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Finance Bill
Schedule 37 — Loan relationships: amendments
Part 1 — Amendments to Schedule 9 to the Finance Act 1996

    426

 

Schedule 37

Section 178

 

Loan relationships: amendments

Part 1

Amendments to Schedule 9 to the Finance Act 1996

Introductory

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  1        Schedule 9 to the Finance Act 1996 (c. 8) (loan relationships: special

computational provisions) is amended as follows.

Late interest

  2       (1)      Paragraph 2 is amended as follows.

          (2)      After sub-paragraph (5) insert—

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                           “(5A)                  A person who is a participator in a company which controls

another company shall be treated for the purposes of this

paragraph as also being a participator in that other company.”.

          (3)      In sub-paragraph (6), in the definition of “participator” (which is expressed

to have effect in relation to a close company) omit “close”.

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          (4)      The amendments made by this paragraph have effect in relation to interest

which would, apart from paragraph 2 of Schedule 9 to the Finance Act 1996

(c. 8), be treated as accruing on or after 9th April 2003.

Continuity of treatment: groups etc

  3       (1)      Paragraph 12 is amended as follows.

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          (2)      In sub-paragraph (2) (determination of credits and debits to be brought into

account) in paragraph (a) (disregard of the transaction or series of

transactions except for certain purposes) after “except” insert—

                             “(i)                               for the purpose of determining the debits or credits

to be brought into account in respect of exchange

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gains or losses and identifying the company which

is to bring them into account; or

                              (ii)”.                               

          (3)               In paragraph (b) of that sub-paragraph (transferor and transferee deemed to

be the same person, except for that purpose) for “that purpose” substitute

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“those purposes”.

          (4)      In sub-paragraph (2A) (amount to be brought into account where transferor

company uses authorised mark to market basis of accounting) for paragraph

(a) substitute—

                    “(a)                                            the amount to be brought into account by the transferor

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company in respect of the transaction, the result of the series

of transactions, or the transfer must be—

                           (i)                          where an asset is to be brought into account, the fair

value of the asset, or of the rights under or interest in

the asset, and

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Finance Bill
Schedule 37 — Loan relationships: amendments
Part 1 — Amendments to Schedule 9 to the Finance Act 1996

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                           (ii)                         where a liability is to be brought into account, the fair

value of the liability,

                                          as at the date on which the transferee company becomes

party to the loan relationship;

                    (aa)                      the amount to be brought into account by the transferee

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company in respect of the transaction, the result of the series

of transactions, or the transfer must be the same as the

amount brought into account by the transferor company in

respect of the transaction, or, as the case may be, the result of

the series of transactions, or the transfer; and”.

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          (5)               In sub-paragraph (6) (novation: equivalent rights) after “rights” insert “, or

(as the case may be) its obligations,”.

          (6)      After sub-paragraph (7) (cases where rights are “equivalent”) insert—

                           “(7A)                  For the purposes of sub-paragraph (6) above a person’s

obligations under a debtor relationship are equivalent to

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obligations under another such relationship if they subject the

holder of the liability representing the relationship—

                      (a)                     to the same obligations to the same persons as to capital,

interest and dividends, and

                      (b)                     to the same remedies for the enforcement of those

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obligations,

                                             notwithstanding any difference in the total nominal amounts of

the assets representing the corresponding creditor relationships,

in the form in which those assets are held or in the manner in

which they can be transferred.”.

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          (7)      The amendments made by this paragraph have effect where the date on

which the transferee company becomes party to the loan relationship falls

on or after 9th April 2003.

Discounted securities where companies have a connection

  4       (1)      In paragraph 17, for sub-paragraph (8) (reference to person standing in the

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position of creditor to include person indirectly standing in that position)

substitute—

                           “(8)                  Any reference in this paragraph to a company which stands in the

position of a creditor as respects a relevant discounted security

includes a reference to a company which indirectly stands in that

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position by reference to a series of loan relationships or money

debts which would be loan relationships if a company directly

stood in the position of creditor or debtor.”.

          (2)      The amendment made by this paragraph has effect in relation to relevant

periods beginning on or after 9th April 2003.

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          (3)      If, in the case of an issuing company, 9th April 2003 falls in a relevant period

beginning before that day—

              (a)             the amendment made by this paragraph also has effect in relation to

a proportionate part of the debits of that company relating to the

amount of the discount that is referable to that period, and

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              (b)             that proportion is the proportion which the part of that period—

                    (i)                   beginning with 9th April 2003, and

                    (ii)                  ending with the end of that period,

 

 

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Schedule 37 — Loan relationships: amendments
Part 2 — Transitional provisions

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                              bears to the whole of that period.

          (4)      Expressions used in sub-paragraph (2) or (3) and in paragraph 17 of

Schedule 9 to the Finance Act 1996 (c. 8) have the same meaning in that sub-

paragraph as in that paragraph.

Discounted securities of close companies

5

  5       (1)      Paragraph 18 is amended as follows.

          (2)      In sub-paragraph (2C) (reference to person standing in the position of

creditor to include person indirectly standing in that position) for the words

from “includes a reference” to the end of that sub-paragraph substitute

“includes a reference to a person who indirectly stands in that position by

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reference to a series of loan relationships or money debts which would be

loan relationships if a company directly stood in the position of creditor or

debtor”.

          (3)      After sub-paragraph (3B) (meaning of “control”) insert—

                           “(3C)                  A person who is a participator in a company which controls

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another company shall be treated for the purposes of this

paragraph as also being a participator in that other company.”.

          (4)      The amendments made by this paragraph have effect in relation to relevant

periods beginning on or after 9th April 2003.

          (5)      If, in the case of an issuing company, 9th April 2003 falls in a relevant period

20

beginning before that day—

              (a)             the amendments made by this paragraph also have effect in relation

to a proportionate part of the debits of that company relating to the

amount of the discount that is referable to that period, and

              (b)             that proportion is the proportion which the part of that period—

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                    (i)                   beginning with 9th April 2003, and

                    (ii)                  ending with the end of that period,

                              bears to the whole of that period.

          (6)      Expressions used in sub-paragraph (4) or (5) and in paragraph 18 of

Schedule 9 to the Finance Act 1996 (c. 8) have the same meaning in that sub-

30

paragraph as in that paragraph.

Part 2

Transitional provisions

Transitional provisions

  6       (1)      In Schedule 25 to the Finance Act 2002 (c. 23) (loan relationships) in Part 3

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(transitional provisions) after paragraph 61 insert—

“Non-trading deficit carried forward from last old accounting period

          61A                  Any amount carried forward to a new accounting period under

subsection (3) of section 83 of the Finance Act 1996 (carry forward

of so much of the non-trading deficit on a company’s loan

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relationships as is not the subject of a claim under subsection (2) of

that section)—

 

 

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Schedule 38 — Sale and repurchase of securities etc

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                      (a)                     shall be disregarded for the purposes of any claim under

subsection (2) of that section; and

                      (b)                     shall not be surrendered as group relief by virtue of section

403 of the Taxes Act 1988.”.

          (2)      The Finance Act 2002 shall be taken to have been originally enacted with the

5

amendment made by this paragraph.

Schedule 38

Section 181

 

Sale and repurchase of securities etc

Increase of repurchase price of UK securities by amount of deemed manufactured dividend

  1        In section 737C of the Taxes Act 1988 (deemed manufactured payments)—

10

              (a)             in subsection (3)(b) (repurchase price of UK equities to be treated as

increased by gross amount of deemed manufactured dividend), omit

“gross”, and

              (b)             omit subsection (4) (definition of gross amount).

Deemed manufactured payment where transferor or connected person makes payment

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representative of dividend

  2       (1)      Section 737A of the Taxes Act 1988 (deemed manufactured payments) is

amended as follows.

          (2)      In subsection (1), for “the conditions set out in subsection (2) below”

substitute “either the conditions set out in subsection (2) below or the

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conditions set out in subsection (2A) below”.

          (3)      In subsection (2), for “conditions” substitute “first set of conditions referred

to in subsection (1) above”.

          (4)      After that subsection insert—

              “(2A)                The second set of conditions referred to in subsection (1) above are

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that—

                    (a)                   a dividend which becomes payable in respect of the securities

is receivable otherwise than by the transferor,

                    (b)                   the transferor or a person connected with him is required

under any agreement mentioned in subsection (1) above to

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make a payment representative of the dividend,

                    (c)                   there is no requirement under any such agreement for a

person to pay to the transferor on or before the relevant date

an amount representative of the dividend, and

                    (d)                   it is reasonable to assume that, in arriving at the repurchase

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price of the securities, account is taken of the circumstances

referred to in paragraphs (a) to (c).”.

          (5)      In subsection (3), for “subsection (2)” substitute “subsections (2) and (2A)”.

          (6)      In subsection (5)(a), after “(2)(a)” insert “or (2A)(a)”.

  3        In section 737C of the Taxes Act 1988 (deemed manufactured payments:

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further provisions), after “737A(2)(a)” (in each place) insert “or (2A)(a)”.

 

 

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Schedule 38 — Sale and repurchase of securities etc

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Provisions to cover both “put” and “call” options

  4        In section 727A(1) of the Taxes Act 1988 (accrued income scheme not to

apply to transfers of securities under repo agreements), for the words from

“and under” to the end of paragraph (b) substitute “and the transferor or a

person connected with him—

5

                    (a)                      is required to buy them back in pursuance of an obligation

imposed by, or in consequence of the exercise of an option

acquired under, that agreement or any related agreement, or

                    (b)                                            acquires an option to buy them back under that agreement or

any related agreement which he subsequently exercises,”.

10

  5        In section 730A(1) of the Taxes Act 1988 (treatment of price differential on

sale and repurchase of securities), for paragraph (b) substitute—

                    “(b)                      the original owner or a person connected with him—

                           (i)                          is required to buy them back in pursuance of an

obligation imposed by, or in consequence of the

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exercise of an option acquired under, that agreement

or any related agreement, or

                           (ii)                         acquires an option to buy them back under that

agreement or any related agreement which he

subsequently exercises; and”.

20

  6        In section 731(2D) of the Taxes Act 1988 (provisions about purchase and sale

of securities not to apply to repo agreements etc) for the words from “and,

in” to “is entitled” in paragraph (c) substitute “and the original owner—

                    (a)                      is required to buy them back in pursuance of an obligation

imposed by, or in consequence of the exercise of an option

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acquired under, that agreement or any related agreement,

                    (b)                      acquires an option to buy them back under that agreement or

any related agreement which he subsequently exercises, or

                    (c)                      under that agreement or any related agreement, is entitled”.

  7        In section 737A(1) of the Taxes Act 1988 (deemed manufactured payments),

30

for the words from “and under” to the end of paragraph (b) substitute “and

the transferor or a person connected with him—

                    (a)                      is required to buy them back in pursuance of an obligation

imposed by, or in consequence of the exercise of an option

acquired under, that agreement or any related agreement, or

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                    (b)                      acquires an option to buy them back under that agreement or

any related agreement which he subsequently exercises;”.

  8        In section 737E(8) of the Taxes Act 1988 (power to modify provisions about

repo arrangements), for paragraph (b) substitute—

                    “(b)                      that person or a person connected with him—

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                           (i)                          is required to buy them back in pursuance of an

obligation imposed by, or in consequence of the

exercise of an option acquired under, that agreement

or any related agreement, or

                           (ii)                         acquires an option to buy them back under that

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agreement or any related agreement which he

subsequently exercises.”.

  9        In paragraph 12(4) of Schedule 7AC to the Taxation of Chargeable Gains Act

 

 

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Schedule 38 — Sale and repurchase of securities etc

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1992 (c. 12) (exemptions for disposals by companies with substantial

shareholding: effect of repurchase agreement), for paragraph (b)

substitute—

                    “(b)                      the original owner or a person connected with him—

                           (i)                          is required to buy them back in pursuance of an

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obligation imposed by, or in consequence of the

exercise of an option acquired under, that agreement

or any related agreement, or

                           (ii)                         acquires an option to buy them back under that

agreement or any related agreement which he

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subsequently exercises.”.

Option premium to be reflected in sale price unless brought into account under derivative

contracts provisions

  10       In section 730A of the Taxes Act 1988 (treatment of price differential on sale

and repurchase of securities), after subsection (8) insert—

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              “(8A)                In this section references to the sale price are to be construed—

                    (a)                   in a case where the securities are bought back by the

transferor or a person connected with him in compliance

with a requirement imposed in consequence of the exercise of

an option acquired under the agreement to sell the securities

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or any related agreement, as references to what would

otherwise be the sale price plus the amount of any

consideration given for the option, and

                    (b)                   in a case where the securities are so bought back in the

exercise of an option so acquired, as references to what would

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otherwise be the sale price less the amount of any

consideration so given,

                              unless the consideration is brought into account under Schedule 26

to the Finance Act 2002 (derivative contracts).”.

Exchange gains and losses

30

  11      (1)                        Section 730A of the Taxes Act 1988 (treatment of price differential on sale

and repurchase of securities) is amended as follows.

          (2)      In subsection (4) (adjustment of repurchase price) for “this section and

sections 737A and 737C” substitute “the excepted provisions specified in

subsection (4A) below”.

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          (3)               At the end of that subsection add as a second sentence—

                              “This subsection is subject to subsection (4B) below.”.

          (4)               After that subsection insert—

              “(4A)                The excepted provisions are—

                    (a)                   this section,

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                    (b)                   section 730BB, apart from subsection (7),

                    (c)                   section 737A, and

                    (d)                   section 737C.

              (4B)                Where section 730BB(7) has effect (repurchase price to be treated as

increased or reduced for certain purposes), subsection (4) above does

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Schedule 38 — Sale and repurchase of securities etc

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not have effect for any purpose other than that of determining the

amount that falls to be increased or reduced under section

730BB(7).”.

  12       After section 730B of the Taxes Act 1988 insert—

       “730BB  Exchange gains and losses on sale and repurchase of securities

5

              (1)             For the purposes of the Corporation Tax Acts, a company has a

relationship to which this section applies in any case where—

                    (a)                   the circumstances are as set out in section 730A(1)(a) and (b);

                    (b)                   the company is the repurchaser of the securities or (subject to

subsection (11) below) the interim holder;

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                    (c)                   the conditions in subsection (2) or (3) below are satisfied; and

                    (d)                   subsection (10) below does not prevent this section from

applying,

                              and references to a relationship to which this section applies, and to

a company’s being a party to such a relationship, shall be construed

15

accordingly.

              (2)             The conditions in this subsection are that—

                    (a)                   the sale price and the repurchase price are expressed in a

currency other than sterling;

                    (b)                   there is a difference between—

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                           (i)                          the sterling equivalent of the sale price as at the date

of the transfer of the securities to the interim holder

(“the first sum”); and

                           (ii)                         the sterling equivalent of the sale price as at the date

they are bought back by the repurchaser (“the second

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sum”); and

                    (c)                   the case is not one where section 93 of the Finance Act 1993

(accounts of a company in a currency other than sterling)

applies in relation to the company.

              (3)             The conditions in this subsection are that—

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                    (a)                   the case is one where section 93 of the Finance Act 1993

applies in relation to the company;

                    (b)                   the sale price and the repurchase price are expressed in a

currency other than the relevant foreign currency (within the

meaning of that section) in relation to the company; and

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                    (c)                   there is a difference between—

                           (i)                          the relevant foreign currency equivalent of the sale

price as at the date of the transfer of the securities to

the interim holder (“the first sum”); and

                           (ii)                         the relevant foreign currency equivalent of the sale

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price as at the date they are bought back by the

repurchaser (“the second sum”).

              (4)             Where a company has a relationship to which this section applies

and—

                    (a)                   the company is the repurchaser and the first sum exceeds the

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second sum; or

 

 

 
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