Office of Public Sector Information
SCHEDULE 6 continued
(1) Section 774B or 774D does not apply if the whole of the advance under the structured finance arrangement—
(a) is charged to tax on a relevant person (see subsection (7)) as an amount of income,
(b) is brought into account in calculating for tax purposes any income of a relevant person, or
(c) is brought into account for the purposes of any provision of the Capital Allowances Act as a disposal receipt, or proceeds from a balancing event or disposal event, of a relevant person.
For the purposes of this subsection the effect of section 785A (rent factoring of leases of plant or machinery) is to be disregarded.
(2) Subsection (1)(c) is not to be taken as met in any case where—
(a) the receipt or proceeds gives rise to a balancing charge, and
(b) the amount of the balancing charge is limited by any provision of the Capital Allowances Act.
(3) Section 774B or 774D does not apply if, at all times, the whole of the advance under the structured finance arrangement—
(a) is a debtor relationship of a relevant person for the purposes of Chapter 2 of Part 4 of the Finance Act 1996 (loan relationships), or
(b) would be a debtor relationship of a relevant person for those purposes if that person were a company within the charge to corporation tax.
For the purposes of this subsection references to a debtor relationship do not include a relationship to which section 100 of the Finance Act 1996 (money debts etc not arising from the lending of money) applies.
(4) Section 774B or 774D does not apply in so far as the structured finance arrangement is an arrangement in relation to which—
(a) section 263A of the 1992 Act (agreements for sale and repurchase of securities) applies,
(b) paragraph 15 of Schedule 9 to the Finance Act 1996 (repo transactions and stock-lending) applies, or
(c) Chapter 5 of Part 2 of the Finance Act 2005 (alternative finance arrangements) has effect.
(5) Section 774B or 774D does not apply in so far as—
(a) the security under the structured finance arrangement is plant or machinery which is the subject of a sale and finance leaseback, or
(b) the structured finance arrangement is an arrangement in relation to which sections 228B to 228D of the Capital Allowances Act apply with the modifications contained in section 228F of that Act (lease and finance leaseback).
(6) For the purposes of subsection (5)(a), whether plant or machinery is the subject of a sale and finance leaseback is determined in accordance with section 221 of the Capital Allowances Act.
But, in applying that section, it is to be assumed that the words “and which are not a long funding lease in the case of the lessor” were omitted from section 219(1)(b) of that Act (meaning of “finance lease”).
(7) For the purposes of this section a “relevant person” means—
(a) if section 774B applies, a person in relation to whom the structured finance arrangement would (but for that section) otherwise have had the relevant effect (within the meaning of that section), and
(b) if section 774D applies, a relevant member of the borrower partnership (within the meaning of that section).
(1) The Treasury may make regulations prescribing other circumstances in which section 774B or 774D is not to apply in relation to a structured finance arrangement.
(2) Any regulations under subsection (1) may make provision amending section 774E.
(3) The power to make regulations under subsection (1) includes—
(a) power to make provision having effect in relation to times before the making of the regulations (but not times earlier than 6th June 2006),
(b) power to make different provision for different cases or different purposes, and
(c) power to make incidental, supplemental, consequential or transitional provision and savings.
(1) For the purposes of sections 774A to 774D “arrangement” includes any agreement or understanding (whether or not legally enforceable).
(2) For the purposes of sections 774A to 774D “income deduction” means—
(a) a deduction in calculating any income for tax purposes, or
(b) a deduction against total income or total profits.
(3) For the purposes of sections 774A to 774D—
(a) references to a person’s receiving any asset include the person’s obtaining directly or indirectly the value of any asset or otherwise deriving directly or indirectly any benefit from it,
(b) references to a disposal of an asset include anything which constitutes a disposal of the asset for the purposes of the 1992 Act,
(c) references to payments in respect of any asset include obtaining directly or indirectly the value of any asset or otherwise deriving directly or indirectly any benefit from it.
(4) For the purposes of sections 774A to 774D, section 839 (connected persons) applies.
(5) For the purposes of sections 774A to 774D references to the accounts of any person who is a company include the consolidated group accounts of a group of companies of which it is a member.
(6) If any person does not draw up accounts in accordance with generally accepted accounting practice, sections 774A to 774D apply as if the accounts had been drawn up by the person in accordance with that practice.
(7) Sections 277 to 281 of ITTOIA 2005 and section 34 above (lease premiums) are not to apply in relation to a premium paid in respect of a grant of a lease where the grant constitutes a disposal of an asset for the purposes of section 774A(2)(c) or 774C(2)(a).”.
(2) The amendment made by this paragraph has effect in relation to any arrangements whenever made (but see sub-paragraphs (3) and (4)).
(3) In relation to arrangements made before 6th June 2006, amounts are, as a result of the amendment made by this paragraph,—
(a) to be charged to tax, or
(b) to be brought into account in calculating any income for tax purposes or deducted from any income for tax purposes,
only if the amounts arise on or after that date.
(4) The amendment made by this paragraph has no effect in relation to any arrangement made before that date in so far as section 43B or 43D of ICTA (rent factoring) applies to it.
(5) In any case where, in relation to arrangements made before that date, a person is treated, as a result of the amendment made by this paragraph, as being a party to any loan relationship—
(a) a period of account is to be treated for the purposes of Chapter 2 of Part 4 of FA 1996 as beginning on that date, and
(b) the loan relationship is to be treated for those purposes as being entered into by the person for a consideration equal to the notional carrying value of the liability representing the relationship.
(6) For this purpose, the notional carrying value is the amount that would have been the carrying value of the liability in the accounts of the person if a period of account had ended immediately before that date.
(7) “Carrying value” has the same meaning here as it has for the purposes of paragraph 19A of Schedule 9 to FA 1996.
7 (1) Section 785A of ICTA (rent factoring of leases of plant or machinery) is amended as follows.
(2) After subsection (5) (provision about partnerships with legal personality) insert—
“(5A) This section does not apply in so far as section 774B or 774D (structured finance arrangements) applies in relation to the arrangements mentioned in paragraph (c) of subsection (1) above as a result of the transfer mentioned in that paragraph.”.
8 (1) Section 786 of ICTA (transactions associated with loans or credit) is amended as follows.
(2) After subsection (5) (transaction under which a person assigns, surrenders etc income arising from property) insert—
“(5ZA) But subsection (5) above does not apply if the person mentioned in that subsection is, as a result of section 774B or 774D (structured finance arrangements), chargeable to tax on the amount of income assigned, surrendered, waived or forgone.”.
9 (1) After section 263D of TCGA 1992 (gains accruing to persons paying manufactured dividends) insert—
(1) This section applies if—
(a) section 774B of the Taxes Act (disregard of intended effects of arrangement involving disposals of assets) applies in relation to a structured finance arrangement,
(b) the borrower or a person connected with the borrower makes a disposal of any security at any time under the arrangement to or for the benefit of the lender or a person connected with the lender, and
(c) condition A or B is met.
(2) Condition A is that the person making the disposal subsequently acquires under the arrangement the asset disposed of by that disposal.
(3) Condition B is that—
(a) the asset disposed of by that disposal subsequently ceases to exist at any time, and
(b) that asset was held by the lender, or a person connected with the lender, from the time of the disposal until that time.
(4) The disposal of the security by the borrower or a person connected with the borrower is to be disregarded for the purposes of this Act.
(5) Any subsequent acquisition by the person making the disposal of the asset disposed of by that disposal is to be disregarded for the purposes of this Act.
(6) In this section—
“the borrower”, in relation to a structured finance arrangement, means the person who is the borrower under the arrangement for the purposes of section 774A of the Taxes Act,
“the lender”, in relation to a structured finance arrangement, means the person who is the lender under the arrangement for the purposes of that section,
“security” means any such asset as is mentioned in subsection (2)(c) and (d) of that section.
(7) For the purposes of this section—
(a) references to a person connected with the borrower do not include the lender, and
(b) references to a person connected with the lender do not include the borrower.”.
(2) The amendment made by this paragraph has effect in relation to disposals made on or after 6th June 2006.
(3) The amendment made by this paragraph also has effect in relation to any disposal made by a person before that date if the person makes a claim to that effect under this sub-paragraph.
10 (1) Section 81 of FA 1996 (meaning of “loan relationship” etc) is amended as follows.
(2) In subsection (2) (meaning of “money debt”)—
(a) omit the “or” immediately before paragraph (b) (transfer of right to settlement under a money debt), and
(b) at the end of that paragraph insert “, or
(c) by the issue or transfer of any shares in any company,”.
(3) The amendments made by this paragraph have effect in relation to relationships to which a company is a party on or after 22nd March 2006.
(4) The following provisions of this paragraph apply for the purposes of TCGA 1992 if—
(a) a company is a party to a relationship on 22nd March 2006,
(b) the relationship becomes a loan relationship on that date for the purposes of Chapter 2 of Part 4 of FA 1996 as a result of the amendments made by this paragraph,
(c) the relationship is a creditor relationship of the company, and
(d) immediately before that date the asset representing the relationship was a chargeable asset in relation to the company.
(5) The company is treated as if—
(a) it had made a disposal of the asset representing the relationship immediately before 22nd March 2006, and
(b) the disposal had been for a consideration equal to the fair value of the asset at that time (within the meaning given by section 103(1) of FA 1996).
(6) Any chargeable gain or loss accruing to the company on the disposal is treated as accruing to the company when it ceases to be a party to the relationship.
(7) For the purposes of this paragraph an asset is a chargeable asset in relation to the company at any time if any gain accruing to it on the disposal of the asset at that time would be a chargeable gain for the purposes of TCGA 1992.
11 (1) Section 85A of FA 1996 (computation in accordance with generally accepted accounting practice) is amended as follows.
(2) In subsection (1) (amounts to be brought into account are those recognised in determining company’s profit or loss) after “Subject to the provisions of this Chapter” insert “(including, in particular, section 84(1))”.
12 (1) After section 85B of FA 1996 (amounts recognised in determining company’s profit or loss) insert—
(1) This section applies if—
(a) a company is, or is treated as being, a party to a creditor relationship in any period,
(b) an amount is not fully recognised for the period in respect of the creditor relationship,
(c) the company is, or is treated as being, a party to a debtor relationship in the period or has at any time issued share capital which falls to be treated for accounting purposes as a liability (a “relevant accounting liability”) for the period,
(d) an amount is not fully recognised for the period in respect of the debtor relationship or relevant accounting liability, and
(e) the amounts are not fully recognised as mentioned in paragraphs (b) and (d) as a result of the application of generally accepted accounting practice in relation to the creditor relationship and the debtor relationship or relevant accounting liability.
(2) For the purposes of subsection (1) an amount is not fully recognised for the period in respect of any loan relationship or relevant accounting liability of the company if—
(a) no amount in respect of the relationship or liability is recognised in determining its profit or loss for the period, or
(b) an amount in respect of only part of the relationship or liability is recognised in determining its profit or loss for the period.
(3) In determining the credits and debits to be brought into account by the company in respect of the creditor relationship for the period for the purposes of this Chapter, the applicable assumption (see subsection (6)) must be made.
(4) In any case where the condition in subsection (1)(c) is met by reference to a debtor relationship of the company, in determining the credits and debits to be brought into account by the company in respect of that relationship for the period for the purposes of this Chapter, the applicable assumption must be made.
(5) But the amount of any debits to be brought into account by the company for any period for the purposes of this Chapter as a result of subsection (4) must not exceed the amount of any credits to be brought into account by the company for the period as a result of subsection (3).
(6) For the purposes of this section, in relation to any loan relationship, the applicable assumption is the assumption that an amount in respect of the whole of the relationship is recognised in determining the company’s profit or loss for the period.
(7) In any case where—
(a) apart from this section any credits or debits are brought into account by the company in respect of any loan relationship for the period for the purposes of this Chapter, and
(b) the relationship is one to which this section applies,
the credits and debits to be so brought into account as a result of this section must be determined on the same basis of accounting on which the credits or debits mentioned in paragraph (a) were determined.
(8) In any other case, the credits and debits to be so brought into account as a result of this section must be determined on the amortised cost basis of accounting.”.
(2) The amendment made by this paragraph has effect in relation to periods of account ending on or after 22nd March 2006.
(3) But, in relation to a period of account beginning before 22nd March 2006, amounts are to be brought into account for the purposes of Chapter 2 of Part 4 of FA 1996 as a result of that amendment only if the amounts relate to any time on or after that date.
13 (1) Section 91A of FA 1996 (shares subject to outstanding third party obligations) is amended as follows.
(2) In subsection (1) (conditions for section to apply), in the opening words, for “a company if at any time in an accounting period” substitute “the times in a company’s accounting period during which”.
(3) In subsection (2) (how Chapter has effect for the accounting period) after “as if” insert “during those times”.
(4) In subsection (5) (cases where a share is subject to outstanding third party obligations)—
(a) in paragraph (a) (share is subject to obligations of description in subsection (6)) after “the share is subject to” insert “, or will or might under any relevant arrangements be subject to,”, and
(b) in paragraph (b) (obligations of a person other than the investing company) after “the investing company” insert “or are obligations of the investing company which, under any relevant arrangements, will or might be discharged directly or indirectly by any other person”.
(5) After that subsection insert—
“(5A) For the purposes of subsection (5) above—
(a) “arrangements” includes any agreement or understanding (whether or not legally enforceable),
(b) arrangements are “relevant” if they were entered into at any time on or before the share was issued.”.
(6) The amendments made by sub-paragraphs (2) and (3) have effect in relation to accounting periods ending on or after 22nd March 2006.
(7) The other amendments made by this paragraph have effect in relation to shares held by a company on or after 22nd March 2006.
(8) But, in relation to an accounting period beginning before 22nd March 2006, amounts are to be brought into account for the purposes of Chapter 2 of Part 4 of FA 1996 as a result of those other amendments only if the amounts relate to any time on or after that date.
14 (1) Section 91B of FA 1996 (non-qualifying shares) is amended as follows.
(2) In subsection (1) (conditions for section to apply)—
(a) in the opening words, for “a company if at any time in an accounting period” substitute “the times in a company’s accounting period during which”, and
(b) in the words after paragraph (c), for “at no time in the accounting period does section 91A above apply” substitute “, during those times, section 91A above does not apply”.
(3) In subsection (2) (how Chapter has effect for the accounting period) after “as if” insert “during those times”.
(4) The amendments made by this paragraph have effect in relation to accounting periods ending on or after 22nd March 2006.
(5) But, in relation to an accounting period beginning before 22nd March 2006, amounts are to be brought into account for the purposes of Chapter 2 of Part 4 of FA 1996 as a result of those amendments only if the amounts relate to any time on or after that date.
15 (1) Section 91D of FA 1996 (condition 2 for section 91B(6)(b)) is amended as follows.
(2) For subsection (2) (cases in which share regarded as redeemable) substitute—
“(2) For the purposes of this section, a share is to be regarded as redeemable if (and only if)—
(a) it is redeemable as a result of its terms of issue (or any collateral arrangements) requiring redemption, entitling the holder to require redemption or entitling the issuer to redeem, or
(b) there are arrangements which will or might entitle the investing company to qualifying redemption amounts.”.
(3) After that subsection insert—
“(2A) For the purposes of subsection (2) above—
“arrangements” includes any agreement or understanding (whether or not legally enforceable and whether or not forming part of the terms of issue of the share), and
“qualifying redemption amounts” means amounts which, when taken together, are the same, or are substantially the same, as an amount that might be payable on the redemption of the share.”.
(4) In subsection (7) (shares mirroring a public issue: Case 1), in paragraph (b) (associated companies issuing mirroring shares to company within 24 hours of its issuing shares), for “24 hours” substitute “7 days”.
(5) In subsection (8) (shares mirroring a public issue: Case 2), in paragraph (a) (second-level mirroring shares issued within 24 hours of the public issue), for “24 hours” substitute “7 days”.
(6) The amendments made by sub-paragraphs (2) and (3) have effect in relation to any share held by a company on or after 12th May 2006 in any case where—
(a) the share is redeemable for the purposes of section 91D of FA 1996 as a result of any arrangements mentioned in subsection (2)(b) of that section (as substituted by sub-paragraph (2)), and
(b) the arrangements were entered into after the company acquired the share.
(7) But in that case, in relation to an accounting period beginning before 12th May 2006, amounts are to be brought into account for the purposes of Chapter 2 of Part 4 of FA 1996 as a result of those amendments only if the amounts relate to any time on or after that date.
(8) In any other case, the amendments made by sub-paragraphs (2) and (3) have effect in relation to shares held by a company on or after 22nd March 2006.
(9) But, in relation to an accounting period beginning before 22nd March 2006, amounts are to be brought into account for the purposes of Chapter 2 of Part 4 of FA 1996 as a result of those amendments only if the amounts relate to any time on or after that date.
(10) The amendments made by sub-paragraphs (4) and (5) have effect in relation to any case where the public issue (within the meaning of section 91D(7) and (8) of FA 1996) is on or after 22nd March 2006.
16 (1) After section 93B of FA 1996 insert—
(1) This section applies in the case of any loan relationship which is a creditor relationship of a company (“company C”) if—
(a) the return to company C from the relationship is less than a return (a “commercial return”) on an investment of money at a commercial rate of interest,
(b) another company (“company P”) that is connected with company C directly or indirectly derives any benefit as a result of any arrangements made in consequence of, or otherwise in connection with, the relationship, and
(c) that benefit is designed to represent some or all of the amount by which the return to company C from the relationship is less than a commercial return.
(2) The credits to be brought into account by company C in respect of the relationship for the purposes of this Chapter must be determined on the basis of fair value accounting.
(3) The fair value of company C’s rights under the relationship must include the fair value of the benefit which is derived by company P as a result of the arrangements.
(4) Section 839 of the Taxes Act 1988 (connected persons) applies for the purposes of this section.
(5) In this section—
“arrangements” includes any agreement or understanding (whether or not legally enforceable);
“benefit” includes value in any form.
(6) In determining for the purposes of subsection (1)(a) the return to company C from the relationship, any benefit which company C derives directly or indirectly from the benefit derived by company P as mentioned in subsection (1)(b) is to be disregarded.”.
(2) The amendment made by this paragraph has effect in relation to loan relationships to which a company is a party on or after 22nd March 2006.
(3) But amounts are to be brought into account for the purposes of Chapter 2 of Part 4 of FA 1996 as a result of that amendment only if the amounts relate to any time on or after that date.
17 (1) Section 100 of FA 1996 (money debts etc not arising from the lending of money) is amended as follows.
(2) In subsection (1A) (conditions mentioned in subsection (1)(c)(iv)) for paragraph (e) (property not an asset representing a loan relationship or derivative contract) substitute—
“(e) if the money debt is some or all of the consideration payable for a disposal of property, the property in question is not an asset representing a loan relationship or a derivative contract the disposal of which is a relevant disposal.”.
(3) After that subsection insert—
“(1B) For the purposes of subsection (1A)(e) above “relevant disposal” means—
(a) a disposal to which paragraph 12 of Schedule 9 applies or would apply but for sub-paragraph (2A) of that paragraph,
(b) a disposal to which paragraph 28 of Schedule 26 to the Finance Act 2002 applies or would apply but for paragraph 30 of that Schedule,
(c) a disposal not falling within paragraph (a) or (b) above as respects which the whole of the consideration is brought into account for the purposes of this Chapter or Schedule 26 to the Finance Act 2002.”.
(4) The amendments made by this paragraph have effect in relation to disposals made on or after 22nd March 2006.
18 (1) Section 103 of FA 1996 (interpretation of Chapter 2 of Part 4 of FA 1996) is amended as follows.
(2) In subsection (1), in the definition of “fair value”, in paragraphs (a) and (b), omit “in respect of amounts which at that time are not yet due and payable”.
(3) The amendment made by this paragraph has effect in relation to periods of account ending on or after 22nd March 2006.
(4) But, in relation to a period of account beginning before 22nd March 2006, the amendment made by this paragraph has effect only in relation to—
(a) disposals or acquisitions (in whole or in part) of rights or liabilities under a loan relationship, or
(b) anything treated for the purposes of Chapter 2 of Part 4 of FA 1996 as such a disposal or acquisition,
which were made (or treated as made) on or after that date.
19 (1) In Schedule 9 to FA 1996 (loan relationships: special computational provisions) paragraph 12 (continuity of treatment: groups etc) is amended as follows.
(2) In sub-paragraph (2A) (paragraph 12 not to apply where transferor uses fair value accounting)—
(a) in the opening words, for “uses” substitute “is regarded for the purposes of this sub-paragraph as using”, and
(b) for paragraph (aa) (treatment of transferee in respect of the transaction) substitute—
“(aa) for any accounting period in which it is a party to the relationship, the transferee company shall be treated for the purpose of determining the credits and debits to be brought into account for the purposes of this Chapter in respect of the relationship as if it had acquired the asset or liability representing the relationship for a consideration equal to the amount mentioned in paragraph (a) above (but on the assumption that sub-paragraph (2C)(b) below is omitted).”.
(3) After that sub-paragraph insert—
“(2B) The transferor company shall be regarded for the purposes of sub-paragraph (2A) above as using fair value accounting as respects the loan relationship only if—
(a) it uses fair value accounting as respects the relationship and the debits and credits to be brought into account for the purposes of this Chapter as respects the relationship are also determined on that basis, or
(b) it does not use fair value accounting as respects the relationship but the debits and credits to be brought into account for the purposes of this Chapter as respects the relationship are determined on that basis.”.
(4) After sub-paragraph (2B) (as inserted by sub-paragraph (3) above) insert—
“(2C) In any case where a discount (within the meaning given by section 100(3A)) arises in respect of the transaction, the series of transactions or the transfer—
(a) the consideration for the purposes of sub-paragraph (2)(a) above is to be increased by the amount of the discount;
(b) the amount to be brought into account by virtue of sub-paragraph (2A)(a)(i) above is to be increased by the amount of the discount.”.
(5) The amendments made by this paragraph have effect in any case where the relevant transaction is on or after 22nd March 2006.
(6) For this purpose “the relevant transaction” means—
(a) the related transaction mentioned in paragraph 12(1)(a) of Schedule 9 to FA 1996,
(b) the first of the series of transactions mentioned in paragraph 12(1)(b) of that Schedule, or
(c) the transfer mentioned in paragraph 12(1)(c) or (d) of that Schedule,
as a result of which paragraph 12 of that Schedule applies or, but for sub-paragraph (2A) of that paragraph, would apply.
Finance Act 2006