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Corporation Tax Act 2009

Type Public General Act

Publication 2009-03-26

Last updated 2025-04-01

State In force

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(8) No credit is to be brought into account for the purposes of this Part to the extent that it corresponds to an amount which, as a result of the preceding provisions of this section, has not previously been brought into account as a debit.

Transactions not at arm's length: exchange gains and losses

Exchange gains and losses on debtor relationships: loans disregarded under Schedule 28AA to ICTA

447

(1) Subsections (2) and (3) apply if—

(a) a company has a debtor relationship in an accounting period,

(b) an exchange gain or loss arises in the period in respect of a liability representing the relationship, and

(c) as a result of section 147(3) or (5) of TIOPA 2010 (provision not at arm's length) the profits and losses of the company are calculated for tax purposes for the period as if—

(i) the loan had not been made, or

(ii) part of the loan had not been made.

(2) In a case where subsection (1)(c)(i) applies, the exchange gain or loss must be be left out of account in determining the credits or debits to be brought into account for the purposes of this Part.

(3) In a case where subsection (1)(c)(ii) applies, a proportion of the exchange gain or loss must be left out of account in determining those credits or debits.

(4) That proportion is the proportion that the part of the loan that is treated as if it had not been made bears to the whole of the loan.

(4A) If the debtor relationship is to any extent matched, subsections (2) and (3) apply to leave out of account only the lesser of—

(a) the amount of the exchange gain or loss (in the case of subsection (2)) or the proportion of the exchange gain or loss (in the case of subsection (3)) which would be left out of account apart from this subsection, and

(b) the amount of the exchange gain or loss arising in respect of a liability representing the debtor relationship to the extent that the debtor relationship is unmatched (an amount which may be nil).

(5) Nothing in Part 4 of TIOPA 2010 requires the amounts brought into account under this Part in respect of exchange gains or losses from loan relationships to be calculated on the assumption that the arm's length provision had been made instead of the actual provision.

(6) But subsection (5) does not affect the application of subsections (2) and (3) under subsection (1).

(7) In this section “the arm's length provision” and “the actual provision” have the same meaning as in Part 4 of TIOPA 2010 (see sections 149 and 151 of that Act).

Exchange gains and losses on debtor relationships: equity notes where holder associated with issuer

448

(1) This section applies if—

(a) a company has a debtor relationship in an accounting period,

(b) an exchange gain or loss arises in the period in respect of a liability representing the relationship, and

(c) the whole of any interest or other distribution out of the assets of the company in respect of securities of the company which represent the relationship is regarded as a distribution because of section 1015(6) of CTA 2010 (equity notes held by company associated with issuer or by a funded company).

(2) The exchange gain or loss must be left out of account in determining the credits or debits to be brought into account for the purposes of this Part.

(3) If the debtor relationship is to any extent matched, subsection (2) applies to leave out of account only the amount of the exchange gain or loss arising in respect of a liability representing the debtor relationship to the extent that the debtor relationship is unmatched (an amount which may be nil).

Exchange gains and losses on creditor relationships: no corresponding debtor relationship

449

(1) This section applies if—

(a) a company has a creditor relationship in an accounting period, and

(b) an exchange gain or loss arises in the period in respect of an asset representing the relationship.

(2) The exchange gain or loss must be left out of account in determining the credits or debits to be brought into account for the purposes of this Part if conditions A and B are met.

(3) Condition A is that the transaction giving rise to the loan is such that it would not have been entered into at all if the parties had been dealing at arm's length.

(4) Condition B is that there is no corresponding debtor relationship.

(4A) If the creditor relationship is to any extent matched, subsection (2) applies to leave out of account only the amount of the exchange gain or loss arising in respect of an asset representing the creditor relationship to the extent that the creditor relationship is unmatched (an amount which may be nil).

(5) For the meaning of “corresponding debtor relationship”, see section 450.

(6) This section is subject to section 451 (exception to this section where loan exceeds arm's length amount).

Meaning of “corresponding debtor relationship”

450

(1) In section 449 “corresponding debtor relationship” means a debtor relationship which—

(a) corresponds to the creditor relationship mentioned in section 449(1), and

(b) is of such a kind that conditions A and B are met.

(2) Condition A is that such credits as are mentioned in subsection (3) would fall to be brought into account for the purposes of this Part in respect of exchange gains from that debtor relationship.

(3) Those credits are credits corresponding to, and of the same amount as, the debits that would fall to be so brought into account in respect of exchange losses from the creditor relationship apart from section 449.

(4) Condition B is that such debits as are mentioned in subsection (5) would fall to be so brought into account in respect of exchange losses from that debtor relationship.

(5) Those debits are debits corresponding to, and of the same amount as, the credits that would fall to be so brought into account in respect of exchange gains from the creditor relationship apart from section 449.

(6) In determining for the purposes of this section whether credits or debits would fall to be so brought into account, section 328(3) to (7) (as a result of which some exchange gains and losses are excluded from this Part) is ignored.

Exception to section 449 where loan exceeds arm’s length amount

451

(1) Section 449 does not apply if the circumstances are such that, had the parties to the relevant transaction been dealing at arm's length, the amount of the loan would have been an amount (“the arm's length amount”) greater than nil, but less than its actual amount.

(2) Accordingly, an exchange gain or loss which arises in the accounting period in respect of an asset representing the creditor relationship is not required by that section to be left out of account.

(3) But if—

(a) the circumstances are as mentioned in subsection (1), and

(b) there is no corresponding debtor relationship,

only a proportion of the exchange gain or loss may be taken into account in determining the credits or debits to be brought into account for the purposes of this Part.

(4) That proportion is the proportion which the arm's length amount bears to the actual amount of the loan.

(4A) If the creditor relationship is to any extent matched, subsections (3) and (4) apply to leave out of account only the lesser of—

(a) the proportion of the exchange gain or loss which would be left out of account apart from this subsection, and

(b) the amount of the exchange gain or loss arising in respect of an asset representing the creditor relationship to the extent that the creditor relationship is unmatched (an amount which may be nil).

(5) In this section—

“corresponding debtor relationship” has the same meaning as in section 449 (see section 450), and

“the relevant transaction” means the transaction giving rise to the loan as a result of which the company has the creditor relationship in the accounting period in question.

Exchange gains and losses where loan not on arm’s length terms

452

(1) This subsection applies if—

(a) a company would be treated as having a debtor relationship in an accounting period if a claim were made under section 192(1) of TIOPA 2010 in relation to that period, and

(b) for that period there is a connection between that company and the company that would have the corresponding creditor relationship.

(2) If subsection (1) applies, it is assumed that such a claim is made for the purpose of determining the debits or credits to be brought into account for the purposes of this Part in respect of any exchange gains or losses arising in that period in respect of the liability representing that debtor relationship.

(3) Subsections (4) and (5) apply if, because of a claim made under section 192(1) of TIOPA 2010, or because of the claim that is assumed to be made under subsection (2)—

(a) one company is treated for any purpose as having a debtor relationship, or

(b) more than one company is treated for any purpose as having a debtor relationship represented by the same liability.

(4) The total amount of the credits brought into account for the purposes of this Part in respect of exchange gains from that debtor relationship (in a subsection (3)(a) case) or from those debtor relationships (in a subsection (3)(b) case) must not exceed the total amount of the exchange gains or the proportion of the exchange gains to be left out of account under section 447 by the issuing company in respect of the loan relationship.

(5) The total amount of the debits brought into account for those purposes in respect of exchange losses from that debtor relationship (in a subsection (3)(a) case) or from those debtor relationships (in a subsection (3)(b) case) must not exceed the total amount of the exchange losses or the proportion of the exchange losses to be left out of account under section 447 by the issuing company in respect of the loan relationship.

(5A) In this section “issuing company” is to be construed in accordance with section 191(1)(a) of TIOPA 2010.

(6) Section 466 (companies connected for an accounting period) applies for the purposes of this section.

Connected parties deriving benefit from creditor relationships

453

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Tax advantages from resetting interest rates (“reset bonds”)

Application of fair value accounting: reset bonds etc

454

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Disposals for consideration not fully recognised by accounting practice

455

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Chapter 16 — Non-trading deficits: pre-1 April 2017 deficits and charities

Introduction to Chapter

456

(1) This Chapter applies if—

(a) for any accounting period a company has a non-trading deficit from its loan relationships under section 301(6), and

(b) either—

(i) that accounting period begins before 1 April 2017, or

(ii) at the end of that accounting period the company is a charity.

(2) In this Chapter “the deficit” and “the deficit period” mean that deficit and that period respectively (but see section 458(5)).

(3) Sections 457 and 458 set out the rules about carrying the deficit forward to later accounting periods.

(4) Sections 459 and 460 deal with claims for the deficit to be dealt with differently.

(5) Sections 461 to 463 deal with the consequences of such claims.

Basic rule for deficits: carry forward to accounting periods after deficit period

457

(1) The basic rule is that the deficit must be carried forward and set off against non-trading profits of the company for accounting periods after the deficit period in accordance with subsection (3) and section 458 (subject to subsection (2A)).

(2) That rule does not apply to so much of the deficit as—

(a) is surrendered as group relief under Part 5 of CTA 2010, or

(b) is the subject of a claim by the company under section 459 (claim to set off deficit against profits of deficit period or earlier periods).

(2A) If the company is a charity at the end of the deficit period, the deficit may not be carried forward and set off against non-trading profits (as described in subsection (1)) for an accounting period (and, accordingly, the deficit may not be surrendered as group relief under Part 5 of CTA 2010 for the purposes of subsection (2)(a)).

(3) So much of the amount carried forward from the deficit period as is not the subject of a claim under section 458(1) must be set off against the non-trading profits of the company for the next accounting period after the deficit period.

(4) Those profits are reduced accordingly.

(5) In this Chapter “non-trading profits”, in relation to a company, means so much of the company's profits as does not consist of trading income for the purposes of section 37 of CTA 2010 (deduction of trading losses from total profits of the same or an earlier period).

Claim to carry forward deficit to later accounting periods

458

(1) The company may make a claim for so much of the amount carried forward from the deficit period as is specified in the claim to be excepted from being set off against non-trading profits of the first accounting period after the deficit period (“the first later period”).

(2) Any such claim must be made within the period of 2 years after the end of the first later period.

(3) Subsection (4) applies if any amount is carried forward from the deficit period under section 457(1) which—

(a) cannot be set off under section 457(3) against non-trading profits of the first later period, or

(b) is the subject of a claim under subsection (1).

(4) That amount is treated for the purposes of this Part as if it were—

(a) an amount of non-trading deficit from the company's loan relationships for the first later period, and

(b) an amount which falls to be carried forward and set against non-trading profits of later accounting periods under section 457(1).

(5) Accordingly, section 457 and this section apply as if the first later period were the deficit period.

Claim to set off deficit against profits of deficit period or earlier periods

459

(1) The company may make a claim for the whole or part of the deficit—

(a) to be set off against any profits of the company (of whatever description) for the deficit period, or

(b) to be carried back to be set off against profits for earlier accounting periods.

(2) No claim may be made under subsection (1) in respect of a deficit which is surrendered as group relief under Part 5 of CTA 2010.

(3) Subsection (1) does not apply if the company is a charity.

(4) For time limits and other provisions applicable to claims under subsection (1), see section 460.

(5) For what happens when a claim is made under subsection (1)(a), see section 461.

(6) For what happens when a claim is made under subsection (1)(b), and for the profits available for relief where such a claim is made, see sections 462 and 463.

Time limits and procedure for claims under section 459(1)

460

(1) A claim under section 459(1) must be made within—

(a) the period of 2 years after the deficit period ends, or

(b) such further period as an officer of Revenue and Customs allows.

(2) Different claims may be made in respect of different parts of a non-trading deficit for any deficit period.

(3) But no claim may be made in respect of any part of a deficit to which another such claim relates.

Claim to set off deficit against other profits for the deficit period

461

(1) This section applies if a claim is made under section 459(1)(a) for the whole or part of the deficit to be set off against profits for the deficit period.

(2) The general rule is that the amount to which the claim relates must be set off against the profits of the company for the deficit period which are identified in the claim.

(3) Those profits are reduced accordingly.

(4) The general rule is subject to subsections (5) and (7).

(5) Relief for any deficit incurred in a trade in an earlier accounting period must be given before relief under this section.

(6) But relief under this section must be given before relief is given against profits for the deficit period—

(a) under section 37 or 62(1) to (3) of CTA 2010 (deduction of losses from total profits for the same or earlier accounting periods), or

(b) as a result of a claim under section 459(1)(b) (carry-back) in respect of a deficit for a later period.

(7) No relief may be given under this section against ring fence profits of the company within the meaning of Part 8 of CTA 2010 (oil activities).

Claim to carry back deficit to earlier accounting periods

462

(1) This section applies if a claim is made under 459(1)(b) for the whole or part of the deficit to be carried back to be set off against profits for accounting periods before the deficit period.

(2) The claim has effect only if it relates to an amount equal to the lesser of—

(a) so much of the deficit as is not an amount in relation to which a claim is made under section 459(1)(a), and

(b) the total amount of the profits available for relief under this section.

(3) Section 463 explains which profits are so available.

(4) The amount to which the claim relates is set off against those profits by treating them as reduced accordingly.

(5) If those profits are profits for more than one accounting period, the relief is applied by setting off the amount to which the claim relates against profits for a later period before setting off any remainder of that amount against profits for an earlier period.

Profits available for relief under section 462

463

(1) The profits available for relief under section 462 are the amounts which (apart from the relief) would be charged under this Part as profits for accounting periods ending within the permitted period, after giving every prior relief.

(2) In this section—

“the permitted period” means the period of 12 months immediately before the deficit period, and

“prior relief” means a relief which subsection (5) provides must be given before relief under section 462.

(3) If an accounting period ending within the permitted period begins before it, only a part of the amount which (apart from the relief) would be chargeable under this Part for that period, after giving every prior relief, is available for relief under section 462.

(4) That part is so much as is proportionate to the part of the accounting period in the permitted period.

(5) The reliefs which must be given before relief under section 462 are—

(a) relief as a result of a claim under section 459(1)(a) (claim for deficit to be set off against total profits for the deficit period),

(b) relief in respect of a loss or deficit incurred or treated as incurred in an accounting period before the deficit period,

(c) relief under Part 6 of CTA 2010 (charitable donations relief) in respect of payments made wholly and exclusively for the purposes of a trade,

(d) relief under section 37 of CTA 2010 (losses deducted from total profits of the same, or an earlier, accounting period), and

(e) if the company is a company with investment business for the purposes of Part 16 (companies with investment business)—

(i) any deduction in respect of management expenses under section 1219 (expenses of management of a company's investment business),

(ii) relief under Part 6 of CTA 2010 in respect of payments made wholly and exclusively for the purposes of its business, and

(iii) any allowance under Part 2 of CAA 2001 (plant and machinery allowances).

Chapter 17 — Priority rules

Priority of this Part for corporation tax purposes

464

(1) The amounts which are brought into account in accordance with this Part in respect of any matter are the only amounts which may be brought into account for corporation tax purposes in respect of it.

(2) Subsection (1) is subject to any express provision to the contrary.

(3) For further provisions relating to the rule in this section, see in particular—

(a) section 445(2) (disapplication of section 444 where Part 4 of TIOPA 2010 applies),

(b) section 465 (exclusion of distributions except in tax avoidance cases),

(d) section 96(4) of CTA 2010 (write-off of government investment),

(e) sections 286 to 287A of CTA 2010 (oil activities: loan relationships),

(f) section 31(5) of TIOPA 2010 (computation of income subject to foreign tax),

(g) section 112(5) of TIOPA 2010 (deduction for foreign tax where no credit available),

(h) ... and

(i) section 640(2) of CTA 2010 (banks etc in compulsory liquidation: taxation of certain receipts).

(4) See also the following sections (under which amounts prevented from being brought into account under this Part are treated as if they were so brought into account for the purposes of this section)—

(a) section 327(5) and (6) (disallowance of imported losses etc), ...

(b) section 441(4) and (5) (loan relationships for unallowable purposes) , and

Exclusion of distributions except in tax avoidance cases

465

(1) Credits or debits relating to any amount falling, when paid, to be treated as a distribution must not be brought into account for the purposes of this Part, except, in the case of credits, so far as they are avoidance arrangement amounts (see subsection (4)).

(2) Nothing in section 464(1) prevents amounts that are not brought into account because of subsection (1) from being brought into account for corporation tax purposes otherwise than under this Part.

(3) But see the following provisions (under which some amounts are prevented from being distributions for corporation tax purposes and accordingly are within this Part)—

(zza) section 420A(2) (hybrid capital instruments),

(za) section 490(2) (holdings in OEICs, unit trusts and offshore funds treated as rights under creditor relationships),

(a) section 523(2)(b) (shares subject to outstanding third party obligations and non-qualifying shares),

(b) section 1019 of CTA 2010 (relevant alternative finance return under alternative finance arrangements),

(d) sections 1055 and 1057 of CTA 2010 (dividends, bonuses and other sums payable to shareholders in registered societies and UK agricultural or fishing co-operatives) , and

(e) paragraph 44 of Schedule 2 to FA 2022 (distributions under certain securities issued by qualifying asset holding companies).

(4) For the purposes of this section an amount is an avoidance arrangement amount if it arises in consequence of, or otherwise in connection with, arrangements of which the purpose, or one of the main purposes, is securing a tax advantage for any person.

(5) In this section “arrangements” includes any scheme, agreement or understanding, transaction or series of transactions.

Chapter 18 — General and supplementary provisions

Connections between persons

Companies connected for an accounting period

466

(1) This section and sections 467 to 471 have effect for the purposes of any provisions of this Part which apply this section (but this does not affect the application of section 1316(1) (meaning of “connected” persons) for other purposes of this Part).

(2) There is a connection between a company (“A”) and another company (“B”) for an accounting period if there is a time in the period when—

(a) A controls B,

(b) B controls A, or

(3) But A and B are not taken to be controlled by the same person just because they have been under the control of—

(a) the Crown,

(b) a Minister of the Crown,

(d) a Northern Ireland department,

(e) a foreign sovereign power, or

(f) an international organisation.

(4) Subsection (2) is subject to section 468 (connection between companies to be ignored in some circumstances).

(5) For a case where companies are treated as if one controlled the other, see section 383(5) (inter-partnership lending between connected company partners etc).

(6) Section 472 (meaning of “control”) applies for the purposes of this section.

Connections where partnerships are involved

467

(1) This section applies for the purposes of the provisions which apply section 466 (“the relevant provisions”) if—

(a) a trade or business is carried on by a firm, and

(b) the firm stands in the position of a creditor or debtor as respects a money debt.

(2) The questions about connections specified in subsection (3) must be determined as if each of the partners in the firm separately (rather than the firm), stood in that position as respects the debt to the extent of that partner's appropriate share.

(3) The questions are—

(a) whether for the purposes of this Part there is a connection for the purposes of the relevant provisions between any two companies for an accounting period in the case of a loan relationship, and

(b) how far any amount is treated under this Part in any particular way as a result of there being, or not being, such a connection.

(4) For the purposes of subsection (2), a partner's “appropriate share” is the same share as the share in which any profit or loss for the accounting period in question would be apportioned to the partner in accordance with the firm's profit-sharing arrangements.

(5) The references in subsections (2) to (4) to partners do not include references to the general partner of a limited partnership which is a collective investment scheme.

Connection between companies to be ignored in some circumstances

468

(1) In the case of a company (“the creditor”) which has a creditor relationship, any connection for an accounting period between the creditor and another company which stands in the position of a debtor as respects the debt is ignored for the purposes of the relevant provisions if the creditor is a party to the relationship in circumstances where—

(a) conditions A to E in section 469 (creditors who are financial traders) are met, or

(b) conditions A, B and C in section 471 (creditors who are insurance companies carrying on basic life assurance and general annuity business) are met.

(2) In subsection (1) “the relevant provisions” means any provisions of this Part which apply section 466.

(3) Subsection (4) applies if for any accounting period subsection (1) has effect in the case of a creditor relationship of a company.

(4) Subsection (1) does not apply for determining whether there is a connection between the two companies for the purposes of so much of any of the relevant provisions or of section 467 as relates to the corresponding debtor relationship.

(5) For the purposes of this section and section 469, a company is treated as standing in the position of a debtor if it indirectly stands in that position by reference to a series of loan relationships or relevant money debts.

(6) In subsection (5) “relevant money debt” means a money debt which would be a loan relationship if a company directly stood in the position of creditor or debtor.

Creditors who are financial traders

469

(1) This section sets out the conditions referred to in section 468(1)(a).

(2) Condition A is that the creditor disposes of or acquires assets representing creditor relationships in the course of carrying on any activities forming an integral part of a trade carried on by it in the accounting period.

(3) Condition B is that the asset representing the creditor relationship was acquired in the course of those activities.

(4) Condition C is that that asset—

(a) is listed on a recognised stock exchange at the end of that period, or

(b) is a security the redemption of which must occur within 12 months of its issue.

(5) Condition D is that there is a time in that period when assets of the same kind as the asset representing the creditor relationship are beneficially owned by persons other than the creditor.

(6) Condition E is that in that period there is not more than 3 months in total during which the equivalent of at least 30% of the assets of that kind is beneficially owned by connected companies.

(7) Section 470 supplements this section.

Section 469: supplementary provisions

470

(1) For the purposes of conditions D and E in section 469 assets are taken to be of the same kind if they—

(a) are treated as being of the same kind by the practice of any recognised stock exchange, or

(b) would be so treated if dealt with on such an exchange.

(2) For the purposes of condition E in section 469 an asset is beneficially owned by a connected company if there is a connection between—

(a) the company which beneficially owns it, and

(b) a company which stands in the position of a debtor as respects the money debt by reference to which any loan relationship represented by that asset exists.

(3) Whether there is a connection for the purposes of subsection (2) at any time in an accounting period (“the relevant time”) is determined in accordance with section 466(2), (3), (5) and (6)—

(a) applying the conditions in section 466(2) only at the relevant time, and

(b) ignoring section 468.

Creditors who are insurance companies carrying on BLAGAB

471

(1) This section sets out the conditions referred to section 468(1)(b)).

(2) Condition A is that the creditor is an insurance company carrying on basic life assurance and general annuity business in the accounting period.

(3) Condition B is that the asset representing the creditor relationship is matched for that period to a BLAGAB liability.

(4) Condition C is that conditions C, D and E in section 469 are met in relation to that asset.

Meaning of “control”

472

(1) This section has effect for the purposes of any provisions of this Part which apply this section (but this does not affect the application of section 1316(2) (meaning of “control”) for other purposes of this Part).

(2) For those purposes “control”, in relation to a company, means the power of a person to secure that the affairs of the company are conducted in accordance with the person's wishes—

(a) by means of the holding of shares or the possession of voting power in or in relation to the company or any other company, or

(b) as a result of any powers conferred by the articles of association or other document regulating the company or any other company.

(3) Trading shares held by a company and any voting power or other powers arising from such shares are ignored for the purposes of this section.

(4) For the purposes of subsection (3) shares held by a company are trading shares if—

(a) a profit on a sale of the shares would be treated as a trading receipt of a trade carried on by the company, and

(b) the shares are not assets held by an insurance company for the purposes of its long-term business.

(5) Subsection (6) applies in the case of any firm to which section 1259 (calculation of firm's profits and losses) applies.

(6) For any accounting period of the firm, property, rights or powers held or exercisable for its purposes are treated for the purposes of this section as if—

(a) the property, rights or powers had been apportioned between, and were held or exercisable by, the partners severally, and

(b) the apportionment had been in the same shares as those in which the profit or loss of the period would be apportioned between the partners in accordance with the firm's profit-sharing arrangements.

(7) In subsection (6) the references to partners do not include references to the general partner of a limited partnership which is a collective investment scheme.

Meaning of “major interest”

473

(1) In this Part references to a company (“A”) having a major interest in another company (“B”) are to be read as follows.

(2) A has a major interest in B at any time if at that time—

(a) A and one other person (“C”), taken together, have control of B, and

(b) A and C each have interests, rights and powers representing at least 40% of the holdings, rights and powers as a result of which A and C are taken to have control of B.

(3) The reference in subsection (2)(b) to interests, rights and powers does not include interests, rights or powers arising from shares held by a company if—

(a) a profit on a sale of the shares would be treated as a trading receipt of a trade carried on by the company, and

(b) the shares are not assets held by an insurance company for the purposes of its long-term business.

(4) Section 474 makes provision about how this section operates where connected companies or partnerships are involved.

(5) For the purposes of this section and section 474, a company (“D”) is connected with another company (“E”) if—

(a) D controls E,

(b) E controls D, or

(6) Section 472 (meaning of “control”) applies for the purposes of this section and section 474.

(7) If two or more persons taken together have the power mentioned in section 472(2) (as read with the other provisions of section 472) as respects the affairs of a company (“B”), they are taken for the purposes of subsection (2)(a) to have control of B.

Treatment of connected companies and partnerships for section 473

474

(1) For the purposes of section 473(2), all the interests, rights and powers of any company connected with another company are attributed to the other company before determining any question—

(a) whether two persons taken together have control of a company at any time, or

(b) whether a person has at any time interests, rights and powers representing at least 40% of the holdings, rights and powers in respect of a company.

(2) If section 1259 (calculation of firm's profits and losses) applies, any property, rights or powers held or exercisable for the purposes of the firm are treated for the purposes of section 473, as respects any time in an accounting period of the firm, on the basis of the assumptions in subsection (3).

(3) The assumptions are that—

(a) the property, rights or powers had been apportioned between, and were held or exercisable by, the partners in the firm severally, and

(b) the apportionment was in the same shares as those in which the profit or loss of the accounting period would be apportioned between the partners under the firm's profit-sharing arrangements.

(4) Subsection (5) applies if—

(a) a trade or business is carried on by a firm, and

(b) the firm stands in the position of a creditor or debtor as respects a money debt.

(5) The questions in subsection (6) are to be determined as if each of the partners in the firm separately, instead of the firm, stood in the position of a creditor or, as the case may be, a debtor as respects the money debt to the extent of that partner's appropriate share (see subsection (8)).

(6) The questions are—

(a) whether a company has a major interest in another company for an accounting period in the case of a loan relationship, or

(b) how far any amount is treated under this Part in any particular way as a result of a company having or, as the case may be, not having such a major interest.

(7) The references to partners in subsections (3) and (5) do not include a reference to the general partner of a limited partnership which is a collective investment scheme.

(8) For the purposes of subsection (5), a partner's “appropriate share” is the same share as the partner's share under the firm's profit-sharing arrangements of any profit or loss calculated in accordance with section 1259 for the accounting period in question.

Meaning of expressions relating to exchange gains and losses

475

(1) References in this Part to exchange gains or exchange losses, in relation to a company, are references respectively to—

(a) profits or gains which arise as a result of comparing at different times the expression in one currency of the whole or some part of the valuation put by the company in another currency on an asset or liability of the company, or

(b) losses which so arise.

(2) If the result of such a comparison is that neither an exchange gain nor an exchange loss arises, for the purposes of this Part an exchange gain of nil is taken to arise in the case of that comparison.

(3) The Treasury may make provision by regulations as to the way in which exchange gains or losses are to be calculated for the purposes of this section ... .

(4) The regulations may be made so as to apply to periods of account beginning before the regulations are made, but not earlier than the beginning of the calendar year in which they are made.

(5) Any reference in this Part to an exchange gain or loss from a loan relationship of a company is a reference to an exchange gain or loss arising to a company in relation to an asset or liability representing a loan relationship of the company.

Other general definitions

Other definitions

476

(1) In this Part—

“accounting policy”, in relation to a company, means the principles, bases, conventions, rules and practices that the company applies in preparing and presenting its financial statements,

“alternative finance arrangements” has the meaning given in section 501(2),

“associate” has the meaning given by section 448 of CTA 2010,

“collective investment scheme” has the meaning given by section 235 of FISMA 2000,

“debt” includes a debt the amount of which is to be ascertained by reference to matters which vary from time to time,

“equity instrument” has the meaning it has for accounting purposes,

“fair value” has the meaning it has for accounting purposes,

“gilt-edged securities” means any securities which—are gilt-edged securities for the purposes of TCGA 1992 (see Schedule 9 to that Act), orwill be such securities on the making of any order under paragraph 1 of Schedule 9 to that Act the making of which is anticipated in the prospectus under which they are issued,

“impairment” includes uncollectability,

“impairment loss” means a debit in respect of the impairment of a financial asset,

“income statement” has the meaning it has for accounting purposes,

“international organisation” has the meaning given in subsection (2) (and also see subsection (3)),

“loan” includes any advance of money and related expressions are to be read accordingly,

“non-trading credit” and “non-trading debit” are to be read in accordance with section 301 (but also see sections 330 and 482(1)),

“profit-sharing arrangements”, in relation to a firm, has the meaning given in section 1262(4) (allocation of firm's profits or losses between partners),

“ release debit ”, in relation to a company, means a debit in respect of a release by the company of a liability under a creditor relationship of the company,

“relevant contract” has the same meaning as in Part 7 (see section 577),

“share”, in relation to a company, means any share in the company under which an entitlement to receive distributions may arise (except as provided in section 522(6)), but does not include a share in a building society,

“statement of changes in equity” has the meaning it has for accounting purposes,

“statement of comprehensive income” has the meaning it has for accounting purposes,

“statement of income and retained earnings” has the meaning it has for accounting purposes,

“statement of recognised income and expense” has the meaning it has for accounting purposes,

“statement of total recognised gains and losses” has the meaning it has for accounting purposes,

“tax advantage”, except in the expression “loan-related tax advantage”, has the meaning given by section section 1139 of CTA 2010,

“this Part” is to be read in accordance with section 294(2), and

“trade” and “purposes of trade” are to be read in accordance with section 298.

(2) In this Part “international organisation” means an organisation of which—

(a) two or more sovereign powers are members, or

(b) the governments of two or more sovereign powers are members.

(3) If, in any proceedings, any question arises whether a person is an international organisation for the purposes of any provision of this Part, a certificate issued by or under the authority of the Secretary of State stating any fact relevant to that question is conclusive evidence of that fact.

Part 6 — Relationships treated as loan relationships etc

Chapter 1 — Introduction

Overview of Part

477

(1) This Part deals with matters treated for some or all purposes as loan relationships or rights, payments or profits under loan relationships.

(2) See, in particular—

(a) Chapter 2 (relevant non-lending relationships),

(aa) Chapter 2A (disguised interest),

(ab) Chapter 2B (transferred income streams),

(b) Chapter 3 (OEICs, unit trusts and offshore funds),

(d) Chapter 5 (registered societies),

(e) Chapter 6 (alternative finance arrangements),

(f) Chapter 6A (shares accounted for as liabilities),

(g) Chapter 8 (returns from partnerships),

(h) Chapter 9 (manufactured interest etc),

(i) Chapter 10 (repos), and

(j) Chapter 11 (investment life insurance contracts).

(3) For the relationship of this Part to other Parts of this Act, see—

(a) section 294(2) (which provides for references to Part 5 to be read as including references to this Part), and

(b) sections 464 and 465 (relationship of Part 5 and this Part to other provisions).

Chapter 2 — Relevant non-lending relationships

Introduction: meaning of “relevant non-lending relationship” etc

Relevant non-lending relationships: introduction

478

(1) This Chapter provides for Part 5 to apply to relevant non-lending relationships in relation to some matters as it applies to loan relationships (see section 481).

(2) For the meaning of “relevant non-lending relationship”, see—

(a) section 479 (relevant non-lending relationships not involving discounts), and

(b) section 480 (relevant non-lending relationships involving discounts).

(3) For provisions extending the meaning of “money debt” and “interest” in this Chapter, see—

(a) section 483 (exchange gains and losses: amounts treated as money debts), and

(b) section 484 (provision not at arm's length: meaning of “interest” and “money debt”).

(4) For exclusions from this Chapter, see—

(a) section 485 (exclusion of debts where profits or losses within Part 7 or 8), and

(b) section 486 (exclusion of exchange gains and losses in respect of tax debts etc).

Relevant non-lending relationships not involving discounts

479

(1) A company has a relevant non-lending relationship if—

(a) the company stands, or has stood, in the position of a creditor or debtor in relation to a money debt,

(b) the money debt did not arise from a transaction for the lending of money (and so, because of section 302(1)(b), there is no loan relationship), and

(2) The kinds of debt are—

(a) a debt on which interest is payable to or by the company,

(b) a debt in relation to which exchange gains or losses arise to the company, ...

(c) a debt in relation to which an impairment loss (or credit in respect of the reversal of an impairment loss) or release debit arises to the company in respect of an unpaid (or previously unpaid) business payment, and

(d) a debt in relation to which a relevant deduction has been allowed to the company and which is released.

(3) In subsection (2)(c) “business payment” means a payment which, if it were paid, would fall to be brought into account for corporation tax purposes as a receipt of a trade, UK property business or overseas property business carried on by the company.

(3A) In subsection (2)(d) “relevant deduction” means a deduction allowed in calculating the profits of a trade, UK property business or overseas property business.

(4) For the meaning of “money debt” and “interest” in this Chapter, see—

(a) section 483 (exchange gains and losses: amounts treated as money debts) and

(b) section 484 (provision not at arm's length: meaning of “interest” and “money debt”).

(5) For the meaning of “exchange gains or losses”, see section 475.

(6) This section is subject to section 485 (exclusion of debts where profits or losses within Part 7 or 8).

Relevant non-lending relationships involving discounts

480

(1) A company has a relevant non-lending relationship if—

(a) the company stands in the position of creditor in relation to a money debt,

(b) the money debt did not arise from a transaction for the lending of money (and so, because of section 302(1)(b), there is no loan relationship),

(d) the discount does not fall to be brought into account under section 509 (treatment of alternative finance arrangements as loan relationships etc) as a result of arrangements to which section 503 (purchase and resale arrangements) applies, and

(e) in a case where the money debt is some or all of the consideration payable for a disposal of property, conditions A and B are met.

(2) Condition A is that the property in question is not—

(a) an asset representing a loan relationship the disposal of which is a disposal to which subsection (3) applies, or

(b) an asset representing a derivative contract the disposal of which is such a disposal.

(3) This subsection applies to a disposal if—

(a) section 340 (group transfers and transfers of insurance business: transfer at notional carrying value) applies to it or would apply apart from section 341 (transferor using fair value accounting),

(b) section 625 (group member replacing another as party to derivative contract) applies to it or would apply apart from section 628 (transferor using fair value accounting), or

(c) the whole of the consideration for the disposal is brought into account for the purposes of Part 5 (loan relationships) or Part 7 (derivative contracts).

(4) Condition B is that, assuming that the money debt will be paid in full, it does not fall to be brought into account for corporation tax purposes as a trading receipt of the company.

(5) For the purposes of this section, a discount is, in particular, taken to arise from a money debt if—

(a) there is a sale of property for consideration some or all of which is money which falls to be paid after the sale,

(b) the amount or value of the whole consideration exceeds what the purchaser would have paid for the property if payment in full had been required at the time of the sale, and

(c) some or all of the excess can reasonably be regarded as representing a return on an investment of money at interest (and so as being a discount arising from the money debt).

(6) It does not matter for the purposes of subsection (1)(c) whether the discount is of a revenue or capital nature.

(7) This section is subject to section 485 (exclusion of debts where profits or losses within Part 7 or 8).

Application of Part 5 to relevant non-lending relationships

481

(1) If a company has a relevant non-lending relationship—

(a) Part 5 (loan relationships) applies in relation to the relevant matters (see subsections (3) and (5)) as it applies in relation to such matters arising under or in relation to a loan relationship, but

(b) the only credits or debits to be brought into account for the purposes of that Part in respect of the relationship are those relating to those matters.

(2) Accordingly, subject to subsection (1)(b), references in the Corporation Tax Acts to a loan relationship include a reference to a relevant non-lending relationship.

(3) The relevant matters in the case of a relevant non-lending relationship within section 479 are—

(a) interest payable to or by the company in respect of the relevant non-lending relationship,

(b) exchange gains or losses arising to the company as a result of the relationship,

(c) in the case of a debt on which interest is payable to the company, profits (but not losses) arising to the company from any related transaction in respect of the right to receive interest,

(d) in the case of a debt in relation to which an impairment loss or release debit arises to the company in respect of an unpaid business payment, the impairment or release,

(e) in the case of a debt in relation to which a credit in respect of the reversal of an impairment loss arises to the company in respect of a previously unpaid business payment, the reversal and

(f) in the case of a debt in relation to which a relevant deduction has been allowed to the company and which is released, the release.

(4) In subsection (3)(d) and (e) “business payment” has the meaning given in section 479(3).

(4A) In subsection (3)(f) “ relevant deduction ” has the meaning given in section 479(3A).

(5) The relevant matters in the case of a relevant non-lending relationship within section 480 are—

(a) the matters referred to in subsection (3),

(b) the discount arising to the company from the money debt,

(d) any impairment arising to the company in respect of the discount, and

(e) any reversal of any such impairment.

(6) Subsection (7) applies if a company—

(a) has a relevant non-lending relationship within section 479 because of a debt on which interest is payable to the company, but

(b) enters into a related transaction in respect of the right to receive interest as a result of which interest is not so payable.

(7) Even though the interest is not payable to the company, for the purpose of bringing credits into account in respect of that or any other related transaction as a result of the application of subsection (3)(c), the company is still treated as having a relevant non-lending relationship within section 479.

(8) Section 480(5) (when discount arises) applies for the purpose of this section as it applies for the purposes of section 480.

Miscellaneous rules about amounts to be brought into account because of this Chapter

482

(1) Any credits or debits which—

(a) relate to interest payable under the Tax Acts, and

(b) fall to be brought into account because of this Chapter,

are treated for the purposes of Part 5 as non-trading credits or debits.

(2) The credits to be brought into account for the purposes of that Part in respect of a discount arising from a money debt under a relevant non-lending relationship are to be determined using an amortised cost basis of accounting.

Meaning of “money debt” and “interest” in this Chapter

Exchange gains and losses: amounts treated as money debts

483

(1) This section applies for the purposes of this Chapter so far as relating to exchange gains and losses.

(2) Any currency held by a company is treated as a money debt owed to the company.

(3) A provision made by a company for the purposes of its statutory accounts in respect of a liability to which the company may become subject is treated as a money debt owed by the company if it meets conditions A and B.

(4) Condition A is that if the company became subject to the liability, the duty to settle it would be owed for the purposes of—

(a) a trade,

(b) a UK property business, or

(5) Condition B is that the provision falls to be taken into account (apart from Part 5) in calculating the profits or losses of the trade, UK property business or overseas property business for corporation tax purposes.

(6) In the case of a company carrying on insurance business—

(a) any deferred acquisition costs are treated as a money debt owed to the company, and

(b) any provision made by the company for unearned premiums or for unexpired risks is treated as a money debt owed by the company.

(7) In subsection (6)—

(a) “deferred acquisition costs” has the meaning given in Assets item G.II in the Balance Sheet Format set out after paragraph 10 of Schedule 3 to the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (S.I. 2008/410), as read with note (17) of the Notes on the Balance Sheet Format (which immediately follow that Format),

(b) “provision made by the company for unearned premiums” has the meaning given in Liabilities item C.1 in that Balance Sheet Format, as read with notes (12) and (20) of those Notes, and

(8) This section is subject to section 486 (exclusion of exchange gains and losses in respect of tax debts etc).

Provision not at arm’s length: meaning of “interest” and “money debt”

484

(1) References in this Chapter to interest payable on a money debt include a reference to any amount which because of Part 4 of TIOPA 2010 (provision not at arm's length) falls to be treated as—

(a) interest on a money debt, or

(b) interest on an amount (“the notional debt”) which is treated as a money debt.

(2) Accordingly, references in this Chapter to a money debt include references to the notional debt.

Exclusions

Exclusion of debts where profits or losses within Part 7 or 8

485

This Chapter does not apply to a debt in respect of which profits or losses (if any) fall to be brought into account under—

(a) Part 7 (derivative contracts), or

(b) Part 8 (intangible fixed assets).

Exclusion of exchange gains and losses in respect of tax debts etc

486

(1) No exchange gains or losses arise for the purposes of this Chapter if the money debt by reference to which the relevant non-lending relationship exists (“the relevant money debt”) is an amount of tax payable under the law of the United Kingdom.

(2) If the relevant money debt is an amount of tax payable under the law of a territory outside the United Kingdom, exchange gains or losses arise for the purposes of this Chapter only so far as a deduction in respect of the tax falls to be made under section 112 of TIOPA 2010 (double taxation relief: deduction for foreign tax where no credit allowable).

(3) No exchange gains or losses arise for the purposes of this Chapter if the relevant money debt is an amount which would be deductible apart from—

(a) a statutory provision other than section 53 (capital expenditure), or

(b) a rule of law.

(4) The reference in subsection (3) to an amount being deductible is a reference to its being deductible—

(a) as an expense in calculating trading profits,

(b) as expenses of management within section 1219 (expenses of management of a company's investment business), or

(c) as ordinary BLAGAB management expenses within the meaning of section 77 of FA 2012 (insurance companies carrying on basic life assurance and general annuity business).

Chapter 3 — OEICs, unit trusts and offshore funds

Introduction

Overview of Chapter

487

(1) This Chapter provides for the Corporation Tax Acts to apply in some circumstances to holdings in open-ended investment companies, unit trust schemes and offshore funds as if they were rights under a creditor relationship (see section 490).

(2) That treatment depends on the company, scheme or fund failing the qualifying investments test.

(3) Sections 493 to 496 deal with when that test is met.

(4) For the meaning of “open-ended investment company” and “offshore fund” in this Chapter, see sections 488 and 489 respectively.

Meaning of “open-ended investment company” etc

488

(1) Sections 613 and 615(3) of CTA 2010 (meaning of “open-ended investment company” and “company” and application to parts of umbrella companies) apply for the purposes of this Chapter as they apply for the purposes of Chapter 2 of Part 13 of that Act.

(2) In this Chapter “umbrella company” has the meaning given by section 615 of CTA 2010.

Meaning of “offshore fund” etc

489

Sections 355 to 363 of TIOPA 2010 (meaning of “offshore fund” and application to parts of umbrella funds and classes of interests in offshore funds) apply for the purposes of this Chapter as they apply for the purposes of Part 8 of that Act.

Holdings in OEICs, unit trusts and offshore funds treated as creditor relationship rights

490

(1) This section applies if—

(a) at any time in an accounting period of a company it holds—

(i) any shares in an open-ended investment company,

(ii) any rights under a unit trust scheme, or

(iii) an interest in an offshore fund, and

(b) there is a time in the period when that company, scheme or fund fails to meet the qualifying investments test (see section 493).

(2) The Corporation Tax Acts have effect for the accounting period in accordance with subsection (3) as if—

(a) the relevant holding were rights under a creditor relationship of the company, and

(b) any distribution in respect of the relevant holding were not a distribution (and accordingly is within Part 5).

(3) The credits and debits to be brought into account for the purposes of Part 5 in respect of the company's relevant holdings are to be determined on the basis of fair value accounting.

(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(6) In this section and sections 491 and 492 “relevant holding” means a holding within subsection (1)(a).

(7) But the following are not treated as such a holding—

(a) arrangements that are investment bond arrangements for the purposes of Chapter 6 of this Part or are within section 48A of FA 2005 (alternative finance arrangements: alternative finance investment bond: introduction) , and

(b) a holding in an offshore fund (including a unit trust which is also an offshore fund) if the income arising to the fund is treated as the income of the company

(8) See section 18(2)(c)(i) of F(No.2)A 2005 (section 17(3): specific powers) for the power to modify “relevant holding” for the purposes of this section and section 492 by regulations under section 17(3) of that Act (regulations about authorised unit trusts and OEICS).

Holding coming within section 490: opening valuations

491

(1) This section applies if—

(a) a relevant holding is held by a company both—

(i) at the end of one accounting period (“the first period”), and

(ii) at the beginning of the next (“the second period”), and

(b) section 490 applies to the holding for the second period but not the first period.

(2) For the purposes of section 490(3), the opening value of the holding as at the beginning of the second period is taken to be equal to its market value for the purposes of TCGA 1992 immediately before the end of the first period (see section 272 of that Act).

Disregard of investments made and liabilities incurred with avoidance intention etc

492

(1) Subsection (2) applies if—

(a) section 490 applies for an accounting period of a company to a relevant holding held by the company,

(b) a relevant fund enters into any arrangements, or arrangements are entered into that in whole or part relate to a relevant fund, and

(2) The company must make adjustments to counteract any tax advantage connected in any way with the relevant holding that would (ignoring this section) be obtained by the company, or any other person, directly or indirectly in consequence of the arrangements or their being entered into.

(3) The arrangements may be ones entered into at a time when the company does not hold the relevant holding; and any person referred to in subsection (1)(c) need not be identified when the arrangements are entered into.

(4) The adjustments required by subsection (2) are such as are just and reasonable.

(5) In this section—

“arrangements” includes any scheme, arrangement or understanding of any kind, whether or not legally enforceable, involving a single transaction or two or more transactions, and

“relevant fund” means—the open-ended investment company, unit trust scheme or offshore fund in which the relevant holding is held, oran open-ended investment company, unit trust scheme or offshore fund in which a relevant fund has a holding.

The qualifying investments test

493

(1) An open-ended investment company, a unit trust scheme or an offshore fund meets the qualifying investments test for the purposes of this Chapter if the market value of the qualifying investments of the company, scheme or fund does not exceed 60% of the market value of all its investments.

(2) References in this section and sections 494 and 495 to investments of an open-ended investment company are references—

(a) except where paragraph (b) applies, to the property subject to the collective investment scheme constituted by the company, and

(b) in a case where under section 615(3) of CTA 2010 part of an umbrella company is regarded as an open-ended investment company, to such of the property subject to the collective investment scheme constituted by the umbrella company as forms part of the separate pool in question,

other than cash awaiting investment.

(3) References in this section and sections 494 and 495 to investments of a unit trust scheme are references to investments subject to the trusts of the scheme, other than cash awaiting investment.

(4) References in this section and sections 494 and 495 to investments of an offshore fund are references to assets of the fund, other than cash awaiting investment.

(5) In this section “collective investment scheme” has the meaning given by section 235 of FISMA 2000.

(6) A person with rights in a part of an umbrella company which is regarded under section 615(3) of CTA 2010 as an open-ended investment company is treated for the purposes of this section as not owning shares in the umbrella company.

(7) For the meaning of references to investments subject to the trusts of the scheme in the case of certain authorised unit trusts, see section 619 of CTA 2010 (umbrella schemes).

Meaning of “qualifying investments”

494

(1) In section 493 “qualifying investments”, in relation to an open-ended investment company, a unit trust scheme or an offshore fund, means investments of the company, scheme or fund of any of the following descriptions—

(a) money placed at interest,

(b) securities,

(d) qualifying holdings in an open-ended investment company, a unit trust scheme or an offshore fund,

(e) alternative finance arrangements,

(f) derivative contracts whose underlying subject matter consists wholly of any one or more of—

(i) the matters referred to in paragraphs (a) to (e) (other than diminishing shared ownership arrangements), and

(ii) currency,

(g) contracts for differences whose underlying subject matter consists wholly of any one or more of—

(i) interest rates,

(ii) creditworthiness, and

(iii) currency, and

(h) derivative contracts not within paragraph (f) or (g) where there is a hedging relationship between the contract and an asset within paragraphs (a) to (d).

(2) In this section—

“contract for differences” has the same meaning as in Part 7 (derivative contracts) (see section 582),

“diminishing shared ownership arrangements” means arrangements to which section 504 applies,

“hedging relationship” has the meaning given by section 496,

“qualifying holding” has the meaning given by section 495(1),

“security” does not include shares in a company, and

“underlying subject matter” has the same meaning as in Part 7 (derivative contracts) (see section 583).

Qualifying holdings

495

(1) For the purposes of section 494(1)(d) a holding in an open-ended investment company, a unit trust scheme or an offshore fund is a qualifying holding at any time if—

(a) at that time, or

(b) at any other time in the relevant accounting period,

the company, scheme or fund itself fails to meet the qualifying investments test ... .

(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(3) In this section “holding”—

(a) in relation to an open-ended investment company, means—

(i) except where sub-paragraph (ii) applies, shares in the company, and

(ii) in a case where under section 615(3) of CTA 2010 part of an umbrella company is regarded as an open-ended investment company, rights in the separate pool in question,

(b) in relation to a unit trust scheme, means an entitlement to a share in the investments of the scheme, and

(i) shares in any company by which the fund is constituted, or

(ii) an entitlement to a share in the investments of the fund.

(4) In this section “relevant accounting period” means the accounting period referred to in section 490(1).

Meaning of “hedging relationship”

496

(1) For the purposes of section 494, in relation to an open-ended investment company, a unit trust scheme or an offshore fund, there is a hedging relationship between a derivative contract (“the hedging instrument”) and an asset (“the hedged item”) so far as condition A or B is met.

(2) Condition A is that the hedging instrument and the hedged item are designated as a hedge by the company, scheme or fund.

(3) Condition B is that the hedging instrument is intended to act as a hedge of exposure to changes in fair value of a hedged item which is—

(a) a recognised asset which could affect the total net return of the company, scheme or fund, or

(b) an identified part of such an asset which is attributable to a particular risk.

(4) For the purposes of subsection (3) “the total net return” of a company, scheme or fund means its total net return calculated—

(a) in accordance with generally accepted accounting practice, or

(b) in the case of accounts prepared in a jurisdiction outside the United Kingdom, in accordance with generally accepted accounting practice in that jurisdiction.

Power to change investments that are qualifying investments

497

(1) The Treasury may by order amend sections 493 to 496 so as to extend or restrict the descriptions of investments of an open-ended investment company, a unit trust scheme or an offshore fund that are qualifying investments for the purposes of those provisions.

(2) The order may make—

(a) different provision for different cases, and

(b) incidental, supplemental, consequential and transitional provision and savings.

(3) In particular, the order may make such incidental modifications of section 495(2) as the Treasury consider appropriate.

Chapter 4 — Building Societies

Building society dividends and interest

498

(1) This section deals with how building society dividends and interest are dealt with for corporation tax purposes.

(2) Liability to pay building society interest or building society dividends is treated for the purposes of Part 5 as a liability arising under a loan relationship (so far as it would not otherwise be such a liability).

(3) If building society interest or building society dividends are payable to a company, they are treated as so payable as the result of a right arising under a loan relationship of the company (so far as they would not otherwise be so payable).

(4) Subsection (3) applies to interest paid under a certified SAYE savings arrangement with a building society as if it were a dividend on a share in the society.

(5) In this section—

“building society dividends” means dividends payable in respect of shares in a building society,

“building society interest” means interest payable in respect of shares in, deposits with, or loans to, a building society,

“certified SAYE savings arrangement” has the meaning given by section 703 of ITTOIA 2005, and

“dividend” includes any distribution, however described.

Chapter 5 — Registered societies

Industrial and provident society payments treated as interest under loan relationship

499

(1) Any dividend, bonus or other sum payable to a shareholder in—

(a) a registered society, or

(b) a UK agricultural or fishing co-operative,

is treated for corporation tax purposes as interest under a loan relationship of the society or co-operative if it is payable by reference to the amount of the shareholder's holding in its share capital.

(2) If subsection (1) applies—

(a) so far as the shareholder's holding is held for the purposes of a trade, the shareholder is treated for the purposes of section 297 as a party to the loan relationship referred to in subsection (1) for that purpose, and

(b) so far as the holding is held for any other purpose, the shareholder is treated for the purposes of that section as a party to that loan relationship for that other purpose.

(3) In subsection (1) “UK agricultural or fishing co-operative” means a co-operative association—

(a) which is established in the United Kingdom and UK resident, and

(b) whose primary object is assisting its members in—

(i) carrying on agricultural or horticultural businesses on land occupied by them in the United Kingdom, or

(ii) carrying on businesses consisting in the catching or taking of fish or shellfish.

(4) In subsection (3) “co-operative association” means a body with a written constitution from which the Secretary of State considers that it is in substance a co-operative association.

(5) For the purposes of subsection (4), the Secretary of State must have regard to the way in which the body's constitution provides for its income to be applied for its members' benefit and all other relevant provisions.

(6) In the application of subsections (4) and (5) in Northern Ireland for “the Secretary of State” substitute “ the Department of Agriculture and Rural Development ”.

Exclusion of interest where failure to make return

500

(1) This section applies if for any accounting period a registered society is obliged to make a return under section 887(2) of ITA 2007.

(2) If the society has not made the return within 3 months after the end of the period, no interest paid by it in the period is to be brought into account for the period for the purposes of Part 5.

(3) It does not matter for the purposes of subsection (2) whether the payment would be interest apart from section 499.

Chapter 6 — Alternative finance arrangements

Introduction

Introduction to Chapter

501

(1) This Chapter provides for alternative finance arrangements ... to be treated as loan relationships (see sections 509 and 510).

(2) In this Part “alternative finance arrangements” means—

(a) purchase and resale arrangements,

(b) diminishing shared ownership arrangements,

(d) profit share agency arrangements, and

(e) investment bond arrangements.

(3) In this Chapter—

(a) “purchase and resale arrangements” means arrangements to which section 503 applies,

(b) “diminishing shared ownership arrangements” means arrangements to which section 504 or 504A applies,

(d) “profit share agency arrangements” means arrangements to which section 506 applies, and

(e) “investment bond arrangements” means arrangements to which section 507 applies.

(4) For the meaning of “financial institution”, see section 502.

Meaning of “financial institution”

502

(1) In this Chapter “financial institution” means—

(a) a bank, as defined by section 1120 of CTA 2010,

(b) a building society within the meaning of the Building Societies Act 1986 (c. 53),

(d) a person authorised by a licence under Part 3 of the Consumer Credit Act 1974 (c. 39) to carry on a consumer credit business or consumer hire business within the meaning of that Act,

(d) a person with permission under Part 4A of the Financial Services and Markets Act 2000 to enter into, or to exercise or have the right to exercise rights and duties under, a contract of the kind mentioned in paragraph 23 or paragraph 23B of Schedule 2 to that Act (credit agreements and contracts for hire of goods);

(e) a bond-issuer, within the meaning of section 507, but only in relation to any bond assets which are rights under purchase and resale arrangements, diminishing shared ownership arrangements or profit share agency arrangements, ...

(f) a person authorised in a jurisdiction outside the United Kingdom—

(i) to receive deposits or other repayable funds from the public, and

(ii) to grant credits for its own account,

(g) an insurance company, as defined by section 65 of FA 2012, or

(h) a person who is authorised in a jurisdiction outside the United Kingdom to carry on a business which consists of effecting or carrying out contracts of insurance or substantially similar business but not an insurance special purpose vehicle as defined in section 139(1) of FA 2012.

(1A) Subsection (1)(d) must be read with—

(a) section 22 of the Financial Services and Markets Act 2000,

(b) any relevant order under that section, and

(2) For the purposes of subsection (1)(c) a company is a wholly-owned subsidiary of a bank or building society (“the parent”) if it has no members except—

(a) the parent or persons acting on behalf of the parent, and

(b) the parent's wholly-owned subsidiaries or persons acting on behalf of the parent's wholly-owned subsidiaries.

Arrangements that are alternative finance arrangements

Purchase and resale arrangements

503

(1) This section applies to arrangements if—

(a) they are entered into between two persons (“the first purchaser” and “the second purchaser”), and—

(i) at least one of those persons is a financial institution, or

(ii) the arrangements are regulated electronic system facilitated arrangements, and

(b) under the arrangements—

(i) the first purchaser purchases an asset and sells it to the second purchaser,

(ii) the sale occurs immediately after the purchase or in the circumstances mentioned in subsection (2),

(iii) all or part of the second purchase price is not required to be paid until a date later than that of the sale,

(iv) the second purchase price exceeds the first purchase price, and

(v) the excess equates, in substance, to the return on an investment of money at interest.

(2) The circumstances are that—

(a) the first purchaser is a financial institution, and

(b) the asset referred to in subsection (1)(b)(i) was purchased by the first purchaser for the purpose of entering into arrangements within this section.

(2A) Arrangements are regulated electronic system facilitated arrangements if—

(a) the arrangements substantially consist of an article 36H agreement in relation to the deferral of the payment of all or part of the second purchase price,

(b) the first purchaser would be regarded, for the purposes of that agreement, as the lender under it,

(d) those purchasers becoming parties to the agreement was facilitated by an electronic system operated by a person who has permission under Part 4A of FISMA 2000 to carry on, in relation to that system, the regulated activity specified in article 36H(1) of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (S.I. 2001/544) (operating an electronic system in relation to lending).

(3) In this section—

“the first purchase price” means the amount paid by the first purchaser in respect of the purchase, ...

“the second purchase price” means the amount payable by the second purchaser in respect of the sale.

“article 36H agreement” has the meaning given by article 36H(4) of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001, and

“borrower” and “lender” are to be construed in accordance with article 36H(9) of that Order.

(4) This section is subject to section 508 (provision not at arm's length: exclusion of arrangements from this section and sections 504 to 507).

Diminishing shared ownership arrangements

504

(1) This section applies to arrangements if under them—

(a) a person (“the financier”) acquires a beneficial interest in an asset,

(aa) either—

(i) the financier is a financial institution or a regulated home purchase plan provider, or

(ii) the arrangements are regulated electronic system facilitated arrangements,

(b) another person (“the customer”) also acquires a beneficial interest in it,

(c) the customer is to make payments to the financier amounting in aggregate to the consideration paid for the acquisition of the financier’s beneficial interest (but subject to any adjustment required for such a reduction as is mentioned in subsection (5)),

(d) the customer is to acquire the financier’s beneficial interest (whether or not in stages) as a result of those payments,

(e) the customer is to make other payments to the financier (whether under a lease forming part of the arrangements, or otherwise),

(f) the customer has the exclusive right to occupy or otherwise to use the asset, and

(g) the customer is exclusively entitled to any income, profit or gain arising from or attributable to the asset (including, in particular, an increase in its value).

(1A) Arrangements are regulated electronic system facilitated arrangements if—

(a) the arrangements substantially consist of an article 36H agreement in relation to the enjoyment by the customer of the rights referred to in subsection (1)(f) and (g) before the customer’s acquisition of the financier’s beneficial interest,

(b) the customer would be regarded, for the purposes of that agreement, as the borrower under it,

(d) the customer and the financier becoming parties to the agreement was facilitated by an electronic system operated by a person who has permission under Part 4A of FISMA 2000 to carry on, in relation to that system, the regulated activity specified in article 36H(1) of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (S.I. 2001/544) (operating an electronic system in relation to lending).

(2) For the purposes of subsection (1)(a) it does not matter if—

(a) the financier acquires its beneficial interest from the customer,

(b) the customer, or another person who is not the financier, also has a beneficial interest in the asset, or

(3) Subsection (1)(f) does not prevent the customer from granting an interest or right in relation to the asset if the conditions in subsection (4) are met.

(4) The conditions are that—

(a) the grant is not to—

(i) the financier,

(ii) a person controlled by the financier, or

(iii) a person controlled by a person who also controls the financier, and

(b) the grant is not required by the financier or arrangements to which the financier is a party.

(5) Subsection (1)(g) does not prevent the financier from—

(a) having responsibility for any reduction in the asset's value, or

(b) having a share in a loss arising out of any such reduction.

(6) This section is subject to section 508 (provision not at arm's length: exclusion of arrangements from section 503, this section and sections 504A to 507).

(7) In this section—

“article 36H agreement” has the meaning given by article 36H(4) of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001;

“borrower” and “lender” are to be construed in accordance with article 36H(9) of that Order;

“regulated home purchase plan provider” means a person who—is carrying on the regulated activity specified in article 63F(1) of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (entering into regulated home purchase plans as home purchase provider), andhas permission under Part 4A of FISMA 2000 to do so.

Deposit arrangements

505

(1) This section applies to arrangements if under them—

(a) a person (“the depositor”) deposits money with a financial institution,

(b) the money, together with money deposited with the institution by other persons, is used by it with a view to producing a profit,

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