(1) This section applies if—
(a) section 918 or 919 applies in relation to a leased asset,
(b) allowances are or have been made to a person (“the contributor”) as a result of sections 537 to 542 of CAA 2001 (allowances in respect of contributions to capital expenditure), and
(c) those allowances are or were in respect of the contributor's contribution of a capital sum to expenditure on the provision of the leased asset.
(2) Section 918 or, as the case may be, section 919 has effect in relation to the contributor and those allowances as it has effect in relation to the current lessor and allowances in respect of capital expenditure incurred by the current lessor in respect of the leased asset.
923 Pre-26 November 1996 schemes where this Chapter does not at first apply
(1) This section applies if—
(a) the lease of an asset forms part of a pre-26 November 1996 scheme, but
(b) the conditions in section 902 become met after 26 November 1996.
(2) For the meaning of “forms part of a pre-26 November 1996 scheme”, see section 930.
(3) This Part has effect as if—
(a) a period of account (“period 1”) of the current lessor (“L”) ended immediately before the time at which those conditions become met,
(b) another period of account of L (“period 2”) began immediately before that time and ended immediately after that time, and
(c) another period of account of L began immediately after that time.
(4) If, on the continuous application assumption (see subsection (9)), there would be an amount of cumulative accountancy rental excess for period 2, that amount is the cumulative accountancy rental excess for period 2.
(5) If subsection (4) applies, L is treated for corporation tax purposes as if in period 1 L had been entitled to, and there had arisen to L, rent from the lease of an amount equal to that cumulative accountancy rental excess.
(6) The amount of rent mentioned in subsection (5)—
(a) is in addition to any other rent from the lease for period 1, and
(b) is left out of account for the purposes of section 905 (current lessor taxed by reference to accountancy rental earnings).
(7) Rent within subsection (5) is treated for corporation tax purposes as if it had accrued and L had become entitled to it immediately before the end of period 1.
(8) If, on the continuous application assumption, there would be an amount of cumulative normal rental excess for period 2, that amount is the cumulative normal rental excess for period 2.
(9) In this section “the continuous application assumption” means the assumption that this Chapter (other than this section) had applied in the case of the lease at all times on or after 26 November 1996.
(10) If at any time the person who was the lessor at that time was a person within the charge to income tax, the reference in subsection (9) to this Chapter (other than this section) includes a reference to Chapter 2 of Part 11A of ITA 2007 (other than section 614BX of that Act).
924 Post-25 November 1996 schemes to which Chapter 3 applied first
(1) This section applies if—
(a) the conditions in section 902 become met in the case of the lease of the asset, and
(b) immediately before those conditions become met, Chapter 3 applied.
(2) Subsection (3) applies for the purpose of determining—
(a) the cumulative accountancy rental excess for any period of account ending after those conditions become met, or
(b) the cumulative normal rental excess for any such period.
(3) This Part has effect as if this Chapter had applied in relation to the lease at any time when Chapter 3 applied in relation to it.
(4) If at any time the person who was the lessor at that time was a person within the charge to income tax—
(a) the reference in subsection (1)(a) to the conditions in section 902 becoming met at that time includes a reference to the conditions in section 614BC of ITA 2007 becoming so met,
(b) the reference in subsection (1)(b) to Chapter 3 applying immediately before that time includes a reference to Chapter 3 of Part 11A of that Act so applying, and
(c) the reference in subsection (3) to Chapter 3 applying at that time includes a reference to Chapter 3 of that Part so applying.
(1) This Chapter applies to arrangements involving the lease of an asset that—
(a) fall to be treated, in accordance with generally accepted accounting practice, as a finance lease or loan, but
(b) are not arrangements to which Chapter 2 applies.
(2) It does not matter whether the arrangements are or have been entered into by companies or other persons.
(1) The main purpose of this Chapter where there are arrangements to which this Chapter applies is, in relation to a company entitled to the lessor's interest under the lease of the asset, to apply the charge to corporation tax on income to amounts determined as mentioned in subsection (2).
(2) The amounts referred to in subsection (1) are determined by reference to the amounts that fall for accounting purposes to be treated, in accordance with generally accepted accounting practice, as the income return on and after 26 November 1996 on investment in respect of the finance lease or loan.
(3) The amounts referred to in subsection (1) are also determined taking into account the substance of the matter as a whole, including, in particular, the state of affairs—
(a) as between connected persons, or
(b) within a group of companies,
as reflected or falling to be reflected in accounts of any of those persons or in consolidated group accounts.
(1) This Chapter applies if—
(a) a lease of an asset is or has been granted on or after 26 November 1996,
(b) the lease forms part of a post-25 November 1996 scheme,
(c) condition A in section 902 is or has been met at some time on or after 26 November 1996 in relation to the lease in a period of account of the current lessor (“L”), and
(d) Chapter 2 does not apply in relation to the lease because of the other conditions in that section not all being, or having been, met as mentioned in section 901.
(2) For the meaning of “forms part of a post-25 November 1996 scheme”, see section 930.
(3) This Chapter does not apply so far as, in relation to L, the lease falls to be regarded as a long funding lease for the purposes of Part 2 of CAA 2001 (plant and machinery allowances) in accordance with Chapter 6A of that Part (interpretation of provisions about long funding leases) (see section 70G of that Act).
(4) If condition A in section 902 has been met at any time on or after 26 November 1996 in a period of account of the person who was at that time the lessor, it is taken to continue to be met unless and until one of the conditions in subsection (5) is met.
(5) The conditions are that—
(a) the asset ceases to be leased under the lease, or
(b) the lessor's interest under the lease is assigned to a person who is not connected with any of the persons specified in subsection (6).
(6) Those persons are—
(a) the assignor,
(b) any person who was the lessor at some time before the assignment, and
(c) any person who at some time after the assignment becomes the lessor pursuant to arrangements made by a person who was the lessor, or was connected with the lessor, at some time before the assignment.
(7) If at any time the person who was the lessor at that time was a person within the charge to income tax—
(a) the reference in subsection (4) to condition A in section 902 having been met at that time includes a reference to condition A in section 614BC of ITA 2007 having been so met, and
(b) the reference in subsection (1)(d) to the other conditions in section 902 not having been met as mentioned in section 901 includes a reference to the other conditions in section 614BC of that Act not having been met as mentioned in section 614BB of that Act.
(8) Nothing in subsection (4) prevents this Chapter from applying again in relation to the lease where the lessor's interest is assigned if the conditions for its application are met after the assignment.
928 Current lessor taxed by reference to accountancy rental earnings
(1) This section applies if, in the case of any period of account of the current lessor (“L”)—
(a) this Chapter applies in relation to the lease, and
(b) the accountancy rental earnings in respect of the lease for that period of account exceed the normal rent for that period.
(2) For corporation tax purposes, L is treated as if in that period of account L had been entitled to, and there had arisen to L, rent from the lease of an amount equal to those accountancy rental earnings (instead of the normal rent referred to in subsection (1)(b)).
(3) Such rent from the lease of an asset is treated for corporation tax purposes—
(a) as if it had accrued at an even rate throughout so much of the period of account as falls within the period for which the asset is leased, and
(b) as if L had become entitled to it as it accrued.
929 Application of provisions of Chapter 2 for purposes of this Chapter
Sections 906 to 916 apply for the purposes of this Chapter as they apply for the purposes of Chapter 2, but taking the references in sections 907(1) and 910(1)(a) to section 905 as references to section 928.
930 Pre-26 November 1996 schemes and post-25 November 1996 schemes
(1) For the purposes of this Part, a lease of an asset—
(a) forms part of a pre-26 November 1996 scheme if (and only if) the conditions in subsection (2) or (3) are met, and
(b) in any other case, forms part of a post-25 November 1996 scheme.
(2) The conditions in this subsection are that—
(a) a contract in writing for the lease of the asset was made before 26 November 1996,
(b) either—
(i) the contract was unconditional, or
(ii) if the contract was conditional, the conditions were met before that date, and
(c) no terms remain to be agreed on or after that date.
(3) The conditions in this subsection are that—
(a) a contract in writing for the lease of the asset was made before 26 November 1996,
(b) the condition in subsection (2)(b) or (c) was not met in the case of the contract,
(c) either—
(i) the contract was unconditional, or
(ii) if the contract was conditional, the conditions were met before the end of the finalisation period or within such further period as the Commissioners for Her Majesty's Revenue and Customs may allow in the particular case,
(d) no terms remain to be agreed after the end of the finalisation period or such further period as those Commissioners may so allow, and
(e) the contract in its final form was not materially different from the contract as it stood when it was made before 26 November 1996.
(4) In subsection (3), “the finalisation period” means the period which ended with the later of—
(a) 31 January 1997, and
(b) the end of the period of six months beginning with the day after that on which the contract was made as mentioned in subsection (3)(a).
931 Time apportionment where periods of account do not coincide
(1) Subsection (2) applies if a period of account of the lessor (“L”) does not coincide with a period of account of a person connected with L.
(2) Any amount which falls for the purposes of this Part to be found for L's period of account but by reference to the connected person is found by making such apportionments as may be necessary between two or more periods of account of the connected person.
(3) Subsection (4) applies if a period of account of L does not coincide with a period for which consolidated group accounts of a group of companies of which L is a member fall to be prepared.
(4) Any amount which falls for the purposes of this Part to be found for L's period of account but by reference to the consolidated group accounts is found by making such apportionments as may be necessary between two or more periods for which consolidated group accounts of the group fall to be prepared.
(5) Any apportionment under subsection (2) or (4) must be made in proportion to the number of days in the respective periods that fall within L's period of account.
932 Periods of account and related periods of account and accounting periods
(1) In this Part “period of account” means a period for which accounts are made up.
(2) Except for the purposes of sections 901 to 904 and subsection (3), in this Part “period of account” does not include a period that begins before 26 November 1996.
(3) But this Part applies in relation to a period of account that begins before 26 November 1996 and ends on or after that date as if—
(a) so much of the period as falls before that date, and
(b) so much of the period as falls on or after that date,
were separate periods of account.
(4) For the purposes of this Part, an accounting period is related to a period of account if the accounting period consists of or includes the whole or any part of the period of account.
(5) For the purposes of this Part a period of account is related to an accounting period if the accounting period is related to the period of account.
(1) For the purposes of this Part in its application as a result of any leasing arrangements, if a person (“A”) is connected with another (“B”) at some time during the relevant period A is treated as being connected with B throughout that period.
(2) The relevant period is the period that—
(a) begins at the earliest time at which any of the arrangements were made, and
(b) ends when the current lessor finally ceases to have an interest in the asset or any arrangements relating to it.
(1) For the purposes of this Part, the assets described in subsection (2) are treated as representing the leased asset.
(2) Those assets are—
(a) any asset derived from the leased asset or created out of it,
(b) any asset from which the leased asset was derived or out of which the leased asset was created,
(c) any asset derived from or created out of an asset within paragraph (b), and
(d) any asset that derives the whole or a substantial part of its value from the leased asset or an asset that itself represents the leased asset.
935 Parent undertakings and consolidated group accounts
(1) This Part has effect in relation to a body corporate that—
(a) is a parent undertaking, but
(b) for accounting purposes is not required to prepare consolidated group accounts in accordance with generally accepted accounting practice,
as if it were so required.
(2) For the purposes of subsection (1) it does not matter where the body corporate is incorporated.
(3) In subsection (1) “parent undertaking” is to be read in accordance with section 1162 of the Companies Act 2006.
In this Part, unless the context otherwise requires—
“accountancy rental earnings” has the meaning given by section 897(1),
“accountancy rental excess” is to be read—
for the purposes of Chapter 2, in accordance with section 907(1) to (4), and
for the purposes of Chapter 3, in accordance with section 907(1) to (4), as it has effect as a result of section 929,
“asset” means any form of property or rights,
“asset representing the leased asset” is to be read in accordance with section 934,
“cumulative accountancy rental excess” is to be read—
for the purposes of Chapter 2, in accordance with section 907(5), and
for the purposes of Chapter 3, in accordance with section 907(5) as it has effect as a result of section 929,
“cumulative normal rental excess” is to be read—
for the purposes of Chapter 2, in accordance with section 909(5), and
for the purposes of Chapter 3, in accordance with section 909(5) as it has effect as a result of section 929,
“the current lessor”, in relation to a lease of an asset, means the person who is for the time being entitled to the lessor's interest under the lease,
“finance lessor” means a person who for accounting purposes is treated, in accordance with generally accepted accounting practice, as the person with—
the grantor's interest in relation to a finance lease, or
the lender's interest in relation to a loan,
“for accounting purposes” means for the purposes of—
accounts of companies incorporated in any part of the United Kingdom, or
consolidated group accounts for groups all the members of which are companies so incorporated,
“lease”—
in relation to land, includes an underlease, sublease, tenancy or licence, and any agreement for a lease, underlease, sublease, tenancy or licence and, in the case of land outside the United Kingdom, any interest corresponding to a lease as so defined, and
in relation to any form of property or right other than land, means any kind of agreement or arrangement under which payments are made for the use of, or otherwise in respect of, an asset,
and “rent” is to be read accordingly,
“the leasing arrangements”, in relation to a lease of an asset, means—
the lease,
any arrangements relating to or connected with the lease, and
any other arrangements of which the lease forms part,
and includes a reference to any of the leasing arrangements,
“the lessee”, in relation to a lease of an asset, means (except in the expression “the lessee's interest under the lease”) the person entitled to the lessee's interest under the lease,
“the lessor”, in relation to a lease of an asset, means (except in the expression “the lessor's interest under the lease”) the person entitled to the lessor's interest under the lease,
“major lump sum” is to be read in accordance with section 902(5),
“normal rent” is to be read in accordance with section 896,
“normal rental excess” is to be read—
for the purposes of Chapter 2, in accordance with section 909(1) to (4), and
for the purposes of Chapter 3, in accordance with section 909(1) to (4) as it has effect as a result of section 929,
“period of account” is to be read in accordance with section 932(1) to (3),
“post-25 November 1996 scheme” is to be read in accordance with section 930(1)(b),
“pre-26 November 1996 scheme” is to be read in accordance with section 930(1)(a),
“related accounting period” is to be read in accordance with section 932(4),
“related period of account” is to be read in accordance with section 932(5),
“the rental earnings”, in relation to the lease of the asset and any period, has the meaning given by section 898, and
“sum” includes any money or money's worth (and “pay” and related expressions are to be read accordingly).
(1) A risk transfer scheme may be—
(a) a group scheme, or
(b) a risk transfer scheme other than a group scheme (a “single-company scheme”).
(2) A risk transfer scheme to which a company (“company A”) is a party is a “group scheme” if at least one company other than company A is at any time both—
(a) associated with company A, and
(b) a party to the scheme.
(3) In this Part “ the relevant group ” means—
(a) company A, and
(b) each company other than company A in relation to which the condition in subsection (2) is met.
(4) In its application in relation to single company schemes, this Part applies subject to the following modifications.
(5) The modifications are that—
(a) references to the relevant group, a member of the relevant group, or the members of the relevant group, are treated as references to company A, and
(b) sections 937E(2) and 937L(2) are treated as omitted.
(1) A scheme to which a company (“company A”) is a party is a “risk transfer scheme” if conditions 1 to 3 are met.
(2) Condition 1 is that the purpose, or one of the main purposes, of any member of the relevant group on entering into the scheme is to obtain a financial advantage for the relevant group that it is reasonable to assume could not otherwise have been obtained without the relevant group becoming subject to (or incurring the cost of avoiding) a relevant risk.
(3) In subsection (2) “ a relevant risk ” means a risk that the relevant group would make economic losses in one or more accounting periods of company A as a result of fluctuations in—
(a) the rate of exchange between any two currencies,
(b) the retail prices index (or any similar general index of prices) or any other index, or
(c) any price or other value.
(4) Condition 2 is that, as a result of the scheme, and disregarding the effect of this Part, the relevant group—
(a) is not subject to the relevant risk, or
(b) is subject only to a negligible proportion of that risk.
(5) Condition 3 is that, disregarding the effect of the provisions of the Corporation Tax Acts, condition 2 would not be met.
(6) For the purposes of this section the relevant group obtains a “financial advantage” from a scheme if, taking into account the effect of the scheme on each member of the group, the scheme—
(a) increases the return on any investment,
(b) reduces the costs of any borrowing, or
(c) has an effect economically equivalent to that mentioned in paragraph (a) or (b).
In this Part “ the scheme rate, index or value ”, in relation to a risk transfer scheme, means the rate, index or value mentioned in section 937C(3)(a), (b) or (c) in relation to the relevant risk for the scheme.
(1) A loss or profit made by a company in an accounting period is a “scheme loss” or “ scheme profit ” in relation to a risk transfer scheme to which the company is a party at any time in the period if the loss or profit—
(a) is from a loan relationship, or derivative contract, that is part of the scheme,
(b) would, apart from this Part, be brought into account in determining a debit or credit for the purposes of Part 5 of CTA 2009 (loan relationships) or Part 7 of that Act (derivative contracts), and
(c) arises as a result of fluctuations in the scheme rate, index or value.
(2) References in this Part to a scheme loss or scheme profit made by a company in a period that is not an accounting period of that company are to the scheme loss or scheme profit that the company would have made in the period from the loan relationship or derivative contract in question if the period had been an accounting period of the company.
(3) References in this section to a loss or profit from a loan relationship or a derivative contract include—
(a) a loss or profit from a related transaction, and
(b) a loss or profit of a capital nature.
(4) In subsection (3)(a) “ related transaction ” has the meaning given by—
(a) section 304 of CTA 2009 (in relation to a loan relationship), or
(b) section 596 of that Act (in relation to a derivative contract).
937F Ring-fenced scheme losses and relevant scheme profits
(1) Subsection (2) applies if—
(a) a company makes one or more scheme losses in an accounting period in relation to a risk transfer scheme, and
(b) disregarding any profits or losses made otherwise than as a result of the scheme, the relevant group makes a pre-tax economic loss in the period as a result of fluctuations in the scheme rate, index or value.
(2) The relevant proportion of each scheme loss made by the company in the accounting period is a “ring-fenced scheme loss”.
(3) For this purpose “ the relevant proportion ” means—
A–B–CA
where—
A is the total of the scheme losses made in the period in relation to the scheme by the members of the relevant group,
B is the total of the scheme profits made in the period in relation to the scheme by the members of the relevant group, and
C is the pre-tax economic loss referred to in subsection (1)(b).
(4) Subsection (5) applies if—
(a) a company makes one or more scheme profits in an accounting period in relation to a risk transfer scheme, and
(b) disregarding any profits or losses made otherwise than as a result of the scheme, the relevant group makes a pre-tax economic profit in the period as a result of fluctuations in the scheme rate, index or value.
(5) The relevant proportion of each scheme profit made by the company in the accounting period is a “relevant scheme profit”.
(6) For this purpose “ the relevant proportion ” means—
A–B–CA
where—
A is the total of the scheme profits made in the period in relation to the scheme by the members of the relevant group,
B is the total of the scheme losses made in the period in relation to the scheme by the members of the relevant group, and
C is the pre-tax economic profit referred to in subsection (4)(b).
937G Ring-fenced scheme loss: treatment in period in which made
(1) This section applies for the purpose of determining the amount (if any) of a ring-fenced scheme loss that may be brought into account by a company in the accounting period in which it is made.
(2) If the amount of the company's profits pool for the scheme as at the beginning of the period is nil, the ring-fenced scheme loss may not be brought into account.
(3) If the amount of the company's profits pool for the scheme as at the beginning of the period is—
(a) greater than nil, and
(b) less than the total of the ring-fenced scheme losses made in the period in relation to the scheme by the company,
only the relevant proportion of the ring-fenced scheme loss may be brought into account.
(4) For this purpose “ the relevant proportion ” means—
AB
where—
A is the amount of the company's profits pool as at the beginning of the period, and
B is the total of the ring-fenced scheme losses made in the period in relation to the scheme by the company.
(5) If the amount of the company's profits pool for the scheme as at the beginning of the period is equal to or greater than the total of the ring-fenced scheme losses made in the period in relation to the scheme by the company, the ring-fenced scheme loss may be brought into account in full.
(6) A reference in this paragraph to bringing a ring-fenced scheme loss into account is to bringing it into account in determining a debit or credit for the purposes of Part 5 of CTA 2009 (loan relationships) or Part 7 of that Act (derivative contracts).
937H Ring-fenced scheme loss: treatment in subsequent periods
(1) This section applies where—
(a) a company makes one or more scheme profits in an accounting period in relation to a risk transfer scheme,
(b) disregarding any profits or losses made otherwise than as a result of the scheme, the relevant group makes a pre-tax economic profit in the period as a result of fluctuations in the scheme rate, index or value, and
(c) the amount of the company's losses pool for the scheme as at the beginning of the period is greater than nil.
(2) The company may bring into account, as if it were a loss made in the period from a loan relationship—
A×B
where—
A is so much of the amount of the company's losses pool as at the beginning of the period as does not exceed the total of the relevant scheme profits made in the period in relation to the scheme by the company, and
B is the proportion of the total of the relevant scheme profits made in the period in relation to the scheme by the company that consists of profits made from its loan relationships.
(3) The company may bring into account, as if it were a loss made in the period from a derivative contract—
A×C
where—
A has the same meaning as in subsection (2), and
C is the proportion of the total of the relevant scheme profits made in the period in relation to the scheme by the company that consists of profits made from its derivative contracts.
(4) A reference in this section to bringing an amount into account is to bringing it into account in determining a debit or credit for the purposes of Part 5 of CTA 2009 (loan relationships) or Part 7 of that Act (derivative contracts).
(1) The amount of a company's losses pool for a risk transfer scheme as at the beginning of an accounting period (“the current accounting period”) is—
A+B–C
where—
A is—
the amount of the pool as at the beginning of the previous accounting period, or
if the risk transfer scheme began in the current accounting period, nil,
B is the total amount, if any, of ring-fenced scheme losses made in the previous accounting period in relation to the scheme by the company that, as a result of the application of section 937G(2) or (3), are not brought into account in that period, and
C is the total amount (if any) that, as a result of the application of section 937H(2) or (3), is brought into account in the previous accounting period in relation to the scheme by the company.
(2) The amount of a company's profits pool for a risk transfer scheme as at the beginning of an accounting period (“the current accounting period”) is—
A+B–C
where—
A is—
the amount of the pool as at the beginning of the previous accounting period, or
if the risk transfer scheme began in the current accounting period, nil,
B is—
the total of any relevant scheme profits made in the previous accounting period in relation to the scheme by the company, less
the total amount (if any) that, as a result of the application of section 937H(2) or (3), is brought into account in that accounting period in relation to the scheme by the company, and
C is the total amount (if any) of ring-fenced scheme losses made in the previous accounting period in relation to the scheme by the company that, as a result of the application of section 937G(3) or (5), are brought into account in that period.
(1) This section applies for the purpose of determining whether condition 2 in section 937C is met.
(2) Where a member of the relevant group (“ the company ”) makes a scheme loss in an accounting period, the economic profits and losses made by the relevant group in the period must be calculated on the assumption that the company obtained the full tax benefit of the loss.
(3) The “full tax benefit” of the loss is the reduction in the corporation tax liability of the company that would result if—
(a) the loss were brought into account, and
(b) the company's profits chargeable to corporation tax, before doing so, were equal to the debit (or the reduction in any credit) determined by reference to the loss.
(4) A reference in this section to bringing a loss into account is to bringing it into account in determining a debit or credit for the purposes of Part 5 of CTA 2009 (loan relationships) or Part 7 of that Act (derivative contracts).
(1) For the purposes of this Part a company (“company B”) is associated with another company (“company A”) at a time (“ the relevant time ”) if any of the following five conditions is met.
(2) The first condition is that the financial results of company A and company B, for a period that includes the relevant time, meet the consolidation condition.
(3) The second condition is that there is a connection between company A and company B for the accounting period of company A in which the relevant time falls.
(4) The third condition is that, at the relevant time, company A has a major interest in company B or company B has a major interest in company A.
(5) The fourth condition is that—
(a) the financial results of company A and a third company, for a period that includes the relevant time, meet the consolidation condition, and
(b) at the relevant time the third company has a major interest in company B.
(6) The fifth condition is that—
(a) there is a connection between company A and a third company for the accounting period of company A in which the relevant time falls, and
(b) at the relevant time the third company has a major interest in company B.
(7) In this section the financial results of any two companies for any period meet “the consolidation condition” if—
(a) they are required to be comprised in group accounts prepared under section 399 of the Companies Act 2006 (duty of certain parent companies to prepare group accounts), or
(b) they would be required to be comprised in such accounts but for the application of an exemption mentioned in subsection (3) of that section.
(8) The following provisions apply for the purposes of this section—
sections 466 to 471 of CTA 2009 (companies connected for accounting period), and
sections 473 and 474 of CTA 2009 (meaning of “major interest”).
937L Interpretation of references to economic losses and profits
(1) A reference in this Part to an “economic” loss or profit made by any person in a period is to a loss or profit made by that person in that period, computed taking into account unrealised (as well as realised) losses and profits.
(2) For the purposes of this Part an economic loss or profit is made “by the relevant group” if it is made by the members of the relevant group considered together.
(3) Where—
(a) any member of the relevant group makes a scheme loss or profit in an accounting period, and
(b) that scheme loss or profit is, under generally accepted accounting practice, calculated by reference to fluctuations in the scheme rate, index or value over a longer period,
the economic loss or profit made by the group in the accounting period as a result of those fluctuations is, so far as it relates to that scheme loss or profit, to be computed over that longer period.
(4) In determining for the purposes of this Part the amount of an economic loss or profit made by the relevant group in any period, the economic losses and profits of each member of the relevant group—
(a) are (subject to subsection (3)) to be computed over that period (whether or not that period is an accounting period of the member), but
(b) are only to be taken into account to the extent that they are attributable to times at which the member is a party to the risk transfer scheme in question.
(5) A reference in this Part to a “pre-tax” economic loss or profit is a reference to an economic loss or profit determined disregarding any loss or gain made as a result of the operation of any provision of the Corporation Tax Acts.
(1) In determining under this Part amounts that a company may or may not bring into account in an accounting period, economic losses and profits are to be computed in the tax calculation currency of that company in that accounting period.
(2) Section 17(5) of CTA 2010 (meaning of references to the tax calculation currency of a company) applies for the purposes of this section.
In this Part “ scheme ” includes any scheme, arrangements or understanding of any kind whatever, whether or not legally enforceable, involving a single transaction or two or more transactions.
937O Power to amend this Part in its application to dealers in securities
(1) The Treasury may by order amend any enactment contained in this Part so as to apply (with or without modifications) the rules in this Part about scheme losses and scheme profits to losses and profits made in a trade.
(2) The power conferred by subsection (1) may only be exercised in relation to losses and profits made by a company that carries on a banking business, an insurance business or a business consisting wholly or partly of dealing in securities.
(3) In this section “ securities ” includes—
(a) shares,
(b) rights of unit holders in unit trust schemes to which TCGA 1992 applies as a result of section 99 of that Act, and
(c) in the case of a company with no share capital, interests in the company possessed by members of the company.
(4) An order under this section—
(a) may make different provision for different cases or purposes, and
(b) may include incidental, consequential, supplementary or transitional provision.
938A Losses and profits from group mismatch schemes to be disregarded
(1) This section applies to a company that—
(a) is (at any time) a party to a group mismatch scheme, and
(b) is a member of the scheme group.
(2) No scheme loss or profit made by the company in any accounting period in relation to the scheme is to be brought into account as a debit or credit for the purposes of Part 5 of CTA 2009 (loan relationships) or Part 7 of that Act (derivative contracts).
(3) An amount that would, apart from this section, be brought into account for the purposes of Part 5 or 7 of that Act as respects any matter—
(a) is treated, for the purposes of section 464(1) or (as the case may be) 699(1) of that Act (priority of Part 5 or 7 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.
938B Meaning of “a group mismatch scheme” and “the scheme group”
(1) A scheme is “a group mismatch scheme” if—
(a) the parties to the scheme are, or include, members of the same group, and
(b) condition A or B is met.
(2) Condition A is that, at the time the scheme is entered into, there is no practical likelihood that the scheme will fail to secure a relevant tax advantage of £2 million or more.
(3) The Treasury may by order substitute a higher amount for the amount for the time being specified in subsection (2).
(4) Any such substitution is to have effect in relation to schemes entered into on or after the day on which the order comes into force.
(5) Condition B is that—
(a) the purpose, or one of the main purposes, of any member of the scheme group in entering into the scheme is to obtain the chance of securing a relevant tax advantage (of any amount), and
(b) at the time the scheme is entered into—
(i) there is no chance that the scheme will secure a relevant tax disadvantage, or
(ii) there is such a chance, but the expected value of the scheme is nevertheless a positive amount.
(6) If, at the time the company enters into the scheme, there are chances that the scheme would, if carried out, secure different relevant tax advantages or disadvantages in different circumstances, the amounts and probabilities of each must be taken into account in determining the expected value of the scheme.
(7) In determining whether condition A or B is met, it is to be assumed that the parties to the scheme carry it out.
(8) Where, at the time the scheme is entered into, the length of the scheme period is uncertain, condition A or B is met if it would be met on any reasonable assumption as to the length of the scheme period.
(9) In determining whether condition A or B is met, section 938A (scheme profits and losses to be left out of account) is to be disregarded.
(10) In this Part “ the scheme group ” means the group mentioned in subsection (1)(a).
(1) A loss or profit made by a company in an accounting period is a “scheme loss” or “ scheme profit ” in relation to a group mismatch scheme if the loss or profit—
(a) arises from a transaction, or series of transactions, that forms part of the scheme,
(b) is, or is comprised in, an amount that is brought into account as a debit or credit for the purposes of Part 5 or 7 of CTA 2009, and
(c) meets the first or second asymmetry condition.
(2) The first asymmetry condition is that the loss or profit affects the amount of any relevant tax advantage secured by the scheme.
(3) Where, at the end of the accounting period—
(a) it is not certain whether the scheme will secure a relevant tax advantage, or
(b) it is not certain what the amount of the relevant tax advantage secured by the scheme will be,
a loss or profit is to be treated as meeting the first asymmetry condition if, at that time, there is a chance that the scheme will secure a relevant tax advantage and that the loss or profit will affect its amount.
(4) Where—
(a) a loss or profit meets the conditions in subsection (1)(a) and (b), and
(b) a part, but not the whole, of the loss or profit meets the first asymmetry condition,
only that part of the loss or profit is a “scheme loss” or “scheme profit”.
(5) The second asymmetry condition is that the loss or profit—
(a) does not meet the first asymmetry condition, but
(b) arises from a transaction, or series of transactions, that might (if events had turned out differently) have given rise to a loss or profit that would have done so.
(6) References in this section to a loss or profit include a loss or profit arising in respect of interest or expenses.
(7) In determining whether the condition in subsection (1)(b) or the first or second asymmetry condition is met, section 938A (scheme profits and losses to be left out of account) is to be disregarded.
938D Meaning of “relevant tax advantage” etc and “the scheme period”
(1) In this Part “ relevant tax advantage ”, in relation to a scheme, means an economic profit that—
(a) is made by the scheme group over the scheme period,
(b) meets the condition in subsection (3), and
(c) is not negligible.
(2) In this Part “ relevant tax disadvantage ”, in relation to a scheme, means an economic loss that—
(a) is made by the scheme group over the scheme period,
(b) meets the condition in subsection (3), and
(c) is not negligible.
(3) The condition is that the economic profit or loss arises as a result of asymmetries in the way different members of the scheme group bring, or do not bring, amounts into account as debits and credits for the purposes of Part 5 or 7 of CTA 2009.
(4) A reference in this section to asymmetries includes, in particular—
(a) asymmetries relating to quantification, and
(b) asymmetries relating to timing.
(5) In this section—
(a) a reference to an economic profit includes an increase in an economic profit and a decrease in an economic loss, and
(b) a reference to an economic loss includes an increase in an economic loss and a decrease in an economic profit.
(6) In this Part “ the scheme period ”, in relation to a scheme, means the period during which the scheme has effect.
(1) For the purposes of this Part a company (“company A”) is a member of a group, in relation to a scheme, if any other company is at any time in the scheme period associated with company A.
(2) The group consists of company A and each company in relation to which the condition in subsection (1) is met.
(3) For the purposes of this section a company (“company B”) is associated with company A at a time (“ the relevant time ”) if any of the following five conditions is met.
(4) The first condition is that the financial results of company A and company B, for a period that includes the relevant time, meet the consolidation condition.
(5) The second condition is that there is a connection between company A and company B for the accounting period of company A in which the relevant time falls.
(6) The third condition is that, at the relevant time, company A has a major interest in company B or company B has a major interest in company A.
(7) The fourth condition is that—
(a) the financial results of company A and a third company, for a period that includes the relevant time, meet the consolidation condition, and
(b) at the relevant time the third company has a major interest in company B.
(8) The fifth condition is that—
(a) there is a connection between company A and a third company for the accounting period of company A in which the relevant time falls, and
(b) at the relevant time the third company has a major interest in company B.
(9) In this section, the financial results of any two companies for any period meet “the consolidation condition” if—
(a) they are required to be comprised in group accounts,
(b) they would be required to be comprised in such accounts but for the application of an exemption, or
(c) they are in fact comprised in such accounts.
(10) In subsection (9), “ group accounts ” means accounts prepared under—
(a) section 399 of the Companies Act 2006, or
(b) any corresponding provision of the law of a territory outside the United Kingdom.
(11) The following provisions apply for the purposes of this section—
sections 466 to 471 of CTA 2009 (companies connected for accounting period), and
sections 473 and 474 of CTA 2009 (meaning of “major interest”).
938F Meaning of references to economic profits and losses
(1) An economic profit or loss is to be computed for the purposes of this Part taking into account, in particular—
(a) profits and losses made as a result of the operation of the Corporation Tax Acts, and
(b) any adjustments required to reflect the time value of money.
(2) A reference in this Part to an economic profit or loss made by the scheme group over the scheme period is to an economic profit or loss made in that period by the members of the group considered together.
(3) In determining for the purposes of this Part the amount of an economic profit or loss made by the scheme group over the scheme period, profits and losses made by a member of the group are to be taken into account only to the extent that they are attributable to times at which the member is a party to the scheme.
(1) This section applies for the purpose of determining whether a scheme will, or might, secure a relevant tax advantage.
(2) The economic profits and losses made by the scheme group over the scheme period must be calculated on the assumption that each company that is at any time a party to the scheme—
(a) obtains the full tax benefit of any loss made by that company in relation to a loan relationship or a derivative contract during the period, and
(b) incurs the full tax cost of any profit made by that company in relation to a loan relationship or a derivative contract during the period.
(3) The “full tax benefit” of a loss is the reduction in the liability of the company to corporation tax that would result if—
(a) the loss were brought into account as a debit or as a reduction in a credit for the purposes of Part 5 or 7 of CTA 2009, and
(b) the company's profits chargeable to corporation tax, disregarding the loss, were equal to the debit (or the reduction in the credit) determined by reference to the loss.
(4) The “full tax cost” of a profit is the increase in the liability of the company to corporation tax that would result if—
(a) the profit were brought into account as a credit or as a reduction in a debit for the purposes of Part 5 or 7 of CTA 2009, and
(b) the company's profits chargeable to corporation tax, disregarding the profit, were nil.
In this Part “ scheme ” includes any scheme, arrangements or understanding of any kind whatever, whether or not legally enforceable, involving a single transaction or two or more transactions.