(1) Sections 653 to 655 apply to a derivative contract of a company for an accounting period if each of conditions A to E is met.
(2) Condition A is that the derivative contract is a relevant contract to which the company is treated as a party under section 585(2) (loan relationships with embedded derivatives) because of a debtor relationship of the company.
(3) Condition B is that the derivative contract is treated as an option by section 585(3) (contract treated as option, future or contract for differences).
(4) Condition C is that the underlying subject matter of the derivative contract is shares.
(5) Condition D is that at the time when the company became a party to the debtor relationship—
(a) it was not carrying on a banking business or a business as a securities house, or
(b) if it was carrying on such a business, it did not become a party to the debtor relationship in the ordinary course of that business.
(6) Condition E is that the company is not an excluded body.
(7) In this section “option” is to be construed as if section 580(2) and (3) (meaning of “option”) were omitted.
653 Shares issued or transferred as a result of exercise of deemed option
(1) Subsections (2) and (3) apply if—
(a) the option mentioned in section 652(3) is exercised at any time in the accounting period, and
(b) shares are issued or transferred in fulfilment of the obligations under the option (“the relevant disposal”).
(2) Section 144(2) of TCGA 1992 (exercise of options) applies to the relevant disposal as if the tax-adjusted carrying value of the option at the time the company became a party to the debtor relationship mentioned in section 652(2) were the consideration for the grant of the option.
(3) So far as it would otherwise apply, section 17(1) of TCGA 1992 (deemed market value consideration) does not apply to the relevant disposal.
654 Payment instead of disposal on exercise of deemed option
(1) Subsection (2) applies if—
(a) the option mentioned in section 652(3) is exercised at any time in the accounting period,
(b) no shares are issued or transferred in fulfilment of the obligations under the option, and
(c) an amount is paid in fulfilment of those obligations.
(2) If —
(a) CV exceeds X, a chargeable gain equal to the amount of the excess is treated as accruing to the company in the accounting period,
(b) X exceeds CV, an allowable loss equal to the amount of the excess is treated as accruing to the company in the accounting period.
(3) In this section—
“CV” means—
if the company was a party to the debtor relationship mentioned in section 652(2) at the time it was created, the tax-adjusted carrying value of the option at that time, or
if the company became a party to that relationship at a later time, the tax-adjusted carrying value of the option at that time,
“X” means the amount paid by the debtor in fulfilment of the obligations under the debtor relationship reduced (but not below nil) by the fair value of the host contract at the date on which the option is exercised, and
“the host contract” means the loan relationship to which the company is treated as a party under section 415(2) (loan relationships with embedded derivatives) because of the debtor relationship.
655 Ceasing to be party to debtor relationship when deemed option not exercised
(1) Subsection (2) applies if the company ceases to be a party to the debtor relationship mentioned in section 652(2) at a time when the option mentioned in section 652(3) has not been exercised.
(2) The company is treated for the purposes of corporation tax on chargeable gains—
(a) as having acquired an asset for consideration of an amount equal to Y, and
(b) as having disposed of that asset for consideration of an amount equal to CV.
(3) In this section—
“CV” has the same meaning as in section 654,
“Y” means—
if the company ceases to be a party to the debtor relationship as a result of the redemption or repayment of the liability representing that relationship, the amount paid by the company, or
otherwise, the consideration given by the company on its ceasing to be a party to that relationship,
in either case reduced (but not below nil) by the fair value of the host contract at the date on which it so ceases, and
“the host contract” has the same meaning as in section 654.
(1) Section 658 (chargeable gain or allowable loss treated as accruing) applies to a derivative contract of a company for an accounting period if each of conditions A to F is met.
(2) Condition A is that the derivative contract is a relevant contract to which the company is treated as a party under section 585(2) (loan relationships with embedded derivatives) because of a debtor relationship of the company.
(3) Condition B is that the derivative contract—
(a) is treated as a contract for differences by section 585(3) (contract treated as option, future or contract for differences), and
(b) is not within section 652.
(4) Condition C is that the derivative contract is an exactly tracking contract.
(5) Condition D is that the underlying subject matter of the derivative contract is shares.
(6) Condition E is that at the time when the company became a party to the debtor relationship—
(a) it was not carrying on a banking business or a business as a securities house, or
(b) if it was carrying on such a business, it did not become a party to the debtor relationship in the ordinary course of that business.
(7) Condition F is that the company is not an excluded body.
(8) For the meaning of “exactly tracking contract”, see section 657.
657 Meaning of “exactly tracking contract” in section 656
(1) This section applies for the purposes of section 656.
(2) “Exactly tracking contract” means a contract where the amount which is to be paid to discharge the rights and liabilities which fall to be treated as comprised in the contract is equal to the amount found by applying R% to C, where—
R% is the percentage change (if any) over the relevant period in—
(a) the value of the assets which are the underlying subject matter of the contract, or
(b) any index of the value of those assets, and
C is the amount falling to be regarded in accordance with generally accepted accounting practice as the proceeds of issue of the liability which represents the debtor relationship mentioned in section 656(2).
(3) In subsection (2) “the relevant period” means—
(a) the period between—
(i) the date when the liability representing that debtor relationship came into existence, and
(ii) the date when the creditor relationship corresponding to that debtor relationship comes to an end, or
(b) any other period in which almost all of that period falls, and which differs from that period only for purposes connected with giving effect to a valuation in relation to rights or liabilities under the liability representing that debtor relationship.
658 Chargeable gain or allowable loss treated as accruing
(1) Subsection (2) applies if—
(a) the debtor relationship mentioned in section 656(2) comes to an end, and
(b) an amount (“the discharge amount”) is paid to discharge all the company's obligations under that relationship.
(2) For the purposes of corporation tax on chargeable gains, a chargeable gain or allowable loss equal to the amount mentioned in subsection (3) is treated as accruing to the company.
(3) That amount is the amount of the gain or loss (as the case may be) which would accrue on the assumptions in subsection (4).
(4) Those assumptions are that—
(a) the derivative contract is an asset of the company,
(b) there is a disposal of that asset at the time when the debtor relationship comes to an end,
(c) the consideration for the disposal of that asset is equal to the relevant amount, and
(d) the cost of the asset is equal to the discharge amount.
(5) In subsection (4) “the relevant amount” means—
(a) if the company was a party to the debtor relationship at the time it was created, the amount of the proceeds of issue of the security representing that relationship, or
(b) if the company became a party to the debtor relationship after that time, the amount of the tax-adjusted carrying value of the host contract at that time.
(6) In this section “the host contract” means the loan relationship to which the company is treated as a party under section 415(2) (loan relationships with embedded derivatives) because of the debtor relationship.
659 Meaning of “relevant credits” and “relevant debits”
(1) This section applies for the purposes of this Chapter.
(2) In the case of a derivative contract which is not one to which section 650 (property based total return swaps) applies for an accounting period, the relevant credits and debits are the credits and debits which are given in relation to the derivative contract for the accounting period by section 595.
(3) In the case of a derivative contract to which section 650 applies for an accounting period, the relevant credits and debits are the credits and debits which—
(a) are given in relation to the derivative contract for the accounting period by section 595, and
(b) are within subsection (4).
(4) The credits and debits are those found for the period by applying R% to N, where—
N is the amount which is the notional principal amount in the case of the derivative contract, and
R% is the percentage change (if any) in the capital value index over the relevant period.
(4A) But if the derivative contract has effect such that the return arising from the contract, so far as calculated by reference to that index, is calculated by reference to a percentage (“the capped percentage”) which is closer to zero than the full percentage change in that index over that period (or which is zero even though there has been a change in that index), for the purposes of subsection (4) R% is the capped percentage.
(5) In subsection (4) “the relevant period” means—
(a) the accounting period, if the company is a party to the derivative contract throughout that period,
(b) in any other case, any part of the accounting period throughout which the company is a party to the derivative contract.
(6) For the meaning of “the capital value index”, see section 650(4).
660 Contract relating to holding in OEIC, unit trust or offshore fund
(1) This section applies if—
(a) a company is a party to a relevant contract in two successive accounting periods,
(b) section 587 (contract relating to holding in OEIC, unit trust or offshore fund) applies in relation to the relevant contract for the second of those periods but not the first, and
(c) immediately before the beginning of the second period the relevant contract was a chargeable asset.
(2) The company must bring into account for the accounting period in which it ceases to be a party to the contract the amount of any chargeable gain or allowable loss which would have been treated as accruing to it on the assumptions in subsection (3).
(3) Those assumptions are that—
(a) the company disposed of the relevant contract immediately before the beginning of the second period mentioned in subsection (1), and
(b) the disposal was for consideration of an amount equal to the value (if any) given to the relevant contract in the accounts of the company at the end of the first such period.
(1) This section applies if—
(a) a company is a party to a relevant contract which (not having been a derivative contract) becomes a derivative contract, and
(b) immediately before the relevant contract becomes a derivative contract it is a chargeable asset.
(2) The company must bring into account for the accounting period in which it ceases to be a party to the relevant contract the amount of any chargeable gain or allowable loss which would have been treated as accruing to it on the assumptions in subsection (3).
(3) Those assumptions are that—
(a) the company disposed of the relevant contract immediately before the relevant time, and
(b) the disposal was for consideration of an amount equal to the notional carrying value of the relevant contract at that time.
(4) In this section “the relevant time” means the time when the relevant contract becomes a derivative contract.
(5) Section 622(4) (meaning of “notional carrying value”) applies for the purposes of this section.
(1) This section applies if a company is a party to a relevant contract which ceases to be a derivative contract.
(2) The company is treated for the purposes of corporation tax on chargeable gains as if it had acquired the contract immediately after the relevant time for consideration of an amount equal to the notional carrying value of the contract at that time.
(3) In this section “the relevant time” means the time when the contract ceases to be a derivative contract.
(4) Section 622(4) (meaning of “notional carrying value”) applies for the purposes of this section.
(1) This section applies in the case of a company if—
(a) there are net section 641 losses for an accounting period (“the loss period”),
(b) there are net section 641 gains for a previous accounting period (“the gains period”),
(c) the gains period falls wholly or partly within the period of 24 months immediately preceding the start of the loss period, and
(d) within two years after the end of the loss period the company makes a claim in respect of the whole or a part of the net section 641 losses for the loss period.
(2) The net section 641 gains for the gains period are reduced (but not below nil) by the amount in respect of which the claim is made.
(3) And the net section 641 losses for the loss period are reduced by the amount in respect of which the claim is made.
(4) For the purposes of this section—
(a) the net section 641 gains for a later period are reduced so far as possible before the net section 641 gains for an earlier period, and
(b) where a gains period falls partly before the start of the 24 month period mentioned in subsection (1), only the appropriate fraction of the net section 641 gains for that period may be reduced.
(5) For the meaning of “net section 641 gains”, “net section 641 losses” and “the appropriate fraction”, see section 664.
(1) This section applies for the purposes of section 663.
(2) If for an accounting period L exceeds G, there are net section 641 losses for the period of an amount equal to the excess.
(3) If for an accounting period G exceeds the sum of L and N, there are net section 641 gains for the period of an amount equal to the excess.
(4) In this section—
G is the sum of the amounts of any chargeable gains treated as accruing to the company in the period under section 641(3)(a) in respect of derivative contracts of the company (“section 641 gains”),
L is the sum of the amounts of any allowable losses treated as accruing to the company in the period under section 641(3)(b) in respect of derivative contracts of the company (“section 641 losses”), and
N is the sum of the amounts of any non-section 641 losses which would fall to be deducted in the period from section 641 gains, on the assumption in subsection (5).
(5) That assumption is that, as respects the accounting period, non-section 641 losses are treated as being deducted from non-section 641 gains, so far as possible, before any remainder is deducted from section 641 gains.
(6) The “appropriate fraction” is—
A
B
where—
A is the number of days in the gains period which fall within the 24 month period mentioned in section 663(1)(c), and
B is the number of days in the gains period.
(7) In this section—
“deducted” means deducted in accordance with section 8(1) of TCGA 1992 (company's total profits to include chargeable gains),
“the gains period” has the same meaning as in section 663,
“non-section 641 gains” means any chargeable gains accruing to the company in the accounting period, other than section 641 gains, and
“non-section 641 losses” means any allowable losses of the company which may be deducted in the accounting period, other than section 641 losses.
(1) Section 666 (allowable loss treated as accruing) applies to a company for an accounting period if each of conditions A to F is met.
(2) Condition A is that the company is treated as a party to a relevant contract under section 585(2) (loan relationships with embedded derivatives) because of a debtor relationship of the company.
(3) Condition B is that the division mentioned in section 585(1) (loan relationships with embedded derivatives) in the case of the debtor relationship is between—
(a) rights and liabilities under a loan relationship, and
(b) rights and liabilities under an equity instrument of the company.
(4) Condition C is that the relevant contract is treated as an option by section 585(3) (contract treated as option, future or contract for differences).
(5) Condition D is that the company pays an amount in the accounting period to the person who is a party to the debtor relationship as creditor in discharge of any obligations under that relationship.
(6) Condition E is that at the time when the company became a party to the debtor relationship—
(a) it was not carrying on a banking business or a business as a securities house, or
(b) if it was carrying on such a business, it did not become a party to that relationship in the ordinary course of that business.
(7) Condition F is that the company is not an excluded body.
(8) In this section “option” is to be construed as if section 580(2) and (3) (meaning of “option”) were omitted.
(1) If A exceeds B, an allowable loss equal to the amount of the excess is treated as accruing to the company in the accounting period for the purposes of corporation tax on chargeable gains.
(2) In this section—
A is the amount paid as mentioned in section 665(5) reduced (but not below nil) by an amount equal to the fair value of the host contract at the time that amount is paid,
B is the amount treated as the tax-adjusted carrying value of the relevant contract mentioned in section 665(4) at the time the company became a party to the debtor relationship mentioned in section 665(2), and
“the host contract” means the loan relationship to which the company is treated as a party under section 415(2) (loan relationships with embedded derivatives) because of the debtor relationship.
667 Shares acquired on exercise of non-embedded option
(1) This section applies if—
(a) a company is a party to a derivative contract in an accounting period,
(b) the derivative contract is a plain vanilla contract,
(c) the contract is an option,
(d) rights to acquire shares are comprised in the contract, and
(e) shares are acquired as a result of the exercise of any of those rights in the accounting period.
(2) For the purpose of calculating any chargeable gain accruing to the company on a disposal by it of all the shares so acquired, the sums allowable as a deduction under section 38(1)(a) of TCGA 1992 (acquisition costs) are—
(a) if G exceeds L, increased by the amount of that excess,
(b) if L exceeds G, reduced by the amount of that excess,
and, in the case of a part disposal of those shares, section 42(2) of that Act (part disposals) has effect accordingly.
(3) If the amount of the excess in subsection (2)(b) is greater than the amount of expenditure allowable under section 38(1)(a) of TCGA 1992, the amount of the excess which cannot be deducted from the expenditure so allowable is, for the purpose mentioned in subsection (2), added to the amount of the consideration for the disposal of the shares.
(4) For the meaning of G and L, see section 669.
668 Shares acquired on running of future to delivery
(1) This section applies if—
(a) a company is a party to a derivative contract in an accounting period,
(b) the derivative contract is a plain vanilla contract,
(c) the contract is a future, and
(d) delivery is taken of shares in accordance with the terms of the future.
(2) For the purpose of calculating any chargeable gain accruing to the company on a disposal by it of all the shares so delivered, the sums allowable as a deduction under section 38(1)(a) of TCGA 1992 (acquisition costs) are—
(a) if G exceeds L, increased by the amount of that excess,
(b) if L exceeds G, reduced by the amount of that excess,
and, in the case of a part disposal of those shares, section 42(2) of that Act (part disposals) has effect accordingly.
(3) If the amount of the excess in subsection (2)(b) is greater than the amount of expenditure allowable under section 38(1)(a) of TCGA 1992, the amount of the excess which cannot be deducted from the expenditure so allowable is, for the purpose mentioned in subsection (2), added to the amount of the consideration for the disposal of the shares.
(4) For the meaning of G and L, see section 669.
(1) This section applies for the purposes of sections 667 and 668.
(2) G is the sum of the credits brought into account under section 574 (non-trading credits and debits to be brought into account under Part 5) in respect of the derivative contract in each relevant accounting period so far as referable, on a just and reasonable apportionment, to the shares acquired as a result of the exercise of rights mentioned in section 667(1)(e) or the delivery mentioned in section 668(1)(d).
(3) L is the sum of the debits brought into account under section 574 in respect of the derivative contract in each relevant accounting period, so far as so referable.
(4) In this section “relevant accounting period” means—
(a) the accounting period in which the disposal in question is made, or
(b) any previous accounting period.
670 Treatment of net gains and losses on exercise of option
(1) This section applies if—
(a) a derivative contract is one to which section 645 (creditor relationships: embedded derivatives which are options) applies for an accounting period,
(b) rights to acquire shares fall to be treated as comprised in the derivative contract because of section 585(2), and
(c) any of those rights are exercised or otherwise disposed of in the accounting period.
(2) Subsection (3) applies if there is a disposal of the asset representing the creditor relationship mentioned in section 645(2).
(3) For the purpose of calculating any chargeable gain accruing to the company on the disposal, the sums allowable as a deduction under section 38(1)(a) of TCGA 1992 (acquisition costs) are—
(a) if the sum of G and CV exceeds L, increased by the amount of that excess,
(b) if L exceeds the sum of G and CV, reduced by the amount of that excess.
(4) Subsection (5) applies if there is a disposal of all or any of the shares (“the relevant shares”) acquired—
(a) as a result of the exercise of rights mentioned in subsection (1)(c), and
(b) in circumstances where a disposal is deemed not to occur because of section 127 of TCGA 1992 (equation of original shares and new holding).
(5) For the purpose of calculating any chargeable gain accruing to the company on a disposal of all the relevant shares, the sums allowable as a deduction under section 38(1)(a) of TCGA 1992 (acquisition costs) are—
(a) if the sum of G and CV exceeds L, increased by the amount of that excess,
(b) if L exceeds the sum of G and CV, reduced by the amount of that excess,
and, in the case of a part disposal of those shares, section 42(2) of that Act (part disposals) has effect accordingly.
(6) If the amount of the excess in subsection (3)(b) or (5)(b) is greater than the amount of expenditure allowable under section 38(1)(a) of TCGA 1992, the amount of the excess which cannot be deducted from the expenditure so allowable is, for the purpose mentioned in subsection (3) or (5) (as the case may be), added to the amount of the consideration for the disposal so mentioned.
(7) Sections 37 and 39 of TCGA 1992 (consideration chargeable to tax on income and exclusion of expenditure by reference to tax on income) do not apply in relation to a disposal mentioned in subsection (2) or (4) above.
(8) For the meaning of G, L and CV, see section 671.
(1) This section applies for the purposes of section 670.
(2) G is the sum of the amounts of any chargeable gains treated as accruing to the company under section 641(3)(a) (derivative contracts to be taxed on a chargeable gains basis) in respect of the derivative contract in each relevant accounting period, so far as referable, on a just and reasonable apportionment, to the shares acquired as a result of the exercise of rights mentioned in section 670(1)(c).
(3) L is the sum of the amounts of any allowable losses treated as accruing to the company under section 641(3)(b) in respect of the derivative contract in each relevant accounting period, so far as so referable.
(4) CV is the amount by which the tax-adjusted carrying value of the host contract at the date on which the option is exercised exceeds the tax-adjusted carrying value of that contract at—
(a) the date on which the company became a party to the creditor relationship mentioned in section 645(2), or
(b) (if later) the date on which the derivative contract became one to which section 645 applies.
(5) In this section—
“the host contract” means the loan relationship to which the company is treated as a party under section 415(2) (loan relationships with embedded derivatives) because of the creditor relationship mentioned in section 645(2), and
“relevant accounting period” means—
the accounting period in which the disposal in question is made, or
any previous accounting period.
672 Treatment of net gains and losses on disposal of certain embedded derivatives
(1) This section applies if—
(a) a derivative contract is one to which section 648 (creditor relationships: embedded derivatives which are exactly tracking contracts for differences) applies for an accounting period, and
(b) the asset representing the creditor relationship mentioned in section 648(2) is disposed of in the accounting period.
(2) For the purpose of calculating any chargeable gain accruing to the company on the disposal, the sums allowable as a deduction under section 38(1)(a) of TCGA 1992 (acquisition costs) are—
(a) if the sum of G and CV exceeds L, increased by the amount of that excess,
(b) if L exceeds the sum of G and CV, reduced by the amount of that excess.
(3) If the amount of the excess in subsection (2)(b) is greater than the amount of expenditure allowable under section 38(1)(a) of TCGA 1992, the amount of the excess which cannot be deducted from the expenditure so allowable is, for the purpose mentioned in subsection (2), added to the amount of the consideration for the disposal.
(4) Sections 37 and 39 of TCGA 1992 (consideration chargeable to tax on income and exclusion of expenditure by reference to tax on income) do not apply in relation to the disposal.
(5) For the meaning of G, L and CV, see section 673.
(1) This section applies for the purposes of section 672.
(2) G is the sum of the amounts of any chargeable gains treated as accruing to the company under section 641(3)(a) (derivative contracts to be taxed on a chargeable gains basis) in respect of the derivative contract in each relevant accounting period.
(3) L is the sum of the amounts of any allowable losses treated as accruing to the company under section 641(3)(b) in respect of the derivative contract in each relevant accounting period.
(4) CV is the amount by which the tax-adjusted carrying value of the host contract at the date of the disposal exceeds the tax-adjusted carrying value of that contract at the date on which the company became a party to the creditor relationship mentioned in section 648(2).
(5) In this section—
“the host contract” means the loan relationship to which the company is treated as a party under section 415(2) (loan relationships with embedded derivatives) because of the creditor relationship mentioned in section 648(2), and
“relevant accounting period” means—
the accounting period in which the disposal is made, or
any previous accounting period.
(1) This Chapter applies if—
(a) condition A or B is met, and
(b) each of the companies mentioned in subsection (2)(a) or (3)(a) makes a claim under this section,
but see section 677 (tax avoidance etc) and section 680 (disapplication of Chapter where transparent entities involved).
(2) Condition A is that—
(a) a company resident in one relevant state transfers to a company resident in another relevant state the whole or part of a business carried on in the United Kingdom,
(b) the transfer is wholly in exchange for shares or debentures issued by the transferee to the transferor, and
(c) immediately after the transfer the transferee is within the charge to corporation tax.
(3) Condition B is that—
(a) a company transfers part of its business to one or more companies,
(b) the transferor is resident in one relevant state,
(c) the part of the transferor's business which is transferred is carried on by the transferor in the United Kingdom,
(d) at least one transferee is resident in a relevant state other than that in which the transferor is resident (and each transferee is resident in a relevant state, but not necessarily the same one),
(e) the transferor continues to carry on a business after the transfer,
(f) immediately after the transfer each transferee is within the charge to corporation tax, and
(g) the transfer—
(i) is made in exchange for the issue of shares in or debentures of each transferee to each person holding shares in or debentures of the transferor, or
(ii) is not so made only because, and only so far as, a transferee is prevented from so issuing such shares or debentures by section 658 of the Companies Act 2006 (c. 46) (general rule against limited company acquiring own shares) or by a corresponding provision of the law of a member State preventing such an issue.
(4) In this Chapter—
“relevant state” means the United Kingdom or a member State;
“the transfer of business” means the transfer of business mentioned in subsection (2)(a) or (3)(a),
“transferee” has the same meaning as in subsection (2) or (3), and
“the transferor” has the same meaning as in subsection (2) or (3).
(5) For the meaning of “company” and “resident in a relevant state”, see section 681.
675 Transfer of derivative contract at notional carrying value
(1) This section applies if in the course of the transfer of business the transferor transfers the rights and liabilities under a derivative contract to a transferee.
(2) For the purpose of determining the credits and debits to be brought into account in respect of the derivative contract in accordance with this Part, the transferor and the transferee are treated as having entered into the transfer of those rights and liabilities for consideration of an amount equal to the notional carrying value of the contract.
(3) For the purposes of this section, the notional carrying value of a contract is the amount which would have been its tax-adjusted carrying value based on the accounts of the transferor if a period of account had ended immediately before the date when the transferor ceased to be a party to the contract.
(4) This section is subject to section 676 (transferor using fair value accounting).
(1) This section applies instead of section 675 if, in a case where that section would otherwise apply, the transferor uses fair value accounting as respects the derivative contract.
(2) The amount which is to be brought into account by the transferor in respect of the transfer of the rights and liabilities mentioned in section 675(1) is the fair value of the derivative contract as at the date of transfer to the transferee.
(3) For any accounting period in which the transferee is a party to the derivative contract, for the purpose of determining the credits and debits to be brought into account in respect of the contract in accordance with this Part, the transferee is treated as if it had acquired the contract for consideration of an amount equal to the fair value of the contract as at the date of transfer to it.
(1) This Chapter does not apply in relation to the transfer of business if—
(a) the transfer of business is not effected for genuine commercial reasons, or
(b) the transfer of business forms part of a scheme or arrangements of which the main purpose, or one of the main purposes, is avoiding liability to corporation tax, capital gains tax or income tax.
(2) But subsection (1) does not prevent this Chapter from applying if before the transfer of business—
(a) the companies mentioned in section 674(2)(a) or (3)(a) have applied to the Commissioners for Her Majesty's Revenue and Customs, and
(b) the Commissioners have notified them that they are satisfied that subsection will not have that effect.
(1) This section applies in relation to an application under section 677(2).
(2) The application must be in writing and must contain particulars of the operations which are to be effected.
(3) The Commissioners for Her Majesty's Revenue and Customs may by notice require the applicant to provide further particulars for the purpose of enabling them to make their decision.
(4) Such a notice may only be given within 30 days of the receipt of the application or of any further particulars previously required under subsection (3).
(5) If such a notice is not complied with within 30 days or such longer period as the Commissioners for Her Majesty's Revenue and Customs may allow, they need not proceed further on the application.
(1) The Commissioners for Her Majesty's Revenue and Customs must notify their decision on an application under section 677(2) to the applicant—
(a) within 30 days of receiving the application, or
(b) if they give a notice under section 678(3), within 30 days of the notice being complied with.
(2) If the Commissioners for Her Majesty's Revenue and Customs—
(a) notify the applicant that they are not satisfied as mentioned in section 677(2)(b), or
(b) do not notify their decision to the applicant within the time required by subsection (1),
the applicant may within 30 days of the notification or of that time require them to transmit the application to the tribunal, together with any notice given and further particulars provided under section 678(3).
(3) In that case any notification by the tribunal has effect for the purposes of section 677(2)(b) as if it were a notification by the Commissioners for Her Majesty's Revenue and Customs.
(4) If any particulars provided under section 678 do not fully and accurately disclose all facts and considerations material for the decision—
(a) of the Commissioners for Her Majesty's Revenue and Customs, or
(b) of the tribunal,
any resulting notification by the Commissioners for Her Majesty's Revenue and Customs or the tribunal is void.
680 Disapplication of Chapter where transparent entities involved
(1) This Chapter does not apply in relation to the transfer of business if the transferor is a transparent entity.
(2) In this section “transparent entity” means a company which is resident in a member State ... and which does not have an ordinary share capital.
(1) In this Chapter “company” means any entity listed as a company in Part A of Annex I to the Mergers Directive.
(2) For the purposes of this Chapter, a company is resident in a relevant state if—
(a) it is within a charge to tax under the law of the relevant state as being resident for that purpose, and
(b) it is not regarded, for the purpose of any double taxation relief arrangements to which the relevant state is a party, as resident in a territory not within a relevant state.
(1) This Chapter applies if the following conditions are met—
(a) conditions A to D,
(b) in the case of a merger within subsection (2)(a), (b) or (c), condition E, and
(c) in the case of a merger within subsection (2)(c) or (d), condition F,
but see section 686 (tax avoidance etc) and section 687 (disapplication of Chapter where transparent entities involved).
(2) Condition A is that—
(a) an SE is formed by the merger of two or more companies in accordance with Articles 2(1) and 17(2)(a) or (b) of Council Regulation (EC) No. 2157/2001 on the Statute for a European company (Societas Europaea),
(b) an SCE is formed by the merger of two or more co-operative societies, at least one of which is a society registered under the Co-operative and Community Benefit Societies Act 2014, in accordance with Articles 2(1) and 19 of Council Regulation (EC) No. 1435/2003 on the Statute for a European Co-operative Society (SCE),
(c) a merger is effected by the transfer by one or more companies of all their assets and liabilities to a single existing company, or
(d) a merger is effected by the transfer by two or more companies of all their assets and liabilities to a single new company (other than an SE or an SCE) in exchange for the issue by the transferee, to each person holding shares in or debentures of a transferor, of shares or debentures.
(3) Condition B is that each merging company is resident in a relevant state.
(4) Condition C is that the merging companies are not all resident in the same relevant state.
(5) Condition D is that immediately after the merger the transferee is within the charge to corporation tax.
(6) Condition E is that—
(a) the transfer of assets and liabilities to the transferee in the course of the merger is made in exchange for the issue of shares or debentures by the transferee to each person holding shares in or debentures of a transferor, or
(b) that transfer is not so made only because, and only so far as, the transferee is prevented from so issuing such shares or debentures by section 658 of the Companies Act 2006 (c. 46) (general rule against limited company acquiring own shares) or by a corresponding provision of the law of a member State preventing such an issue.
(7) Condition F is that in the course of the merger each transferor ceases to exist without being in liquidation (within the meaning given by section 247 of the Insolvency Act 1986 (c. 45)).
(8) In this Chapter,
(a) “the merger” and “the merging companies” have the same meaning as in this section
(b) “relevant state” means the United Kingdom or a member State.
(9) See—
(a) section 683 for the meaning of “the transferee” and “transferor”, and
(b) section 688 for the meaning of “company”, “co-operative society” and “resident in a relevant state”.
(1) In this Chapter, “the transferee” means—
(a) in relation to a merger within section 682(2)(a), the SE,
(b) in relation to a merger within section 682(2)(b), the SCE, and
(c) in relation to a merger within section 682(2)(c) or (d), the company to which assets and liabilities are transferred.
(2) In this Chapter “transferor” means—
(a) in relation to a merger within section 682(2)(a), a company merging to form the SE,
(b) in relation to a merger within section 682(2)(b), a co-operative society merging to form the SCE, and
(c) in relation to a merger within section 682(2)(c) or (d), a company transferring all of its assets and liabilities.
684 Transfer of derivative contract at notional carrying value
(1) This section applies if in the course of the merger a transferor transfers the rights and liabilities under a derivative contract to the transferee.
(2) For the purpose of determining the credits and debits to be brought into account in respect of the derivative contract in accordance with this Part, the transferor and the transferee are treated as having entered into the transfer of those rights and liabilities for consideration of an amount equal to the notional carrying value of the contract.
(3) For the purposes of this section, the notional carrying value of a contract is the amount which would have been its tax-adjusted carrying value based on the accounts of the transferor if a period of account had ended immediately before the date when the transferor ceased to be a party to the contract.
(4) This section is subject to section 685 (transferor using fair value accounting).
(1) This section applies instead of section 684 if, in a case where that section would otherwise apply, the transferor uses fair value accounting as respects the derivative contract.
(2) The amount which is to be brought into account by the transferor in respect of the transfer of the rights and liabilities mentioned in section 684(1) is the fair value of the derivative contract as at the date of transfer to the transferee.
(3) For any accounting period in which the transferee is a party to the derivative contract, for the purpose of determining the credits and debits to be brought into account in respect of the contract in accordance with this Part, the transferee is treated as if it had acquired the contract for consideration of an amount equal to the fair value of the contract as at the date of transfer to it.
(1) This Chapter does not apply in relation to the merger if—
(a) the merger is not effected for genuine commercial reasons, or
(b) the merger forms part of a scheme or arrangements of which the main purpose, or one of the main purposes, is avoiding liability to corporation tax, capital gains tax or income tax.
(2) But subsection (1) does not prevent this Chapter from applying if before the merger—
(a) any of the merging companies has applied to the Commissioners for Her Majesty's Revenue and Customs, and
(b) the Commissioners have notified the merging companies that they are satisfied that subsection will not have that effect.
(3) Sections 678 and 679 have effect in relation to subsection (2) as in relation to section 677(2), taking the references in section 679 to section 677(2)(b) as references to subsection (2)(b) of this section.
687 Disapplication of Chapter where transparent entities involved
(1) This section applies if one or more of the merging companies is a transparent entity.
(2) If as a result of the merger the assets and liabilities of a transparent entity are transferred to another company, this Chapter does not apply in relation to the transfer.
(3) In this section “transparent entity” means a company which is resident in a member State ... and which does not have an ordinary share capital.
(1) In this Chapter—
“company” means any entity listed as a company in Part A of Annex I to the Mergers Directive, and
“co-operative society” means a society registered under the Co-operative and Community Benefit Societies Act 2014 or a similar society governed by the law of a member State ....
(2) For the purposes of this Chapter, a company is resident in a relevant state if—
(a) it is within a charge to tax under the law of the relevant state as being resident for that purpose, and
(b) it is not regarded, for the purpose of any double taxation relief arrangements to which the relevant state is a party, as resident in a territory not within a relevant state.
(1) This Chapter contains rules connected with tax avoidance.
(2) In particular—
(a) for rules about unallowable purposes, see sections 690 to 692,
(b) for rules relating to credits and debits where transactions are not at arm's length, see sections 693 to 695,
(c) for rules relating to credits and debits in the case of transactions with non-UK residents, see sections 696 and 697, ...
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(e) for rules about debits arising as a result of the derecognition of derivative contracts, see section 698A, and
(f) for rules dealing with tax avoidance arrangements, see sections 698B to 698D.
(1) This section applies if in any accounting period a derivative contract of a company has an unallowable purpose.
(2) The company may not bring into account for that period for the purposes of this Part so much of any exchange credit in respect of that contract as is referable to the unallowable purpose on a just and reasonable apportionment.
(3) The company may not bring into account for that period for the purposes of this Part so much of any debit in respect of that contract as is referable to the unallowable purpose on a just and reasonable apportionment.
(3A) If—
(a) a credit brought into account for that period for the purposes of this Part by the company would (in the absence of this section) be reduced, and
(b) the reduction represents an amount which, if it did not reduce a credit, would be brought into account as a debit in respect of that contract,
subsection (3) applies to the amount of the reduction as if it were an amount that would (in the absence of this section) be brought into account as a debit.
(4) Subsections (2) and (3) are subject to section 692 (allowance of accumulated net losses).
(5) An amount which would be brought into account in accordance with this Part as respects any matter apart from this section and section 692—
(a) is treated for the purposes of section 699(1) (priority of this Part for corporation tax purposes) as if it were so brought into account, and
(b) accordingly may not be brought into account for any other corporation tax purposes as respects that matter.
(6) For the purposes of this section and section 692, a credit is an exchange credit, in the case of any company, so far as it is attributable to any exchange gains arising to the company ... .
(7) For the meaning of “has an unallowable purpose” and “the unallowable purpose” in this section and section 692, see section 691.
(1) For the purposes of sections 690 and 692, a derivative contract of a company has an unallowable purpose in an accounting period if the purposes for which, at times during that period, the company—
(a) is a party to the contract, or
(b) enters into transactions which are related transactions by reference to it,
include a purpose (“the unallowable purpose”) which is not amongst the business or other commercial purposes of the company.
(1A) In subsection (1)(b) “related transaction”, in relation to a derivative contract, includes anything which equates in substance to a disposal or acquisition of the kind mentioned in section 596(1) (as read with section 596(2)).
(2) If a company is not within the charge to corporation tax in respect of a part of its activities, for the purposes of this section the business and other commercial purposes of the company do not include the purposes of that part.
(3) Subsection (4) applies if a tax avoidance purpose is one of the purposes for which a company—
(a) is a party to a derivative contract at any time, or
(b) enters into a transaction which is a related transaction by reference to a derivative contract of the company.
(4) For the purpose of subsection (1), the tax avoidance purpose is only regarded as a business or other commercial purpose of the company if it is not—
(a) the main purpose for which the company is a party to the derivative contract or, as the case may be, enters into the related transaction, or
(b) one of the main purposes for which it is or does so.
(5) The references in subsections (3) and (4) to a tax avoidance purpose are references to any purpose which consists of securing a tax advantage for the company or any other person.
(6) In this section “tax advantage” has the meaning given by section 1139 of CTA 2010 (meaning of “tax advantage”).