PART III continued CHAPTER II continued
(1) Any receipt or expense which is to be taken into account in making a computation under subsection (1) of section 92 above for an accounting period, and is denominated in a currency other than sterling, shall be translated into its sterling equivalent—
(a) if either of the conditions mentioned in subsection (2) below is fulfilled, by reference to the rate used in the preparation of the accounts of the company as a whole for that period;
(b) if neither of those conditions is fulfilled, by reference to the London closing exchange rate for the relevant day.
(2) The conditions are—
(a) that the rate is an arm’s length exchange rate for the relevant day;
(b) that the rate is an average arm’s length exchange rate for a period ending with that day, or for a period not exceeding three months which includes that day, and the arm’s length exchange rate for any day in that period (except the first) is not significantly different from that for the preceding day.
(3) Subject to subsections (5) and (7) below, any amount found by applying paragraphs (a) and (b) of subsection (4) of section 93 above shall be translated into its sterling equivalent by reference to the London closing exchange rate for the relevant day.
(4) The following—
(a) any receipt or expense which is to be taken into account in making a calculation for the purposes of subsection (4)(a) or (b) of section 93 above, and is denominated in a currency other than the relevant foreign currency; and
(b) any such sterling amount as is referred to in subsection (5) of that section,
shall be translated into its equivalent expressed in the relevant foreign currency by reference to the London closing exchange rate for the relevant day.
(5) Where section 93 above applies by virtue of the first condition mentioned in that section, then, as regards the business or part of the business, the company—
(a) may elect, by a notice given to an officer of the Board, that as from the first day of the accounting period in which the notice is given, an average arm’s length exchange rate shall be used for the purposes of subsection (3) above instead of the rate there mentioned; and
(b) may withdraw such an election, by a notice so given, as from the first day of the first accounting period beginning on or after the date of the notice.
(6) Where an election under subsection (5) above is withdrawn, no further election may be made under that subsection so as to take effect before the third anniversary of the day on which the withdrawal takes effect.
(7) Where—
(a) section 93 above applies by virtue of the second condition mentioned in that section; and
(b) the accounts of the company, so far as relating to the business or part of the business, are prepared by reference to an average arm’s length exchange rate,
that exchange rate shall be used for the purposes of subsection (3) above instead of the rate there mentioned.
(8) In this section—
“accounts” has the same meaning as in section 93 above;
“arm’s length exchange rate” means such exchange rate as might reasonably be expected to be agreed between persons dealing at arm’s length;
“average arm’s length exchange rate”, in relation to a period, means the rate which represents an appropriate average of arm’s length exchange rates for the period;
“the relevant day” means—
for the purposes of subsections (1), (2) and (4)(a) above, the day on which the company becomes entitled to the receipt or incurs (or is treated as incurring) the expense;
for the purposes of subsection (3) above, the last day of the accounting period in question;
for the purposes of subsection (4)(b) above, the day on which the company incurs the capital expenditure.
(9) Nothing in this section affects the operation of Chapter IV of Part VII of the Taxes Act 1988 (controlled foreign companies) or Chapter II of this Part.
(10) Nothing in paragraph 88 of Schedule 18 to the [1998 c. 36.] Finance Act 1998 (company tax returns, assessments and related matters) shall be taken to prevent any amount which is taken to be conclusively determined for the purposes of the Corporation Tax Acts from being translated under this section by reference to an exchange rate which was not used to determine the amount which can no longer be altered.”.
(2) Where any of the items referred to in section 93(4)(b) of the [1993 c. 34.] Finance Act 1993 (as substituted by subsection (1) above) fall to be taken into account in the first accounting period in relation to which this section has effect, the amounts of those items shall be computed and expressed in the relevant currency by reference to the London closing exchange rate for the last day of the immediately preceding accounting period.
(3) Where any of the items referred to in section 25(1) of the [1990 c. 1.] Capital Allowances Act 1990 which fall to be taken into account for the first accounting period in relation to which this section has effect relate to expenditure which was incurred before the beginning of that period, the amounts of those items shall be computed and expressed in the relevant currency by reference to the London closing exchange rate for the last day of the immediately preceding accounting period.
(4) Subject to subsection (5) below, this section has effect for accounting periods beginning on or after 1st January 2000 and ending on or after 21st March 2000.
(5) Any company which did not, for the accounting period immediately preceding the first accounting period falling within subsection (4) above, make an election in respect of a trade or part of a trade under the Local Currency Elections Regulations 1994 may, by notice given to an officer of the Board on or before 31st August 2000, elect that this section shall not have effect in relation to it until the first accounting period beginning on or after 1st July 2000.
(1) In subsection (2) of section 149 of the [1993 c. 34.] Finance Act 1993 (local currency to be used)—
(a) for “trade or trades”, in both places where they occur, there shall be substituted “business or businesses”; and
(b) for “any such trade” there shall be substituted “any such business”.
(2) In subsection (4) of that section—
(a) the words “the asset or contract was held, or the liability was owed, by the company solely for trading purposes and” shall cease to have effect; and
(b) for “sections 125 to 128” there shall be substituted “sections 125 to 129”.
(3) In subsection (5) of that section—
(a) the words “the asset or contract was held, or the liability was owed, by the company solely for trading purposes and” shall cease to have effect;
(b) for “sections 125 to 128” there shall be substituted “sections 125 to 129”; and
(c) for “trade”, in both places where it occurs, there shall be substituted “business”.
(4) For subsection (6) of that section there shall be substituted—
“(6) In any other case—
(a) sections 125 to 129 above shall be applied by reference to sterling;
(b) those sections shall then be applied separately by reference to each local currency involved (other than sterling); and
(c) any exchange gain or loss of a business or part shall be ignored unless found in the currency which is the local currency of the business or part for the relevant accounting period (whether sterling or otherwise).”.
(5) For subsection (7) of that section there shall be substituted—
“(7) For the purposes of this section a part of a business is any part of a business which is treated for the purposes of section 93 above as if it were a separate business for the relevant accounting period.”.
(6) For subsection (9) of section 128 of the [1993 c. 34.] Finance Act 1993 (trading gains and losses) there shall be substituted—
“(9) For the purposes of this section a part of a trade is any part of a trade which is treated for the purposes of section 93 above as if it were a separate business for the relevant accounting period; and the relevant accounting period is the accounting period which constitutes the accrual period concerned or in which that accrual period falls.”.
(7) After section 135 of that Act there shall be inserted—
(1) This section applies where, as regards qualifying assets and liabilities of a company—
(a) a currency other than sterling would (apart from this section) be the local currency for the purposes of sections 125 to 129 above; and
(b) the main benefit that might be expected to accrue from that currency being the local currency is that no net exchange gain would accrue to the company for those purposes.
(2) If a net exchange gain would accrue to the company if sterling were the local currency for the purposes of sections 125 to 129 above, then, as regards the assets and liabilities concerned, sterling shall be the local currency for those purposes.
(3) For the purposes of this section a net exchange gain accrues to a company if its initial exchange gains (as determined in accordance with this Chapter) exceed its initial exchange losses (as so determined).”.
(8) For subsection (12) of section 140 of that Act (deferral of unrealised gains) there shall be substituted—
“(12) For the purposes of this section a part of a trade is any part of a trade which is treated for the purposes of section 93 above as if it were a separate business for the relevant accounting period; and the relevant accounting period is the accounting period which constitutes the second accrual period or in which that accrual period falls.”.
(9) For subsection (2) of section 142 of that Act (deferral non-sterling trades) there shall be substituted—
“(2) For the purposes of subsection (1) above the sterling equivalent of an amount is the sterling equivalent calculated by reference to such rate of exchange as applies by virtue of section 94 above in the case of the profits or losses for the accounting period concerned of the business or part of which the gain or loss is a gain or loss (or would be apart from section 139 above).”.
(10) In subsections (3) and (5) of that section, for “trade”, in each place where it occurs, there shall be substituted “business”.
(11) For subsection (4) of that section there shall be substituted—
“(4) The amount the company is treated as receiving under section 128(4) or 129(2) above in respect of the accounting period and by virtue of the gain (as reduced) shall be the amount computed and expressed in that currency.”.
(12) In subsection (1) of section 163 of that Act (local currency of a trade), for “trade” there shall be substituted “business”.
(13) For subsections (2) and (3) of that section there shall be substituted—
“(2) Where by virtue of section 93 above the profits or losses of a business or part of a business for an accounting period are to be computed and expressed in a currency other than sterling for the purposes of corporation tax, that other currency is the local currency of the business or part for that period.”.
(14) In section 164 of that Act (interpretation: miscellaneous), subsections (6) and (7) shall cease to have effect.
(15) In section 167 of that Act (orders and regulations)—
(a) in subsection (5A), for “the provisions of Chapter II of Part IV of the [1996 c. 8.] Finance Act 1996 (loan relationships)” there shall be substituted—
“(a) the provisions of Chapter II of Part IV of the [1996 c. 8.] Finance Act 1996 (loan relationships); or
(b) the provisions of sections 105 and 106 of the Finance Act 2000 (use of local currency).”;
(b) in subsection (5B), for “subsection (5A)” there shall be substituted “subsection (5A)(a)”; and
(c) after that subsection there shall be inserted—
“(5C) The power to make any such modifications as are mentioned in subsection (5A)(b) above shall be exercisable so as to apply those modifications in relation to any accounting period of a company beginning on or after 1st January 2000.”.
(16) In subsection (4)(b) of section 110 of the [1998 c. 36.] Finance Act 1998 (determinations requiring the sanction of the Board), after “section 135,” there shall be inserted “135A,”.
(17) This section has effect for accounting periods beginning on or after 1st January 2000 and ending on or after 21st March 2000.
(1) Where an amount representing the whole or any part of the technical provisions which are made by a general insurer for a period of account is taken into account in computing for tax purposes the profits of his trade for that period—
(a) subsection (2) below applies if it becomes apparent in a later period of account that the amount taken into account was excessive; and
(b) subsection (3) below applies if it becomes apparent in such a period that that amount was insufficient.
(2) For the purpose of making good to the Exchequer the loss occasioned by the excess, an amount calculated by applying, for a prescribed period, a prescribed rate of interest to the amount of the excess shall be treated as a receipt of the general insurer’s trade in computing for tax purposes the profits of that trade for the later period of account.
(3) For the purpose of making good to the general insurer the loss occasioned by the deficiency, an amount calculated by applying, for a prescribed period, a prescribed rate of interest to the amount of the deficiency shall be treated as an expense of the general insurer’s trade in computing for tax purposes the profits of that trade for the later period of account.
(4) A general insurer may, before the end of a prescribed period, elect that any part of the technical provisions made by him for a period of account shall not be taken into account in computing for tax purposes the profits of his trade for that period; and where he does so, the profits of his trade for the next period of account shall be adjusted accordingly for the purposes of any computation for tax purposes.
(5) The Board may by regulations make provision for giving effect to subsections (1) to (4) above.
(6) The regulations may, in particular—
(a) exclude from the operation of subsections (1) to (4) above such descriptions of general insurer as may be prescribed;
(b) make such provision as appears to the Board to be appropriate for determining for the purposes of subsections (1) to (3) above whether any amount taken into account was excessive or insufficient and, if so, the amount of the excess or deficiency, including—
(i) provision requiring discounting at a prescribed rate; and
(ii) provision allowing a prescribed margin for error;
(c) make provision for applying subsections (1) to (3) above, to such extent and with such modifications as appear to the Board to be appropriate, to cases where it becomes apparent—
(i) that any amount taken into account was or has become insufficient; or
(ii) that any amount treated as a receipt or expense of a trade was excessive;
(d) make such provision as appears to the Board to be appropriate for dealing with cases where a general insurer transfers his general business to, or enters into a qualifying contract with, another person; and
(e) in the event of any changes in the rules or practice of Lloyd's, make such amendments of this section as appear to the Board to be expedient having regard to those changes.
(7) In this section—
“closing year”, in relation to a syndicate, has the same meaning as in Chapter III of Part II of the [1993 c. 34.] Finance Act 1993 or Chapter V of Part IV of the [1994 c. 9.] Finance Act 1994;
“general business” has the same meaning as in the [1982 c. 50.] Insurance Companies Act 1982;
“general insurer” means any of the following which carries on general business—
a company to which Part II of the [1982 c. 50.] Insurance Companies Act 1982 applies;
an EC company (within the meaning of section 6(2) of that Act) which carries on general business through a branch or agency in the United Kingdom;
a controlled foreign company within the meaning of Chapter IV of Part XVII of the Taxes Act 1988; and
an underwriting member of Lloyd’s (“an underwriting member”);
“period of account”—
except in relation to an underwriting member, means a period for which an account is made up;
in relation to such a member, means an underwriting year in which profits or losses are declared for an earlier underwriting year;
“prescribed” means prescribed by regulations under this section;
“qualifying contract”, in relation to a general insurer, means a contract for reinsuring the liabilities to which any technical provisions of his relate;
“reinsurance to close contract” means a contract where, in accordance with the rules or practice of Lloyd’s and in consideration of the payment of a premium, one underwriting member agrees with another to meet liabilities arising from the latter’s underwriting business for an underwriting year so that the accounts of the business for that year may be closed;
“syndicate” means a syndicate of underwriting members of Lloyd’s formed for an underwriting year;
“technical provisions”, except in relation to an underwriting member, means any of the following—
provisions for claims outstanding;
provisions for unearned premiums;
provisions for unexpired risks;
and in this definition expressions which are used in Schedule 9A to the [1985 c. 6.] Companies Act 1985 have the same meanings as in that Schedule;
“technical provisions”, in relation to an underwriting member, means—
so much of the premiums paid, or treated (in accordance with the rules or practice of Lloyd's) as paid, by him under reinsurance to close contracts; and
so much of any provisions made for the unpaid liabilities of an open syndicate of which he is a member,
as may be determined by or under regulations made by the Board;
“underwriting year” means the calendar year;
and for the purposes of this section a syndicate is an open syndicate at any time after the end of its closing year if, at that time, the accounts of its business for the underwriting year for which it was formed have not been closed.
(8) Regulations under this section may—
(a) make different provision for different cases or descriptions of case, including different provision for different entitlements to participate in the general business carried on by syndicates; and
(b) make such supplementary, incidental, consequential and transitional provision as appears to the Board to be appropriate.
(9) An amount which under subsection (2) or (3) above is treated as a receipt or expense of an underwriting member’s trade—
(a) shall not be included in the aggregate amount mentioned in paragraph 1 of Schedule 19 to the [1993 c. 34.] Finance Act 1993; but
(b) shall be regarded as arising directly from his membership of one or more syndicates for the purposes of section 172(1)(a) of the Finance Act 1993 or section 220(2)(a) of the [1994 c. 9.] Finance Act 1994.
(10) Nothing in paragraph 7 of Schedule 19 to the Finance Act 1993 shall be taken to affect the operation of subsection (2) or (3) above or the exercise of the power conferred by subsection (4) above.
(11) Section 177 of the [1993 c. 34.] Finance Act 1993 and section 224 of the [1994 c. 9.] Finance Act 1994 (which are superseded by this section) shall cease to have effect.
(12) In this section—
(a) subsections (1) to (3), subsections (5) to (8) and (10) so far as relating to those subsections and subsection (9) have effect where—
(i) the first period of account mentioned in subsection (1) begins on or after 1st January 2000; and
(ii) the later period of account mentioned in that subsection begins on or after 1st January 2001;
(b) subsection (4), and subsections (5) to (8) and (10) so far as relating to that subsection, have effect in relation to periods of account beginning on or after 1st January 2000;
(c) subsection (11) has effect in relation to profits of underwriting members' trades which are declared in periods of account beginning on or after that date.
(1) In subsection (1) of section 431D of the Taxes Act 1988 (meaning of “overseas life assurance business”), for “or life reinsurance business” there shall be substituted “, life reinsurance business or business of any description excluded from this section by regulations made by the Board”.
(2) For subsections (2) to (8) of that section there shall be substituted—
“(2) Regulations under subsection (1) above may describe the excluded business by reference to any circumstances appearing to the Board to be relevant.
(3) The Board may by regulations—
(a) make provision as to the circumstances in which a trustee who is a policy holder or annuitant residing in the United Kingdom is to be treated for the purposes of this section as not so residing; and
(b) provide that nothing in Chapter II of Part XIII shall apply to a policy or contract which constitutes overseas life assurance business by virtue of any such provision as is mentioned in paragraph (a) above.
(4) Regulations under subsection (1) or (3) above may contain such supplementary, incidental, consequential or transitional provision as appears to the Board to be appropriate.”.
(3) Where the policy or contract for any life assurance business was made before such day as the Treasury may by order appoint, the amendments made by this section (and any regulations made under them) shall not have effect for determining whether the business is overseas life assurance business.
(1) In subsection (4)(b) of section 432ZA of the Taxes Act 1988 (linked assets), for the words from “the proportion which” to the end there shall be substituted—
“the proportion A/B where—
A is the total of the linked liabilities of the company which are liabilities of the internal linked fund in which the asset is held and are referable to that category of business;
B is the total of the linked liabilities of the company which are liabilities of that fund.”.
(2) For subsection (6) of that section there shall be substituted—
“(6) In this section—
“internal linked fund”, in relation to an insurance company, means an account—
to which linked assets are appropriated by the company; and
which may be divided into units the value of which is determined by the company by reference to the value of those assets;
“linked liabilities” means liabilities in respect of benefits to be determined by reference to the value of linked assets.”.
(3) In the subsections mentioned in subsection (4) below—
(a) in paragraph (a), after “reduced” there shall be inserted “(but not below nil)” and for “values” there shall be substituted “net values”; and
(b) for paragraph (b) there shall be substituted—
“(b) the denominator is the aggregate of—
(i) the numerator given by paragraph (a) above; and
(ii) the numerators given by that paragraph in relation to the other categories of business.”.
(4) The subsections are—
(a) subsection (6) of section 432A of the Taxes Act 1988 (apportionment of income and gains);
(b) subsection (4) of section 432C of that Act (section 432B apportionment: income of non-participating funds); and
(c) subsection (3) of section 432D of that Act (section 432B apportionment: value of non-participating funds).
(5) For subsection (8) of section 432A there shall be substituted—
“(8) In subsection (6) above “appropriate part”, in relation to the investment reserve, means—
(a) where none (or none but an insignificant proportion) of the liabilities of the long term business are with-profits liabilities, the part of that reserve which bears to the whole the proportion A/B where—
A is the amount of the liabilities of the category of business in question;
B is the whole amount of the liabilities of the long term business; and
(b) in any other case, the part of that reserve which bears to the whole the proportion C/D where—
C is the amount of the with-profits liabilities of the category of business in question;
D is the whole amount of the with-profits liabilities of the long term business.”.
(6) After subsection (9) of that section there shall be inserted—
“(9A) In this section and sections 432C and 432D “net value”, in relation to any assets, means the excess of the value of the assets over any liabilities which—
(a) represent a money debt; and
(b) are liabilities of an internal linked fund in which the assets are held;
and in this subsection “internal linked fund” has the same meaning as in section 432ZA.
(9B) In this section—
“investment reserve”, in relation to an insurance company, means the excess of the value of the assets of the company’s long term business over the aggregate of—
the liabilities of that business; and
any liabilities of the long term business fund which represent a money debt;
“money debt” has the same meaning as in Chapter II of Part IV of the [1996 c. 8.] Finance Act 1996.”.
(7) In subsection (5)(b) of section 432C, after “subsection (1)” there shall be inserted “or (2)”.
(8) In Schedule 11 to the [1996 c. 8.] Finance Act 1996 (loan relationships: special provisions for insurers), after paragraph 3 there shall be inserted—
“3A (1) This paragraph applies where—
(a) any money debt of an insurance company is represented by a liability which is a liability of the long term business fund of the company; and
(b) any question arises for the purposes of the Corporation Tax Acts as to the extent to which any debits or credits given for the purposes of this Chapter in respect of that debt or liability are referable to any category of the company’s long term business.
(2) If any debits relate to interest payable in respect of the late payment of any benefits, they are referable to the category of long term business which comprises the effecting and carrying out of the policies or contracts under which the benefits are payable.
(3) If the liability is a liability of an internal linked fund of the company, any debits or credits are referable—
(a) to the category of long term business to which the fund relates; or
(b) where the fund relates to two or more categories of such business, to those categories in the same proportion as the linked assets in the fund are apportioned to them under section 432ZA(4) of the Taxes Act 1988 (linked assets).
(4) In any case not falling within sub-paragraph (2) or (3) above, there shall be referable to any category of long term business the relevant fraction of any debits or credits.
(5) For the purpose of determining that fraction, subsections (6) and (8) of section 432A of the Taxes Act 1988 (apportionment of income and gains) shall have effect as if—
(a) the debits or credits were income not directly referable to any category of business;
(b) the reference in subsection (6)(a) to assets directly referable to a category of business were a reference to assets linked to that category of business; and
(c) subsection (9) of that section were omitted.
(6) In this paragraph “internal linked fund” has the same meaning as in section 432ZA of the Taxes Act 1988 (linked assets).”.
(9) In consequence of the preceding provisions of this section—
(a) in section 431(2) of the Taxes Act 1988 (interpretative provisions in relation to insurance companies), the definition of “investment reserve” shall cease to have effect;
(b) in paragraph 4(2) of Schedule 19AA to that Act (overseas life assurance fund), after “investment reserve” there shall be inserted “(within the meaning of section 432A)”; and
(c) in paragraph 7(3) of Schedule 19AC to that Act (modification of Act in relation to overseas life insurance companies)—
(i) in paragraph (b), for “value” there shall be substituted “net value”; and
(ii) paragraph (c) shall cease to have effect.
(10) This section shall have effect in relation to accounting periods beginning on or after 1st January 2000 and ending on or after 21st March 2000.
(1) At the end of Part II of the Taxes Act 1988 (provisions relating to the Schedule A charge) insert—
(1) A transaction is a finance agreement for the purposes of sections 43B to 43F if in accordance with normal accounting practice the accounts of a company which receives money under the transaction would record a financial obligation (whether in respect of a lease creditor or otherwise) in relation to that receipt.
(2) In subsection (1) “normal accounting practice” in relation to a company means normal accounting practice for a company incorporated in a part of the United Kingdom (irrespective of where the company is in fact incorporated).
(3) The reference to a company’s accounts in subsection (1) shall be taken to include a reference to the consolidated group accounts of a group of companies of which it is a member; and—
(a) “group of companies” means a set of companies which, if each were incorporated in Great Britain, would form a group within the meaning given by section 262(1) of the [1985 c. 6.] Companies Act 1985, and
(b) “consolidated group accounts” means accounts of a kind which would satisfy the requirements of section 227 of the Companies Act 1985.
(4) For the purposes of subsection (1) a company shall be treated as receiving any money which—
(a) falls to be taken into account as a receipt for the purpose of calculating the company’s liability to corporation tax, or
(b) would fall to be taken into account as a receipt for that purpose if the company were resident in the United Kingdom.