483 Exchange gains and losses: amounts treated as money debts
(1) This section applies for the purposes of this Chapter so far as relating to exchange gains and losses.
(2) Any currency held by a company is treated as a money debt owed to the company.
(3) A provision made by a company for the purposes of its statutory accounts in respect of a liability to which the company may become subject is treated as a money debt owed by the company if it meets conditions A and B.
(4) Condition A is that if the company became subject to the liability, the duty to settle it would be owed for the purposes of—
(a) a trade,
(b) a UK property business, or
(c) an overseas property business.
(5) Condition B is that the provision falls to be taken into account (apart from Part 5) in calculating the profits or losses of the trade, UK property business or overseas property business for corporation tax purposes.
(6) In the case of a company carrying on insurance business—
(a) any deferred acquisition costs are treated as a money debt owed to the company, and
(b) any provision made by the company for unearned premiums or for unexpired risks is treated as a money debt owed by the company.
(7) In subsection (6)—
(a) “deferred acquisition costs” has the meaning given in Assets item G.II in the Balance Sheet Format set out after paragraph 10 of Schedule 3 to the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (S.I. 2008/410), as read with note (17) of the Notes on the Balance Sheet Format (which immediately follow that Format),
(b) “provision made by the company for unearned premiums” has the meaning given in Liabilities item C.1 in that Balance Sheet Format, as read with notes (12) and (20) of those Notes, and
(c) “provision for unexpired risks” has the meaning given in paragraph 91 of that Schedule.
(8) This section is subject to section 486 (exclusion of exchange gains and losses in respect of tax debts etc).
484 Provision not at arm's length: meaning of “interest” and “money debt”
(1) References in this Chapter to interest payable on a money debt include a reference to any amount which because of Part 4 of TIOPA 2010 (provision not at arm's length) falls to be treated as—
(a) interest on a money debt, or
(b) interest on an amount (“the notional debt”) which is treated as a money debt.
(2) Accordingly, references in this Chapter to a money debt include references to the notional debt.
485 Exclusion of debts where profits or losses within Part 7 or 8
This Chapter does not apply to a debt in respect of which profits or losses (if any) fall to be brought into account under—
(a) Part 7 (derivative contracts), or
(b) Part 8 (intangible fixed assets).
486 Exclusion of exchange gains and losses in respect of tax debts etc
(1) No exchange gains or losses arise for the purposes of this Chapter if the money debt by reference to which the relevant non-lending relationship exists (“the relevant money debt”) is an amount of tax payable under the law of the United Kingdom.
(2) If the relevant money debt is an amount of tax payable under the law of a territory outside the United Kingdom, exchange gains or losses arise for the purposes of this Chapter only so far as a deduction in respect of the tax falls to be made under section 112 of TIOPA 2010 (double taxation relief: deduction for foreign tax where no credit allowable).
(3) No exchange gains or losses arise for the purposes of this Chapter if the relevant money debt is an amount which would be deductible apart from—
(a) a statutory provision other than section 53 (capital expenditure), or
(b) a rule of law.
(4) The reference in subsection (3) to an amount being deductible is a reference to its being deductible—
(a) as an expense in calculating trading profits,
(b) as expenses of management within section 1219 (expenses of management of a company's investment business), or
(c) as ordinary BLAGAB management expenses within the meaning of section 77 of FA 2012 (insurance companies carrying on basic life assurance and general annuity business).
(1) This Chapter provides for Part 5 to apply in relation to returns which are economically equivalent to interest (see section 486B).
(2) For exclusions from this Chapter, see—
(a) section 486C (return otherwise taxable),
(b) section 486D (arrangement having no tax avoidance purpose), and
(c) section 486E (excluded shares).
486B Disguised interest to be regarded as profit from loan relationship
(1) Where a company is party to an arrangement which produces for the company a return in relation to any amount which is economically equivalent to interest, Part 5 applies as if the return were a profit arising to the company from a loan relationship.
(2) For the purposes of this Chapter a return produced for a company by an arrangement in relation to any amount is “economically equivalent to interest” if (and only if)—
(a) it is reasonable to assume that it is a return by reference to the time value of that amount of money,
(b) it is at a rate reasonably comparable to what is (in all the circumstances) a commercial rate of interest, and
(c) at the relevant time there is no practical likelihood that it will cease to be produced in accordance with the arrangement unless the person by whom it falls to be produced is prevented (by reason of insolvency or otherwise) from producing it.
(3) In subsection (2)(c) “ the relevant time ” means the time when the company becomes party to the arrangement or, if later, when the arrangement begins to produce a return for the company.
(4) The credits and debits to be brought into account for the purposes of Part 5 in respect of the return must be determined on an amortised cost basis of accounting.
(5) But if any of the return is not recognised in determining the company's profit or loss for any period it is to be treated as recognised using an amortised cost basis of accounting.
(6) Where two or more persons are party to an arrangement which produces a return such as is mentioned in subsection (1)—
(a) for the persons (when taken together), but
(b) not for either (or any) of them individually,
this section applies as if there were a profit arising to such (if any) of them as are companies from a loan relationship of so much of the return as is just and reasonable.
(7) The only amounts which may be brought into account for corporation tax purposes in relation to a return such as is mentioned in subsection (1) in the case of any company are those which are brought into account in accordance with this section (but see section 486C).
(8) In subsection (4) “credits” and “debits” include exchange gains and losses arising as a result of translating at different times the carrying value of the return or the amount by reference to which the return falls to be produced.
(9) In this Chapter “ arrangement ” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable), other than one which constitutes a finance lease (within the meaning given by section 219 of CAA 2001).
(1) This Chapter does not apply to an arrangement which produces a return for a company if or to the extent that the return—
(a) is charged to corporation tax as income of the company or brought into account as income of the company for corporation tax purposes no later than the time when amounts are brought into account in relation to the return in accordance with section 486B,
(b) arises from anything that would produce credits or debits in relation to the company under Part 7 (derivative contracts) or Part 8 (intangible fixed assets) but for any exception relating to particular credits or debits, or
(c) arises from anything that would produce credits or debits in relation to the company under Part 5 apart from this Chapter but for any exception relating to particular credits or debits.
(2) Subsection (1)(b) does not disapply this Chapter in the case of a return in relation to which section 641 (derivative contracts taxed on chargeable gains basis) applies.
486D Exclusion where arrangement has no tax avoidance purpose
(1) This Chapter does not apply in relation to a return produced by an arrangement to which a company is a party unless it is reasonable to assume that the main purpose, or one of the main purposes, of the company being a party to the arrangement is to obtain a relevant tax advantage.
(2) But a company for which a return is produced by an arrangement to which this Chapter would otherwise be prevented from applying by subsection (1) may elect that this Chapter is to apply in relation to the return.
(3) An election under subsection (2)—
(a) may not be made by a company if section 486B applies to the company in relation to the return in accordance with subsection (6) of that section,
(b) must be made no later than the time when the arrangement begins to produce a return for the company, and
(c) is irrevocable.
(4) In this section “ obtain a relevant tax advantage ” means secure that the return (or any part of it) is produced in a way which means that its treatment for corporation tax purposes is more advantageous to the company than it would be if it were—
(a) charged to corporation tax as income of the company, or
(b) brought into account as income of the company for corporation tax purposes,
at the time when amounts would be brought into account in relation to the return in accordance with section 486B.
(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) This Chapter does not apply in relation to an accounting period (“ the relevant accounting period ”) of a company (“the holding company”) for which an arrangement produces a return for the company if the arrangement involves only relevant shares held by the company throughout the relevant period.
(2) In this section “ the relevant period ” means the period—
(a) beginning with the later of—
(i) the time when the holding company becomes party to the arrangement, and
(ii) the time when the arrangement begins to produce a return for the company, and
(b) ending with the earliest of—
(i) the end of the relevant accounting period,
(ii) the time when the holding company ceases to be party to the arrangement, and
(iii) the time when the arrangement ceases to produce a return for the company.
(3) For the purposes of this section an arrangement “involves only” relevant shares if (and only if) the return produced reflects only an increase in the fair value of the shares.
(4) For the purposes of subsection (3)—
(a) “ fair value ”, in relation to relevant shares held by the holding company, means an amount which the company would obtain from a knowledgeable and willing purchaser of the shares dealing at arm's length, and
(b) there is an increase in the fair value of shares even if the increase is realised by the payment of a distribution in respect of the shares.
(5) In this section “ relevant shares ” means shares which, throughout the relevant period, are—
(a) fully paid-up shares of a relevant company, or
(b) shares of a company, other than a relevant company, which would be accounted for as a liability by the company in which they are shares in accordance with generally accepted accounting practice and which produce for the holding company a return in relation to any amount which is economically equivalent to interest (as to which see Chapter 6A).
(6) For the purposes of subsection (5)(a) shares are fully paid-up if there are no actual or contingent obligations—
(a) to meet unpaid calls on the shares, or
(b) to make a contribution to the capital of the company in which they are shares that could affect the value of the shares.
(7) For the purposes of subsection (5) a company is “a relevant company” if—
(a) it and the holding company are connected companies,
(b) it is a relevant joint venture company, or
(c) it is a CFC within the meaning of Part 9A of TIOPA 2010.
(8) Section 466 (companies connected for an accounting period) applies for the purposes of subsection (7)(a).
(9) For the purposes of subsection (7)(b) a company (“C”) is a relevant joint venture company if—
(a) the holding company is one of two persons who, taken together, control C,
(b) the holding company has interests, rights and powers representing at least 40% of the holdings, rights and powers in respect of which the holding company and the second person fall to be taken as controlling C, and
(c) the second person has interests, rights and powers representing—
(i) at least 40%, but
(ii) no more than 55%,
of the holdings, rights and powers in respect of which the holding company and the second person fall to be taken as controlling C.
(10) For the purposes of subsection (9)—
(a) section 371RB of TIOPA 2010 (read with section 371RD of that Act) applies for the purpose of determining if two persons, taken together, control a company, and
(b) section 371RD of that Act applies for the purpose of determining if the requirements of paragraphs (b) and (c) are met in any case.
(11) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(12) Section 550(3) (repos: ignoring effect on borrower of sale of securities) does not apply for the purposes of this section.
(1) This Chapter provides for Part 5 to apply in relation to a company to which an income stream transfer is made (“ the transferee ”).
(2) An “income stream transfer” is a transfer by a person (“ the transferor ”) to which either of the following provisions applies—
(a) Chapter 1 of Part 16 of CTA 2010 (transfers of income streams by companies), or
(b) Chapter 5A of Part 13 of ITA 2007 (transfers of income streams by individuals).
486G Consideration to be treated as loan relationship
(1) For the purposes of this Part—
(a) the consideration for the transfer of the right to relevant receipts is to be treated as a money debt which is owed to the transferee by the person by whom the relevant receipts fall to be paid, and
(b) the transfer is to be treated as a transaction for the lending of money from which that debt is treated as arising.
(2) For the meaning of “relevant receipts” see section 752(2) of CTA 2010 or section 809AZA(2) of ITA 2007.
(1) This Chapter provides for the Corporation Tax Acts to apply in some circumstances to holdings in open-ended investment companies, unit trust schemes and offshore funds as if they were rights under a creditor relationship (see section 490).
(2) That treatment depends on the company, scheme or fund failing the qualifying investments test.
(3) Sections 493 to 496 deal with when that test is met.
(4) For the meaning of “open-ended investment company” and “offshore fund” in this Chapter, see sections 488 and 489 respectively.
488 Meaning of “open-ended investment company” etc
(1) Sections 613 and 615(3) of CTA 2010 (meaning of “open-ended investment company” and “company” and application to parts of umbrella companies) apply for the purposes of this Chapter as they apply for the purposes of Chapter 2 of Part 13 of that Act.
(2) In this Chapter “umbrella company” has the meaning given by section 615 of CTA 2010.
Sections 355 to 363 of TIOPA 2010 (meaning of “offshore fund” and application to parts of umbrella funds and classes of interests in offshore funds) apply for the purposes of this Chapter as they apply for the purposes of Part 8 of that Act.
490 Holdings in OEICs, unit trusts and offshore funds treated as creditor relationship rights
(1) This section applies if—
(a) at any time in an accounting period of a company it holds—
(i) any shares in an open-ended investment company,
(ii) any rights under a unit trust scheme, or
(iii) an interest in an offshore fund, and
(b) there is a time in the period when that company, scheme or fund fails to meet the qualifying investments test (see section 493).
(2) The Corporation Tax Acts have effect for the accounting period in accordance with subsection (3) as if—
(a) the relevant holding were rights under a creditor relationship of the company, and
(b) any distribution in respect of the relevant holding were not a distribution (and accordingly is within Part 5).
(3) The credits and debits to be brought into account for the purposes of Part 5 in respect of the company's relevant holdings are to be determined on the basis of fair value accounting.
(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6) In this section and sections 491 and 492 “relevant holding” means a holding within subsection (1)(a).
(7) But the following are not treated as such a holding—
(a) arrangements that are investment bond arrangements for the purposes of Chapter 6 of this Part or are within section 48A of FA 2005 (alternative finance arrangements: alternative finance investment bond: introduction) , and
(b) a holding in an offshore fund (including a unit trust which is also an offshore fund) if the income arising to the fund is treated as the income of the company
(8) See section 18(2)(c)(i) of F(No.2)A 2005 (section 17(3): specific powers) for the power to modify “relevant holding” for the purposes of this section and section 492 by regulations under section 17(3) of that Act (regulations about authorised unit trusts and OEICS).
491 Holding coming within section 490: opening valuations
(1) This section applies if—
(a) a relevant holding is held by a company both—
(i) at the end of one accounting period (“the first period”), and
(ii) at the beginning of the next (“the second period”), and
(b) section 490 applies to the holding for the second period but not the first period.
(2) For the purposes of section 490(3), the opening value of the holding as at the beginning of the second period is taken to be equal to its market value for the purposes of TCGA 1992 immediately before the end of the first period (see section 272 of that Act).
492 Holding coming within section 490: calculation to undo avoidance
(1) Subsection (2) applies if—
(a) section 490 applies for an accounting period of a company to a relevant holding held by the company,
(b) a relevant fund enters into any arrangements, or arrangements are entered into that in whole or part relate to a relevant fund, and
(c) the main purpose or one of the main purposes of the arrangements is to obtain a tax advantage for a person.
(2) The company must make adjustments to counteract any tax advantage connected in any way with the relevant holding that would (ignoring this section) be obtained by the company, or any other person, directly or indirectly in consequence of the arrangements or their being entered into.
(3) The arrangements may be ones entered into at a time when the company does not hold the relevant holding; and any person referred to in subsection (1)(c) need not be identified when the arrangements are entered into.
(4) The adjustments required by subsection (2) are such as are just and reasonable.
(5) In this section—
“arrangements” includes any scheme, arrangement or understanding of any kind, whether or not legally enforceable, involving a single transaction or two or more transactions, and
“relevant fund” means—
the open-ended investment company, unit trust scheme or offshore fund in which the relevant holding is held, or
an open-ended investment company, unit trust scheme or offshore fund in which a relevant fund has a holding.
(1) An open-ended investment company, a unit trust scheme or an offshore fund meets the qualifying investments test for the purposes of this Chapter if the market value of the qualifying investments of the company, scheme or fund does not exceed 60% of the market value of all its investments.
(2) References in this section and sections 494 and 495 to investments of an open-ended investment company are references—
(a) except where paragraph (b) applies, to the property subject to the collective investment scheme constituted by the company, and
(b) in a case where under section 615(3) of CTA 2010 part of an umbrella company is regarded as an open-ended investment company, to such of the property subject to the collective investment scheme constituted by the umbrella company as forms part of the separate pool in question,
other than cash awaiting investment.
(3) References in this section and sections 494 and 495 to investments of a unit trust scheme are references to investments subject to the trusts of the scheme, other than cash awaiting investment.
(4) References in this section and sections 494 and 495 to investments of an offshore fund are references to assets of the fund, other than cash awaiting investment.
(5) In this section “collective investment scheme” has the meaning given by section 235 of FISMA 2000.
(6) A person with rights in a part of an umbrella company which is regarded under section 615(3) of CTA 2010 as an open-ended investment company is treated for the purposes of this section as not owning shares in the umbrella company.
(7) For the meaning of references to investments subject to the trusts of the scheme in the case of certain authorised unit trusts, see section 619 of CTA 2010 (umbrella schemes).
(1) In section 493 “qualifying investments”, in relation to an open-ended investment company, a unit trust scheme or an offshore fund, means investments of the company, scheme or fund of any of the following descriptions—
(a) money placed at interest,
(b) securities,
(c) shares in a building society,
(d) qualifying holdings in an open-ended investment company, a unit trust scheme or an offshore fund,
(e) alternative finance arrangements,
(f) derivative contracts whose underlying subject matter consists wholly of any one or more of—
(i) the matters referred to in paragraphs (a) to (e) (other than diminishing shared ownership arrangements), and
(ii) currency,
(g) contracts for differences whose underlying subject matter consists wholly of any one or more of—
(i) interest rates,
(ii) creditworthiness, and
(iii) currency, and
(h) derivative contracts not within paragraph (f) or (g) where there is a hedging relationship between the contract and an asset within paragraphs (a) to (d).
(2) In this section—
“contract for differences” has the same meaning as in Part 7 (derivative contracts) (see section 582),
“diminishing shared ownership arrangements” means arrangements to which section 504 applies,
“hedging relationship” has the meaning given by section 496,
“qualifying holding” has the meaning given by section 495(1),
“security” does not include shares in a company, and
“underlying subject matter” has the same meaning as in Part 7 (derivative contracts) (see section 583).
(1) For the purposes of section 494(1)(d) a holding in an open-ended investment company, a unit trust scheme or an offshore fund is a qualifying holding at any time if—
(a) at that time, or
(b) at any other time in the relevant accounting period,
the company, scheme or fund itself fails to meet the qualifying investments test ... .
(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) In this section “holding”—
(a) in relation to an open-ended investment company, means—
(i) except where sub-paragraph (ii) applies, shares in the company, and
(ii) in a case where under section 615(3) of CTA 2010 part of an umbrella company is regarded as an open-ended investment company, rights in the separate pool in question,
(b) in relation to a unit trust scheme, means an entitlement to a share in the investments of the scheme, and
(c) in relation to an offshore fund, means—
(i) shares in any company by which the fund is constituted, or
(ii) an entitlement to a share in the investments of the fund.
(4) In this section “relevant accounting period” means the accounting period referred to in section 490(1).
(1) For the purposes of section 494, in relation to an open-ended investment company, a unit trust scheme or an offshore fund, there is a hedging relationship between a derivative contract (“the hedging instrument”) and an asset (“the hedged item”) so far as condition A or B is met.
(2) Condition A is that the hedging instrument and the hedged item are designated as a hedge by the company, scheme or fund.
(3) Condition B is that the hedging instrument is intended to act as a hedge of exposure to changes in fair value of a hedged item which is—
(a) a recognised asset which could affect the total net return of the company, scheme or fund, or
(b) an identified part of such an asset which is attributable to a particular risk.
(4) For the purposes of subsection (3) “the total net return” of a company, scheme or fund means its total net return calculated—
(a) in accordance with generally accepted accounting practice, or
(b) in the case of accounts prepared in a jurisdiction outside the United Kingdom, in accordance with generally accepted accounting practice in that jurisdiction.
497 Power to change investments that are qualifying investments
(1) The Treasury may by order amend sections 493 to 496 so as to extend or restrict the descriptions of investments of an open-ended investment company, a unit trust scheme or an offshore fund that are qualifying investments for the purposes of those provisions.
(2) The order may make—
(a) different provision for different cases, and
(b) incidental, supplemental, consequential and transitional provision and savings.
(3) In particular, the order may make such incidental modifications of section 495(2) as the Treasury consider appropriate.
(1) This section deals with how building society dividends and interest are dealt with for corporation tax purposes.
(2) Liability to pay building society interest or building society dividends is treated for the purposes of Part 5 as a liability arising under a loan relationship (so far as it would not otherwise be such a liability).
(3) If building society interest or building society dividends are payable to a company, they are treated as so payable as the result of a right arising under a loan relationship of the company (so far as they would not otherwise be so payable).
(4) Subsection (3) applies to interest paid under a certified SAYE savings arrangement with a building society as if it were a dividend on a share in the society.
(5) In this section—
“building society dividends” means dividends payable in respect of shares in a building society,
“building society interest” means interest payable in respect of shares in, deposits with, or loans to, a building society,
“certified SAYE savings arrangement” has the meaning given by section 703 of ITTOIA 2005, and
“dividend” includes any distribution, however described.
499 Registered society payments treated as interest under loan relationship
(1) Any dividend, bonus or other sum payable to a shareholder in—
(a) a registered society, or
(b) a UK agricultural or fishing co-operative,
is treated for corporation tax purposes as interest under a loan relationship of the society or co-operative if it is payable by reference to the amount of the shareholder's holding in its share capital.
(2) If subsection (1) applies—
(a) so far as the shareholder's holding is held for the purposes of a trade, the shareholder is treated for the purposes of section 297 as a party to the loan relationship referred to in subsection (1) for that purpose, and
(b) so far as the holding is held for any other purpose, the shareholder is treated for the purposes of that section as a party to that loan relationship for that other purpose.
(3) In subsection (1) “UK agricultural or fishing co-operative” means a co-operative association—
(a) which is established in the United Kingdom and UK resident, and
(b) whose primary object is assisting its members in—
(i) carrying on agricultural or horticultural businesses on land occupied by them in the United Kingdom, or
(ii) carrying on businesses consisting in the catching or taking of fish or shellfish.
(4) In subsection (3) “co-operative association” means a body with a written constitution from which the Secretary of State considers that it is in substance a co-operative association.
(5) For the purposes of subsection (4), the Secretary of State must have regard to the way in which the body's constitution provides for its income to be applied for its members' benefit and all other relevant provisions.
(6) In the application of subsections (4) and (5) in Northern Ireland for “the Secretary of State” substitute “ the Department of Agriculture and Rural Development ”.
500 Exclusion of interest where failure to make return
(1) This section applies if for any accounting period a registered society is obliged to make a return under section 887(2) of ITA 2007.
(2) If the society has not made the return within 3 months after the end of the period, no interest paid by it in the period is to be brought into account for the period for the purposes of Part 5.
(3) It does not matter for the purposes of subsection (2) whether the payment would be interest apart from section 499.
(1) This Chapter provides for alternative finance arrangements ... to be treated as loan relationships (see sections 509 and 510).
(2) In this Part “alternative finance arrangements” means—
(a) purchase and resale arrangements,
(b) diminishing shared ownership arrangements,
(c) deposit arrangements,
(d) profit share agency arrangements, and
(e) investment bond arrangements.
(3) In this Chapter—
(a) “purchase and resale arrangements” means arrangements to which section 503 applies,
(b) “diminishing shared ownership arrangements” means arrangements to which section 504 or 504A applies,
(c) “deposit arrangements” means arrangements to which section 505 applies,
(d) “profit share agency arrangements” means arrangements to which section 506 applies, and
(e) “investment bond arrangements” means arrangements to which section 507 applies.
(4) For the meaning of “financial institution”, see section 502.
(1) In this Chapter “financial institution” means—
(a) a bank, as defined by section 1120 of CTA 2010,
(b) a building society within the meaning of the Building Societies Act 1986 (c. 53),
(c) a wholly-owned subsidiary of a bank within paragraph (a) or a building society within paragraph (b),
(d) a person authorised by a licence under Part 3 of the Consumer Credit Act 1974 (c. 39) to carry on a consumer credit business or consumer hire business within the meaning of that Act,
(d) a person with permission under Part 4A of the Financial Services and Markets Act 2000 to enter into, or to exercise or have the right to exercise rights and duties under, a contract of the kind mentioned in paragraph 23 or paragraph 23B of Schedule 2 to that Act (credit agreements and contracts for hire of goods);
(e) a bond-issuer, within the meaning of section 507, but only in relation to any bond assets which are rights under purchase and resale arrangements, diminishing shared ownership arrangements or profit share agency arrangements, ...
(f) a person authorised in a jurisdiction outside the United Kingdom—
(i) to receive deposits or other repayable funds from the public, and
(ii) to grant credits for its own account,
(g) an insurance company, as defined by section 65 of FA 2012, or
(h) a person who is authorised in a jurisdiction outside the United Kingdom to carry on a business which consists of effecting or carrying out contracts of insurance or substantially similar business but not an insurance special purpose vehicle as defined in section 139(1) of FA 2012.
(1A) Subsection (1)(d) must be read with—
(a) section 22 of the Financial Services and Markets Act 2000,
(b) any relevant order under that section, and
(c) Schedule 2 to that Act.
(2) For the purposes of subsection (1)(c) a company is a wholly-owned subsidiary of a bank or building society (“the parent”) if it has no members except—
(a) the parent or persons acting on behalf of the parent, and
(b) the parent's wholly-owned subsidiaries or persons acting on behalf of the parent's wholly-owned subsidiaries.
(1) This section applies to arrangements if—
(a) they are entered into between two persons (“the first purchaser” and “the second purchaser”), and—
(i) at least one of those persons is a financial institution, or
(ii) the arrangements are regulated electronic system facilitated arrangements, and
(b) under the arrangements—
(i) the first purchaser purchases an asset and sells it to the second purchaser,
(ii) the sale occurs immediately after the purchase or in the circumstances mentioned in subsection (2),
(iii) all or part of the second purchase price is not required to be paid until a date later than that of the sale,
(iv) the second purchase price exceeds the first purchase price, and
(v) the excess equates, in substance, to the return on an investment of money at interest.
(2) The circumstances are that—
(a) the first purchaser is a financial institution, and
(b) the asset referred to in subsection (1)(b)(i) was purchased by the first purchaser for the purpose of entering into arrangements within this section.
(2A) Arrangements are regulated electronic system facilitated arrangements if—
(a) the arrangements substantially consist of an article 36H agreement in relation to the deferral of the payment of all or part of the second purchase price,
(b) the first purchaser would be regarded, for the purposes of that agreement, as the lender under it,
(c) the second purchaser would be regarded, for the purposes of that agreement, as the borrower under it, and
(d) those purchasers becoming parties to the agreement was facilitated by an electronic system operated by a person who has permission under Part 4A of FISMA 2000 to carry on, in relation to that system, the regulated activity specified in article 36H(1) of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (S.I. 2001/544) (operating an electronic system in relation to lending).
(3) In this section—
“the first purchase price” means the amount paid by the first purchaser in respect of the purchase, ...
“the second purchase price” means the amount payable by the second purchaser in respect of the sale.
“article 36H agreement” has the meaning given by article 36H(4) of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001, and
“borrower” and “lender” are to be construed in accordance with article 36H(9) of that Order.
(4) This section is subject to section 508 (provision not at arm's length: exclusion of arrangements from this section and sections 504 to 507).
(1) This section applies to arrangements if under them—
(a) a person (“the financier”) acquires a beneficial interest in an asset,
(aa) either—
(i) the financier is a financial institution or a regulated home purchase plan provider, or
(ii) the arrangements are regulated electronic system facilitated arrangements,
(b) another person (“the customer”) also acquires a beneficial interest in it,
(c) the customer is to make payments to the financier amounting in aggregate to the consideration paid for the acquisition of the financier’s beneficial interest (but subject to any adjustment required for such a reduction as is mentioned in subsection (5)),
(d) the customer is to acquire the financier’s beneficial interest (whether or not in stages) as a result of those payments,
(e) the customer is to make other payments to the financier (whether under a lease forming part of the arrangements, or otherwise),
(f) the customer has the exclusive right to occupy or otherwise to use the asset, and
(g) the customer is exclusively entitled to any income, profit or gain arising from or attributable to the asset (including, in particular, an increase in its value).
(1A) Arrangements are regulated electronic system facilitated arrangements if—
(a) the arrangements substantially consist of an article 36H agreement in relation to the enjoyment by the customer of the rights referred to in subsection (1)(f) and (g) before the customer’s acquisition of the financier’s beneficial interest,
(b) the customer would be regarded, for the purposes of that agreement, as the borrower under it,
(c) the financier would be regarded, for the purposes of that agreement, as the lender under it, and
(d) the customer and the financier becoming parties to the agreement was facilitated by an electronic system operated by a person who has permission under Part 4A of FISMA 2000 to carry on, in relation to that system, the regulated activity specified in article 36H(1) of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (S.I. 2001/544) (operating an electronic system in relation to lending).
(2) For the purposes of subsection (1)(a) it does not matter if—
(a) the financier acquires its beneficial interest from the customer,
(b) the customer, or another person who is not the financier, also has a beneficial interest in the asset, or
(c) the financier also has a legal interest in it.
(3) Subsection (1)(f) does not prevent the customer from granting an interest or right in relation to the asset if the conditions in subsection (4) are met.
(4) The conditions are that—
(a) the grant is not to—
(i) the financier,
(ii) a person controlled by the financier, or
(iii) a person controlled by a person who also controls the financier, and
(b) the grant is not required by the financier or arrangements to which the financier is a party.
(5) Subsection (1)(g) does not prevent the financier from—
(a) having responsibility for any reduction in the asset's value, or
(b) having a share in a loss arising out of any such reduction.
(6) This section is subject to section 508 (provision not at arm's length: exclusion of arrangements from section 503, this section and sections 504A to 507).
(7) In this section—
“article 36H agreement” has the meaning given by article 36H(4) of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001;
“borrower” and “lender” are to be construed in accordance with article 36H(9) of that Order;
“regulated home purchase plan provider” means a person who—
is carrying on the regulated activity specified in article 63F(1) of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (entering into regulated home purchase plans as home purchase provider), and
has permission under Part 4A of FISMA 2000 to do so.
(1) This section applies to arrangements if under them—
(a) a person (“the customer”) has a beneficial interest in an asset,
(b) the customer disposes of some or all of their beneficial interest in the asset to another person (“the financier”),
(c) either—
(i) the financier is a financial institution or a regulated home purchase plan provider (within the meaning of section 504(7)), or
(ii) the arrangements are regulated electronic system facilitated arrangements (within the meaning of section 504(1A)),
(d) the customer is to make payments to the financier amounting in aggregate to the consideration paid for the financier acquiring a beneficial interest as mentioned in paragraph (b) (but subject to any adjustment required for such a reduction as is mentioned in subsection (6)),
(e) the customer is to acquire the financier’s beneficial interest (whether or not in stages) as a result of those payments,
(f) the customer is to make other payments to the financier (whether under a lease forming part of the arrangements or otherwise),
(g) the customer has the exclusive right to occupy or otherwise to use the asset, and
(h) the customer is exclusively entitled to any income, profit or gain arising from or attributable to the asset (including, in particular, an increase in its value).
(2) This section also applies to arrangements which supersede arrangements to which section 504 or subsection (1) of this section applies if under them—
(a) a person (“the financier”) acquires so much of the beneficial interest in an asset mentioned in section 504(1)(a) or subsection (1)(b) of this section as has not yet been acquired as mentioned in section 504(1)(d) or subsection (1)(e) of this section,
(b) either—
(i) the financier is a financial institution or a regulated home purchase plan provider (within the meaning of section 504(7)), or
(ii) the arrangements are regulated electronic system facilitated arrangements (within the meaning of section 504(1A)),
(c) the customer mentioned in section 504(1) or subsection (1) of this section is to make payments to the financier amounting in aggregate to so much of the payments mentioned in section 504(1)(c) or subsection (1)(d) of this section as are yet to be paid (but subject to any adjustment required for such a reduction as is mentioned in subsection (6)),
(d) that customer is to acquire the financier’s beneficial interest (whether or not in stages) as a result of those payments,
(e) that customer is to make other payments to the financier (whether under a lease forming part of the arrangements or otherwise),
(f) the customer has the exclusive right to occupy or otherwise to use the asset, and
(g) the customer is exclusively entitled to any income, profit or gain arising from or attributable to that asset (including, in particular, an increase in its value).
(3) For the purposes of subsections (1)(a) and (b) and (2)(a) it does not matter if—
(a) another person who is not the customer or the financier also has a beneficial interest in the asset, or
(b) the financier also has a legal interest in it.
(4) Subsection (1)(g) or (2)(f) does not prevent the customer from granting an interest or right in relation to the asset if the conditions in subsection (5) are met.
(5) The conditions are that—
(a) the grant is not to—
(i) the financier,
(ii) a person controlled by the financier, or
(iii) a person controlled by a person who also controls the financier, and
(b) the grant is not required by the financier or arrangements to which the financier is a party.
(6) Subsection (1)(h) or (2)(g) does not prevent the financier from—
(a) having responsibility for any reduction in the asset’s value, or
(b) having a share in a loss arising out of any such reduction.
(7) This section is subject to section 508 (provision not at arm’s length: exclusion of arrangements from sections 503 and 504, this section and sections 505 to 507).
(1) This section applies to arrangements if under them—
(a) a person (“the depositor”) deposits money with a financial institution,
(b) the money, together with money deposited with the institution by other persons, is used by it with a view to producing a profit,
(c) from time to time the institution makes or credits a payment to the depositor out of profit resulting from the use of the money,
(d) the payment is in proportion to the amount deposited by the depositor, and
(e) the payments so made or credited by the institution equate, in substance, to the return on an investment of money at interest.
(2) This section is subject to section 508 (provision not at arm's length: exclusion of arrangements from sections 503 and 504, this section, and sections 506 and 507).
(1) This section applies to arrangements if under them—
(a) a person (“the principal”) appoints an agent,
(ab) one or both of the principal and agent is a financial institution,
(b) the agent uses money provided by the principal with a view to producing a profit,
(c) the principal is entitled, to a specified extent, to profits resulting from the use of the money,
(d) the agent is entitled to any additional profits resulting from its use (and may also be entitled to a fee paid by the principal), and
(e) payments made because of the principal's entitlement to profits equate, in substance, to the return on an investment of money at interest.
(2) This section is subject to section 508 (provision not at arm's length: exclusion of arrangements from sections 503 to 505, this section and section 507).
(1) This section applies to arrangements if—
(a) they provide for one person (“the bond-holder”) to pay a sum of money (“the capital”) to another (“the bond-issuer”),
(b) they identify assets, or a class of assets, which the bond-issuer will acquire for the purpose of generating income or gains directly or indirectly (“the bond assets”),
(c) they specify a period at the end of which they cease to have effect (“the bond term”),
(d) the bond-issuer undertakes under the arrangements—
(i) to dispose at the end of the bond term of any bond assets which are still in the bond-issuer's possession,
(ii) to make a repayment of the capital (“the redemption payment”) to the bond-holder during or at the end of the bond-term (whether or not in instalments), and
(iii) to pay to the bond-holder other payments on one or more occasions during or at the end of the bond term (“additional payments”),
(e) the amount of the additional payments does not exceed an amount which would be a reasonable commercial return on a loan of the capital,
(f) under the arrangements the bond-issuer undertakes to arrange for the management of the bond assets with a view to generating income sufficient to pay the redemption payment and additional payments,
(g) the bond-holder is able to transfer the rights under the arrangements to another person (who becomes the bond-holder because of the transfer),
(h) the arrangements are a listed security on a recognised stock exchange or admitted to trading on a multilateral trading facility operated by a regulated recognised stock exchange, and
(i) the arrangements are wholly or partly treated in accordance with international accounting standards as a financial liability of the bond-issuer, or would be if the bond-issuer applied those standards.
(2) For the purposes of subsection (1)—
(a) the bond-issuer may acquire bond assets before or after the arrangements take effect,
(b) the bond assets may be property of any kind, including rights in relation to property owned by someone other than the bond-issuer,
(c) the identification of the bond assets mentioned in subsection (1)(b) and the undertakings mentioned in subsection (1)(d) and (f) may (but need not) be described as, or accompanied by a document described as, a declaration of trust,
(d) a reference to the management of assets includes a reference to disposal,
(e) the bond-holder may (but need not) be entitled under the arrangements to terminate them, or participate in terminating them, before the end of the bond term,
(f) the amount of the additional payments may be—
(i) fixed at the beginning of the bond term,
(ii) determined wholly or partly by reference to the value of or income generated by the bond assets, or
(iii) determined in some other way,
(g) if the amount of the additional payments is not fixed at the beginning of the bond term, the reference in subsection (1)(e) to the amount of the additional payments is a reference to the maximum amount of the additional payments,
(h) the amount of the redemption payment may (but need not) be subject to reduction in the event of a fall in the value of the bond assets or in the rate of income generated by them, and
(i) entitlement to the redemption payment may (but need not) be capable of being satisfied (whether or not at the option of the bond-issuer or the bond-holder) by the issue or transfer of shares or other securities,
(j) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(k) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2A) In subsection (1)—
“regulated recognised stock exchange” means a recognised stock exchange that is regulated in the United Kingdom, the European Economic Area or Gibraltar;
“multilateral trading facility” means—
a UK multilateral trading facility within the meaning given by Article 2.1(14A) of Regulation (EU) No 600/2014 of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments,
an EU multilateral trading facility within the meaning given by Article 2.1(14B) of that Regulation, and
a Gibraltar multilateral trading facility within the meaning given by Article 26(11)(b)(ii) of that Regulation.
...
(3) This section is subject to section 508.
508 Provision not at arm's length: exclusion of arrangements from sections 503 to 507
(1) Arrangements to which this section applies are not—
(a) purchase and resale arrangements,
(b) diminishing shared ownership arrangements,
(c) deposit arrangements,
(d) profit share agency arrangements, or
(e) investment bond arrangements.
(2) This section applies to arrangements if—
(a) apart from this section they would be alternative finance arrangements,
(b) subsection (3) or (5) of section 147 of TIOPA 2010 (provision not at arm's length) requires the profits and losses of a person who is a party to the arrangements to be calculated for tax purposes as if the arm's length provision referred to in that subsection had been made or imposed, rather than in accordance with the arrangements,
(c) any person who is an affected person for the purposes of Part 4 of TIOPA 2010 (“the affected person”) is entitled to—
(i) relevant return in relation to the arrangements, or
(ii) an amount representing relevant return in relation to them, and
(d) the affected person is not subject—
(i) to income tax or corporation tax, or
(ii) to any corresponding tax under the law of a territory outside the United Kingdom,
on the relevant return or the amount representing it.
(3) In this section “relevant return”, in relation to arrangements, means any amount which would be alternative finance return if the arrangements were alternative finance arrangements.
(4) For the meaning of “alternative finance return”, see sections 511 to 513.
(1) Part 5 applies in relation to alternative finance arrangements to which a company (“A”) is a party as if the arrangements were a loan relationship to which A is a party.
(2) Accordingly, references in the Corporation Tax Acts to a loan relationship include references to such alternative finance arrangements.
(3) Section 510 makes further provision about the way in which Part 5 applies to particular descriptions of alternative finance arrangements.
510 Application of Part 5 to particular alternative finance arrangements
(1) In the case of purchase and resale arrangements, Part 5 applies in relation to A as if—
(a) the first purchase price were the amount of a loan made by the first purchaser to the second purchaser, and
(b) alternative finance return payable under the arrangements were interest payable on the loan.
(2) In the case of diminishing shared ownership arrangements, Part 5 applies in relation to A as if—
(a) the consideration paid by the financier for the acquisition of financier’s beneficial interest (“the acquisition consideration”) were the amount of a loan made by A to customer, and
(b) alternative finance return payable under the arrangements were interest payable on the loan.
(3) In the case of deposit arrangements, Part 5 applies in relation to A as if—
(a) any amount deposited under the arrangements were the amount of a loan made by the depositor to the financial institution, and
(b) alternative finance return payable under them were interest on the loan.
(4) In the case of profit share agency arrangements, Part 5 applies in relation to A as if—
(a) any amount provided under the arrangements were the amount of a loan made by the principal to the agent, and
(b) alternative finance return payable under them were interest on the loan.
(5) In the case of investment bond arrangements, Part 5 applies in relation to A as if alternative finance return payable to or by A under them were interest payable under the loan relationship.
(6) In this section—
“the customer” has the same meaning as in section 504 (see subsection (1) of that section) or 504A (see subsection (1) or (2) of that section),
“the depositor” has the same meaning as in section 505 (see subsection (1) of that section),
“the financier” has the same meaning as in section 504 (see subsection (1) of that section) or 504A (see subsection (1) or (2) of that section),
...
...
“the first purchaser” has the same meaning as in section 503 (see subsection (1) of that section),
“the first purchase price” has the same meaning as in section 503 (see subsection (3) of that section),
“the principal” has the same meaning as in section 506 (see subsection (1) of that section), and
“the second purchaser” has the same meaning as in section 503 (see subsection (1) of that section).
(7) For the meaning of “alternative finance return”, see sections 511 to 513.
(1) In the case of purchase and resale arrangements, so much of the second purchase price as is specified under the following provisions of this section is alternative finance return for the purposes of this Part.
(2) If under the arrangements the whole of the second purchase price is paid on one day, the alternative finance return equals the amount by which the second purchase price exceeds the first purchase price.
(3) If under the arrangements the second purchase price is paid by instalments, the alternative finance return in each instalment equals the appropriate amount.
(4) The appropriate amount is an amount equal to the interest which would have been included in the instalment on the assumptions in subsection (5).
(5) The assumptions are that—
(a) interest is payable on a loan by the first purchaser to the second purchaser of an amount equal to the first purchase price,
(b) the total interest payable on the loan is equal to the amount by which the second purchase price exceeds the first purchase price,
(c) the instalment is a part repayment of the principal of the loan with interest, and
(d) the loan is made on arm's length terms and accounted for under generally accepted accounting practice.
(6) In this section expressions used in section 503 have the same meaning as in that section.
(1) In the case of diminishing shared ownership arrangements, payments by the customer under the arrangements are alternative finance return for the purposes of this Part, except so far as subsection (2) or (3) applies to them.
(2) This subsection applies to the payments so far as they amount to payments of the kind described in or 504A(1)(d) or (2)(c) (payments to be made by the customer to the financier, amounting to the consideration paid for the acquisition of the the financier’s beneficial interest).
(3) This subsection applies to the payments so far as they amount to payments in respect of any arrangement fee or legal or other expenses which the customer is required under the arrangements to pay.
(4) In this section “the customer” has the same meaning as in section 504 or 504A.
(1) In the case of deposit arrangements, amounts paid or credited as mentioned in section 505(1)(c) by a financial institution under the arrangements (payments to depositor out of profits resulting from use of money) are alternative finance return for the purposes of this Part.
(2) In the case of profit share agency arrangements, amounts paid or credited by a financial institution in accordance with such an entitlement as is mentioned in section 506(1)(c) (principal's entitlement to profits under the arrangements) are alternative finance return for the purposes of this Part.
(3) In the case of investment bond arrangements, the additional payments under the arrangements are alternative finance return for the purposes of this Part.
(4) In subsection (3) “additional payments” has the same meaning as in section 507 (see subsection (1)(d)(iii) of that section).
514 Exclusion of alternative finance return from consideration for sale of assets
(1) If under purchase and resale arrangements an asset is sold by one party to the arrangements to the other party, the alternative finance return is excluded in determining the consideration for the sale and purchase of the asset for the purposes of the Corporation Tax Acts (apart from section 503).
(2) If under diminishing shared ownership arrangements an asset is sold by one party to the arrangements to the other party, the alternative finance return is excluded in determining the consideration for the sale and purchase of the asset for the purposes of the Corporation Tax Acts (apart from section 504 or 504A).
(3) If under investment bond arrangements an asset is sold by one party to the arrangements to the other party, the alternative finance return is excluded in determining the consideration for the sale and purchase of the asset for the purposes of the Corporation Tax Acts (apart from section 507).
(4) Subsections (1) to (3) do not affect the operation of any provision of the Tax Acts or TCGA 1992 which provides that the consideration for a sale or purchase is taken for any purpose to be an amount other than the actual consideration.