010 (UK
REITS: exemption of gains) would not apply to the
chargeable gain or allowable loss which would accrue to
40
company A on the sale.
(7B)
Where subsection (7A) applies, subsections (3C) to (3H) apply to the
calculation of any chargeable gain or allowable loss accruing on a
disposal within subsection (7A)(a) to which subsection (3B) applies
(a “relevant disposal”) with the following modifications—
45
(a)
in subsections (3C) to (3H) for the references to a group
disposal substitute references to a relevant disposal, and

Finance (No. 3) Bill
Schedule 10 — Company ceasing to be member of group
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(b)
in subsections (3C), (3D) and (3E) for the references to
subsection (3A) substitute references to subsection (7A).”
     (11)
In subsection (8) for the words from “the company” to the end substitute
“company A on the sale referred to in subsection (6) is to be treated as
accruing immediately before the relevant time.”
5
     (12)
In subsection (10), for paragraph (a) substitute—
“(a)
two companies are associated with each other if one is a 75
per cent subsidiary of the other or both are 75 per cent
subsidiaries of another company.”
     (13)
After that subsection insert—
10
“(10A)
For the purposes of this section an asset is a “chargeable asset” in
relation to a company at any time if any gain accruing to the
company on a disposal of the asset by the company at that time—
(a)
would be a chargeable gain and would by virtue of section
10B form part of its chargeable profits for corporation tax
15
purposes, or
(b)
would, but for Schedule 7AC (exemptions for disposals by
companies with substantial shareholdings), be within
paragraph (a).”
4
After section 179 of TCGA 1992 insert—
20
“179ZA
Claim for adjustment of calculations under section 179
(1)
This section applies where—
(a)
a gain accrues to a company (“company A”) on a sale referred
to in subsection (3) or (6) of section 179, or
(b)
a gain would so accrue but for subsection (3A) or (7A) of that
25
section.
(2)
If subsection (3D) or (3E) of that section applies in relation to one or
more group disposals (within the meaning of that section)—
(a)
the company making the disposal, or
(b)
if there is more than one disposal, the companies making
30
those disposals acting jointly,

may make a claim for the amount of the gain to be treated for the
purposes of the subsection in question as reduced by an amount
specified in the claim.
(3)
In any other case, company A may make a claim for the amount of
35
the gain to be treated for all purposes of this Act as reduced by an
amount specified in the claim.
(4)
Where a claim is made under subsection (2) or (3), the gain must be
treated, for the purposes mentioned in the subsection in question, as
reduced by such amount (if any) as is just and reasonable.
40
(5)
In determining the amount which is just and reasonable regard must
be had, in particular, to any transaction as a direct or indirect result
of which company A or any associated company (within the
meaning of section 179(10)) acquired the asset to which the gain
relates.
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