Finance Bill - continued        House of Lords
PART III, INCOME TAX, CORPORATION TAX AND CAPITAL GAINS TAX - continued
Capital allowances - continued

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Production sharing contracts.     81. - (1) After section 64 of the Capital Allowances Act 1990 insert-
 
 
"Production sharing contracts.     64A. - (1) Subsection (2) below applies where-
 
    (a) a person ("the contractor") is entitled to an interest in a contract made with, or with the authorised representative of, the government of a country or territory in which oil is or may be produced;
 
    (b) the contract provides (among other things) that any machinery or plant of a description specified in the contract which-
 
      (i) is provided by the contractor; and
 
      (ii) is used for qualifying purposes under the contract,
 
    shall (whether immediately or at some later time) be transferred to the government or representative;
 
    (c) the contractor incurs capital expenditure on the provision of machinery or plant of a description so specified which, for the purposes of a trade of oil extraction carried on by him, is to be used for qualifying purposes under the contract;
 
    (d) the amount of that expenditure is commensurate with the value of the contractor's interest under the contract; and
 
    (e) in accordance with the provision mentioned in paragraph (b) above, the machinery or plant is transferred to the government or representative.
      (2) The machinery or plant shall, notwithstanding the transfer and subject to subsection (6) below, be deemed for the purposes of this Part to belong to the contractor (and not to any other person) until such time as it-
 
 
    (a) ceases to belong to the government or representative; or
 
    (b) ceases to be used, or held for use, by any person under the contract.
      (3) Subsection (4) below applies where, in a case falling within subsection (1)(a) and (b) above-
 
 
    (a) a person ("the participator") acquires an interest in the contract, whether from the contractor or from another person who has acquired it (directly or indirectly) from the contractor;
 
    (b) the participator incurs capital expenditure on the provision of machinery or plant which, for the purposes of a trade of oil extraction carried on by him, is to be used for qualifying purposes under the contract;
 
    (c) the amount of that expenditure is commensurate with the value of the participator's interest under the contract; and
 
    (d) in accordance with the provision mentioned in subsection (1)(b) above, the machinery or plant is transferred to the government or representative.
      (4) The machinery or plant shall, notwithstanding the transfer and subject to subsection (6) below, be deemed for the purposes of this Part to belong to the participator (and not to any other person) until such time as it-
 
 
    (a) ceases to belong to the government or representative; or
 
    (b) ceases to be used, or held for use, by any person under the contract.
      (5) Subsections (6) to (9) below apply where, in a case falling within subsection (1)(a) and (b) above-
 
 
    (a) a person ("the participator") acquires an interest in the contract, whether from the contractor or from another person who has acquired it (directly or indirectly) from the contractor; and
 
    (b) some of the expenditure incurred by the participator to acquire his interest in the contract is attributable to machinery or plant which-
 
      (i) is deemed by subsection (2) above to belong to the contractor; or
 
      (ii) is deemed by subsection (4) above or subsection (6) below to belong to another person ("the other participator").
      (6) The machinery or plant shall, subject to any subsequent application of this subsection, be deemed for the purposes of this Part to belong to the participator (and not to any other person) until such time as it-
 
 
    (a) ceases to belong to the government or representative; or
 
    (b) ceases to be used, or held for use, by any person under the contract.
      (7) The contractor or, as the case may be, the other participator shall be deemed for the purposes of this Part to have disposed of the machinery or plant for a consideration equal to the expenditure attributable as mentioned in subsection (5)(b) above.
 
      (8) The participator shall be deemed for the purposes of this Part to have incurred, on the provision of the machinery or plant, capital expenditure of an amount which, subject to subsection (9) below, is equal to the expenditure so attributable.
 
      (9) There shall be disregarded for the purposes of this Part so much (if any) of the expenditure deemed to be incurred by the participator on the provision of the machinery or plant as exceeds any disposal value which falls to be brought into account by the contractor or, as the case may be, the other participator by reason of his deemed disposal of the machinery or plant.
 
      (10) In determining for the purposes of this Part the expenditure which is attributable as mentioned in subsection (5)(b) above, regard shall be had to what is just and reasonable in all the circumstances.
 
      (11) For the purposes of this section machinery or plant is used for qualifying purposes if it is used-
 
 
    (a) to explore for, win access to or extract oil;
 
    (b) for the initial storage or treatment of oil; or
 
    (c) for other purposes ancillary to the extraction of oil.
      (12) In this section "oil" has the same meaning as in section 196 of the Taxation of Chargeable Gains Act 1992.".
 
      (2) In section 26(1) of the Capital Allowances Act 1990 (disposal value), for the word "and" at the end of paragraph (ee) there shall be substituted-
 
 
    "(ef) if that event is a deemed disposal of the machinery or plant which arises solely by virtue of subsection (2), (4) or (6) of section 64A and capital compensation is received by the contractor or participator (within the meaning of that subsection), equals the amount of that compensation;
 
    (eg) if that event is such a deemed disposal and no such compensation is so received, equals nil; and".
      (3) This section has effect where the capital expenditure-
 
 
    (a) is incurred on or after 21st March 2000; or
 
    (b) is treated as incurred by virtue of section 81(1)(a) of the Capital Allowances Act 1990 and the condition mentioned in that provision is fulfilled on or after that date.
 
Tonnage tax
Tonnage tax.     82. Schedule 22 to this Act (tonnage tax) has effect.
 
 
Other relieving provisions
Relief for interest on loans to buy annuities.     83. - (1) In section 365(3) of the Taxes Act 1988 (loans to buy annuities)-
 
 
    (a) for the words "the qualifying maximum for the year of assessment", in the first place where they occur, there shall be substituted the words "the sum of £30,000"; and
 
    (b) for those words, in the second place where they occur, there shall be substituted the words "that sum".
      (2) In section 353(1G) of that Act (percentage of interest eligible for relief), for the words from "the percentage" to the end there shall be substituted "23 per cent.".
 
      (3) In section 369(1A) of that Act (deductible percentage where interest payable under deduction of tax), for the words from "the percentage" to the end there shall be substituted "23 per cent.".
 
      (4) This section has effect in relation to payments of interest made on or after 6th April 2000.
 
Exemption of payments under New Deal 50plus.     84. - (1) This section applies to-
 
 
    (a) the scheme under section 2(2) of the Employment and Training Act 1973 known as "New Deal 50plus", and
 
    (b) the corresponding scheme under section 1 of the Employment and Training Act (Northern Ireland) 1950.
      (2) A payment to a person as a participant in the scheme by way of an employment credit or training grant under the scheme is exempt from income tax and, accordingly, shall be disregarded in computing the amount of any receipts brought into account for income tax purposes.
 
      (3) This section applies to any such payment made on or after 25th October 1999.
 
Exemption of payments under Employment Zones programme.     85. - (1) A payment to a person as a participant in an employment zone programme is exempt from income tax and, accordingly, shall be disregarded in computing the amount of any receipts brought into account for income tax purposes.
 
      (2) An "employment zone programme" means an employment zone programme established for an area or areas designated under section 60 of the Welfare Reform and Pensions Act 1999.
 
      (3) This section applies to any such payment made on or after 6th April 2000.
 
Loan where return bears inverse relationship to results.     86. - (1) In section 209 of the Taxes Act 1988 (meaning of "distribution"), after subsection (3A) insert-
 
 
    "(3B) For the purposes of subsection (2)(e)(iii) above the consideration given by the company for the use of the principal secured shall not be treated as being to any extent dependent on the results of the company's business or any part of it by reason only of the fact that the terms of the security provide-
 
 
    (a) for the consideration to be reduced in the event of the results improving, or
 
    (b) for the consideration to be increased in the event of the results deteriorating.".
  This subsection applies to payments made on or after 21st March 2000.
 
      (2) In Schedule 18 to the Taxes Act 1988 (group relief: equity holders and profits available for distribution), in paragraph 1(5E)-
 
 
    (a) in paragraph (a), after "improving" insert ", or for the rate of interest to be increased in the event of the results of the company's business or any part of it deteriorating"; and
 
    (b) in paragraph (b), after "increasing" insert ", or for the rate of interest to be increased in the event of the value of any of the company's assets diminishing".
  This subsection applies for the purposes of determining whether, at any time on or after 21st March 2000, a loan is a normal commercial loan for the purposes of paragraph 1(1)(b) of Schedule 18 to the Taxes Act 1988.
 
Tax treatment of acquisition, disposal or revaluation of certain rights.     87. Schedule 23 to this Act has effect with respect to the treatment of amounts relating to the acquisition, disposal or revaluation of-
 
 
    (a) licences granted under section 1 of the Wireless Telegraphy Act 1949 in accordance with regulations made under section 3 of the Wireless Telegraphy Act 1998 (bidding for licences),
 
    (b) indefeasible rights to use a telecommunications cable system, or
 
    (c) rights derived, directly or indirectly, from a right within paragraph (a) or (b).
Contributions to local enterprise agencies, etc.     88. In sections 79(11) and 79A(7) of the Taxes Act 1988 (relief for contributions to local enterprise agencies, business links and similar organisations: time limits), the words "and before 1st April 2000" shall cease to have effect.
 
Waste disposal: entitlement of successor to allowances.     89. In Chapter V of Part IV of the Taxes Act 1988 (provisions relating to the Schedule D charge: deductions), after section 91B (waste disposal: site preparation), insert-
 
 
"Waste disposal: entitlement of successor to allowances.     91BA. - (1) This section applies where-
 
    (a) site preparation expenditure has been incurred in relation to a waste disposal site,
 
    (b) that expenditure was incurred by a person in the course of carrying on a trade, and
 
    (c) on or after 21st March 2000-
 
      (i) that person ("the predecessor") ceases to carry on that trade, or ceases to carry it on so far as it relates to that site, and
 
      (ii) another person ("the successor") begins to carry on that trade, or to carry on in the course of a trade the activities formerly carried on by the predecessor in relation to that site.
      (2) If the conditions specified in the following provisions of this section are met, then, for the purposes of section 91B above-
 
 
    (a) the trade carried on by the successor shall be treated as the same trade as that carried on by the predecessor, and
 
    (b) allowances shall be made to the successor (and not to the predecessor) as if everything done to or by the predecessor had been done to or by the successor.
      (3) The first condition is that the whole of the site in question is transferred to the successor.
 
  Provided the successor holds an estate or interest in the whole of the site, it need not be the same as that held by the predecessor.
 
      (4) The second condition is that the successor, at the time he first deposits waste material at the site, holds a relevant licence in respect of the site which is then in force.
 
      (5) Expressions used in this section have the same meaning as in section 91B.".
 
 
Capital gains tax: gifts and trusts
Restriction of gifts relief.     90. - (1) In section 165(1) of the Taxation of Chargeable Gains Act 1992 (relief for gifts of business assets), in the closing words (which list the provisions restricting relief), for "sections 166 and 167" substitute "sections 166, 167 and 169".
 
      (2) In section 260(1) of that Act (gifts on which inheritance tax is chargeable etc.), in the closing words (which list the provisions restricting relief), for "section 261" substitute "sections 169 and 261".
 
      (3) In section 165(2)(b)(i) of, and paragraph 2(2)(b)(i) of Schedule 7 to, that Act (shares or securities in respect of which gifts relief may be claimed), for "neither listed on a recognised stock exchange nor dealt in on the Unlisted Securities Market" substitute "not listed on a recognised stock exchange".
 
      (4) In section 165(3)(b) of that Act (disposals of shares or securities excepted from gifts relief), after "shares or securities," insert "the transferee is a company or".
 
      (5) This section has effect in relation to disposals made on or after 9th November 1999.
 
Disposal of interest in settled property: deemed disposal of underlying assets.     91. - (1) After section 76 of the Taxation of Chargeable Gains Act 1992, insert-
 
 
"Disposal of interest in settled property: deemed disposal of underlying assets.     76A. Schedule 4A to this Act has effect with respect to disposals for consideration of an interest in settled property.".
 
      (2) After Schedule 4 to that Act insert the Schedule 4A set out in Schedule 24 to this Act.
 
      (3) This section applies to any disposal of an interest in settled property made, or the effective completion of which falls, on or after 21st March 2000.
 
  Expressions used in this subsection have the same meaning as in Schedule 4A to the Taxation of Chargeable Gains Act 1992.
 
Transfers of value by trustees linked with trustee borrowing.     92. - (1) After section 76A of the Taxation of Chargeable Gains Act 1992 (inserted by section 91(1) above), insert-
 
 
"Transfers of value by trustees linked with trustee borrowing.     76B. Schedule 4B to this Act has effect with respect to transfers of value by trustees that are, in accordance with the Schedule, treated as linked with trustee borrowing.".
 
      (2) After Schedule 4A to that Act (inserted by section 91(2) above), insert the Schedule 4B set out in Schedule 25 to this Act.
 
      (3) After section 85 of that Act, insert-
 
 
"Transfers of value: attribution of gains to beneficiaries.     85A. Schedule 4C to this Act has effect with respect to the attribution to beneficiaries of gains accruing under Schedule 4B.".
 
      (4) After Schedule 4B to the Taxation of Chargeable Gains Act 1992 (inserted by subsection (2) above), insert the Schedule 4C set out in Part I of Schedule 26 to this Act.
 
  The consequential amendments in Part II of Schedule 26 to this Act have effect.
 
      (5) The provisions of this section have effect in relation to any transfer of value in relation to which the material time is on or after 21st March 2000.
 
  The expressions "transfer of value" and "material time" have the same meaning in this subsection as in Schedule 4B to the Taxation of Chargeable Gains Act 1992.
 
Restriction on set-off of trust losses.     93. - (1) After section 79 of the Taxation of Chargeable Gains Act 1992, insert-
 
 
"Restriction on set-off of trust losses.     79A. - (1) This section applies to a chargeable gain accruing to the trustees of a settlement where-
 
    (a) in computing the gain, the allowable expenditure is reduced in consequence, directly or indirectly, of a claim to gifts relief in relation to an earlier disposal to the trustees;
 
    (b) the transferor on that earlier disposal, or any person connected with the transferor, has at any time-
 
      (i) acquired an interest in the settled property, or
 
      (ii) entered into an arrangement to acquire such an interest; and
 
    (c) in connection with that acquisition or arrangement any person has at any time received, or become entitled to receive, any consideration.
      (2) Where this section applies to a chargeable gain, no allowable losses accruing to the trustees (in the year in which the gain accrues or any earlier year) may be set against the gain.
 
  This applies to the whole of the chargeable gain (and not just the element deferred as a result of the claim to gifts relief).
 
      (3) In this section-
 
 
    (a) "gifts relief" means relief under section 165 or 260; and
 
    (b) references to losses not being allowed to be set against a chargeable gain are to the losses not being allowed as a deduction against chargeable gains to the extent that they include that gain.
      (4) The references in subsection (1)(b) above to an interest in settled property have the same meaning as in Schedule 4A.".
 
      (2) This section applies to gains accruing on or after 21st March 2000.
 
Attribution to trustees of gains of non-resident companies.     94. - (1) After section 79A of the Taxation of Chargeable Gains Act 1992 (inserted by section 93 above), insert-
 
 
"Attribution to trustees of gains of non-resident companies.     79B. - (1) This section applies where trustees of a settlement are participators-
 
    (a) in a close company, or
 
    (b) in a company that is not resident in the United Kingdom but would be a close company if it were resident in the United Kingdom.
  For this purpose "participator" has the same meaning as in section 13.
 
      (2) Where this section applies, nothing in any double taxation relief arrangements shall be read as preventing a charge to tax arising by virtue of the attribution to the trustees under section 13, by reason of their participation in the company mentioned in subsection (1) above, of any part of a chargeable gain accruing to a company that is not resident in the United Kingdom.
 
      (3) Where this section applies and-
 
 
    (a) a chargeable gain accrues to a company that is not resident in the United Kingdom but would be a close company if it were resident in the United Kingdom, and
 
    (b) all or part of the chargeable gain is treated under section 13(2) as accruing to a close company which is not chargeable to corporation tax in respect of the gain by reason of double taxation arrangements, and
 
    (c) had the company mentioned in paragraph (b) (and any other relevant company) not been resident in the United Kingdom, all or part of the chargeable gain would have been attributed to the trustees by reason of their participation in the company mentioned in subsection (1) above,
       section 13(9) shall apply as if the company mentioned in paragraph (b) above (and any other relevant company) were not resident in the United Kingdom.
 
      (4) The references in subsection (3) above to "any other relevant company" are to any other company which if it were not resident in the United Kingdom would be a company in relation to which section 13(9) applied with the result that all or part of the chargeable gain was attributed to the trustees as mentioned in that subsection.".
 
      (2) This section applies where a chargeable gain accrues on or after 21st March 2000 to a company that is not resident in the United Kingdom.
 
Disposal of interest in non-resident settlement.     95. - (1) Section 85 of the Taxation of Chargeable Gains Act 1992 (disposal of interest in non-resident settlements) is amended as follows.
 
      (2) In subsection (2) (market value uplift for interest where trustees become non-resident) for "Subject to subsections (4) and (9) below," substitute "Subject to subsections (4), (9) and (10) below,".
 
      (3) In subsection (5) (market value uplift for interest where trustees become treaty non-resident), at the beginning insert "Subject to subsection (10) below,".
 
      (4) After subsection (9) add-
 
 
    "(10) Subsection (3) or (7) above does not apply to the disposal of an interest created by or arising under a settlement which has relevant offshore gains at the material time.
 
  The material time is-
 
 
    (a) in relation to subsection (3) above, the relevant time within the meaning of section 80;
 
    (b) in relation to subsection (7) above, the time found under subsection (8) above.
      (11) For the purposes of subsection (10) above, a settlement has relevant offshore gains at any time if, were the year of assessment to end at that time, there would be an amount of trust gains which by virtue of section 89(2) or paragraph 8(3) of Schedule 4C would be available to be treated as chargeable gains accruing to any beneficiaries of the settlement receiving capital payments in the following year of assessment.".
 
      (5) This section applies where the material time (within the meaning of section 85(10) of the Taxation of Chargeable Gains Act 1992, inserted by subsection (4) above) falls on or after 21st March 2000.
 
Payments by trustees to non-resident companies.     96. - (1) In section 96(5) of the Taxation of Chargeable Gains Act 1992 (capital payments by trustees to non-resident company), in the opening words (which refer to the persons by whom the company is controlled), omit "and each of them is then resident or ordinarily resident in the United Kingdom".
 
      (2) This section applies to payments received on or after 21st March 2000.
 
 
Groups and group relief
Group relief for non-resident companies etc.     97. Schedule 27 to this Act has effect.
 
  In that Schedule-
 
 
    Part I makes amendments of Chapter IV of Part X of the Taxes Act 1988 (group relief), and
 
    Part II contains consequential amendments.
Recovery of tax payable by non-resident company.     98. - (1) Schedule 28 to this Act has effect with respect to the recovery of unpaid corporation tax payable by a company not resident in the United Kingdom.
 
      (2) The provisions of that Schedule have effect in relation to corporation tax for accounting periods ending on or after 1st April 2000.
 
Joint arrangements for claims.     99. In paragraph 77 of Schedule 18 to the Finance Act 1998 (power to make provision by regulations about joint arrangements for group relief), in sub-paragraph (1)(a) (arrangements permitting claim for relief without copy of notice of consent to surrender), after "the surrendering company" insert ", provided authority for the claim being so made is given by a company which is authorised in relation to the claimant company as mentioned in paragraph (b)".
 
Limit on amount of group relief in case of consortium claim.     100. - (1) For section 403C of the Taxes Act 1988 (special rules for consortium cases) substitute-
 
 
"Amount of relief in consortium cases.     403C. - (1) In the case of a consortium claim the amount that may be set off against the total profits of the claimant company is limited by this section.
 
    (2) Where the claimant company is a member of the consortium, the amount that may be set off against the total profits of that company for the overlapping period is limited to the relevant fraction of the surrenderable amount.
 
  That fraction is whichever is the lowest in that period of the following percentages-
 
 
    (a) the percentage of the ordinary share capital of the surrendering company that is beneficially owned by the claimant company;
 
    (b) the percentage to which the claimant company is beneficially entitled of any profits available for distribution to equity holders of the surrendering company; and
 
    (c) the percentage to which the claimant company would be beneficially entitled of any assets of the surrendering company available for distribution to its equity holders on a winding-up.
  If any of those percentages have fluctuated in that period, the average percentage over the period shall be taken.
 
      (3) Where the surrendering company is a member of the consortium, the amount that may be set off against the total profits of the claimant company for the overlapping period is limited to the relevant fraction of the claimant company's total profits for the overlapping period.
 
  That fraction is whichever is the lowest in that period of the following percentages-
 
 
    (a) the percentage of the ordinary share capital of the claimant company that is beneficially owned by the surrendering company;
 
    (b) the percentage to which the surrendering company is beneficially entitled of any profits available for distribution to equity holders of the claimant company; and
 
    (c) the percentage to which the surrendering company would be beneficially entitled of any assets of the claimant company available for distribution to its equity holders on a winding-up.
  If any of those percentages have fluctuated in that period, the average percentage over the period shall be taken.
 
      (4) In any case where the claimant or surrendering company is a subsidiary of a holding company which is owned by a consortium, for the references in subsection (2) or (3) above to the claimant or surrendering company there shall be substituted references to the holding company.
 
      (5) Expressions used in this section and in section 403A have the same meanings in this section as in that section.
 
      (6) Schedule 18 has effect for supplementing this section.".
 
      (2) In section 406(6) of the Taxes Act 1988 (claims relating to losses etc. of consortium company or group member), for "accounting period in respect of which the member's share in the consortium" substitute "overlapping period in respect of which the relevant fraction".
 
      (3) The following provisions shall cease to have effect-
 
 
    (a) in section 402(4) of the Taxes Act 1988, the words from "if the share in the consortium" to "is nil or"; and
 
    (b) in section 413 of that Act, subsections (8) and (9).
      (4) In Schedule 18 to the Taxes Act 1988-
 
 
    (a) in paragraphs 1(1), 2(1), 3(1), 4(3) and (4), 5A(3) and (4), 5C(3) and (4), 5D(3) and (4), 5E(3) and (4) and 6, for "section 413(7) to (9)" substitute "sections 403C and 413(7)"; and
 
    (b) in paragraph 7(1)(b), for "subsection (8) of that section" substitute "section 403C".
      (5) The amendments in this section shall be deemed always to have had effect.
 
Notional transfers within groups of companies.     101. - (1) After section 171 of the Taxation of Chargeable Gains Act 1992 insert-
 
 
"Notional transfers within a group.     171A. - (1) This section applies where-
 
    (a) two companies ("A" and "B") are members of a group of companies; and
 
    (b) A disposes of an asset to a person who is not a member of the group ("C").
      (2) Subject to subsections (3) and (4) below, A and B may, by notice in writing to an officer of the Board, jointly elect that, for the purposes of corporation tax on chargeable gains-
 
 
    (a) the asset, or any part of it, shall be deemed to have been transferred by A to B immediately before the disposal to C;
 
    (b) section 171(1) shall be deemed to have applied to that transfer; and
 
    (c) the disposal of the asset or part to C shall be deemed to have been made by B.
      (3) No election may be made under subsection (2) above unless section 171(1) would have applied to an actual transfer of the asset or part from A to B.
 
      (4) An election under that subsection must be made before the second anniversary of the end of the accounting period of A in which the disposal to C was made.
 
      (5) Any payment by A to B, or by B to A, in pursuance of an agreement between them in connection with the election-
 
 
    (a) shall not be taken into account in computing profits or losses of either company for corporation tax purposes, and
 
    (b) shall not for any purposes of the Corporation Tax Acts be regarded as a distribution or a charge on income,
       provided it does not exceed the amount of the chargeable gain or allowable loss that is treated, as a result of the disposal, as accruing to B.".
 
      (2) This section has effect in relation to disposals made on or after 1st April 2000.
 
Chargeable gains: non-resident companies and groups etc.     102. Schedule 29 to this Act has effect.
 
  In that Schedule-
 
 
    Part I makes provision with respect to the application of the Taxation of Chargeable Gains Act 1992 to companies not resident in the United Kingdom and groups of companies etc,
 
    Part II contains minor and consequential amendments, and
 
    Part III contains transitional provisions.
 
International matters
Double taxation relief.     103. Schedule 30 to this Act (double taxation relief) shall have effect.
 
Controlled foreign companies.     104. Schedule 31 to this Act (which makes provision in relation to controlled foreign companies) shall have effect.
 
Corporation tax: use of currencies other than sterling.     105. - (1) For sections 92 to 95 of the Finance Act 1993 there shall be substituted-
 
 
"The basic rule: sterling to be used.     92. - (1) Where a company carries on a business, the profits or losses of the business for an accounting period shall for the purposes of corporation tax be computed and expressed in sterling; but this is subject to section 93 below.
 
    (2) In this section-
 
 
    "losses" includes management expenses and any allowances falling to be made under section 28 or 61(1) of the Capital Allowances Act 1990;
 
    "profits" includes gains, income and any charges falling to be made under section 28 or 61(1) of that Act.
Use of currency other than sterling.     93. - (1) This section applies where in an accounting period a company carries on a business and either the first condition or the second condition is fulfilled.
 
      (2) The first condition is that-
 
 
    (a) the accounts of the company as a whole are prepared in a currency other than sterling in accordance with normal accounting practice; and
 
    (b) in the case of a company which is not resident in the United Kingdom, the company makes a return of accounts for its branch in the United Kingdom prepared in such a currency in accordance with such practice.
      (3) The second condition is that-
 
 
    (a) the accounts of the company as a whole are prepared in sterling but, so far as relating to the business, they are prepared, using the closing rate/net investment method, from financial statements prepared in a currency other than sterling; or
 
    (b) in the case of a company which is not resident in the United Kingdom, the company makes a return of accounts for its branch in the United Kingdom prepared in sterling but, so far as relating to the business, it is prepared, using that method, from financial statements prepared in such a currency.
      (4) The profits or losses of the business for an accounting period shall for the purposes of corporation tax be found by-
 
 
    (a) taking the amount of all the profits and losses of the business for the period computed and expressed in the relevant foreign currency;
 
    (b) taking account of any of the following which are so computed and expressed-
 
      (i) any management expenses brought forward under section 75(3) of the Taxes Act 1988 from an earlier accounting period;
 
      (ii) any losses of the business brought forward under section 392B or 393 of that Act from such a period; and
 
      (iii) any non-trading deficits on loan relationships brought forward under section 83 of the Finance Act 1996 from the previous accounting period; and
 
    (c) taking the sterling equivalent of the amount found by applying paragraphs (a) and (b) above.
      (5) In the application of section 22B, 34, 35, 38C, 38D or 79A of the Capital Allowances Act 1990 for the purposes of subsection (4)(a) or (b) above, it shall be assumed that any sterling amount mentioned in any of those sections is its equivalent expressed in the relevant foreign currency.
 
      (6) Where in an accounting period-
 
 
    (a) a company carries on different parts of a business through different branches (whether within or outside the United Kingdom); and
 
    (b) this section would apply differently in relation to different parts if they were separate businesses,
       those parts shall be treated for the purposes of this section as if they were separate businesses for that period.
 
      (7) In this section, unless the context otherwise requires-
 
 
    "accounts", in relation to a company, means-
 
      (a) the annual accounts of the company prepared in accordance with Part VII of the Companies Act 1985 or Part VIII of the Companies (Northern Ireland) Order 1986; or
 
      (b) if the company is not required to prepare such accounts, the accounts which it is required to keep under the law of its home State; or
 
      (c) if the company is not so required to keep accounts, such of its accounts as most closely correspond to accounts which it would have been required to prepare if the provisions of that Part applied to it;
 
    "branch" includes any collection of assets and liabilities;
 
    "the closing rate/net investment method" means the method so called as described under the title "Foreign currency translation" in the Statement of Standard Accounting Practice issued in April 1983 by the Institute of Chartered Accountants in England and Wales;
 
    "home State", in relation to a company, means the country or territory under whose laws the company is incorporated;
 
    "losses" has the same meaning as in section 92 above except that it does not include allowable losses within the meaning of the Taxation of Chargeable Gains Act 1992;
 
    "profits" has the same meaning as in section 92 above except that it does not include chargeable gains within the meaning of that Act;
 
    "the relevant foreign currency" means the currency other than sterling or, where the first condition is fulfilled and two different such currencies are involved, the currency in which the return of accounts is prepared;
 
    "return of accounts", in relation to a branch in the United Kingdom, means a return of such accounts of the branch as may be required by the Inland Revenue under paragraph 3 of Schedule 18 to the Finance Act 1998 (company tax returns, assessments and related matters).
Rules for ascertaining currency equivalents.     94. - (1) Any receipt or expense which is to be taken into account in making a computation under subsection (1) of section 92 above for an accounting period, and is denominated in a currency other than sterling, shall be translated into its sterling equivalent-
 
 
    (a) if either of the conditions mentioned in subsection (2) below is fulfilled, by reference to the rate used in the preparation of the accounts of the company as a whole for that period;
 
    (b) if neither of those conditions is fulfilled, by reference to the London closing exchange rate for the relevant day.
      (2) The conditions are-
 
 
    (a) that the rate is an arm's length exchange rate for the relevant day;
 
    (b) that the rate is an average arm's length exchange rate for a period ending with that day, or for a period not exceeding three months which includes that day, and the arm's length exchange rate for any day in that period (except the first) is not significantly different from that for the preceding day.
      (3) Subject to subsections (5) and (7) below, any amount found by applying paragraphs (a) and (b) of subsection (4) of section 93 above shall be translated into its sterling equivalent by reference to the London closing exchange rate for the relevant day.
 
      (4) The following-
 
 
    (a) any receipt or expense which is to be taken into account in making a calculation for the purposes of subsection (4)(a) or (b) of section 93 above, and is denominated in a currency other than the relevant foreign currency; and
 
    (b) any such sterling amount as is referred to in subsection (5) of that section,
       shall be translated into its equivalent expressed in the relevant foreign currency by reference to the London closing exchange rate for the relevant day.
 
      (5) Where section 93 above applies by virtue of the first condition mentioned in that section, then, as regards the business or part of the business, the company-
 
 
    (a) may elect, by a notice given to an officer of the Board, that as from the first day of the accounting period in which the notice is given, an average arm's length exchange rate shall be used for the purposes of subsection (3) above instead of the rate there mentioned; and
 
    (b) may withdraw such an election, by a notice so given, as from the first day of the first accounting period beginning on or after the date of the notice.
      (6) Where an election under subsection (5) above is withdrawn, no further election may be made under that subsection so as to take effect before the third anniversary of the day on which the withdrawal takes effect.
 
      (7) Where-
 
 
    (a) section 93 above applies by virtue of the second condition mentioned in that section; and
 
    (b) the accounts of the company, so far as relating to the business or part of the business, are prepared by reference to an average arm's length exchange rate,
       that exchange rate shall be used for the purposes of subsection (3) above instead of the rate there mentioned.
 
      (8) In this section-
 
 
    "accounts" has the same meaning as in section 93 above;
 
    `arm's length exchange rate' means such exchange rate as might reasonably be expected to be agreed between persons dealing at arm's length;
 
    `average arm's length exchange rate', in relation to a period, means the rate which represents an appropriate average of arm's length exchange rates for the period;
 
    "the relevant day" means-
 
      (a) for the purposes of subsections (1), (2) and (4)(a) above, the day on which the company becomes entitled to the receipt or incurs (or is treated as incurring) the expense;
 
      (b) for the purposes of subsection (3) above, the last day of the accounting period in question;
 
      (c) for the purposes of subsection (4)(b) above, the day on which the company incurs the capital expenditure.
      (9) Nothing in this section affects the operation of Chapter IV of Part VII of the Taxes Act 1988 (controlled foreign companies) or Chapter II of this Part.
 
      (10) Nothing in paragraph 88 of Schedule 18 to the Finance Act 1998 (company tax returns, assessments and related matters) shall be taken to prevent any amount which is taken to be conclusively determined for the purposes of the Corporation Tax Acts from being translated under this section by reference to an exchange rate which was not used to determine the amount which can no longer be altered.".
 
      (2) Where any of the items referred to in section 93(4)(b) of the Finance Act 1993 (as substituted by subsection (1) above) fall to be taken into account in the first accounting period in relation to which this section has effect, the amounts of those items shall be computed and expressed in the relevant currency by reference to the London closing exchange rate for the last day of the immediately preceding accounting period.
 
      (3) Where any of the items referred to in section 25(1) of the Capital Allowances Act 1990 which fall to be taken into account for the first accounting period in relation to which this section has effect relate to expenditure which was incurred before the beginning of that period, the amounts of those items shall be computed and expressed in the relevant currency by reference to the London closing exchange rate for the last day of the immediately preceding accounting period.
 
      (4) Subject to subsection (5) below, this section has effect for accounting periods beginning on or after 1st January 2000 and ending on or after 21st March 2000.
 
      (5) Any company which did not, for the accounting period immediately preceding the first accounting period falling within subsection (4) above, make an election in respect of a trade or part of a trade under the Local Currency Elections Regulations 1994 may, by notice given to an officer of the Board on or before 31st August 2000, elect that this section shall not have effect in relation to it until the first accounting period beginning on or after 1st July 2000.
 
Foreign exchange gains and losses: use of local currency.     106. - (1) In subsection (2) of section 149 of the Finance Act 1993 (local currency to be used)-
 
 
    (a) for "trade or trades", in both places where they occur, there shall be substituted "business or businesses"; and
 
    (b) for "any such trade" there shall be substituted "any such business".
      (2) In subsection (4) of that section-
 
 
    (a) the words "the asset or contract was held, or the liability was owed, by the company solely for trading purposes and" shall cease to have effect; and
 
    (b) for "sections 125 to 128" there shall be substituted "sections 125 to 129".
      (3) In subsection (5) of that section-
 
 
    (a) the words "the asset or contract was held, or the liability was owed, by the company solely for trading purposes and" shall cease to have effect;
 
    (b) for "sections 125 to 128" there shall be substituted "sections 125 to 129"; and
 
    (c) for "trade", in both places where it occurs, there shall be substituted "business".
      (4) For subsection (6) of that section there shall be substituted-
 
 
    "(6) In any other case-
 
 
    (a) sections 125 to 129 above shall be applied by reference to sterling;
 
    (b) those sections shall then be applied separately by reference to each local currency involved (other than sterling); and
 
    (c) any exchange gain or loss of a business or part shall be ignored unless found in the currency which is the local currency of the business or part for the relevant accounting period (whether sterling or otherwise).".
      (5) For subsection (7) of that section there shall be substituted-
 
 
    "(7) For the purposes of this section a part of a business is any part of a business which is treated for the purposes of section 93 above as if it were a separate business for the relevant accounting period.".
 
      (6) For subsection (9) of section 128 of the Finance Act 1993 (trading gains and losses) there shall be substituted-
 
 
    "(9) For the purposes of this section a part of a trade is any part of a trade which is treated for the purposes of section 93 above as if it were a separate business for the relevant accounting period; and the relevant accounting period is the accounting period which constitutes the accrual period concerned or in which that accrual period falls.".
 
      (7) After section 135 of that Act there shall be inserted-
 
 
"Sterling used if avoidance of gain is the main benefit.     135A. - (1) This section applies where, as regards qualifying assets and liabilities of a company-
 
    (a) a currency other than sterling would (apart from this section) be the local currency for the purposes of sections 125 to 129 above; and
 
    (b) the main benefit that might be expected to accrue from that currency being the local currency is that no net exchange gain would accrue to the company for those purposes.
      (2) If a net exchange gain would accrue to the company if sterling were the local currency for the purposes of sections 125 to 129 above, then, as regards the assets and liabilities concerned, sterling shall be the local currency for those purposes.
 
      (3) For the purposes of this section a net exchange gain accrues to a company if its initial exchange gains (as determined in accordance with this Chapter) exceed its initial exchange losses (as so determined).".
 
      (8) For subsection (12) of section 140 of that Act (deferral of unrealised gains) there shall be substituted-
 
 
    "(12) For the purposes of this section a part of a trade is any part of a trade which is treated for the purposes of section 93 above as if it were a separate business for the relevant accounting period; and the relevant accounting period is the accounting period which constitutes the second accrual period or in which that accrual period falls.".
 
      (9) For subsection (2) of section 142 of that Act (deferral non-sterling trades) there shall be substituted-
 
 
    "(2) For the purposes of subsection (1) above the sterling equivalent of an amount is the sterling equivalent calculated by reference to such rate of exchange as applies by virtue of section 94 above in the case of the profits or losses for the accounting period concerned of the business or part of which the gain or loss is a gain or loss (or would be apart from section 139 above).".
 
      (10) In subsections (3) and (5) of that section, for "trade", in each place where it occurs, there shall be substituted "business".
 
      (11) For subsection (4) of that section there shall be substituted-
 
 
    "(4) The amount the company is treated as receiving under section 128(4) or 129(2) above in respect of the accounting period and by virtue of the gain (as reduced) shall be the amount computed and expressed in that currency.".
 
      (12) In subsection (1) of section 163 of that Act (local currency of a trade), for "trade" there shall be substituted "business".
 
      (13) For subsections (2) and (3) of that section there shall be substituted-
 
 
    "(2) Where by virtue of section 93 above the profits or losses of a business or part of a business for an accounting period are to be computed and expressed in a currency other than sterling for the purposes of corporation tax, that other currency is the local currency of the business or part for that period.".
 
      (14) In section 164 of that Act (interpretation: miscellaneous), subsections (6) and (7) shall cease to have effect.
 
      (15) In section 167 of that Act (orders and regulations)-
 
 
    (a) in subsection (5A), for "the provisions of Chapter II of Part IV of the Finance Act 1996 (loan relationships)" there shall be substituted-
 
    "(a) the provisions of Chapter II of Part IV of the Finance Act 1996 (loan relationships); or
 
    (b) the provisions of sections 105 and 106 of the Finance Act 2000 (use of local currency).";
 
    (b) in subsection (5B), for "subsection (5A)" there shall be substituted "subsection (5A)(a)"; and
 
    (c) after that subsection there shall be inserted-
 
    "(5C) The power to make any such modifications as are mentioned in subsection (5A)(b) above shall be exercisable so as to apply those modifications in relation to any accounting period of a company beginning on or after 1st January 2000.".
 
      (16) In subsection (4)(b) of section 110 of the Finance Act 1998 (determinations requiring the sanction of the Board), after "section 135," there shall be inserted "135A,".
 
      (17) This section has effect for accounting periods beginning on or after 1st January 2000 and ending on or after 21st March 2000.
 
 
Insurance
General insurance reserves.     107. - (1) Where an amount representing the whole or any part of the technical provisions which are made by a general insurer for a period of account is taken into account in computing for tax purposes the profits of his trade for that period-
 
 
    (a) subsection (2) below applies if it becomes apparent in a later period of account that the amount taken into account was excessive; and
 
    (b) subsection (3) below applies if it becomes apparent in such a period that that amount was insufficient.
      (2) For the purpose of making good to the Exchequer the loss occasioned by the excess, an amount calculated by applying, for a prescribed period, a prescribed rate of interest to the amount of the excess shall be treated as a receipt of the general insurer's trade in computing for tax purposes the profits of that trade for the later period of account.
 
      (3) For the purpose of making good to the general insurer the loss occasioned by the deficiency, an amount calculated by applying, for a prescribed period, a prescribed rate of interest to the amount of the deficiency shall be treated as an expense of the general insurer's trade in computing for tax purposes the profits of that trade for the later period of account.
 
      (4) A general insurer may, before the end of a prescribed period, elect that any part of the technical provisions made by him for a period of account shall not be taken into account in computing for tax purposes the profits of his trade for that period; and where he does so, the profits of his trade for the next period of account shall be adjusted accordingly for the purposes of any computation for tax purposes.
 
      (5) The Board may by regulations make provision for giving effect to subsections (1) to (4) above.
 
      (6) The regulations may, in particular-
 
 
    (a) exclude from the operation of subsections (1) to (4) above such descriptions of general insurer as may be prescribed;
 
    (b) make such provision as appears to the Board to be appropriate for determining for the purposes of subsections (1) to (3) above whether any amount taken into account was excessive or insufficient and, if so, the amount of the excess or deficiency, including-
 
      (i) provision requiring discounting at a prescribed rate; and
 
      (ii) provision allowing a prescribed margin for error;
 
    (c) make provision for applying subsections (1) to (3) above, to such extent and with such modifications as appear to the Board to be appropriate, to cases where it becomes apparent-
 
      (i) that any amount taken into account was or has become insufficient; or
 
      (ii) that any amount treated as a receipt or expense of a trade was excessive;
 
    (d) make such provision as appears to the Board to be appropriate for dealing with cases where a general insurer transfers his general business to, or enters into a qualifying contract with, another person; and
 
    (e) in the event of any changes in the rules or practice of Lloyd's, make such amendments of this section as appear to the Board to be expedient having regard to those changes.
      (7) In this section-
 
 
    "closing year", in relation to a syndicate, has the same meaning as in Chapter III of Part II of the Finance Act 1993 or Chapter V of Part IV of the Finance Act 1994;
 
    "general business" has the same meaning as in the Insurance Companies Act 1982;
 
    "general insurer" means any of the following which carries on general business-
 
      (a) a company to which Part II of the Insurance Companies Act 1982 applies;
 
      (b) an EC company (within the meaning of section 6(2) of that Act) which carries on general business through a branch or agency in the United Kingdom;
 
      (c) a controlled foreign company within the meaning of Chapter IV of Part XVII of the Taxes Act 1988; and
 
      (d) an underwriting member of Lloyd's ("an underwriting member");
 
    "period of account"-
 
      (a) except in relation to an underwriting member, means a period for which an account is made up;
 
      (b) in relation to such a member, means an underwriting year in which profits or losses are declared for an earlier underwriting year;
 
    "prescribed" means prescribed by regulations under this section;
 
    "qualifying contract", in relation to a general insurer, means a contract for reinsuring the liabilities to which any technical provisions of his relate;
 
    "reinsurance to close contract" means a contract where, in accordance with the rules or practice of Lloyd's and in consideration of the payment of a premium, one underwriting member agrees with another to meet liabilities arising from the latter's underwriting business for an underwriting year so that the accounts of the business for that year may be closed;
 
    "syndicate" means a syndicate of underwriting members of Lloyd's formed for an underwriting year;
 
    "technical provisions", except in relation to an underwriting member, means any of the following-
 
      (a) provisions for claims outstanding;
 
      (b) provisions for unearned premiums;
 
      (c) provisions for unexpired risks;
 
    and in this definition expressions which are used in Schedule 9A to the Companies Act 1985 have the same meanings as in that Schedule;
 
    "technical provisions", in relation to an underwriting member, means-
 
      (a) so much of the premiums paid, or treated (in accordance with the rules or practice of Lloyd's) as paid, by him under reinsurance to close contracts; and
 
      (b) so much of any provisions made for the unpaid liabilities of an open syndicate of which he is a member,
 
    as may be determined by or under regulations made by the Board;
 
    "underwriting year" means the calendar year;
       and for the purposes of this section a syndicate is an open syndicate at any time after the end of its closing year if, at that time, the accounts of its business for the underwriting year for which it was formed have not been closed.
 
      (8) Regulations under this section may-
 
 
    (a) make different provision for different cases or descriptions of case, including different provision for different entitlements to participate in the general business carried on by syndicates; and
 
    (b) make such supplementary, incidental, consequential and transitional provision as appears to the Board to be appropriate.
      (9) An amount which under subsection (2) or (3) above is treated as a receipt or expense of an underwriting member's trade-
 
 
    (a) shall not be included in the aggregate amount mentioned in paragraph 1 of Schedule 19 to the Finance Act 1993; but
 
    (b) shall be regarded as arising directly from his membership of one or more syndicates for the purposes of section 172(1)(a) of the Finance Act 1993 or section 220(2)(a) of the Finance Act 1994.
      (10) Nothing in paragraph 7 of Schedule 19 to the Finance Act 1993 shall be taken to affect the operation of subsection (2) or (3) above or the exercise of the power conferred by subsection (4) above.
 
      (11) Section 177 of the Finance Act 1993 and section 224 of the Finance Act 1994 (which are superseded by this section) shall cease to have effect.
 
      (12) In this section-
 
 
    (a) subsections (1) to (3), subsections (5) to (8) and (10) so far as relating to those subsections and subsection (9) have effect where-
 
      (i) the first period of account mentioned in subsection (1) begins on or after 1st January 2000; and
 
      (ii) the later period of account mentioned in that subsection begins on or after 1st January 2001;
 
    (b) subsection (4), and subsections (5) to (8) and (10) so far as relating to that subsection, have effect in relation to periods of account beginning on or after 1st January 2000;
 
    (c) subsection (11) has effect in relation to profits of underwriting members' trades which are declared in periods of account beginning on or after that date.
Overseas life assurance business.     108. - (1) In subsection (1) of section 431D of the Taxes Act 1988 (meaning of "overseas life assurance business"), for "or life reinsurance business" there shall be substituted ", life reinsurance business or business of any description excluded from this section by regulations made by the Board".
 
      (2) For subsections (2) to (8) of that section there shall be substituted-
 
 
    "(2) Regulations under subsection (1) above may describe the excluded business by reference to any circumstances appearing to the Board to be relevant.
 
      (3) The Board may by regulations-
 
 
    (a) make provision as to the circumstances in which a trustee who is a policy holder or annuitant residing in the United Kingdom is to be treated for the purposes of this section as not so residing; and
 
    (b) provide that nothing in Chapter II of Part XIII shall apply to a policy or contract which constitutes overseas life assurance business by virtue of any such provision as is mentioned in paragraph (a) above.
      (4) Regulations under subsection (1) or (3) above may contain such supplementary, incidental, consequential or transitional provision as appears to the Board to be appropriate.".
 
      (3) Where the policy or contract for any life assurance business was made before such day as the Treasury may by order appoint, the amendments made by this section (and any regulations made under them) shall not have effect for determining whether the business is overseas life assurance business.
 
Insurance business: apportionment rules.     109. - (1) In subsection (4)(b) of section 432ZA of the Taxes Act 1988 (linked assets), for the words from "the proportion which" to the end there shall be substituted-
 
 
" the proportion A/B where--
 
  where-
 
 
    A is the total of the linked liabilities of the company which are liabilities of the internal linked fund in which the asset is held and are referable to that category of business;
 
    B is the total of the linked liabilities of the company which are liabilities of that fund.".
      (2) For subsection (6) of that section there shall be substituted-
 
 
    "(6) In this section-
 
 
    "internal linked fund", in relation to an insurance company, means an account-
 
      (a) to which linked assets are appropriated by the company; and
 
      (b) which may be divided into units the value of which is determined by the company by reference to the value of those assets;
 
    "linked liabilities" means liabilities in respect of benefits to be determined by reference to the value of linked assets.".
      (3) In the subsections mentioned in subsection (4) below-
 
 
    (a) in paragraph (a), after "reduced" there shall be inserted "(but not below nil)" and for "values" there shall be substituted "net values"; and
 
    (b) for paragraph (b) there shall be substituted-
 
    "(b) the denominator is the aggregate of-
 
      (i) the numerator given by paragraph (a) above; and
 
      (ii) the numerators given by that paragraph in relation to the other categories of business.".
      (4) The subsections are-
 
 
    (a) subsection (6) of section 432A of the Taxes Act 1988 (apportionment of income and gains);
 
    (b) subsection (4) of section 432C of that Act (section 432B apportionment: income of non-participating funds); and
 
    (c) subsection (3) of section 432D of that Act (section 432B apportionment: value of non-participating funds).
      (5) For subsection (8) of section 432A there shall be substituted-
 
 
    "(8) In subsection (6) above "appropriate part", in relation to the investment reserve, means-
 
 
    (a) where none (or none but an insignificant proportion) of the liabilities of the long term business are with-profits liabilities, the part of that reserve which bears to the whole the proportion C/D where--
  where-
 
 
      A is the amount of the liabilities of the category of business in question;
 
      B is the whole amount of the liabilities of the long term business; and
 
    (b) in any other case, the part of that reserve which bears to the whole the proportion C/D where-
 
      C is the amount of the with-profits liabilities of the category of business in question;
 
      D is the whole amount of the with-profits liabilities of the long term business.".
      (6) After subsection (9) of that section there shall be inserted-
 
 
    "(9A) In this section and sections 432C and 432D "net value", in relation to any assets, means the excess of the value of the assets over any liabilities which-
 
 
    (a) represent a money debt; and
 
    (b) are liabilities of an internal linked fund in which the assets are held;
       and in this subsection "internal linked fund" has the same meaning as in section 432ZA.
 
      (9B) In this section-
 
 
    "investment reserve", in relation to an insurance company, means the excess of the value of the assets of the company's long term business over the aggregate of-
 
      (a) the liabilities of that business; and
 
      (b) any liabilities of the long term business fund which represent a money debt;
 
    "money debt" has the same meaning as in Chapter II of Part IV of the Finance Act 1996.".
      (7) In subsection (5)(b) of section 432C, after "subsection (1)" there shall be inserted "or (2)".
 
      (8) In Schedule 11 to the Finance Act 1996 (loan relationships: special provisions for insurers), after paragraph 3 there shall be inserted-
 
 
"3A. - (1) This paragraph applies where-
 
 
    (a) any money debt of an insurance company is represented by a liability which is a liability of the long term business fund of the company; and
 
    (b) any question arises for the purposes of the Corporation Tax Acts as to the extent to which any debits or credits given for the purposes of this Chapter in respect of that debt or liability are referable to any category of the company's long term business.
      (2) If any debits relate to interest payable in respect of the late payment of any benefits, they are referable to the category of long term business which comprises the effecting and carrying out of the policies or contracts under which the benefits are payable.
 
      (3) If the liability is a liability of an internal linked fund of the company, any debits or credits are referable-
 
 
    (a) to the category of long term business to which the fund relates; or
 
    (b) where the fund relates to two or more categories of such business, to those categories in the same proportion as the linked assets in the fund are apportioned to them under section 432ZA(4) of the Taxes Act 1988 (linked assets).
      (4) In any case not falling within sub-paragraph (2) or (3) above, there shall be referable to any category of long term business the relevant fraction of any debits or credits.
 
      (5) For the purpose of determining that fraction, subsections (6) and (8) of section 432A of the Taxes Act 1988 (apportionment of income and gains) shall have effect as if-
 
 
    (a) the debits or credits were income not directly referable to any category of business;
 
    (b) the reference in subsection (6)(a) to assets directly referable to a category of business were a reference to assets linked to that category of business; and
 
    (c) subsection (9) of that section were omitted.
      (6) In this paragraph "internal linked fund" has the same meaning as in section 432ZA of the Taxes Act 1988 (linked assets).".
 
      (9) In consequence of the preceding provisions of this section-
 
 
    (a) in section 431(2) of the Taxes Act 1988 (interpretative provisions in relation to insurance companies), the definition of "investment reserve" shall cease to have effect;
 
    (b) in paragraph 4(2) of Schedule 19AA to that Act (overseas life assurance fund), after "investment reserve" there shall be inserted "(within the meaning of section 432A)"; and
 
    (c) in paragraph 7(3) of Schedule 19AC to that Act (modification of Act in relation to overseas life insurance companies)-
 
      (i) in paragraph (b), for "value" there shall be substituted "net value"; and
 
      (ii) paragraph (c) shall cease to have effect.
      (10) This section shall have effect in relation to accounting periods beginning on or after 1st January 2000 and ending on or after 21st March 2000.
 
 
Miscellaneous
Rent factoring.     110. - (1) At the end of Part II of the Taxes Act 1988 (provisions relating to the Schedule A charge) insert-
 
 

"Rent factoring
Finance agreement: interpretation.     43A. - (1) A transaction is a finance agreement for the purposes of sections 43B to 43F if in accordance with normal accounting practice the accounts of a company which receives money under the transaction would record a financial obligation (whether in respect of a lease creditor or otherwise) in relation to that receipt.
 
      (2) In subsection (1) "normal accounting practice" in relation to a company means normal accounting practice for a company incorporated in a part of the United Kingdom (irrespective of where the company is in fact incorporated).
 
      (3) The reference to a company's accounts in subsection (1) shall be taken to include a reference to the consolidated group accounts of a group of companies of which it is a member; and-
 
 
    (a) "group of companies" means a set of companies which, if each were incorporated in Great Britain, would form a group within the meaning given by section 262(1) of the Companies Act 1985, and
 
    (b) "consolidated group accounts" means accounts of a kind which would satisfy the requirements of section 227 of the Companies Act 1985.
      (4) For the purposes of subsection (1) a company shall be treated as receiving any money which-
 
 
    (a) falls to be taken into account as a receipt for the purpose of calculating the company's liability to corporation tax, or
 
    (b) would fall to be taken into account as a receipt for that purpose if the company were resident in the United Kingdom.
Transfer of rent.     43B. - (1) This section applies to a finance agreement if it transfers a right to receive rent in respect of land in the United Kingdom from one person to another, otherwise than by means of the grant of a lease of land in the United Kingdom.
 
      (2) A person who receives a finance amount shall be treated for the purposes of the Tax Acts as receiving it-
 
 
    (a) by way of rent,
 
    (b) in the course of a business falling within paragraph 1(1) of Schedule A, and
 
    (c) in the chargeable period in which the agreement is made;
       and the finance amount shall be taken into account in computing the profits of the Schedule A business for the chargeable period in which the agreement is made.
 
      (3) In subsection (2) "finance amount" means a receipt in respect of which section 43A(1) is satisfied.
 
Transfer of rent: exceptions, &c.     43C. - (1) Section 43B shall not apply to a finance agreement if the term over which the financial obligation is to be reduced exceeds 15 years.
 
      (2) Section 43B shall not apply to a finance agreement if-
 
 
    (a) the arrangements for the reduction of the financial obligation substantially depend on a person's entitlement to an allowance under the Capital Allowances Acts, and
 
    (b) that person is not connected to the person from whom the right to receive rent is transferred.
      (3) Section 43B shall not apply to a finance agreement if-
 
 
    (a) section 36(1) applies (without reference to section 36(3)), or
 
    (b) section 36(1) would apply (without reference to section 36(3)) if the price at which an estate or interest is sold were to exceed the price at which it is to be reconveyed.
      (4) If-
 
 
    (a) section 36(1) would apply in relation to a finance agreement by virtue only of section 36(3), and
 
    (b) section 43B applies in relation to the agreement,
       section 36(1) shall not apply.
 
      (5) Section 43B shall not apply to a finance agreement if section 780 applies.
 
      (6) Section 43B(2) shall not apply to a finance amount which is brought into account in computing the profits of a trade for the purposes of Case I of Schedule D (otherwise than by virtue of section 83 of the Finance Act 1989 (life assurance)).
 
Interposed lease.     43D. - (1) This section applies to a finance agreement under which-
 
 
    (a) a lease is granted in respect of land in the United Kingdom,
 
    (b) a premium is payable in respect of the lease, and
 
    (c) section 43A(1) is satisfied by reference to the receipt of the premium.
      (2) Where this section applies, the person to whom the premium is payable shall be treated for the purposes of the Tax Acts as receiving it-
 
 
    (a) by way of rent,
 
    (b) in the course of a business falling within paragraph 1(1) of Schedule A, and
 
    (c) in the chargeable period in which the agreement is made;
       and the premium shall be taken into account in computing the profits of the Schedule A business for the chargeable period in which the agreement is made.
 
Interposed lease: exceptions, &c.     43E. - (1) Section 43D shall not apply to a finance agreement if-
 
 
    (a) the term over which the financial obligation is to be reduced exceeds 15 years, or
 
    (b) the length of the lease does not exceed 15 years, or
 
    (c) the length of the lease is not significantly different from the term over which the financial obligation is to be reduced.
      (2) For the purpose of subsection (1) the length of a lease shall be calculated in accordance with section 38.
 
      (3) Section 43D shall not apply to a finance agreement if-
 
 
    (a) the arrangements for the reduction of the financial obligation substantially depend on a person's entitlement to an allowance under the Capital Allowances Acts, and
 
    (b) that person is not connected to the person who grants the lease in respect of which the premium is payable.
      (4) Section 43D(2) shall not apply where all or part of the premium is brought into account in computing the profits of a trade for the purposes of Case I of Schedule D (otherwise than by virtue of section 83 of the Finance Act 1989 (life assurance)).
 
      (5) Section 34 shall not apply in relation to a premium to which section 43D(2) applies.
 
Insurance business.     43F. - (1) In the application of sections 43A to 43E to companies carrying on insurance business a reference to accounts does not include a reference to accounts required to be prepared under Part II of the Insurance Companies Act 1982.
 
      (2) Neither section 43B(2) nor section 43D(2) shall require any amount to be brought into account in a computation of profits of life assurance business, or any category of life assurance business, carried on by a company where the computation is made in accordance with the provisions of this Act applicable to Case I of Schedule D.
 
      (3) Section 432A shall have effect in relation to any sum which is or would be treated as received by virtue of section 43B(2) or 43D(2) of this Act.
 
      (4) Expressions used in this section and in Chapter I of Part XII have the same meaning in this section as in that Chapter.
 
Interpretation.     43G. - (1) This section applies for the purposes of sections 43A to 43F.
 
      (2) In those sections-
 
 
    "connected" in relation to persons has the meaning given by section 839,
 
    "rent" includes any sum which is chargeable to tax under Schedule A,
 
    "lease" includes an underlease, sublease, tenancy or licence and an agreement for any of those things, but does not include a mortgage or heritable security,
 
    "premium" has the meaning given by section 24(1) (and, in relation to Scotland, section 24(5)), and subsections (4) and (5) of section 34 shall have effect in relation to sections 43A to 43F as they have effect in relation to section 34, and
 
    "sum" has the meaning given by section 24(4).
      (3) A reference to a transfer of a right to receive rent from one person to another includes a reference to any arrangement under which rent ceases to form part of the receipts taken into account for the purposes of calculating a company's liability to corporation tax or income tax.
 
      (4) In calculating the term over which a financial obligation is to be reduced no account shall be taken of any period during which the arrangements for reduction differ from the arrangements which apply in a previous period if-
 
 
    (a) the period begins after the financial obligation has been substantially reduced, and
 
    (b) the different arrangements for reduction are not the result of a provision for periodic review, on commercial terms, of rent under a lease.".
      (2) The provisions inserted by subsection (1) have effect in relation to transactions entered into on or after 21st March 2000.
 
Payments under deduction of tax.     111. - (1) Chapter VIIA of Part IV of the Taxes Act 1988 (paying and collecting agents) shall cease to have effect.
 
      (2) In section 349 of the Taxes Act 1988 (payments under deduction of tax)-
 
 
    (a) in subsections (3)(c) and (3B) (payments excepted from deduction of tax), for "payment to which section 124 applies" substitute "payment of interest on a quoted Eurobond"; and
 
    (b) in subsection (4), after the definition of "qualifying deposit right" insert-
 
    ""quoted Eurobond" means any security that-
 
      (i) is issued by a company,
 
      (ii) is listed on a recognised stock exchange, and
 
      (iii) carries a right to interest;";
 
    and accordingly section 124 of that Act (interest on quoted Eurobonds) shall cease to have effect.
      (3) In section 482 of the Taxes Act 1988 (supplementary provisions with respect to deposit-takers etc)-
 
 
    (a) after subsection (2) insert-
 
    "(2A) A declaration under section 481(5)(k)(i) must contain-
 
 
    (a) in a case falling within section 481(4)(a), the name and principal residential address of the individual who is beneficially entitled to the interest or, where two or more individuals are so entitled, of each of them;
 
    (b) in a case falling within section 481(4)(b), the name and principal residential address of each of the partners."; and
 
    (b) subsection (11)(a) shall cease to have effect.
      (4) In section 477A of the Taxes Act 1988 (building societies: regulations for deduction of tax), after subsection (2) insert-
 
 
    "(2A) Without prejudice to the generality of subsection (2)(a) above, regulations under subsection (1) above may make provision with respect to the furnishing of information to or by building societies corresponding to any provision that is made by, or may be made under, section 482 with respect to the furnishing of information to or by deposit-takers.".
 
      (5) In section 37(11) of the Finance (No.2) Act 1997 (interest to be paid gross), for "Sections 50 and 118D(4)" substitute "Section 50".
 
      (6) In this section-
 
 
    (a) subsections (1) and (5) apply to relevant payments or receipts in relation to which the chargeable date for the purposes of Chapter VIIA of Part IV is on or after 1st April 2001;
 
    (b) subsection (2) applies in relation to payments of interest made on or after that date;
 
    (c) subsection (3) applies in relation to declarations under section 481(5)(k)(i) of the Taxes Act 1988 made on or after 6th April 2001.
UK public revenue dividends: deduction of tax.     112. - (1) In subsection (A1) of section 50 of the Taxes Act 1988 (Treasury directions for payment of public revenue dividends without deduction of tax), for "registered gilt-edged securities" substitute "gilt-edged securities".
 
      (2) After subsection (3B) of section 349 of that Act (payments not out of profits or gains brought into charge to income tax, and annual interest) insert-
 
 
    "(3C) Subject to any provision to the contrary in the Income Tax Acts, where any UK public revenue dividend is paid, the person by or through whom the payment is made shall, on making the payment, deduct out of it a sum representing the amount of income tax on it for the year in which the payment is made.".
 
      (3) At the end of subsection (4) of that section insert-
 
 
    ""UK public revenue dividend" means any income from securities which is paid out of the public revenue of the United Kingdom or Northern Ireland, but does not include interest on local authority stock.".
      (4) After section 350 of that Act insert-
 
 
"UK public revenue dividends: deduction of tax.     350A. - (1) The Board may by regulations-
 
    (a) make provision as to the time and manner in which persons who under section 349(3C) deduct sums representing income tax out of payments of UK public revenue dividends are to account for and pay those sums; and
 
    (b) otherwise modify the provisions of sections 349 and 350 in their application to such dividends;
       and in this section "UK public revenue dividend" has the same meaning as in section 349.
 
      (2) Regulations under this section may-
 
 
    (a) make different provision for different descriptions of UK public revenue dividend and for different circumstances;
 
    (b) make special provision for UK public revenue dividends which-
 
      (i) are payable to the Bank of Ireland out of the public revenue of the United Kingdom, or
 
      (ii) are entrusted to the Bank of Ireland for payment and distribution and are not payable by that Bank out of its principal office in Belfast;
 
    (c) include such transitional and other supplementary provisions as appear to the Board to be necessary or expedient.
      (3) No regulations under this section shall be made unless a draft of them has been laid before and approved by a resolution of the House of Commons.".
 
      (5) This section applies to payments made on or after 1st April 2001.
 
Tax treatment of expenditure on production or acquisition of films.     113. - (1) In section 68 of the of the Capital Allowances Act 1990 (expenditure relating to films, tapes and discs), for subsection (1) substitute-
 
 
    "(1) Expenditure incurred on the production or acquisition of a film, tape or disc shall be regarded for the purposes of the Tax Acts as expenditure of a revenue nature, subject to any election under subsection (9) below.".
 
      (2) For subsection (2) of that section substitute-
 
 
    "(2) In this section any reference to a film, tape or disc is to the master negative, master tape or master audio disc of a film as defined in section 43 of the Finance (No.2) Act 1992.
 
  Any such reference includes a reference to any rights in the film (or its soundtrack) that are held or acquired with the master negative, master tape or master audio disc.".
 
      (3) In section 42 of the Finance (No.2) Act 1992 (relief for production or acquisition expenditure), for subsection (9) substitute-
 
 
    "(9) This section has effect in relation to expenditure incurred-
 
 
    (a) on the production of a film completed on or after 10th March 1992, or
 
    (b) on the acquisition of the master negative, master tape or master disc of a film completed on or after that date.".
      (4) In section 43 of that Act (interpretation)-
 
 
    (a) in subsection (2)(b) (treatment of acquisition of rights in film), for "any description of rights in it" substitute "any rights in the film (or its soundtrack) that are held or acquired with the master negative, master tape or master audio disc"; and
 
    (b) in subsection (3), omit paragraph (b) and the word "or" preceding it.
      (5) This section applies to expenditure on the production of a film-
 
 
    (a) if the first day of principal photography is on or after 21st March 2000, or
 
    (b) if the first day of principal photography is before that date but-
 
      (i) the film is completed on or after that date, and
 
      (ii) the person incurring the expenditure elects that the provisions of this section should apply.
  For this purpose a film is completed at the time when it is first in a form in which it can reasonably be regarded as ready for copies of it to be made and distributed for presentation to the general public.
 
  Any election under paragraph (b)(ii) above, once made, is irrevocable.
 
      (6) This section applies to expenditure incurred on the acquisition of a master negative, master tape or master audio disc of a film (as defined in section 43 of the Finance (No.2) Act 1992) on or after 6th April 2000.
 
 
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