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Finance (No. 2) Act 2005 (c. 22)(The document as of February, 2008) Page 11 Pages: P.1 | P.2 | P.3 | P.4 | P.5 | P.6 | P.7 | P.8 | P.9 | P.10 | P.11 | P.12 | P.13 | P.14 " "interest-bearing security" includes any loan stock or similar security; " . (7) In paragraph 15(1)-- (a) in the definition of "relevant discounted security", after "paragraphs 3" insert ", 13B(1)"; (b) in the definition of "strip", after ""strip"" insert ", except in the expression "corporate strip",". (8) The amendments made by this paragraph have effect in any case where a person acquires a corporate strip on or after 2nd December 2004 otherwise than in pursuance of an agreement entered into before that date. Transactions within groups: treatment of transferee company22 (1) In Schedule 26 to FA 2002 (derivative contracts) paragraph 28 (transactions within groups) is amended as follows. (2) For sub-paragraph (3) (the credits and debits to be brought into account) substitute-- " (3) For the purpose of determining the credits and debits to be brought into account for the purposes of this Schedule in respect of the derivative contract-- (a) for the accounting period in which the transaction or, as the case may be, the first of the series of transactions takes place, the transferor company shall be treated as having entered into that transaction for a consideration equal to the notional carrying value of the contract; and (b) for any accounting period in which it is a party to the contract, the transferee company shall be treated as if it had acquired the contract for a consideration equal to its notional carrying value. For the purposes of this sub-paragraph the notional carrying value is the amount that would have been the carrying value of the derivative contract in the accounts of the transferor company if a period of account had ended immediately before the date when the company ceased to be party to the contract. " . (3) In sub-paragraph (5), after "In this paragraph" insert the following definition-- " "carrying value" has the same meaning as it has for the purposes of paragraph 50A; " . (4) Where the period of account mentioned in the second sentence of the sub-paragraph (3) substituted by sub-paragraph (2) begins before 1st January 2005, "carrying value" shall be construed as if the period had begun on or after that date. (5) The amendments made by this paragraph have effect in any case where the relevant transaction is on or after 16th March 2005. (6) In this paragraph "the relevant transaction" means-- (a) the related transaction mentioned in sub-paragraph (2)(a) of paragraph 28 of Schedule 26 to FA 2002, (b) the first of the series of transactions mentioned in sub-paragraph (2)(b) of that paragraph, or (c) the transfer mentioned in sub-paragraph (2)(c) or (2)(d) of that paragraph, by virtue of which that paragraph applies or would apply apart from paragraph 30 of that Schedule. Transactions within groups: fair value accounting23 (1) In Schedule 26 to FA 2002 (derivative contracts) paragraph 30 (transactions within groups: fair value accounting) is amended as follows. (2) In sub-paragraph (1), for paragraph (b) (treatment of transferee in respect of the transaction) substitute-- " (b) paragraph 28(3)(b) shall have effect in relation to the transferee company. " . (3) The amendment made by this paragraph has effect in any case where the relevant transaction is on or after 16th March 2005. (4) In this paragraph "the relevant transaction" has the same meaning as in paragraph 22. Transferee leaving group after replacing transferor as party to derivative contract24 (1) In Schedule 26 to FA 2002 (derivative contracts) after paragraph 30 insert-- " Transferee leaving group after replacing transferor as party to derivative contract30A (1) This paragraph applies in any case where-- (a) paragraph 28 applies-- (i) by virtue of sub-paragraph (2)(a) of that paragraph ("case A"), or (ii) by virtue of sub-paragraph (2)(b) of that paragraph ("case B"), but (b) before the end of the relevant 6 year period, the transferee company ceases to be a member of the relevant group. (2) In any such case, this Schedule shall have effect as if the transferee company had-- (a) immediately before that cessation, assigned its rights and liabilities under the relevant derivative contract for a consideration of an amount equal to their fair value at that time, and (b) immediately reacquired them for a consideration of the same amount, but only if Condition 1 or 2 is satisfied and sub-paragraph (5) does not apply. (3) Condition 1 is that if sub-paragraph (2) has effect, a credit would in consequence of paragraph (a) of that sub-paragraph fall to be brought into account for the purposes of this Schedule by the transferee company. (4) Condition 2 is that-- (a) Condition 1 is not satisfied, (b) the company has a hedging relationship between the relevant derivative contract and a creditor relationship, and (c) in consequence of paragraph 12A(2)(a) of Schedule 9 to the Finance Act 1996, a credit falls to be brought into account by the transferee company for the purposes of Chapter 2 of Part 4 of the Finance Act 1996 in respect of the creditor relationship. (5) Where the transferee company ceases to be a member of the relevant group by reason only of an exempt distribution (see sub-paragraph (8))-- (a) sub-paragraph (2) does not have effect, but (b) if there is chargeable payment within 5 years after the making of the exempt distribution, sub-paragraph (6) applies. (6) Where this sub-paragraph applies, this Chapter shall have effect as if-- (a) the transferee company had, immediately before the making of the chargeable payment, assigned its rights and liabilities under the relevant derivative contract, (b) the assignment had been for a consideration of an amount equal to the fair value of those rights and liabilities immediately before the transferee company ceased to be a member of the relevant group, and (c) the transferee company had immediately reacquired those rights and liabilities for a consideration of the same amount, but only if Condition 1 or 2, as modified by sub-paragraph (7), is satisfied. (7) The modifications are that-- (a) in Condition 1, the references to sub-paragraph (2), and paragraph (a) of that sub-paragraph, are to be taken respectively as references to sub-paragraph (6) and paragraphs (a) and (b) of that sub-paragraph, and (b) in Condition 2, the reference to paragraph 12A(2)(a) of Schedule 9 to the Finance Act 1996 is to be taken as a reference to paragraph 12A(6)(a) and (b) of that Schedule. (8) In this paragraph--
(2) The amendment made by this paragraph has effect where a company ceases to be a member of a group on or after 16th March 2005. Deeply discounted securities: corporate strips25 (1) Chapter 8 of Part 4 of ITTOIA 2005 (profits from deeply discounted securities) is amended as follows. (2) In section 430 (meaning of "deeply discounted security") in subsection (6) (subjections) omit "and" before the entry relating to section 443(1) and at the end of that entry add " , and section 452A(1) (corporate strips). " . (3) In section 437 (transactions which are disposals) after subsection (4) insert-- " (5) In the case of interest-bearing corporate securities, further provision about occasions counting as disposals is made by section 452F(2)(a). (6) In the case of corporate strips, further provision about occasions counting as disposals is made by section 452F(2)(a) and (3)(a). " . (4) In section 438 (timing of transfers and acquisitions) for subsection (4) substitute-- " (4) This section is subject to--
(5) In section 440 (market value disposals) for subsection (5) substitute-- " (5) Subsection (4) is subject to--
(6) In section 441 (market value acquisitions) for subsection (3) substitute-- " (3) Subsection (2) is subject to--
(7) In section 444 (meaning of "strip" in Chapter 8) after subsection (5) insert-- " (6) Nothing in this section affects the meaning of the expression "corporate strip" in this Chapter (see section 452E). " . (8) After section 452 insert-- " Special rules for corporate strips452A Application of this Chapter to corporate strips(1) All corporate strips are treated as deeply discounted securities for the purposes of this Chapter, whether or not they would otherwise be so. (2) This Chapter applies to corporate strips subject to the rules in-- (a) section 452F (corporate strips: acquisitions and disposals), and (b) section 452G (corporate strips: manipulation of acquisition, transfer or redemption payments). 452B Meaning of "interest-bearing corporate security" in Chapter 8(1) In this Chapter "interest-bearing corporate security" means any interest-bearing security other than-- (a) a security issued by the government of a territory, or (b) a share in a company. (2) In this section "interest-bearing security" includes any loan stock or similar security. (3) Section 452D(4)(a) gives an extended meaning to references to converting an interest-bearing corporate security into corporate strips (and related expressions). 452C Conversion of interest-bearing corporate securities into corporate strips(1) For the purposes of this Chapter a person converts an interest-bearing corporate security into corporate strips of the security if he has an interest-bearing corporate security ("the converted corporate security") but-- (a) as a result of any scheme or arrangements, he acquires two or more separate assets in place of the converted corporate security, (b) each of those separate assets satisfies condition A, (c) those separate assets, taken together, satisfy condition B, and (d) at least one of those separate assets is not prevented from being a corporate strip by section 452E(2) or (3), and related expressions shall be construed accordingly. (2) Condition A is that the asset-- (a) represents the right to, or (b) secures, one or more stripped payments. (3) For the purposes of this section, a "stripped payment" is-- (a) the payment of, or (b) a payment corresponding to, the whole or a part of one or more payments (whether of interest or principal) remaining to be made under the converted corporate security. (4) Condition B is that the assets, taken together,-- (a) represent the right to, or (b) secure, every payment (whether of interest or principal) remaining to be made under the converted corporate security (or payments corresponding to every such payment). (5) Where a person-- (a) has an interest-bearing corporate security, but (b) sells or transfers the right to one or more payments remaining to be made under it (so that, as a result, there are two or more separate assets which, taken together, satisfy condition B), this Chapter has effect as if, as a result of a scheme or arrangements, the person had acquired the separate assets in place of the security immediately before the sale or transfer. (6) After a balance has been struck for a dividend on an interest-bearing corporate security, any payment to be made in respect of that dividend shall, at times falling after that balance has been struck, be treated for the purposes of this paragraph as not being a payment remaining to be made under the security. 452D Conversion into corporate strips: lower level conversions(1) For the purposes of this Chapter, section 452C also has effect in relation to each of the separate assets mentioned in subsection (1) of that section as if that separate asset were itself an interest-bearing corporate security (if that is not in fact the case). (2) In subsection (1), the reference to section 452C includes a reference to that section as it has effect by virtue of this section. (3) In the application of section 452C by virtue of this section, references to payments the right to which a separate asset represents or secures shall be construed in accordance with subsection (6) of that section. (4) Where section 452C has effect by virtue of subsection (1)-- (a) any reference in this Chapter to converting an interest-bearing corporate security into corporate strips of the security shall be construed accordingly, and (b) section 452E (meaning of "corporate strip") has effect accordingly. 452E Meaning of "corporate strip" in Chapter 8(1) In this Chapter "corporate strip" means any asset-- (a) which is, or has at any time been, one of the separate assets mentioned in section 452C(1), and (b) which is not prevented from being a corporate strip by subsection (2) or (3). (2) An asset is not a corporate strip if it-- (a) represents the right to, or (b) secures, payments of, or corresponding to, a part of every payment remaining to be made under an interest-bearing corporate security or a corporate strip. (3) An asset is a corporate strip in the case of any person only if he acquired it-- (a) on or after 2nd December 2004, and (b) otherwise than in pursuance of an agreement entered into before that date. 452F Corporate strips: acquisitions and disposals(1) A person who converts an interest-bearing corporate security into corporate strips of the security is treated as having acquired each corporate strip by the payment of an amount equal to-- ---where--
(2) If the converted corporate security is a deeply discounted security-- (a) its conversion into corporate strips is to be treated for the purposes of this Chapter as a transfer of the security, but (b) the amount payable on the transfer is taken to be an amount equal to the acquisition cost of the converted corporate security. (3) For the purposes of this Chapter-- (a) the consolidation of a corporate strip with other corporate strips into a single security is a disposal of the corporate strip by the person consolidating it (whether or not it would be apart from this subsection), and (b) an amount equal to the market value of the corporate strip at the consolidation is treated as payable on the disposal. (4) Section 438 (timing of transfers and acquisitions) does not apply to a conversion within subsection (1) or a consolidation within subsection (3). (5) Subsections (1) to (3) apply instead of sections 440(4) (market value on general conversions of deeply discounted securities) and 441 (market value acquisitions). (6) For the purposes of this section, the acquisition cost of the converted corporate security is the amount paid in respect of his acquisition of the security by the person who has it immediately before the conversion (no account being taken of any costs incurred in connection with that acquisition). (7) References in this section to the market value of a security given or received in exchange for, or otherwise converted into, another are references to its market value at the time of the exchange or conversion. 452G Corporate strips: manipulation of acquisition, transfer or redemption payments(1) This section applies if-- (a) as a result of any scheme or arrangement, an amount referred to in subsection (2)(a), (b) or (c) differs from the market value of the corporate strip in a way specified in that subsection, and (b) the obtaining of a tax advantage by any person is the main benefit, or one of the main benefits, that might have been expected to accrue from, or from any provision of, the scheme or arrangement. (2) The ways are that-- (a) the amount paid by a person in respect of the acquisition of the corporate strip is or was more than the market value of the corporate strip at the time of that acquisition, (b) the amount payable to a person on transferring the corporate strip is less than the market value at the time of the transfer, or (c) on redemption of the corporate strip the amount payable to a person, as the person holding the corporate strip, is less than the market value on the day before redemption. (3) In a case within subsection (2)(a), for the purposes of section 439(1) on transferring the corporate strip the person is treated as if the person had paid to acquire the corporate strip an amount equal to the market value of the corporate strip at the time of the acquisition. (4) In a case falling within subsection (2)(b), for those purposes the person is treated as if the amount payable to the person on the transfer were an amount equal to the market value of the corporate strip at the time of the transfer. (5) In a case falling within subsection (2)(c), for those purposes the person is treated as if the amount payable to the person on redemption were an amount equal to the market value of the corporate strip on the day before redemption. (6) The market value of a corporate strip at any time is to be determined for the purposes of this section without regard to any increase or diminution in the value of the corporate strip as a result of the scheme or arrangement mentioned in subsection (1). (7) For the purposes of this section, no account is to be taken of any incidental expenses incurred in connection with any disposal or acquisition of a corporate strip. " . (9) In Schedule 4 (abbreviations and defined expressions) in Part 2 (expressions defined in the Act or in ICTA) insert each of the following entries at the appropriate place--
(10) ITTOIA 2005 shall have effect as if it had been originally enacted with the amendments made by this paragraph. Section 40 SCHEDULE 8 Financing of companies etc: transfer pricing and loan relationshipsAmendments of Schedule 28AA to ICTA1 (1) Schedule 28AA to ICTA (provision not at arm's length) is amended as follows. (2) In paragraph 4 (participation in the management, control or capital of a person), in sub-paragraph (2) (meaning of indirect participation) for "and only if" substitute "and (subject to paragraphs 4A and 6(4C) below) only if". (3) After that paragraph insert-- " Persons acting together in relation to financing arrangements4A (1) A person ("P") shall be treated for the purposes of paragraph 1(1)(b)(i) above (but subject to sub-paragraph (7) below) as indirectly participating in the management, control or capital of another ("A") at the time of the making or imposition of the actual provision if-- (a) the actual provision relates, to any extent, to financing arrangements for A; (b) A is a body corporate or partnership; (c) P and other persons acted together in relation to the financing arrangements; and (d) P would be taken to have control of A if, at any relevant time, there were attributed to P the rights and powers of each of the other persons mentioned in paragraph (c) above. (2) A person ("Q") shall be treated for the purposes of paragraph 1(1)(b)(ii) above (but subject to sub-paragraph (7) below) as indirectly participating in the management, control or capital of each of the affected persons at the time of the making or imposition of the actual provision if-- (a) the actual provision relates, to any extent, to financing arrangements for one of the affected persons ("B"); (b) B is a body corporate or partnership; (c) Q and other persons acted together in relation to the financing arrangements; and (d) Q would be taken to have control of both B and the other affected person if, at any relevant time, there were attributed to Q the rights and powers of each of the other persons mentioned in paragraph (c) above. (3) It is immaterial for the purposes of sub-paragraph (1)(c) or (2)(c) above whether P or Q and the other persons acting together in relation to the financing arrangements did so at the time of the making or imposition of the actual provision or at some earlier time. (4) In sub-paragraph (1)(d) or (2)(d) "relevant time" means-- (a) a time when P or Q and the other persons were acting together in relation to the financing arrangements; or (b) a time in the period of six months beginning with the day on which they ceased so to act. (5) In determining for the purposes of sub-paragraph (1)(d) or (2)(d) whether P or Q would be taken to have control of another person, the rights and powers of any person (and not just P or Q) shall be taken to include those that would be attributed to that person in determining under paragraph 4 above whether he is indirectly participating in the management, control or capital of the other person. (6) In this paragraph "financing arrangements" means arrangements made for providing or guaranteeing, or otherwise in connection with, any debt, capital or other form of finance. (7) Where the condition in paragraph 1(1)(b) above would not be satisfied but for this paragraph, paragraph 1(2) above applies only to the extent that the actual provision relates to the financing arrangements in question. " . (4) After the paragraph inserted by sub-paragraph (3) above insert-- " Financing arrangements: anticipatory provision4B (1) To the extent that it applies to provision relating to financing arrangements, this Schedule has effect as if in paragraph 1(1)(b) above the words "or within the period of six months beginning with the day on which the actual provision was made or imposed" were inserted immediately before sub-paragraph (i). (2) In this paragraph "financing arrangements" has the same meaning as in paragraph 4A above. " . (5) In paragraph 6 (elimination of double counting), after sub-paragraph (4) insert-- " (4A) A claim by the disadvantaged person for the purposes of this paragraph shall not be made where-- (a) the condition in paragraph 1(1)(b) above would not be satisfied but for paragraph 4A above; (b) the actual provision is provision in relation to a security issued by one of the affected persons ("the issuer"); (c) a guarantee is provided in relation to the security by a person with whom the issuer has a participatory relationship. In this sub-paragraph "security" and "guarantee" have the same meaning as in paragraph 1A above. (4B) For the purposes of sub-paragraph (4A) above, the cases where one person has a "participatory relationship" with another are those where-- (a) one of them is directly or indirectly participating in the management, control or capital of the other; or (b) the same person or persons is or are directly or indirectly participating in the management, control or capital of each of them. (4C) Paragraph 4A above applies for the purposes of sub-paragraph (4B) above as it applies for the purposes of paragraph 1(1)(b) above. " . Amendments of Schedule 9 to FA 19962 (1) In Schedule 9 to FA 1996 (loan relationships: computational provisions), paragraph 2 (late interest) is amended as follows. (2) In sub-paragraph (1B)-- (a) omit ", but not a CIS-based close company," and the words after paragraph (c); (b) in paragraph (a), at the end insert "or a person who controls a company which is such a participator"; (c) in paragraph (b), after "who is" insert ", or who controls a company which is,"; (d) for paragraph (c) substitute-- " (c) a company controlled by such a participator or by a person who controls a company which is such a participator, or (d) a company in which such a participator has a major interest. " ; (e) at the end insert-- " This is subject to sub-paragraph (1E). " . (3) After sub-paragraph (1D) insert-- " (1E) A case does not fall within sub-paragraph (1B) above if either of the following exceptions applies. (1F) The first exception applies where-- (a) the debtor company is a CIS-based close company at all such times as are mentioned in sub-paragraph (1B) above; (b) the person standing in the position of a creditor as respects the loan relationship is not resident in a non-qualifying territory at any such time; and (c) the debtor company is a small or medium-sized enterprise for the relevant accounting period. (1G) The second exception applies where-- (a) the debt is one that is owed to, or to persons acting for, a CIS limited partnership; (b) no member of that partnership is resident in a non-qualifying territory at any time in the relevant accounting period; (c) the debtor company has received written notice from the partnership containing information from which it appears that the condition in paragraph (b) above is satisfied; and (d) the debtor company is a small or medium-sized enterprise for the relevant accounting period. " . (4) In sub-paragraph (6), at the appropriate places insert-- " "non-qualifying territory" has the meaning given by paragraph 5E of Schedule 28AA to the Taxes Act 1988; " ; " "resident" has the meaning given by paragraph 5B(6) of Schedule 28AA to the Taxes Act 1988; " ; " "small or medium-sized enterprise" has the meaning given by paragraph 5D of that Schedule. " . 3 (1) Paragraph 18 of that Schedule (discounted securities of close companies) is amended as follows. (2) In sub-paragraph (1), omit paragraphs (aa) and (c). (3) In sub-paragraph (1)(b)-- (a) in sub-paragraph (i), at the end insert "or a person who controls a company which is such a participator"; (b) in sub-paragraph (ii), after "an associate of" insert "a person who is, or who controls a company which is,"; (c) for sub-paragraph (iii) substitute-- " (iii) a company controlled by such a participator or by a person who controls a company which is such a participator. " . (4) After sub-paragraph (1) insert-- " (1ZA) But for any such accounting period this paragraph shall not apply in relation to that debtor relationship if any of the following exceptions applies. " . (5) In sub-paragraph (1A), for the words before paragraph (a) substitute "The first exception applies where--". (6) After that sub-paragraph insert-- " (1B) The second exception applies where-- (a) the issuing company is a CIS-based close company; Pages: P.1 | P.2 | P.3 | P.4 | P.5 | P.6 | P.7 | P.8 | P.9 | P.10 | P.11 | P.12 | P.13 | P.14 -- Back --
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