Finance Act 2003 (c. 14)

(The document as of February, 2008)

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(3) At the end of that subsection add as a second sentence--

" This subsection is subject to subsection (4B) below. " .

(4) After that subsection insert--

" (4A) The excepted provisions are--

(a) this section,

(b) section 730BB, apart from subsection (7),

(d) section 737C.

(4B) Where section 730BB(7) has effect (repurchase price to be treated as increased or reduced for certain purposes), subsection (4) above does not have effect for any purpose other than that of determining the amount that falls to be increased or reduced under section 730BB(7). " .

12 After section 730B of the Taxes Act 1988 insert--

" 730BB Exchange gains and losses on sale and repurchase of securities

(1) For the purposes of the Corporation Tax Acts, a company has a relationship to which this section applies in any case where--

(a) the circumstances are as set out in section 730A(1)(a) and (b);

(b) the company is the repurchaser of the securities or (subject to subsection (11) below) the interim holder;

(d) subsection (10) below does not prevent this section from applying,

and references to a relationship to which this section applies, and to a company's being a party to such a relationship, shall be construed accordingly.

(2) The conditions in this subsection are that--

(a) the sale price and the repurchase price are expressed in a currency other than sterling;

(b) there is a difference between--

(i) the sterling equivalent of the sale price as at the date of the transfer of the securities to the interim holder ("the first sum"); and

(ii) the sterling equivalent of the sale price as at the date they are bought back by the repurchaser ("the second sum"); and

(c) the case is not one where section 93 of the Finance Act 1993 (accounts of a company in a currency other than sterling) applies in relation to the company.

(3) The conditions in this subsection are that--

(a) the case is one where section 93 of the Finance Act 1993 applies in relation to the company;

(b) the sale price and the repurchase price are expressed in a currency other than the relevant foreign currency (within the meaning of that section) in relation to the company; and

(i) the relevant foreign currency equivalent of the sale price as at the date of the transfer of the securities to the interim holder ("the first sum"); and

(ii) the relevant foreign currency equivalent of the sale price as at the date they are bought back by the repurchaser ("the second sum").

(4) Where a company has a relationship to which this section applies and--

(a) the company is the repurchaser and the first sum exceeds the second sum; or

(b) the company is the interim holder and the second sum exceeds the first sum,

the amount of the excess shall be treated for the purposes of the Corporation Tax Acts as an exchange gain (within the meaning of Chapter 2 of Part 4 of the Finance Act 1996 (loan relationships)) arising to the company from the relationship.

(5) Where a company has a relationship to which this section applies and--

(a) the company is the repurchaser and the second sum exceeds the first sum; or

(b) the company is the interim holder and the first sum exceeds the second sum,

the amount of the excess shall be treated for the purposes of the Corporation Tax Acts as an exchange loss (within the meaning of Chapter 2 of Part 4 of the Finance Act 1996 (loan relationships)) arising to the company from the relationship.

(6) Where an exchange gain or loss is treated by virtue of subsection (4) or (5) above as arising to a company from a relationship to which this section applies--

(a) Chapter 2 of Part 4 of the Finance Act 1996 shall have effect in relation to the exchange gain or loss as it would have effect if it were an exchange gain or loss (as the case may be) arising to the company from a loan relationship to which it is a party; but

(b) the only debits and credits to be brought into account for the purposes of that Chapter by virtue of this section in respect of the relationship to which this section applies are those relating to the exchange gains and losses,

and, subject to paragraph (b) above, references in the Corporation Tax Acts to a loan relationship accordingly include a reference to a relationship to which this section applies.

(7) Where a company has a relationship to which this section applies, the repurchase price shall be treated for the purposes of the Tax Acts (other than this section and sections 730A, 737A and 737C) and (in cases where section 263A of the 1992 Act does not apply) for the purposes of the 1992 Act--

(a) in a case where an exchange gain arises to the company by virtue of subsection (4)(a) above or an exchange loss arises to the company by virtue of subsection (5)(b) above, as increased by the amount by which the first sum exceeds the second sum, and

(b) in a case where an exchange gain arises to the company by virtue of subsection (4)(b) above or an exchange loss arises to the company by virtue of subsection (5)(a) above, as reduced by the amount by which the second sum exceeds the first sum.

(8) Any question whether debits or credits brought into account in accordance with subsection (6) above in relation to any company--

(a) are to be brought into account under section 82(2) of the Finance Act 1996 (trading loan relationships); or

(b) are to be treated as non-trading debits or credits,

shall be determined (subject to Schedule 11 to that Act (insurance companies)) according to the extent (if any) to which the company is a party to the repurchase in the course of activities forming an integral part of a trade carried on by that company.

(9) To the extent that debits or credits fall to be brought into account by a company under section 82(2) of that Act in the case of a relationship to which this section applies, the company shall be regarded for the purposes of Chapter 2 of Part 4 of the Finance Act 1996 as being a party to the relationship for the purposes of a trade carried on by the company.

(10) Except where regulations under section 737E otherwise provide, this section does not apply if--

(a) the agreement or agreements under which provision is made for the sale and repurchase are not such as would be entered into by persons dealing with each other at arm's length; or

(b) all of the benefits and risks arising from fluctuations, before the repurchase takes place, in the market value of the securities sold accrue to, or fall on, the interim holder.

(11) Where--

(a) the repurchase price is more than the sale price, so that by virtue of section 730A(2)(a) a payment of interest is treated as made by the repurchaser on a deemed loan from the interim holder; but

(b) the payment of interest is treated as made to a person other than the interim holder,

references to the "interim holder" in subsections (1), (4) and (5) above shall be read as references to the person to whom the payment of interest is treated as made.

(12) Any reference in this section to the "relevant foreign currency equivalent" of an amount is, in the case of any company, a reference to the amount's equivalent expressed in the relevant foreign currency (within the meaning of section 93 of the Finance Act 1993) in relation to the company.

(13) Expressions used in this section and in section 730A have the same meaning in this section as in that section. " .

13 (1) Section 737E of the Taxes Act 1988 (power to modify sections 727A, 730A and 737A to 737C) is amended as follows.

(2) In subsections (1) and (2), after "730A" insert ", 730BB".

(3) In subsection (3), after "730A" insert "or 730BB".

(4) In consequence of the amendments made by this paragraph, the sidenote becomes "Power to modify sections 727A, 730A, 730BB and 737A to 737C".

14 In section 100 of the Finance Act 1996 (c. 8) (exchange gains and losses on debts etc not arising from the lending of money), after subsection (2) insert--

" (2A) Where--

(a) a company has a relationship to which section 730BB of the Taxes Act 1988 applies (exchange gains and losses on sale and repurchase of securities),

(b) in the case of that relationship the circumstances mentioned in section 730A(1)(b) of that Act are such as to give rise to a money debt, and

the company shall not be regarded for the purposes of the Corporation Tax Acts as having, by reason of that money debt, a relationship to which this section applies, so far as relating to exchange gains and losses. " .

Exceptions

15 In section 727A(1) of the Taxes Act 1988 (accrued income scheme not to apply to transfers of securities under repo agreements), insert at the end "except in a case where section 730A of the Taxes Act 1988 is prevented from applying by subsection (8) of that section.".

16 In section 730A(8)(b) of the Taxes Act 1988 (treatment of price differential on sale and repurchase: exclusion of cases where all benefits or risks are for interim holder), for "benefits or risks" substitute "benefits and risks".

17 In section 737C(11A) of the Taxes Act 1988 (purposes for which deemed increase of repurchase price has effect), insert at the end "or where that section is prevented from applying by subsection (8) of that section.".

18 (1) Paragraph 15 of Schedule 9 to the Finance Act 1996 (c. 8) (repo transactions not related transactions for purposes of loan relationship provisions) is amended as follows.

(2) In sub-paragraph (3), after "means" insert "(subject to sub-paragraph (3A))".

(3) After that sub-paragraph insert--

" (3A) Arrangements are not repo or stock-lending arrangements if they are excluded from section 730A of the Taxes Act 1988 by subsection (8) of that section. " .

Connected persons

19 In paragraph 15(3)(b) of Schedule 9 to the Finance Act 1996 (repo transactions not related transactions for purposes of loan relationship provisions), omit ", or a person connected with him,".

Correction of section 730A(6B) of the Taxes Act 1988

20 In section 730A(6B) of the Taxes Act 1988 (trading loan relationship debits and credits falling to be brought into account under section 82(2))--

(a) for "section 82(2) above" substitute "section 82(2) of the Finance Act 1996", and

(b) for "the Finance Act 1996" substitute "that Act".

Commencement

21 (1) Paragraph 1 has effect in relation to repurchase prices becoming due on or after 9th April 2003.

(2) Paragraphs 2 to 19 have effect in relation to agreements to sell securities made on or after 9th April 2003.

(3) Paragraph 20 has effect in relation to accounting periods beginning on or after 1st October 2002.

Section 182

SCHEDULE 39 Relevant discounted securities: withdrawal of relief for costs and losses, etc

Withdrawal of relief for incidental costs

1 (1) In Schedule 13 to the Finance Act 1996 (discounted securities: income tax provisions), paragraph 1 (charge to tax on realised profit comprised in discount) is amended as follows.

(2) In sub-paragraph (2) (meaning of "realising the profit" from the discount on a relevant discounted security) at the end of paragraph (b) insert "(no account being taken of any costs incurred in connection with the transfer or redemption of the security or its acquisition)".

(3) In sub-paragraph (3)(a) (calculation of profit) omit "reduced by the amount of any relevant costs".

(4) Omit sub-paragraph (4) (meaning of "relevant costs").

Withdrawal of relief for losses

2 Omit paragraph 2 of that Schedule (income tax relief for losses on discounted securities).

Withdrawal of loss relief: exception for strips of government securities

3 After paragraph 14 of that Schedule (gilt strips) insert--

" Strips of government securities: losses

14A (1) A person who sustains a loss in any year of assessment from the discount on a strip shall be entitled to relief from income tax on an amount of his income for that year equal to the amount of the loss.

(2) The relief is due only if the person makes a claim before the end of twelve months from the 31st January following that year.

(3) For the purposes of this paragraph a person sustains a loss from the discount on a strip where--

(a) he transfers the strip or becomes entitled, as the person holding it, to any payment on its redemption, and

(b) the amount paid by him for the strip exceeds the amount payable on the transfer or redemption (no account being taken of any costs incurred in connection with the transfer or redemption of the strip or its acquisition).

The loss shall be taken to be equal to the amount of the excess, and to be sustained in the year of assessment in which the transfer or redemption takes place.

(4) In sub-paragraph (3) above the reference to a transfer in paragraph (a) includes a reference to a deemed transfer under paragraph 14(4) above (and paragraph (b) shall be read accordingly).

(5) This paragraph does not apply in the case of--

(a) any transfer of a strip for the time being held under a settlement the trustees of which are not resident in the United Kingdom, or

(b) any redemption of a strip which is so held immediately before its redemption. " .

Extension of provisions about strips to strips of foreign government securities

4 In the definition of "strip" in paragraph 15(1) of that Schedule, for "is a strip of a gilt-edged security" substitute "is a strip of a security, or would be if that section had effect with the substitution in subsection (1B) of "issued by or on behalf of the government of any territory" for "issued under the National Loans Act 1968"".

Consequential amendments

5 (1) In paragraph 6 of that Schedule (trustees and personal representatives)--

(a) in sub-paragraph (3) for "paragraphs 1(1) and 2(1) above do not apply" substitute "paragraph 1(1) above does not apply";

(b) omit sub-paragraphs (4) to (6).

(2) Omit the following provisions of that Schedule--

(a) paragraph 7 (treatment of losses where income exempt);

(b) paragraph 9A (securities issued to connected person etc at price in excess of market value: transfer to connected person);

(3) In paragraph 14 of that Schedule (gilt strips)--

(a) for the heading substitute "Strips of government securities";

(b) in sub-paragraphs (2) and (3), omit the words "gilt-edged";

(4) In section 710(3) of the Taxes Act 1988 (categories of security not included in accrued income scheme) after paragraph (e) insert--

" (f) any relevant discounted security within the meaning of Schedule 13 to the Finance Act 1996 (see paragraphs 3 and 14(1) of that Schedule). " .

Commencement and transitional provisions

6 (1) Subject to sub-paragraph (2)--

(a) the amendments made by paragraphs 1 and 5(3)(c) apply in relation to costs incurred on or after 27th March 2003;

(b) the amendments made by paragraphs 2, 3 and 5(1), (2) and (4) apply in relation to any loss sustained from the discount on a relevant discounted security transferred or redeemed on or after that date;

(c) the amendments made by paragraphs 4 and 5(3)(a) and (b) apply in relation to any security acquired on or after that date.

(2) The amendments mentioned in sub-paragraph (1)(a) and (b) do not apply in relation to costs incurred, or losses sustained, on the transfer or redemption of a relevant discounted security if--

(a) the person transferring or redeeming the security held it continuously since a time before 27th March 2003, and

(b) the security was listed on a recognised stock exchange at any time before that date.

(3) No losses may be carried forward under paragraph 6(6) of Schedule 13 to the Finance Act 1996 (c. 8) to any year of assessment after 2002-03.

Section 195

SCHEDULE 40 Acquisition by company of its own shares

Venture capital trusts

1 In Schedule 15B to the Taxes Act 1988 (venture capital trusts: relief from income tax), in paragraph 1 (entitlement to claim relief on investment), after sub-paragraph (9) insert--

" (10) An individual is not eligible for relief under this Part of this Schedule by reference to any shares which are treated as issued to him by virtue of section 195(8) of the Finance Act 2003 (tax treatment of disposal by company of its own shares).

(11) Where a company which is a venture capital trust issues to any individual eligible shares to which sub-paragraph (10) above applies, it must--

(a) at the time of the issue of those shares, give that individual a notice stating that he is not eligible for relief under this Part of this Schedule by reference to those shares, and

(b) no later than three months after the issue of those shares, give a copy of that notice to an officer of the Board. " .

Stamp duty and stamp duty reserve tax

2 In section 66 of the Finance Act 1986 (c. 41) (stamp duty: company's purchase of own shares)--

(a) in subsection (2)--

(i) for "The return which relates to the shares" substitute "Any return which relates to any of the shares",

(ii) after "169" insert "(1) or (1B)", and

(iii) after "transferring the shares" insert "to which it relates",

(b) after that subsection insert--

" (2A) Any return which relates to the cancellation of any of the shares purchased and is delivered to the registrar of companies under section 169A of the Companies Act 1985 shall be chargeable under this subsection with stamp duty of £5. " , and

3 In section 90 of that Act (exemptions from stamp duty reserve tax), after subsection (7) insert--

" (7A) Section 87 above does not apply as regards an agreement to transfer any shares in a company which are held by the company (whether in accordance with section 162A of the Companies Act 1985 (treasury shares) or otherwise). " .

4 (1) Section 92 of that Act (stamp duty reserve tax: repayment or cancellation of tax) is amended as follows.

(2) After subsection (1B) insert--

" (1C) If, as regards an agreement to transfer shares in a company to that company ("the own-shares agreement")--

(a) tax is charged under section 87 above, and

(b) it is proved to the Board's satisfaction that at a time in the period of six years beginning on the relevant day (as defined in section 87(3)) the conditions mentioned in subsection (1D) have been fulfilled in respect of those shares,

subsections (2) to (4A) apply.

(1D) The conditions referred to in subsection (1C) are--

(a) that, in relation to the transfer made in pursuance of the own-shares agreement, a return has been made in respect of each of those shares in accordance with section 169(1) or (1B) of the Companies Act 1985 (disclosure by company of purchase of own shares), and

(b) that any such return has been duly stamped in accordance with section 66. " .

(3) In subsection (2), after "subsection (1)" insert "or, as the case may be, (1C)".

5 In Schedule 13 to the Finance Act 1999 (c. 16) (stamp duty: instruments chargeable and rates of duty), in Part 1 (conveyance or transfer on sale), in paragraph 1 (stamp duty charge), after sub-paragraph (2) insert--

" (3) Sub-paragraph (1) is subject to sub-paragraphs (4) to (6).

(4) Where a company acquires any shares in itself by virtue of section 162 of the Companies Act 1985 (power of company to purchase own shares) or otherwise, sub-paragraph (1) does not apply to any instrument by which the shares are transferred to the company.

(5) Where a company holds any shares in itself by virtue of section 162A of that Act (treasury shares) or otherwise, any instrument to which sub-paragraph (6) applies is to be treated for the purposes of this Schedule as a conveyance otherwise than on sale, and paragraph 16 applies accordingly.

(6) This sub-paragraph applies to any instrument for the sale or transfer of any of the shares by the company, other than an instrument which, in the absence of sub-paragraph (5), would be an instrument in relation to which--

(a) section 67(2) of the Finance Act 1986 (transfer to person whose business is issuing depositary receipts etc), or

(b) section 70(2) of that Act (transfer to person who provides clearance services etc),

applied. " .

Section 196

SCHEDULE 41 Companies in administration

Accounting period for company in administration

1 (1) Section 12 of the Taxes Act 1988 (corporation tax: basis of, and periods for, assessment) is amended as follows.

(2) In subsection (3), after paragraph (d) insert--

" (da) the company ceasing to be in administration; " .

(3) After subsection (5A) insert--

" (5B) For the purposes of subsection (3)(da) a company ceases to be in administration when it ceases to be in administration under Schedule B1 to the Insolvency Act 1986 or any corresponding event occurs otherwise than under that Act. " .

(4) In subsection (7) (accounting periods where company is wound up), after the words "subject to" insert "subsection (7ZA) below and".

(5) After subsection (7) insert--

" (7ZA) Notwithstanding anything in subsections (1) to (6) above, where a company enters administration--

(a) an accounting period of the company shall end immediately before the day the company enters administration, and

(b) if immediately before the company enters administration it is in the course of being wound up, subsection (7) ceases to apply at the end of that accounting period.

For this purpose a company enters administration when it enters administration under Schedule B1 to the Insolvency Act 1986 or is subject to any corresponding procedure otherwise than under that Act. " .

(6) In subsection (7A) for "subsections (1) to (7)" substitute "subsections (1) to (7ZA)".

Responsibility of officers of company in administration

2 (1) Section 108 of the Taxes Management Act 1970 (c. 9) (responsibility of company officers) is amended as follows.

(2) In subsection (3)(a)--

(a) after first "liquidator" insert "or administrator", and

(b) after second "liquidator" insert "or, as the case may be, administrator".

(3) After subsection (3) insert--

" (4) For the purposes of subsection (3)(a), where two or more persons are appointed to act jointly or concurrently as the administrator of a company, the proper officer is--

(a) such one of them as is specified in a notice given to the Board by those persons for the purposes of this section, or

(b) where the Board is not so notified, such one or more of those persons as the Board may designate as the proper officer for those purposes. " .

Tax on companies in administration

3 After section 342 of the Taxes Act 1988 (tax on company in liquidation) insert--

" 342A Tax on companies in administration

(1) In this section--

(a) references to the relevant event, in relation to a company in administration, are references--

(i) to the administrator sending a notice in respect of the company under paragraph 84(1) of Schedule B1 to the Insolvency Act 1986 (company moving from administration to dissolution), or

(ii) in the case of a company which enters administration otherwise than under that Act, to the doing of any other act for a like purpose, and

(b) references to a company's final year are references to the financial year in which the relevant event occurs, and references to the company's penultimate year are references to the last financial year preceding its final year.

(2) Subject to subsections (3) and (4)--

(a) corporation tax shall be charged on the profits of the company arising in the administration in its final year at the rate of corporation tax fixed or proposed for the penultimate year, but

(b) where the corporation tax charged on the company's income included in those profits falls to be calculated or reduced in accordance with section 13, it shall be so calculated or reduced in accordance with such rate or fraction fixed or proposed for the penultimate year as is applicable under that section.

(3) If, before the relevant event, any of the rates or fractions mentioned in subsection (2) has been fixed or proposed for the final year, that subsection shall have effect in relation to that rate or fraction as if for the references to the penultimate year there were substituted references to the final year.

(4) If, in the case of the company's final accounting period, the income (if any) which consists of interest received or receivable by the company under section 826 does not exceed £2,000, that income shall not be subject to corporation tax.

(5) In subsection (4) "the company's final accounting period" means the last accounting period of the company before the relevant event.

(6) An assessment on the company's profits for an accounting period in which the company is in administration shall not be invalid because made before the end of the accounting period.

(7) In making an assessment after the company enters administration and before the date of the relevant event, the administrator may act on an assumption as to when that date will fall so far as it governs section 12(3).

(8) The assumption of the wrong date shall not alter the company's final and penultimate year and, if the right date is later--

(a) an accounting period shall end on the date assumed and a new accounting period shall begin, and

(b) thereafter, section 12(3) shall apply as if the company had entered administration at the beginning of that new accounting period.

(9) Subsections (7) and (9) of section 342 apply in relation to this section as they apply in relation to that section, except that in subsection (7) of that section the reference to the completion of the winding up is to be read as a reference to the relevant event.

(10) Where the company entered administration before its final year, paragraphs (a) and (b) of subsection (2) (but not subsection (3)) apply in relation to the company's profits arising at any time in its penultimate year. " .

Debit for bad debt where parties connected and creditor insolvent

4 (1) Paragraph 6A of Schedule 9 to the Finance Act 1996 (c. 8) (bad debt etc: parties having connection and creditor in insolvent liquidation etc) is amended as follows.

(2) In sub-paragraph (1)--

(a) in paragraph (a), for "has gone into" substitute "is in",

(b) for paragraph (b) substitute--

" (b) that company is in insolvent administration; " , and

(3) In sub-paragraph (2)--

(a) in paragraph (a) for "after the commencement" substitute "in the course", and

(b) in paragraph (b) for "when the administration order is in force" substitute "in the course of the administration".

(4) For sub-paragraph (3) substitute--

" (3) For the purposes of this paragraph a company is in insolvent liquidation during the period which--

(a) begins when it goes into liquidation, as defined in section 247(2) of the Insolvency Act 1986 or Article 6(2) of the Insolvency (Northern Ireland) Order 1989, at a time when its assets are insufficient for the payment of its debts and other liabilities and the expenses of the winding up, and

(b) ends when the winding up is completed or otherwise brought to an end (whether under paragraph 37 or 38 of Schedule B1 to the Insolvency Act 1986 or otherwise).

(4) For the purposes of this paragraph a company in administration is in insolvent administration if--

(a) in the case of an administration under Schedule B1 to the Insolvency Act 1986, it entered administration at a time when its assets were insufficient for the payment of its debts and other liabilities and the expenses of the administration, or

(b) in a case where an administration order has effect under Part 3 of the Insolvency (Northern Ireland) Order 1989, the order was made at such a time. " .

Commencement

5 (1) Subject to sub-paragraph (2), this Schedule has effect in relation to companies which enter administration (whether under the Insolvency Act 1986 (c. 45) or otherwise) on or after the commencement of section 248 of the Enterprise Act 2002 (c. 40) (which substitutes Part 2 of the Insolvency Act 1986 (administration)).

(2) Paragraph 4 has effect in relation to companies which--

(a) are in insolvent liquidation or insolvent administration immediately before 9th April 2003, or

(b) go into insolvent liquidation or insolvent administration on or after that date.

For this purpose "insolvent liquidation" and "insolvent administration" are to be construed in accordance with paragraph 6A of Schedule 9 to the Finance Act 1996 (c. 8) (as amended by paragraph 4 above).

Section 200

SCHEDULE 42 Controlled foreign companies: exempt activities

Introductory

1 Part 2 of Schedule 25 to the Taxes Act 1988 (controlled foreign companies: exempt activities) is amended as follows.

Companies engaged in wholesale, distributive, financial or service business

2 (1) Paragraph 6 (meaning of "engaged in exempt activities") is amended as follows.

(2) In sub-paragraph (1)(c) (requirement that any of sub-paragraphs (2) to (4A) applies to the company) for "(2) to (4A)" substitute "(2), (3), (4) or (4A)".

(3) In sub-paragraph (2A) (persons from whom less than 50% of the gross trading receipts of a wholesale etc business of the controlled foreign company must be derived) omit the word "and" immediately preceding paragraph (c) and at the end of that paragraph add " ;

(d) persons not falling within paragraphs (a) to (c) above which are companies resident in the United Kingdom;

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