Finance Act 2011

(939A) (1) This Part makes provision for removing entitlement to corporation tax reliefs where a person makes a relievable charity donation which is a tainted donation. (2) See Chapter 8 of Part 13 of ITA 2007 and section 257A of TCGA 1992 for the removal of entitlement to other reliefs, and the ways in which other income tax advantages are counteracted, where a person makes a relievable charity donation which is a tainted donation. (939B) (1) In this Chapter “relievable charity donation” means a gift or other disposal which— (a) is made by a person to a charity, and (b) is eligible for tax relief. (2) A gift or other disposal is eligible for tax relief if one or both of the following apply— (a) (ignoring the tainted donation provisions) tax relief would be available in respect of it under a relevant relieving provision; (b) the charity is entitled to claim a repayment of tax in respect of it. (3) “The tainted donation provisions” are— (a) this Part, (b) section 257A of TCGA 1992 (tainted charity donations: disapplication of section 257), and (c) Chapter 8 of Part 13 of ITA 2007 (tainted charity donations: removal of income tax relief etc). (4) The following are “relevant relieving provisions”— (a) section 257 of TCGA 1992 (gifts of chargeable assets), (b) section 63(2)(a), (aa) and (ab) of CAA 2001 (gifts of plant and machinery), (c) Part 12 of ITEPA 2003 (payroll giving), (d) section 108 of ITTOIA 2005 (gifts of trading stock), (e) Chapters 2 and 3 of Part 8 of ITA 2007 (gift aid and gifts of shares), (f) section 105 of CTA 2009 (gifts of trading stock), and (g) Part 6 of this Act (charitable donations relief). (5) For the purposes of this Part, an amount of income which arises under a UK settlement and to which a charity is entitled under the terms of the settlement is to be regarded as an amount gifted to the charity by the trustees of the settlement. “UK settlement” has the same meaning as in section 628 of ITTOIA 2005. (939C) (1) For the purposes of this Part, a relievable charity donation is a tainted donation if (and only if) Conditions A, B and C are met. (2) Condition A is that— (a) a linked person enters into arrangements (whether before or after the donation is made), and (b) it is reasonable to assume from either or both of— (i) the likely effects of the donation and the arrangements, and (ii) the circumstances in which the donation is made and the circumstances in which the arrangements are entered into, that the donation would not have been made and the arrangements would not have been entered into independently of one another. (3) “Linked person” means— (a) the person who made the donation (“the donor”), or (b) a person who is connected with the donor at a relevant time. (4) In subsection (3) “relevant time” means a time during the period which begins with the earliest, and ends with the latest, of the following times— (a) the time when the arrangements are entered into as mentioned in subsection (2); (b) the time when the relievable charity donation is made; (c) the time when the arrangements are first materially implemented. (5) Condition B is that the main purpose, or one of the main purposes, of the linked person in entering into the arrangements is to obtain a financial advantage— (a) directly or indirectly from the charity to which the donation is made or a connected charity, (b) for one or more linked persons who are not charities (each of whom is referred to in this Part as “a potentially advantaged person”). (6) Condition C is that the donor is not— (a) a qualifying charity-owned company, or (b) a relevant housing provider linked with the charity to which the donation is made. (7) For the purposes of subsection (6)(b) a relevant housing provider is linked with the charity if (and only if)— (a) one is wholly owned, or subject to control, by the other, or (b) both are wholly owned, or subject to control, by the same person. (8) In this section— - “qualifying charity-owned company”, in relation to a relievable charity donation, means a company which— 1. is wholly owned by one or more charities, at least one of which is the charity to which the donation is made or a connected charity, and 2. has not previously been under the control of, and does not carry on a trade or business previously carried on by, one or more of the following— 1. a potentially advantaged person; 2. a person (other than a charity) who, at any time within the period of 4 years ending with the day on which paragraph (a) was first satisfied, was connected with a person who is a potentially advantaged person; - “relevant housing provider” means a body which is— 1. a non-profit registered provider of social housing, or 2. entered on a register maintained under section 1 of the Housing Act 1996, section 20 of the Housing (Scotland) Act 2010 (asp 17) or Article 14 of the Housing (Northern Ireland) Order 1992 (S.I. 1992/1725 (N.I. 15)). (9) Section 200 (company wholly owned by a charity) applies for the purposes of subsection (8), and for those purposes references in that section to “charity” include a registered club within the meaning of section 658(6). (10) This section is subject to section 939E (certain financial advantages to be ignored). (939D) (1) This section applies for the purposes of Condition B. (2) Subsection (3) applies where the arrangements entered into by the linked person (as mentioned in Condition A) involve a transaction to which— (a) that or another linked person (“X”), and (b) another person (“Y”), are parties. (3) X obtains a financial advantage from the charity to which the donation is made or a connected charity if— (a) the terms of the transaction are less beneficial to Y or more beneficial to X (or both) than those which might reasonably be expected in a transaction concluded between parties dealing at arm's length, or (b) the transaction is not of a kind which a person dealing at arm's length and in place of Y might reasonably be expected to make. (4) Nothing in this section is intended to limit the circumstances in which a linked person may be regarded as obtaining a financial advantage for the purposes of section 939C. (5) In this section— - “Condition A” and “Condition B” have the same meaning as in section 939C; - “linked person” has the meaning given by section 939C(3); - “transaction” includes (for example)— 1. the sale or letting of property, 2. the provision of services, 3. the exchange of property, 4. the provision of a loan or any other form of financial assistance, and 5. investment in a business. (939E) (1) When determining whether a relievable charity donation is a tainted donation, a financial advantage within subsection (2), (3), (4) or (5) is to be ignored. (2) A financial advantage is within this subsection if the person for whom it is obtained applies the advantage for charitable purposes only. (3) A financial advantage is within this subsection if (ignoring the tainted donation provisions) it is— (a) a benefit associated with a gift which is a qualifying donation for the purposes of Chapter 2 of Part 8 of ITA 2007 (gift aid), or (b) a benefit associated with a payment which is a qualifying payment for the purposes of Chapter 2 of Part 6 (charitable donations relief: payments to charity). (4) A financial advantage is within this subsection if (ignoring the tainted donation provisions)— (a) the relievable charity donation is a disposal in respect of which tax relief would be available under Chapter 3 of Part 8 of ITA 2007 (gifts of shares, securities and real property to charities etc) or Chapter 3 of Part 6 (charitable donations: certain disposals to charity), and (b) the advantage is a benefit the value of which would be taken into account in determining the relievable amount in respect of the disposal for the purposes of the Chapter in question. (5) A financial advantage is within this subsection if (ignoring the tainted donation provisions)— (a) the relievable charity donation is a gift in respect of which tax relief would be available under section 108 of ITTOIA 2005 or section 105 of CTA 2009 (gifts of trading stock to charities etc), and (b) the advantage is a benefit attributable to the making of the gift in respect of which an amount would be brought into account under section 109 of ITTOIA 2005 or section 108 of CTA 2009 (receipt of benefits by donor or connected person). (6) In this section— - “benefit associated with a gift” has the meaning given by section 417 of ITA 2007; - “benefit associated with a payment” has the meaning given by section 196; - “the tainted donation provisions” has the meaning given by section 939B(3). (939F) (1) This section applies where a tainted donation is made by a company. (2) Where (ignoring this Part) corporation tax relief would be available in respect of the tainted donation, that relief is not available. (3) Where— (a) (ignoring this Part) corporation tax relief would be available in respect of an associated donation, and (b) entitlement to that relief is not withdrawn by subsection (2), that relief is not available. (4) In this section — - “associated donation”, in relation to a tainted donation, means a relievable charity donation made— 1. in accordance with the relevant arrangements, and 2. by a person, other than— 1. a qualifying charity-owned company in relation to that relievable charity donation, or 2. a relevant housing provider linked (within the meaning of section 939C(7)) with the charity to which that donation is made; - “corporation tax relief” means relief under— 1. section 63(2)(a), (aa) or (ab) of CAA 2001 (gifts of plant and machinery), so far as it applies in relation to corporation tax, 2. section 105 of CTA 2009 (gifts of trading stock), or 3. Part 6 of CTA 2010 (charitable donations relief); - “qualifying charity-owned company” has the meaning given by section 939C(8) (except that paragraph (b) of that definition does not apply); - “relevant housing provider” has the meaning given by section 939C(8); - “the relevant arrangements”, in relation to a tainted donation, means the arrangements by reference to which Conditions A to C in section 939C are met. (939G) For the purposes of this Part, a “connected charity” in relation to another charity means a charity which is connected with that other charity in a matter relating to the structure, administration or control of either charity. (939H) (1) Section 1122 (meaning of “connected” persons) applies for the purposes of this Part (except section 939G), but subject to the following modification. (2) Section 1122 has effect as if after subsection (8) there were inserted— (9) A person who is a beneficiary of a settlement is connected with— (a) a person in the capacity as trustee of the settlement, and (b) the settlor in relation to the settlement. (10) For the purposes of this section— (a) a man and woman living together as husband and wife are treated as if they were husband and wife, (b) two people of the same sex living together as if they were civil partners of each other are treated as if they were civil partners of each other, and (c) “close company” includes a company that would be a close company if it were resident in the United Kingdom. (939I) (1) In this Part— - “arrangements” includes any scheme, arrangement or understanding of any kind, whether or not legally enforceable, involving a single transaction or two or more transactions; - “charity” includes a registered club within the meaning of section 658(6) (meaning of “community amateur sports club” and “registered club”). (2) In this Part, in the case of a charitable trust, references to a charity being entitled to a repayment of tax are to be read as references to the trustees of the trust being so entitled.

Part 3 — Capital gains tax

3

After section 257 of TCGA 1992 insert—

(257A) (1) Section 257 does not apply in relation to— (a) a tainted donation made by a person, or (b) any associated donation. (2) For the purposes of this section— (a) “tainted donation” means a tainted donation within the meaning of Chapter 8 of Part 13 of ITA 2007 (tainted charity donations: removal of income tax reliefs etc) or Part 21C of CTA 2010 (tainted charity donations: removal of corporation tax relief), and (b) “associated donation” means an associated donation within the meaning of section 809ZM of ITA 2010 or section 939F of CTA 2010.

Part 4 — Consequential amendments

Capital Allowances Act 2001

4

In section 63 of CAA 2001 (cases in which disposal value is nil), in subsection (4)—

• (a) after “Subsection (2)” insert

— (a)

, and

• (b) at the end insert

, and (b) is subject to section 809ZM of ITA 2007 and section 939F of CTA 2010 (removal of tax relief in respect of tainted charity donations etc).

Income Tax (Employment and Pensions) Act 2003

5

In section 713 of ITEPA 2003 (donations to charity: payroll deduction scheme), after subsection (5) insert—

(6) This section is subject to section 809ZM of ITA 2007 (removal of income tax relief in respect of tainted charity donations etc).

Income Tax (Trading and Other Income) Act 2005

6

In section 108 of ITTOIA 2005 (gifts of trading stock to charities etc), in subsection (5)—

• (a) after “This section” insert

— (a)

, and

• (b) at the end insert

, and (b) is subject to section 809ZM of ITA 2007 (removal of income tax relief in respect of tainted charity donations etc).

Income Tax Act 2007

7

ITA 2007 is amended as follows.

8

In section 30 (calculation of income tax liability: additional tax)—

• (a) in subsection (1) before the entry for section 205 of FA 2004 insert—

section 809ZN (tainted gift aid donations: charge to tax), section 809ZO (tainted charity donations by trustees: charge to tax),

, and

• (b) for subsection (2) substitute—

(2) If the taxpayer is a trustee, the provisions referred to at Step 7 of the calculation in section 23 are— - section 496 (discretionary payments by trustees: tax pool adjustment), - section 809ZN (tainted gift aid donations: charge to tax), and - section 809ZO (tainted charity donations by trustees: charge to tax).

9

In section 58 (meaning of “adjusted net income), at the end insert—

(4) Subsection (6) of section 809ZM (removal of income tax relief in respect of tainted donations etc) excludes certain donations from being deducted at step 2 in subsection (1).

10

In section 413 (gift aid: overview of Chapter), after subsection (4) insert—

(4A) This Chapter is subject to section 809ZM (removal of income tax relief in respect of tainted charity donations etc).

11

In section 431 (gifts of shares, securities and real property to charities etc), after subsection (6) insert—

(7) This Chapter is subject to section 809ZM (removal of income tax relief in respect of tainted charity donations etc).

12

In section 543 (meaning of “non-charitable expenditure”), omit subsection (1)(g) and (h).

13

Sections 549 to 557 (substantial donor transactions) are repealed.

14

In Schedule 2 (transitionals and savings), omit paragraphs 105 and 106.

15

In Schedule 4 (index of defined expressions), at the appropriate places insert—

arrangements (in Chapter 8 of Part 13)	section 809ZR”
“charity (in Chapter 8 of Part 13)	paragraph 1 of Schedule 6 to FA 2010 (and see also section 809ZR)”
“the donor (in Chapter 8 of Part 13)	section 809ZJ(3)”
“potentially advantaged person (in Chapter 8 of Part 13)	section 809ZJ(5)”
“relievable charity donation (in Chapter 8 of Part 13)	section 809ZI(1)”
“tainted donation (in Chapter 8 of Part 13)	section 809ZJ

.

Housing and Regeneration Act 2008

16

In Schedule 9 (amendment of enactments: Part 1), omit paragraph 34.

Corporation Tax Act 2009

17

In section 105 of CTA 2009 (gifts of trading stock to charities etc), in subsection (6) after “charity)” insert “ and section 939F of that Act (removal of corporation tax relief in respect of tainted charity donations etc) ”.

18

In Schedule 1 (minor and consequential amendments), omit paragraphs 703 and 704.

Corporation Tax Act 2010

19

CTA 2010 is amended as follows.

20

In section 1 (overview of Act), in subsection (4)—

• (a) in the opening words for “21” substitute “ 21C ”, and

• (b) after paragraph (j) insert

, and (k) tainted donations made to charities (see Part 21C).

21

In section 189 (relief for qualifying charitable donations), in subsection (5) for “any” substitute “ section 939F and to any other ”.

22

In section 496 (meaning of “non-charitable expenditure”), omit subsection (1)(e) and (f).

23

Sections 502 to 510 (substantial donor transactions) are repealed.

24

In Schedule 1 (minor and consequential amendments), omit paragraphs 532 to 535.

25

In Schedule 2 (transitionals and savings etc), omit paragraphs 73 to 76.

26

In Schedule 4 (index of defined expressions), at the appropriate places insert—

arrangements (in Part 21C)	section 939I”
“charity (in Part 21C)	paragraph 1 of Schedule 6 to FA 2010 (and see also section 939I)”
“the donor (in Part 21C)	section 939C(3)”
“potentially advantaged person (in Part 21C)	section 939C(5)”
“relievable charity donation (in Part 21C)	section 939B(1)”
“tainted donation (in Part 21C)	section 939C

.

Part 5 — Commencement and transitional provision

Commencement

27

• (1) Subject to sub-paragraph (2), the amendments made by this Schedule have effect in relation to relievable charity donations made on or after 1 April 2011.

• (2) The repeals made by paragraphs 12 to 14, 16, 18 and 22 to 25 have effect in relation to any transaction, other than an excluded transaction, occurring on or after 1 April 2013.

• (3) A transaction is “excluded” if it is entered into in pursuance of a contract made before 1 April 2013, other than in pursuance of a variation of the contract made on or after that date.

Treatment of existing arrangements

28

In the amendments made by Parts 1 and 2 of this Schedule, references to arrangements include arrangements made, or made and implemented, before 1 April 2011.

Treatment of substantial donor transactions

29

• (1) For the purposes of section 549(2) of ITA 2007 (meaning of substantial donor), relievable gifts (within the meaning of section 550 of that Act) received by a charitable trust on or after 1 April 2011 are to be disregarded.

• (2) Sub-paragraphs (3) and (4) apply where—

• (a) a substantial donor transaction is entered into before, or on or after 1 April 2011, and

• (b) that transaction is not tainted.

• (3) Where a payment made on or after 1 April 2011 by a charitable trust to a substantial donor in the course of, or for the purposes of, the substantial donor transaction would (in the absence of this sub-paragraph) be treated under section 551(1) or (5) of ITA 2007 as non-charitable expenditure, that payment is not to be so treated.

• (4) Where, as a result of the substantial donor transaction, non-charitable expenditure would (in the absence of this sub-paragraph) be treated as incurred under section 551(2) of that Act on or after 1 April 2011, that expenditure is not to be treated as so incurred.

• (5) A substantial donor transaction is “tainted” if (and only if) it is reasonable to assume from—

• (a) the likely effects of the relevant relievable gifts and the substantial donor transaction, and

• (b) the circumstances in which the relevant relievable gifts were made and the circumstances in which the substantial donor transaction was entered into,

that the relevant relievable gifts (or one or more of them) would not have been made and the transaction would not have been entered into independently of one another.

• (6) In this section—

• “relevant relievable gifts”, in relation to the substantial donor transaction, means the relievable gifts by reason of which a person is a substantial donor and the transaction is a substantial donor transaction;

• “relievable gift” has the meaning given by section 550 of ITA 2007;

• “substantial donor” and “substantial donor transaction” have the meaning given by section 549 of that Act.

30

• (1) For the purposes of section 502(2) of CTA 2010 (meaning of substantial donor), relievable gifts (within the meaning of section 503 of that Act) received by a charitable company on or after 1 April 2011 are to be disregarded.

• (2) Sub-paragraphs (3) and (4) apply where—

• (a) a substantial donor transaction is entered into before, or on or after, 1 April 2011, and

• (b) that transaction is not tainted.

• (3) Where a payment made on or after 1 April 2011 by a charitable company to a substantial donor in the course of, or for the purposes of, the substantial donor transaction would (in the absence of this sub-paragraph) be treated under section 504(1) or (5) of CTA 2010 as non-charitable expenditure, that payment is not to be so treated.

• (4) Where, as a result of the substantial donor transaction, non-charitable expenditure would (in the absence of this sub-paragraph) be treated as incurred under section 504(2) of that Act on or after 1 April 2011, that expenditure is not to be treated as so incurred.

• (5) The substantial donor transaction is “tainted” if (and only if) it is reasonable to assume from—

• (a) the likely effects of the relevant relievable gifts and the substantial donor transaction, and

• (b) the circumstances in which the relevant relievable gifts were made and the circumstances in which the substantial donor transaction was entered into,

that the relevant relievable gifts (or one or more of them) would not have been made and the transaction would not have been entered into independently of one another.

• (6) In this section—

• “relevant relievable gifts”, in relation to the substantial donor transaction, means the relievable gifts by reason of which a person is a substantial donor and the transaction is a substantial donor transaction;

• “relievable gift” has the meaning given by section 503 of CTA 2010;

• “substantial donor” and “substantial donor transaction” have the meaning given by section 502 of that Act.

Housing (Scotland) Act 2010 (asp 17)

31

Until such time as section 20 of the Housing (Scotland) Act 2010 is brought into force, the references to that section in the following provisions are to be read as references to section 57 of the Housing (Scotland) Act 2001 (asp 10)—

• (a) the definition of “relevant housing provider” in section 809ZJ(8) of ITA 2007;

• (b) the definition of “relevant housing provider” in section 939C(8) of CTA 2010.

SCHEDULE 4

Loan relationships

1

Part 5 of CTA 2009 (loan relationships) is amended as follows.

2

• (1) Section 311 (amounts not fully recognised for accounting purposes) is amended as follows.

• (2) In subsection (2)—

• (a) at the end of paragraph (a) insert “ and ”, and

• (b) for paragraphs (b) and (c) substitute—

(b) as a result of tax avoidance arrangements to which the company is at any time a party, an amount is (in accordance with generally accepted accounting practice) not fully recognised for the period in respect of the creditor relationship.

• (3) Omit subsections (3) to (5A).

• (4) In subsection (6)—

• (a) in the opening words—

• (i) after “section” insert “ and section 312 ”, and

• (ii) omit “, a contribution to it or securities issued by it”, and

• (b) in paragraphs (a) and (b), omit “, contribution or securities”.

• (5) After subsection (6) insert—

(7) For the purposes of this section arrangements are “tax avoidance arrangements” if the main purpose, or one of the main purposes, of any party to the arrangements, in entering into them, is to obtain a tax advantage. (8) In subsection (7) “arrangements” includes any arrangements, scheme or understanding of any kind, whether or not legally enforceable, involving a single transaction or two or more transactions. (9) For the purposes of this section a company is to be treated as a party to a creditor relationship even though it has disposed of its rights under the relationship to another person— (a) under a repo or stock lending arrangement, or (b) under a transaction which is treated as not involving any disposal as a result of section 26 of TCGA 1992 (mortgages and charges not to be treated as disposals).

3

• (1) Section 312 (determination of credits and debits where amounts not fully recognised) is amended as follows.

• (2) For subsection (1A) substitute—

(1A) Subsection (1B) applies in a case where— (a) pursuant to the arrangements mentioned in section 311(2)(b), the company becomes, or is treated as becoming, a party to a debtor relationship, and (b) an amount is (in accordance with generally accepted accounting practice) not fully recognised for any period in respect of the debtor relationship.

• (3) In subsection (1B) omit “by reference to which that condition is met”.

• (4) In subsection (3) for “But” substitute

But— (a) no debits are, as a result of this section, to be brought into account by the company in respect of the creditor relationship mentioned in section 311(2), and (b)

.

4

In section 440 (overview of Chapter 15), in subsection (2), omit the “and” at the end of paragraph (e), and after paragraph (f) insert

, and (g) for rules about debits arising as a result of the derecognition of creditor relationships, see section 455A.

5

After section 455 insert—

(455A) (1) This section applies where— (a) a company is at any time a party to tax avoidance arrangements, (b) as a result of those arrangements, a creditor relationship to which the company is party, or any part of such a relationship, is (in accordance with generally accepted accounting practice) derecognised by the company, and (c) the company continues to be a party to the creditor relationship immediately after the transaction or other event giving rise to the derecognition. (2) No debit that would apart from this section be brought into account by the company for the purposes of this Part as a result of the derecognition is to be so brought into account. (3) An amount that would be brought into account for the purposes of this Part as respects any matter apart from this section— (a) is treated for the purposes of section 464(1) (priority of this Part for corporation tax purposes) as if it were so brought into account, and (b) accordingly, may not be brought into account for any other corporation tax purposes as respects that matter. (4) For the purposes of this section a company is to be treated as a party to a creditor relationship even though it has disposed of its rights under the relationship to another person— (a) under a repo or stock lending arrangement, or (b) under a transaction which is treated as not involving any disposal as a result of section 26 of TCGA 1992 (mortgages and charges not to be treated as disposals). (5) For the purposes of this section arrangements are “tax avoidance arrangements” if the main purpose, or one of the main purposes, of any party to the arrangements, in entering into them, is to obtain a tax advantage. (6) In subsection (5) “arrangements” includes any arrangements, scheme or understanding of any kind, whether or not legally enforceable, involving a single transaction or two or more transactions.

6

In section 464 (priority of Part for corporation tax purposes), in subsection (4), omit the “and” at the end of paragraph (a) and after paragraph (b) insert

, and (c) section 455A(3) (debits arising from derecognition of creditor relationships).

Derivative contracts

7

Part 7 of CTA 2009 (derivative contracts) is amended as follows.

8

• (1) Section 599A (amounts not fully recognised for accounting purposes) is amended as follows.

• (2) In subsection (2)—

• (a) at the end of paragraph (a) insert “ and ”, and

• (b) for paragraphs (b) and (c) substitute—

(b) as a result of tax avoidance arrangements to which the company is at any time a party, an amount is (in accordance with generally accepted accounting practice) not fully recognised for the period in respect of the contract.

• (3) Omit subsections (3) to (5B).

• (4) In subsection (6)—

• (a) in the opening words, omit “, a contribution to it or securities issued by it”, and

• (b) in paragraphs (a) and (b), omit “, contribution or securities”.

• (5) After subsection (6) insert—

(7) For the purposes of this section arrangements are “tax avoidance arrangements” if the main purpose, or one of the main purposes, of any party to the arrangements, in entering into them, is to obtain a tax advantage. (8) In subsection (7)— (a) “arrangements” includes any arrangements, scheme or understanding of any kind, whether or not legally enforceable, involving a single transaction or two or more transactions, and (b) “tax advantage” has the meaning given by section 1139 of CTA 2010. (9) For the purposes of this section a company is to be treated as a party to a derivative contract even though it has disposed of its rights and liabilities under the contract to another person— (a) under a repo or stock lending arrangement, or (b) under a transaction which is treated as not involving any disposal as a result of section 26 of TCGA 1992 (mortgages and charges not to be treated as disposals).

9

• (1) Section 599B (determination of credits and debits where amounts not fully recognised) is amended as follows.

• (2) After subsection (2) insert—

(2A) But no debits are, as a result of this section, to be brought into account by the company in respect of the derivative contract.

• (3) After subsection (3) insert—

(4) If— (a) the company is, or is treated as, a party to the contract at the beginning of the period referred to in section 599A(1), and (b) the fair value of the contract at that time is greater than the carrying value of that contract at that time, a credit of an amount equal to the difference is to be brought into account for that period for the purposes of this Part in respect of the contract.

10

In section 689 (overview of Chapter 11), in subsection (2), omit the “and” at the end of paragraph (c), and after paragraph (d) insert

, and (e) for rules about debits arising as a result of the derecognition of derivative contracts, see section 698A.

11

After section 698 insert—

(698A) (1) This section applies where— (a) a company is at any time a party to tax avoidance arrangements, (b) as a result of those arrangements, a derivative contract to which the company is party, or any part of such a contract, is (in accordance with generally accepted accounting practice) derecognised by the company, and (c) the company continues to be a party to the derivative contract immediately after the transaction or other event giving rise to the derecognition. (2) No debit that would apart from this section be brought into account by the company for the purposes of this Part as a result of the derecognition is to be so brought into account. (3) An amount that would be brought into account for the purposes of this Part as respects any matter apart from this section— (a) is treated for the purposes of section 699(1) (priority of this Part for corporation tax purposes) as if it were so brought into account, and (b) accordingly, may not be brought into account for any other corporation tax purposes as respects that matter. (4) For the purposes of this section a company is to be treated as a party to a derivative contract even though it has disposed of its rights and liabilities under the contract to another person— (a) under a repo or stock lending arrangement, or (b) under a transaction which is treated as not involving any disposal as a result of section 26 of TCGA 1992 (mortgages and charges not to be treated as disposals). (5) For the purposes of this section arrangements are “tax avoidance arrangements” if the main purpose, or one of the main purposes, of any party to the arrangements, in entering into them, is to obtain a tax advantage. (6) In subsection (5)— (a) “arrangements” includes any arrangements, scheme or understanding of any kind, whether or not legally enforceable, involving a single transaction or two or more transactions, and (b) “tax advantage” has the meaning given by section 1139 of CTA 2010.

Consequential repeals

12

In consequence of the amendments made by this Schedule, omit—

• (a) in Schedule 30 to FA 2009, paragraph 2(1) to (6), and

• (b) in Schedule 5 to F(No.2)A 2010, paragraphs 1 and 3.

Commencement

13

• (1) The amendments made by this Schedule have effect in relation to periods of account beginning on or after 6 December 2010.

• (2) But, for the purposes of sub-paragraph (1), a period of account beginning before, and ending on or after, 6 December 2010 is to be treated as if so much of the period as falls before that date, and so much of the period as falls on or after that date, were separate periods of account.

• (3) The following provisions of CTA 2009 do not have effect where they apply by reason of tax avoidance arrangements to which the company became a party before 23 March 2011—

• (a) section 312(3)(a) (as inserted by paragraph 3(4) of this Schedule);

• (b) section 599B(2A) (as inserted by paragraph 9(2) of this Schedule);

• (c) section 599B(4) (as inserted by paragraph 9(3) of this Schedule).

SCHEDULE 5

Insertion of new Part 21B of CTA 2010 and consequential amendments

1

In section 1(4) of CTA 2010 (overview of Act), omit the “and” at the end of paragraph (h), and after paragraph (i) insert—

(j) group mismatch schemes (see Part 21B).

2

After Part 21A of that Act insert—

(938A) (1) This section applies to a company that— (a) is (at any time) a party to a group mismatch scheme, and (b) is a member of the scheme group. (2) No scheme loss or profit made by the company in any accounting period in relation to the scheme is to be brought into account as a debit or credit for the purposes of Part 5 of CTA 2009 (loan relationships) or Part 7 of that Act (derivative contracts). (3) An amount that would, apart from this section, be brought into account for the purposes of Part 5 or 7 of that Act as respects any matter— (a) is treated, for the purposes of section 464(1) or (as the case may be) 699(1) of that Act (priority of Part 5 or 7 for corporation tax purposes) as if it were so brought into account, and (b) accordingly, may not be brought into account for any other corporation tax purposes as respects that matter. (938B) (1) A scheme is “a group mismatch scheme” if— (a) the parties to the scheme are, or include, members of the same group, and (b) condition A or B is met. (2) Condition A is that, at the time the scheme is entered into, there is no practical likelihood that the scheme will fail to secure a relevant tax advantage of £2 million or more. (3) The Treasury may by order substitute a higher amount for the amount for the time being specified in subsection (2). (4) Any such substitution is to have effect in relation to schemes entered into on or after the day on which the order comes into force. (5) Condition B is that— (a) the purpose, or one of the main purposes, of any member of the scheme group in entering into the scheme is to obtain the chance of securing a relevant tax advantage (of any amount), and (b) at the time the scheme is entered into— (i) there is no chance that the scheme will secure a relevant tax disadvantage, or (ii) there is such a chance, but the expected value of the scheme is nevertheless a positive amount. (6) If, at the time the company enters into the scheme, there are chances that the scheme would, if carried out, secure different relevant tax advantages or disadvantages in different circumstances, the amounts and probabilities of each must be taken into account in determining the expected value of the scheme. (7) In determining whether condition A or B is met, it is to be assumed that the parties to the scheme carry it out. (8) Where, at the time the scheme is entered into, the length of the scheme period is uncertain, condition A or B is met if it would be met on any reasonable assumption as to the length of the scheme period. (9) In determining whether condition A or B is met, section 938A (scheme profits and losses to be left out of account) is to be disregarded. (10) In this Part “the scheme group” means the group mentioned in subsection (1)(a). (938C) (1) A loss or profit made by a company in an accounting period is a “scheme loss” or “scheme profit” in relation to a group mismatch scheme if the loss or profit— (a) arises from a transaction, or series of transactions, that forms part of the scheme, (b) is, or is comprised in, an amount that is brought into account as a debit or credit for the purposes of Part 5 or 7 of CTA 2009, and (c) meets the first or second asymmetry condition. (2) The first asymmetry condition is that the loss or profit affects the amount of any relevant tax advantage secured by the scheme. (3) Where, at the end of the accounting period— (a) it is not certain whether the scheme will secure a relevant tax advantage, or (b) it is not certain what the amount of the relevant tax advantage secured by the scheme will be, a loss or profit is to be treated as meeting the first asymmetry condition if, at that time, there is a chance that the scheme will secure a relevant tax advantage and that the loss or profit will affect its amount. (4) Where— (a) a loss or profit meets the conditions in subsection (1)(a) and (b), and (b) a part, but not the whole, of the loss or profit meets the first asymmetry condition, only that part of the loss or profit is a “scheme loss” or “scheme profit”. (5) The second asymmetry condition is that the loss or profit— (a) does not meet the first asymmetry condition, but (b) arises from a transaction, or series of transactions, that might (if events had turned out differently) have given rise to a loss or profit that would have done so. (6) References in this section to a loss or profit include a loss or profit arising in respect of interest or expenses. (7) In determining whether the condition in subsection (1)(b) or the first or second asymmetry condition is met, section 938A (scheme profits and losses to be left out of account) is to be disregarded. (938D) (1) In this Part “relevant tax advantage”, in relation to a scheme, means an economic profit that— (a) is made by the scheme group over the scheme period, (b) meets the condition in subsection (3), and (c) is not negligible. (2) In this Part “relevant tax disadvantage”, in relation to a scheme, means an economic loss that— (a) is made by the scheme group over the scheme period, (b) meets the condition in subsection (3), and (c) is not negligible. (3) The condition is that the economic profit or loss arises as a result of asymmetries in the way different members of the scheme group bring, or do not bring, amounts into account as debits and credits for the purposes of Part 5 or 7 of CTA 2009. (4) A reference in this section to asymmetries includes, in particular— (a) asymmetries relating to quantification, and (b) asymmetries relating to timing. (5) In this section— (a) a reference to an economic profit includes an increase in an economic profit and a decrease in an economic loss, and (b) a reference to an economic loss includes an increase in an economic loss and a decrease in an economic profit. (6) In this Part “the scheme period”, in relation to a scheme, means the period during which the scheme has effect. (938E) (1) For the purposes of this Part a company (“company A”) is a member of a group, in relation to a scheme, if any other company is at any time in the scheme period associated with company A. (2) The group consists of company A and each company in relation to which the condition in subsection (1) is met. (3) For the purposes of this section a company (“company B”) is associated with company A at a time (“the relevant time”) if any of the following five conditions is met. (4) The first condition is that the financial results of company A and company B, for a period that includes the relevant time, meet the consolidation condition. (5) The second condition is that there is a connection between company A and company B for the accounting period of company A in which the relevant time falls. (6) The third condition is that, at the relevant time, company A has a major interest in company B or company B has a major interest in company A. (7) The fourth condition is that— (a) the financial results of company A and a third company, for a period that includes the relevant time, meet the consolidation condition, and (b) at the relevant time the third company has a major interest in company B. (8) The fifth condition is that— (a) there is a connection between company A and a third company for the accounting period of company A in which the relevant time falls, and (b) at the relevant time the third company has a major interest in company B. (9) In this section, the financial results of any two companies for any period meet “the consolidation condition” if— (a) they are required to be comprised in group accounts, (b) they would be required to be comprised in such accounts but for the application of an exemption, or (c) they are in fact comprised in such accounts. (10) In subsection (9), “group accounts” means accounts prepared under— (a) section 399 of the Companies Act 2006, or (b) any corresponding provision of the law of a territory outside the United Kingdom. (11) The following provisions apply for the purposes of this section— - sections 466 to 471 of CTA 2009 (companies connected for accounting period), and - sections 473 and 474 of CTA 2009 (meaning of “major interest”). (938F) (1) An economic profit or loss is to be computed for the purposes of this Part taking into account, in particular— (a) profits and losses made as a result of the operation of the Corporation Tax Acts, and (b) any adjustments required to reflect the time value of money. (2) A reference in this Part to an economic profit or loss made by the scheme group over the scheme period is to an economic profit or loss made in that period by the members of the group considered together. (3) In determining for the purposes of this Part the amount of an economic profit or loss made by the scheme group over the scheme period, profits and losses made by a member of the group are to be taken into account only to the extent that they are attributable to times at which the member is a party to the scheme. (938G) (1) This section applies for the purpose of determining whether a scheme will, or might, secure a relevant tax advantage. (2) The economic profits and losses made by the scheme group over the scheme period must be calculated on the assumption that each company that is at any time a party to the scheme— (a) obtains the full tax benefit of any loss made by that company in relation to a loan relationship or a derivative contract during the period, and (b) incurs the full tax cost of any profit made by that company in relation to a loan relationship or a derivative contract during the period. (3) The “full tax benefit” of a loss is the reduction in the liability of the company to corporation tax that would result if— (a) the loss were brought into account as a debit or as a reduction in a credit for the purposes of Part 5 or 7 of CTA 2009, and (b) the company's profits chargeable to corporation tax, disregarding the loss, were equal to the debit (or the reduction in the credit) determined by reference to the loss. (4) The “full tax cost” of a profit is the increase in the liability of the company to corporation tax that would result if— (a) the profit were brought into account as a credit or as a reduction in a debit for the purposes of Part 5 or 7 of CTA 2009, and (b) the company's profits chargeable to corporation tax, disregarding the profit, were nil. (938H) In this Part “scheme” includes any scheme, arrangements or understanding of any kind whatever, whether or not legally enforceable, involving a single transaction or two or more transactions. (938I) (1) This section applies where— (a) a scheme includes an arrangement under which a member of the scheme group has a debtor repo or a debtor quasi-repo, and (b) the advance under that arrangement is received, directly or indirectly, from a member of the scheme group. (2) References in this Part to amounts brought into account, or not brought into account, as debits or credits for the purposes of Part 5 of CTA 2009 include amounts brought into account, or not brought into account, for the purposes of any other provision so far as it applies the charge to corporation tax on income to the repayment of the advance. (3) Sections 548 and 549 of CTA 2009 (meaning of debtor repo and debtor quasi-repo) apply for the purposes of this section. (4) For the purposes of subsection (2) “the repayment of the advance” means the consideration given on the purchase of securities mentioned in condition D in section 548 or 549 of CTA 2009. (938J) (1) This section applies in relation to a scheme if— (a) it includes a type 1, 2 or 3 finance arrangement under which a member of the scheme group is the borrower, and (b) the advance under that arrangement is received, directly or indirectly, from a member of the scheme group. (2) References in this Part to amounts brought into account, or not brought into account, as debits or credits for the purposes of Part 5 of CTA 2009 include amounts brought into account, or not brought into account, for the purposes of any other provision so far as it applies the charge to corporation tax on income to the repayment of the advance. (3) Sections 758, 763 and 767 of this Act (meaning of type 1, 2 and 3 finance arrangements) apply for the purposes of this section. (4) For the purposes of subsection (2) “the repayment of the advance” means the payments mentioned in condition A in section 758, 763 or 767 of this Act. (938K) References in this Part to amounts brought into account, or not brought into account, as debits or credits for the purposes of Part 5 or 7 of CTA 2009 include amounts brought into account, or not brought into account, as expenses or receipts of a trade by virtue of section 297 or 573 of that Act (trading credits and debits to be brought into account under Part 3). (938L) (1) References in this Part to a company not bringing amounts into account as debits or credits for the purposes of Part 5 or 7 of CTA 2009 do not include the company not bringing amounts into account by virtue of— (a) the company being non-UK resident, or (b) an election under section 18A of CTA 2009 (profits or losses of foreign permanent establishments). (2) See section 938M for provision about controlled foreign companies. (938M) (1) Paragraph 5(1) of Schedule 24 to ICTA (assumption that a controlled foreign company is not a member of any group for the purposes of any provision of the Tax Acts) does not apply for the purposes of this Part. (2) References in this Part to a company bringing amounts into account, or not bringing them into account, as debits or credits for the purposes of Part 5 or 7 of CTA 2009 include bringing amounts into account, or not bringing them into account, as debits or credits under that Part in determining the chargeable profits of the company (or in determining that there were no such profits) for the purposes of Chapter 4 of Part 17 of ICTA (controlled foreign companies). (938N) For the purposes of this Part the following provisions are to be treated as of no effect— (a) section 441 of CTA 2009 (loan relationships for unallowable purposes); (b) section 690 of that Act (derivative contracts for unallowable purposes); (c) Part 4 of TIOPA 2010 (transfer pricing); (d) Part 6 of that Act (tax arbitrage); (e) Part 7 of that Act (tax treatment of financing costs and income).

3

• (1) Sections 938 to 940 of that Act are renumbered as follows—

• (a) section 938 becomes section 940A,

• (b) section 939 becomes section 940B, and

• (c) section 940 becomes section 940C.

• (2) In section 940A (as so renumbered)—

• (a) in subsection (2), for “939” substitute “ 940B ”,

• (b) in subsection (3), for “940” substitute “ 940C ”.

4

• (1) Schedule 4 to that Act (index of defined expressions) is amended as follows.

• (2) In the entry for “the predecessor (in Chapter 1 of Part 24)”—

• (a) for “24” substitute “ 22 ”, and

• (b) for “939(4)” substitute “ 940B(4) ”.

• (3) In the entry for “the successor (in Chapter 1 of Part 22)”, for “939(4)” substitute “ 940B(4) ”.

• (4) In the entry for “trade (in Chapter 1 of Part 22)”, for “939(5)” substitute “ 940B(5) ”.

• (5) In the entry for “transfer of a trade (in Chapter 1 of Part 24)”—

• (a) for “24” substitute “ 22 ”, and

• (b) for “939(2)” substitute “ 940B(2) ”.

• (6) In the entry for “the transferred trade (in Chapter 1 of Part 24)”—

• (a) for “24” substitute “ 22 ”, and

• (b) for “939(3)” substitute “ 940B(3) ”.

• (7) At the appropriate places insert—

economic loss (in Part 21B)	section 938F”
“economic profit (in Part 21B)	section 938F”
“group (in Part 21B)	section 938E”
“a group mismatch scheme (in Part 21B)	section 938B”
“relevant tax advantage (in Part 21B)	section 938D”
“relevant tax disadvantage (in Part 21B)	section 938D”
“scheme (in Part 21B)	section 938H”
“the scheme group (in Part 21B)	section 938B”
“scheme loss (in Part 21B)	section 938C”
“the scheme period (in Part 21B)	section 938D”
“scheme profit (in Part 21B)	section 938C

5

• (1) In section 147(6) of TIOPA 2010 (transfer pricing: basic rule), omit the “and” at the end of paragraph (e) and at the end of paragraph (f) insert

, and (g) section 938N of CTA 2010 (this Part treated as of no effect for the purposes of Part 21B of CTA 2010 (group mismatch schemes)).

• (2) In section 231 of that Act (tax arbitrage: overview), after subsection (7) insert—

(8) This Part has effect subject to section 938N of CTA 2010 (this Part treated as of no effect for the purposes of Part 21B of CTA 2010 (group mismatch schemes)).

Commencement of new Part 21B of CTA 2010 and consequential amendments

6

• (1) The amendments made by paragraphs 1, 2 and 5 have effect in relation to schemes entered into at any time (including any time before the commencement date).

• (2) But section 938A in Part 21B of CTA 2010 (as inserted by paragraph 2) does not apply to—

• (a) scheme losses or profits that relate to a time before the commencement date, or

• (b) scheme profits that relate to a time on or after that date but are made in relation to a scheme entered into before that date.

• (3) In this Schedule “the commencement date” means the day on which this Act is passed.

Repeal of sections 418 to 419 of CTA 2009

7

• (1) Omit sections 418 to 419 of CTA 2009 (loan relationships treated differently by connected debtor and creditor).

• (2) In consequence of the repeals made by sub-paragraph (1), omit—

• (a) in section 748ZA of ICTA (as inserted by paragraph 5 of Schedule 12 to this Act), subsection (5)(a),

• (b) in Schedule 30 to FA 2009, paragraph 4,

• (c) in section 416 of CTA 2009, subsection (4),

• (d) in Schedule 1 to CTA 2010, paragraph 615, and

• (e) section 29 of this Act.

• (3) The repeals made by this paragraph have effect in relation to loan relationships to which a company is a party (or to which it is treated as a party under section 418(6A) of CTA 2009) on or after the commencement date.

• (4) But amounts are to continue to be brought into account for the purposes of Part 5 of CTA 2009 disregarding the repeals made by sub-paragraph (1) if the amounts relate to a time before the commencement date; and the repeals made by sub-paragraph (2) have effect accordingly.

Repeal of section 453 of CTA 2009

8

• (1) Omit section 453 of CTA 2009 (connected parties deriving benefit from creditor relationships).

• (2) That repeal has effect in relation to loan relationships to which a company is a party on or after the commencement date.

• (3) But amounts are to continue to be brought into account for the purposes of Part 5 of CTA 2009 disregarding that repeal if the amounts relate to a time before the commencement date.

SCHEDULE 6

Businesses carried on by companies alone

1

Chapter 3 of Part 9 of CTA 2010 (sale of lessors: leasing business carried on by a company alone) is amended as follows.

2

• (1) Section 387 (“business of leasing plant or machinery”) is amended as follows.

• (2) In subsection (3), for “qualifying leased plant or machinery” substitute “ plant or machinery falling within subsection (7) ”.

• (3) For subsection (5) substitute—

(5) Condition B is that at least half of the relevant company's income in the past 12 months derives from plant or machinery falling within subsection (7).

• (4) For subsections (7) and (8) substitute—

(7) Plant or machinery falls within this subsection if— (a) it is or at any time in the past 12 months has been leased out by the relevant company or a qualifying associate, (b) the lease under which it is or has been leased out is a plant or machinery lease but not an excluded lease of background plant or machinery for a building (see section 437(3)), and (c) if the plant or machinery satisfies paragraph (a) only because it is or has been leased out by a qualifying associate, the lessee under the lease is or was someone other than the relevant company. (8) For the purposes of subsection (7)— (a) plant or machinery is “leased out” by a person if it is subject to a plant or machinery lease under which that person is a lessor, (b) “associate” means a person connected with the relevant company (see also subsection (9)), and (c) a person is a “qualifying associate” if the person is an associate at the start of the relevant day or at any earlier time in the past 12 months (whether or not a time when the plant or machinery was leased out by the person). (9) If the relevant company is owned by a consortium or is a qualifying 75% subsidiary of a company owned by a consortium, the reference in subsection (8)(b) to a person connected with the relevant company also includes— (a) any member of the consortium, and (b) any person connected with such a member. (10) A reference in this section to the past 12 months is to the period of 12 months ending with the relevant day.

3

In section 389 (provision supplementing section 388), in subsection (5)(b), for “market value” substitute “ ascribed value ”.

4

In section 390 (relevant plant or machinery value where relevant company lessee under long funding lease etc), in subsection (2), for “market value” substitute “ ascribed value ”.

5

In section 391 (relevant company's income for condition B in section 387), in subsection (5), for “qualifying leased plant or machinery” substitute “ plant or machinery falling within section 387(7) ”.

6

• (1) Section 398G (transfers into and out of A) is amended as follows.

• (2) Omit subsection (2).

• (3) For subsection (3) substitute—

(3) If any event occurs that requires A to bring the disposal value of plant or machinery into account under Part 2 of CAA 2001, that Part has effect as if the disposal value that A is required to bring into account were the higher of— (a) the disposal value determined in accordance with that Part, and (b) the ascribed value of the plant or machinery. (4) Section 265 of CAA 2001 (successions) is subject to this section.

7

In section 401 (provisions supplementing section 400), in subsection (5)(b), for “market value” substitute “ ascribed value ”.

8

In section 402 (“PM” where relevant company lessee under long funding lease etc), in subsection (2), for “market value” substitute “ ascribed value ”.

9

• (1) Section 403 (“TWDV” in section 399) is amended as follows.

• (2) In subsection (2), for paragraph (b) substitute—

(b) in calculating the amounts of unrelieved qualifying expenditure mentioned in subsection (1)(a) to (c), any part of those amounts that is relevant new expenditure is to be left out of account.

• (3) After that subsection insert—

(3) Relevant new expenditure” means— (a) expenditure attributable to plant or machinery acquired by the relevant company on the relevant day except for plant or machinery acquired on that day from an associated company, and (b) expenditure incurred on the relevant day but attributable to plant or machinery acquired by the relevant company before that day. (4) In subsection (3)— (a) “acquired” includes brought into use or made available for use for the first time for the purposes of the business, and (b) a reference to anything acquired or incurred includes anything treated as acquired or treated as incurred.

Businesses carried on by companies in partnership

10

Chapter 4 of Part 9 of CTA 2010 (sale of lessors: leasing business carried on by a company in partnership) is amended as follows.

11

• (1) Section 410 (“business of leasing plant or machinery”) is amended as follows.

• (2) In subsection (2), for “qualifying leased plant or machinery” substitute “ plant or machinery falling within subsection (6) ”.

• (3) For subsection (4) substitute—

(4) Condition B is that at least half of the partnership's income in the past 12 months derives from plant or machinery falling within subsection (6).

• (4) For subsections (6) and (7) substitute—

(6) Plant or machinery falls within this subsection if— (a) it is or at any time in the past 12 months has been leased out by the partnership or a qualifying associate, (b) the lease under which it is or has been leased out is a plant or machinery lease but not an excluded lease of background plant or machinery for a building (see section 437(3)), and (c) if the plant or machinery satisfies paragraph (a) only because it is or has been leased out by a qualifying associate, the lessee under the lease is or was someone other than the partnership. (7) For the purposes of subsection (6)— (a) plant or machinery is “leased out” by a person if it is subject to a plant or machinery lease under which that person is a lessor, (b) “associate” means a person who is a partner in the partnership or connected with a partner in the partnership (see also subsection (8)), and (c) a person is a “qualifying associate” if the person is an associate at the start of the relevant day or at any earlier time in the past 12 months (whether or not a time when the plant or machinery was leased out by the person). (8) In relation to a corporate partner who is owned by a consortium or is a qualifying 75% subsidiary of a company owned by a consortium, the reference in subsection (7)(b) to a person connected with a partner also includes— (a) any member of the consortium, and (b) any person connected with such a member. (9) A reference in this section to the past 12 months is to the period of 12 months ending with the relevant day.

12

In section 412 (provision supplementing section 411), in subsection (5)(b), for “market value” substitute “ ascribed value ”.

13

In section 413 (relevant plant or machinery value where partnership lessee under long funding lease etc), in subsection (2), for “market value” substitute “ ascribed value ”.

14

In section 414 (partnership's income for condition B in section 410), in subsection (5), for “qualifying leased plant or machinery” substitute “ plant or machinery falling within section 410(6) ”.

15

• (1) Section 421 (the amount of the income: the basic amount) is amended as follows.

• (2) In subsection (6), for paragraph (b) substitute—

(b) in calculating the amounts of unrelieved qualifying expenditure mentioned in subsection (5)(a) to (c), any part of those amounts that is relevant new expenditure is to be left out of account.

• (3) After that subsection insert—

(6A) Relevant new expenditure” means— (a) expenditure attributable to plant or machinery acquired by the partnership on the relevant day except for plant or machinery acquired on that day from a qualifying company, and (b) expenditure incurred on the relevant day but attributable to plant or machinery acquired by the partnership before that day. (6B) In subsection (6A)— (a) “acquired” includes brought into use or made available for use for the first time for the purposes of the business, and (b) a reference to anything acquired or incurred includes anything treated as acquired or treated as incurred.

Anti-avoidance provisions

16

Chapter 5 of Part 9 of CTA 2010 (sales of lessors: anti-avoidance provisions) is amended as follows.

17

• (1) Section 434 (introduction to sections 435 and 436) is amended as follows.

• (2) In subsection (2), for “question A or B” substitute “ question A, B or C ”.

• (3) After subsection (4) insert—

(5) Question C is the question of the amount of any disposal value to be substituted by section 398G(3).

18

• (1) Section 435 (disregard of increases or decreases in balance sheet amounts) is amended as follows.

• (2) In subsection (1), for paragraph (a) substitute—

(a) an amount mentioned in subsection (1A) is to be ascertained for the purpose of determining a question as to the application of Chapter 3 or 4,

.

• (3) After that subsection insert—

(1A) The amounts are— (a) the relevant plant or machinery value, (b) the value of plant or machinery falling within section 387(7) or 410(6), (c) the relevant company's or partnership's income in the period of 12 months ending with the relevant day, (d) the amount of PM, (e) the amount of TWDV, (f) the amount of any disposal value to be substituted by section 398G(3), and (g) any underlying amount required to calculate or verify an amount mentioned in any of the preceding paragraphs.

• (4) In subsection (2)—

• (a) omit “or” at the end of paragraph (b), and

• (b) at the end of paragraph (c) insert

, or (d) the amount of any disposal value to be substituted by section 398G(3) would be reduced.

• (5) In subsection (3), for “which falls (or would fall) to be shown in the balance sheet in respect of plant or machinery” substitute “ to be ascertained ”.

• (6) Accordingly, in the heading of that section, for “in balance sheet amounts” substitute “ in certain amounts ”.

19

In section 436 (balance sheet amounts determined on assumption company has no liabilities), after subsection (6) insert—

(7) Except for subsection (6), this section applies to a partnership as it applies to a company, and references to “company” are to be read accordingly.

General interpretation of sales of lessors Chapters

20

Chapter 6 of Part 9 of CTA 2010 (sales of lessors: general interpretation) is amended as follows.

21

In section 437, omit subsection (9) (definition of “market value”).

22

After that section insert—

(437A) (1) For the purposes of the sales of lessors Chapters, the ascribed value of plant or machinery at any given time (“the relevant time”) is the value determined in accordance with this section. (2) Subsection (3) applies to plant or machinery if— (a) it is subject to a plant or machinery lease at the relevant time, (b) the relevant company or partnership is a lessor under the lease, and (c) subsection (5) does not apply to it. (3) The ascribed value of plant or machinery to which this subsection applies is the higher of— (a) the market value of the plant or machinery at the relevant time, and (b) the present value at that time of the lease referred to in subsection (2). (4) Subsection (5) applies to plant or machinery if— (a) it is subject to a plant or machinery lease at the relevant time, (b) the lease is an equipment lease within the meaning of Chapter 14 of Part 2 of CAA 2001 (fixtures), (c) the relevant company or partnership is the equipment lessor in respect of the lease (see section 174 of that Act), and (d) the equipment lessor is treated at that time as the owner of the plant or machinery by virtue of an election made in reliance on section 177(1)(a)(i) of that Act (which permits elections if the conditions in section 178 are met in relation to the lease). (5) The ascribed value of plant or machinery to which this subsection applies is the present value at the relevant time of the lease referred to in subsection (4). (6) The ascribed value of plant or machinery to which neither subsection (3) nor subsection (5) applies is the market value of the plant or machinery at the relevant time. (437B) (1) This section supplements section 437A. (2) Market value is to be determined on the assumption of a disposal by an absolute owner free from all leases and other encumbrances (including any agreement or arrangement that is or includes a plant or machinery lease). (3) If plant or machinery is a fixture, its market value is so much of the market value of the relevant land and the fixture together as is attributable to the fixture on a just and reasonable apportionment. (4) “Relevant land” has the meaning given in section 173(2) of CAA 2001. (437C) (1) For the purposes of section 437A, the present value of a lease is the present value of the amounts mentioned in subsection (2). (2) The amounts are— (a) the amounts payable under the lease after the relevant time, and (b) any residual amount. (3) Subsection (2)(a) does not apply to amounts payable by the lessor or to amounts that represent— (a) charges for services, or (b) qualifying UK or foreign tax to be paid by the lessor. (4) Present value is to be calculated by using the interest rate implicit in the lease. (5) The interest rate implicit in the lease is the interest rate that would apply in accordance with normal commercial criteria, including, in particular, generally accepted accounting practice (where applicable). (6) But if a rate cannot be determined in accordance with subsection (5), the interest rate implicit in the lease is taken to be 1% above LIBOR. (7) For this purpose— (a) LIBOR means the London interbank offered rate on the applicable day for deposits for a term of 12 months in the applicable currency, (b) the applicable day is the day comprising or including the relevant time (or, if that day is not a business day, the first business day after it), and (c) the applicable currency is the currency in which payments under the lease are payable. (8) If— (a) the lessee has an option to continue the lease for a period after expiry of its initial term, and (b) it is reasonably certain at the relevant time that the lessee will exercise that option, references in this section to amounts payable under the lease include amounts payable under the lease as continued for any such period. (9) If the lease also relates to land or assets that are not plant or machinery, the present value of the lease is so much of the present value of the amounts mentioned in subsection (2) as is attributable to the plant or machinery on a just and reasonable apportionment. (10) In this section, “qualifying UK or foreign tax” and “residual amount” have the meaning given in section 70YE of CAA 2001.

Consequential amendments

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In section 267A of CAA 2001 (restriction on effect of election), in subsection (2), for “is qualifying leased plant or machinery” substitute “ falls within section 387(7) of CTA 2010 (if the business is carried on otherwise than in partnership) or within section 410(6) of that Act (if the business is carried on in partnership) ”.

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In section 948 of CTA 2010 (modified application of CAA 2001), in subsection (6), before paragraph (a) insert—

(za) section 398G of this Act (sale of lessors: transfers into and out of A after election under section 398A),

.

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• (1) Section 950 of CTA 2010 (transfers of trades involving business of leasing plant or machinery) is amended as follows.

• (2) In subsection (5), for the words from “its market value” to the end substitute

the higher of— (a) its ascribed value immediately before the transfer of the trade, and (b) the disposal value that the predecessor would be required to bring into account under Part 2 of CAA 2001 in respect of it as a result of the transfer of the trade.

• (3) In subsection (6)—