515 Diminishing shared ownership arrangements : further provision
(1) Diminishing shared ownership arrangements are not treated as a partnership for the purposes of the Corporation Tax Acts.
(2) If, under diminishing shared ownership arrangements, the financier grants a lease of the asset to the customer, the grant or termination of the lease is not to be treated as a disposal or acquisition of part of the asset for the purposes of the Corporation Tax Acts.
(3) If, under diminishing shared ownership arrangements, the financier is entitled to the asset as a result of the customer breaching an obligation under the arrangements—
(a) the financier’s dealings with the asset for the purpose of enforcing or giving effect to the entitlement, and
(b) the dealings with the asset of any person appointed for that purpose,
are to be treated for the purposes of the Corporation Tax Acts as if they were done through the financier, or (as the case may be) the appointed person, as nominee by the customer.
(4) In this section—
“the asset” means the asset in which beneficial interest is acquired and disposed of under the diminishing shared ownership arrangements;
“the customer” and “the financier” have the same meaning as in section 504 or 504A;
“termination”, in relation to a lease, has the meaning given by section 70YI of CAA 2001.
515A Diminishing shared ownership arrangements: further provision in respect of refinancing
(1) This section applies in respect of diminishing shared ownership arrangements to which section 504A applies.
(2) If, under the arrangements, the customer disposes of an asset as mentioned in section 504A(1)(b), any gain accruing to the customer on the disposal of the asset is to be treated as not having accrued for the purposes of the Corporation Tax Acts.
(3) If, under the arrangements, the customer—
(a) disposes of an asset as mentioned in section 504A(1)(b),
(b) acquires the asset as mentioned in section 504A(1)(d) and (e) or (2)(c) and (d),
(c) and subsequently disposes of the asset,
the disposal of the asset mentioned in paragraph (a) and the acquisition of the asset mentioned in paragraph (b) (together with any intervening disposals or acquisitions of the asset) are to be treated as not having occurred for the purpose of computing, for the purposes of the Corporation Tax Acts, the amount of the gain accruing to the customer on the subsequent disposal of the asset.
(4) In subsections (2) and (3),”the customer” has the same meaning as in section 504A.
(5) If, under arrangements to which section 504A(2) applies (“successor arrangements”), the financier under the diminishing shared ownership arrangements that the successor arrangements supersede transfers their interest in a lease forming part of those arrangements to the financier under the successor arrangements, the transfer is not to be treated as involving a disposal or acquisition of the interest for the purposes of the Corporation Tax Acts.
516 Treatment of principal under profit sharing agency arrangements
(1) The principal under profit sharing agency arrangements is not treated for the purposes of the Corporation Tax Acts as entitled to profits to which the agent is entitled in accordance with section 506(1)(d).
(2) And the agent under such arrangements is treated for those purposes as entitled to those profits and the profits specified in section 506(1)(c).
(3) In this section “the principal” and “the agent” are to be read in accordance with section 506.
517 Treatment of bond-holder under investment bond arrangements
(1) This section applies for the purposes of the Corporation Tax Acts and irrespective of the position for other purposes.
(2) The bond-holder under investment bond arrangements is not treated as having a legal or beneficial interest in the bond assets.
(3) The bond-issuer under such arrangements is not treated as a trustee of the bond assets.
(4) Profits accruing to the bond-issuer in connection with the bond assets are profits of the bond-issuer and not of the bond-holder (and do not arise to the bond-issuer in a fiduciary or representative capacity).
(5) Payments made by the bond-issuer by way of redemption payment or additional payment are not made in a fiduciary or representative capacity.
(6) The bond-holder is not entitled to relief for capital expenditure in connection with the bond assets.
(7) Expressions used in this section have the same meaning as in section 507.
518 Investment bond arrangements: treatment as securities
(1) Investment bond arrangements are securities for the purposes of the Corporation Tax Acts.
(2) For those purposes—
(a) a reference in an enactment to redemption is to be taken as a reference to making the redemption payment, ...
(b) a reference in an enactment to interest is to be taken as a reference to alternative finance return, and
(c) the bond-issuer is to be treated for the purposes of Chapter 4 of Part 13 of CTA 2010 (securitisation companies) as being party as debtor to a capital market arrangement.
(3) In subsection (2) “the redemption payment” has the same meaning as in section 507 (see subsection (1)(d)(ii) of that section).
519 Investment bond arrangements: other provisions
(1) A bond-issuer is not a securitisation company for the purposes of section 83 of FA 2005 (application of accounting standards to securitisation companies) unless it is one as a result of arrangements which are not investment bond arrangements.
(2) For the purposes of sections 453 and 454 of CTA 2010 (definitions related to close companies)—
(a) a bond-holder is a loan creditor in respect of the bond-issuer, and
(b) investment bond arrangements must be ignored in the application of section 454(2)(e) of CTA 2010.
(3) For the purposes of Chapter 6 of Part 5 of CTA 2010 (group relief)—
(a) a bond-holder is a loan creditor in respect of the bond-issuer, and
(b) condition C in section 162(4) of CTA 2010 must be ignored in determining whether a person is an equity holder as a result of investment bond arrangements.
(4) Investment bond arrangements are not—
(a) a unit trust scheme for the purposes of section 1119 of CTA 2010, or
(b) an offshore fund for the purposes of section 354 of TIOPA 2010 so far as relating to corporation tax.
520 Provision not at arm's length: non-deductibility of relevant return
(1) This section applies if arrangements to which section 508 (provision not at arm's length: exclusion of arrangements from sections 503 to 507) applies would, but for that section, be alternative finance arrangements.
(2) A company paying relevant return under the arrangements is not entitled to—
(a) any deduction in calculating profits or gains for corporation tax purposes, or
(b) any deduction from total profits,
in respect of the relevant return.
(3) In this section “relevant return” has the same meaning as in section 508 (see subsection (3) of that section).
(1) This Chapter contains rules for Part 5 (and the other provisions of the Corporation Tax Acts) to apply in some cases as if at some times in the accounting period of a company (“A”) which holds shares of a certain kind in another company (“B”) the shares were rights under a creditor relationship of A.
(2) See, in particular—
(a) section 521B (application of Part 5 to some shares as rights under creditor relationship), and
(b) section 521C (which describes the shares to which the rules apply).
(3) In this Chapter references to the investing company are to A and references to the issuing company are to B.
(4) For the purposes of this Chapter, the definition of “share” in section 476(1) only applies so far as it provides that “ share ” does not include a share in a building society.
(5) Section 550(3) (repos: ignoring effect on borrower of sale of securities) does not apply for the purposes of this Chapter.
(6) See section 116B of TCGA 1992 for the effect for chargeable gains purposes of shares beginning or ceasing to be shares to which section 521C applies.
521B Application of Part 5 to certain shares as rights under creditor relationship
(1) This section applies in relation to the times in a company's accounting period when—
(a) the company holds a share in another company, and
(b) section 521C (shares accounted for as liabilities) applies to the share.
(2) Part 5 (and the other provisions of the Corporation Tax Acts) apply as if at those times—
(a) the share were rights under a creditor relationship of the investing company, and
(b) any distribution in respect of the share were not a distribution (and accordingly is within Part 5).
(3) Where Part 5 applies in relation to the investing company in accordance with subsection (2) it so applies as if the issuing company stood in the position of debtor as respects the debt in question.
(4) No debits are to be brought into account by the investing company as respects the share but this does not affect debits to be brought into account in respect of exchange gains or losses.
(5) Subsection (2)(b) does not affect the operation of Part 1 of Schedule 25 of ICTA (controlled foreign companies: acceptable distribution policy) (including as it continues to have effect in accordance with paragraph 8(1) of Schedule 16 to FA 2009).
(6) In this Chapter references to “the share” are to the share mentioned in subsection (1).
(1) This section applies to the share if—
(a) the share would be accounted for by the issuing company as a liability in accordance with generally accepted accounting practice,
(b) the share produces for the investing company a return in relation to any amount which is economically equivalent to interest,
(c) the issuing company and the investing company are not connected companies,
(d) the condition in subsection (4) is met,
(e) the share is not an excepted share (see section 521D), and
(f) the investing company holds the share for an unallowable purpose (see section 521E).
(2) For the purposes of this section 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 investing company first holds the share or, if later, when the share begins to produce a return for the investing company.
(4) The condition mentioned in subsection (1)(d) is that the share does not fall to be treated for the accounting period in question as if it were rights under a creditor relationship of the investing company because of section 490 (holdings in OEICs, unit trusts and offshore funds treated as creditor relationship rights).
(5) Section 466 (companies connected for an accounting period) applies for the purposes of this section.
(1) A share is an excepted share for the purposes of section 521C if it is—
(a) a qualifying publicly-issued share (see subsection (2)), or
(b) a share which mirrors a public issue (see subsections (3) and (4)).
(2) A share is a “qualifying publicly-issued share” if—
(a) it was issued by a company as part of an issue of shares to persons not connected with the company, and
(b) less than 10% of the shares in that issue are held by the investing company or persons connected with it.
(3) The first case where shares (“the mirroring shares”) mirror a public issue is where—
(a) a company (“company A”) issues shares (“the public issue”) to persons not connected with the company,
(b) within 7 days of that issue, one or more other companies (“companies BB”) issue the mirroring shares to company A on the same terms as the public issue or substantially the same terms,
(c) company A and companies BB are associated companies (see subsection (5)), and
(d) the total nominal value of the mirroring shares does not exceed the nominal value of the public issue.
(4) The second case where shares (“the second level mirroring shares”) mirror a public issue is where, in the circumstances of the first case—
(a) within 7 days of the public issue, one or more other companies (“companies CC”) issue the second level mirroring shares to one or more of companies BB on the same terms as the public issue or substantially the same terms,
(b) company A, companies BB and companies CC are associated companies (see subsection (5)), and
(c) the total nominal value of the second-level mirroring shares does not exceed the nominal value of the public issue.
(5) For the purposes of subsections (3) and (4) companies are associated companies if they are members of the same group of companies for the purposes of Part 5 of CTA 2010 (group relief) (see section 152 of that Act).
(1) For the purposes of section 521C, the investing company holds the share for an unallowable purpose if the main purpose, or one of the main purposes for which the company holds the share is to obtain a relevant tax advantage.
(2) But the investing company may elect that this Chapter is to apply in relation to the share even though it would otherwise be prevented from applying by subsection (1)(f) of that section.
(3) An election under subsection (2)—
(a) must be made no later than the time when the investing company first holds the share or, if later, when the share begins to produce a return for the investing company, and
(b) is irrevocable.
(4) In this section “ obtain a relevant tax advantage ” means secure that the return produced by the share (or any part of it) is received in a way that means that its treatment for corporation tax purpose is more advantageous to the investing company than it would be if it were—
(a) charged to corporation tax as income of the investing company, or
(b) brought into account as income of the investing company for corporation tax purposes,
at the time when amounts would be brought into account in relation to the return in accordance with section 521B.
(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
521F Shares becoming or ceasing to be shares to which section 521B applies
(1) This section applies if at any time section 521B begins or ceases to apply in the case of a share held by the investing company.
(2) The investing company is treated for the purposes of Part 5—
(a) as having disposed of the share immediately before that time for consideration of an amount equal to the notional carrying value of the share at that time, and
(b) as having immediately reacquired it for consideration of the same amount.
(3) In subsection (2) “ notional carrying value ”, in relation to the share, means the amount which would have been its tax-adjusted carrying value based on the accounts of the investing company if a period of account had ended immediately before section 521B began or ceased to apply in the case of the share and the investing company.
(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1) This Chapter deals with the application of Part 5 to manufactured interest relationships and payments representative of interest.
(2) For the purposes of the Corporation Tax Acts a company has a manufactured interest relationship if conditions A and B are met.
(3) Condition A is that—
(a) an amount is payable by or on behalf of the company or to the company under any arrangements, and
(b) the arrangements relate to the transfer of an asset representing a loan relationship.
(4) Condition B is that the amount—
(a) is representative of interest under the loan relationship, or
(b) will fall to be treated as representative of such interest when it is paid.
(5) In this Chapter—
“manufactured interest”, in relation to a manufactured interest relationship, means an amount within subsection (3)(a), and
“the real interest” means the interest mentioned in subsection (4)(a).
(6) References in the Corporation Tax Acts to a company being a party to a manufactured interest relationship are to be read in accordance with this section.
(7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
540 Manufactured interest treated as interest under loan relationship
(1) If a company has a manufactured interest relationship under which manufactured interest is payable by it, Part 5 applies to the company and the manufactured interest as it would if the manufactured interest were interest payable on a loan to the company (and so were interest under a loan relationship to which the company is a party).
(2) If a company has a manufactured interest relationship under which manufactured interest is payable to it, Part 5 applies to the company and the manufactured interest as it would if—
(a) the manufactured interest were interest payable on a loan by the company (and so were interest under a loan relationship to which the company is a party), and
(b) the manufactured interest relationship were the loan relationship under which the real interest is payable.
(3) Accordingly, subject to subsection (2)(b), references in the Corporation Tax Acts to a loan relationship include a reference to a manufactured interest relationship and the credits and debits to be brought into account in respect of manufactured interest for any period are those that are recognised in determining the company's profit or loss for the period in accordance with generally accepted accounting practice (but subject to the provisions of Part 5 ... ...).
(4) Subsection (5) applies if a company—
(a) has a manufactured interest relationship, but
(b) enters into a related transaction in respect of the right to receive manufactured interest as a result of which the manufactured interest is not payable to the company.
(5) Even though the manufactured interest is not payable to the company, for the purpose of bringing credits into account in respect of that or any other related transaction because of the application of subsection (2), the company is still treated as having a manufactured interest relationship.
(6) This section is subject to Chapter 10 (repos).
541 Debits for deemed interest under stock lending arrangements disallowed
(1) This section applies if a company is the borrower under a stock lending arrangement for the purposes of section 812 of CTA 2010 (which treats such a borrower as having made a payment representative of interest for the purposes of this Chapter).
(2) In accordance with subsection (3) of that section (which prevents deductions or group relief for the borrower in stock lending cases), the company may not bring debits into account for the purposes of Part 5 of this Act in respect of the representative payment which is treated as having been made under subsection (2) of that section.
(1) The purpose of this Chapter is to secure that in the case of an arrangement—
(a) which involves the sale of securities and the subsequent purchase of those or similar securities, and
(b) which equates, in substance, to a transaction for the lending of money at interest from or to a company, with the securities which were sold as collateral for the loan,
the charge to corporation tax reflects the fact that the arrangement equates, in substance, to such a transaction.
(2) Sections 543 to 546 make provision about arrangements which are creditor repos or creditor quasi-repos.
(3) Sections 548 to 551 make provision about arrangements which are debtor repos or debtor quasi-repos.
(1) For the purposes of this Chapter a company (“the lender”) has a creditor repo if each of conditions A to E is met.
(2) Condition A is that under an arrangement another person (“the borrower”) receives from the lender any money or other asset (“the advance”).
(3) Condition B is that, in accordance with generally accepted accounting practice, the accounts of the lender for the period in which the advance is made record a financial asset in respect of the advance.
(4) Condition C is that under the arrangement the borrower sells any securities at any time to the lender.
(5) Condition D is that the arrangement makes provision conferring a right or imposing an obligation on the lender to sell those or similar securities at any subsequent time.
(6) Condition E is that, in accordance with generally accepted accounting practice, the subsequent sale of those or similar securities would extinguish the financial asset in respect of the advance recorded in the accounts of the lender.
(7) For the purposes of conditions A to E references to the lender include a firm of which the lender is a member.
(1) For the purposes of this Chapter a company (“the lender”) has a creditor quasi-repo in any case if—
(a) the lender does not have a creditor repo in that case, and
(b) each of conditions A to E is met in that case.
(2) Condition A is that under an arrangement a person receives from the lender any money or other asset (“the advance”).
(3) Condition B is that, in accordance with generally accepted accounting practice, the accounts of the lender for the period in which the advance is made record a financial asset in respect of the advance.
(4) Condition C is that under that or any other arrangement a person sells any securities at any time to the lender or any other person.
(5) Condition D is that the arrangement or other arrangement—
(a) makes provision conferring a right or imposing an obligation on the lender to sell the securities or any other securities at any subsequent time, or
(b) makes provision conferring such a right or imposing such an obligation on any other person and makes other relevant provision.
(6) For this purpose an arrangement makes other relevant provision if it makes provision—
(a) for the receipt of any money, securities or other asset from the lender under that arrangement for the purpose of enabling the other person to make that subsequent sale, or
(b) for the discharge of any liability to the lender under that arrangement for that purpose (whether by way of set off or otherwise).
(7) Condition E is that, in accordance with generally accepted accounting practice—
(a) the subsequent sale of the securities or the other securities by the lender, or
(b) the receipt of the asset from the lender, or the discharge of the liability to the lender, under the arrangement or other arrangement,
would extinguish the financial asset in respect of the advance recorded in the accounts of the lender.
(8) For the purposes of conditions A to E references to the lender include a firm of which the lender is a member.
545 Ignoring effect on lender etc of sale of securities
(1) This section applies if a company (“the lender”) has a creditor repo or a creditor quasi-repo.
(2) For the purposes of the charge to corporation tax in respect of income of the lender arising while the arrangement is in force, the Corporation Tax Acts have effect as if—
(a) the lender did not hold the securities that are initially sold for any period for which the arrangement is in force, and
(b) the lender did not make in that period any payment representative of income payable in respect of the securities.
(3) But subsection (2) is subject to subsections (4) and (5).
(4) An amount is not to be ignored for the purposes of that charge as a result of subsection (2)(a) if—
(a) it is, in accordance with generally accepted accounting practice, recognised in determining the lender's profit or loss for that or any other period, or
(b) it is taken into account in calculating the amounts which are so recognised.
(5) A payment is not to be ignored for the purposes of that charge as a result of subsection (2)(b) if it is, in accordance with that practice, so recognised.
(6) Nothing in subsection (5) affects the question whether (apart from that provision) the payment (or any part of it) may be deducted in calculating income for corporation tax purposes or against total profits.
546 Charge on lender for finance return in respect of the advance
(1) This section applies if a company (“the lender”) has a creditor repo or creditor quasi-repo.
(2) The advance under the creditor repo or creditor quasi-repo is, in the case of the lender, to be treated for the purposes of Part 5 and this Part as a money debt which—
(a) is owed to the lender or, if the lender is a member of a firm which makes the advance, to the firm, and
(b) is owed by the person who initially sold the securities.
(3) The arrangement is, in the case of the lender, to be treated for the purposes of those rules as a transaction for the lending of money from which that debt is treated as arising for those purposes.
(4) Any amount which, in accordance with generally accepted accounting practice, is recorded in—
(a) the accounts of the lender, or
(b) if the lender is a member of a firm which makes the advance, the accounts of the firm,
as a finance return in respect of the advance is treated for those purposes as interest receivable under that debt.
(5) That interest is treated for those purposes as received at the earlier of—
(a) the time when the relevant repurchase takes place, and
(b) the time when it becomes apparent that that repurchase will not take place.
(6) For this purpose “the relevant repurchase” means—
(a) if the lender has a creditor repo, the subsequent sale of the securities or similar securities, and
(b) if the lender has a creditor quasi repo—
(i) the subsequent sale of the securities or other securities by the lender,
(ii) the receipt of the asset from the lender, or
(iii) the discharge of the liability to the lender,
as the case may be.