Taxation (International and Other Provisions) Act 2010

4 U.K. After section 809BZI insert—

“Type 3 arrangements U.K.

809BZJ Type 3 finance arrangement defined

(1) For the purposes of this Chapter an arrangement is a type 3 finance arrangement if conditions A and B are met.

(2) Condition A is that—

(a) a partnership holds an asset (“the security”) as a partnership asset at any time before the arrangement is made,

(b) under the arrangement the partnership receives money or another asset (“the advance”) from another person (“the lender”),

(c) there is a relevant change in relation to the partnership (see section 809BZG), and

(d) under the arrangement the share in the partnership's profits of the person involved in the change is determined by reference (wholly or partly) to payments in respect of the security.

(3) Condition B is that in accordance with generally accepted accounting practice—

(a) the partnership's accounts for the period in which the advance is received record a financial liability in respect of it, and

(b) the payments reduce the amount of the financial liability.

(4) The reference to the partnership's accounts includes a reference to the accounts of any person who is a member of the partnership immediately before the arrangement is made.

809BZK Certain tax consequences not to have effect

(1) This section applies if—

(a) there is a type 3 finance arrangement, and

(b) any relevant change in relation to the partnership would have the relevant effect (ignoring this section).

(2) The relevant effect is that—

(a) an amount of income on which a relevant member would otherwise have been charged to income tax is not so charged,

(b) an amount which would otherwise have been brought into account in calculating for income tax purposes any income of a relevant member is not so brought into account, or

(c) a relevant member becomes entitled to an income deduction.

(3) A relevant member is a person who—

(a) was a member of the partnership immediately before the relevant change in relation to it occurred, and

(b) is not the lender.

(4) If this section applies—

(a) Part 9 of ITTOIA 2005 (partnerships) is to have effect in relation to any relevant member as if the relevant change in relation to the partnership had not occurred, and

(b) accordingly the finance arrangement is not to have the relevant effect.

(5) In deciding whether subsection (1)(b) is met assume that amounts of income equal to the payments mentioned in section 809BZJ(2)(d) were payable to the partnership before the relevant change in relation to it occurred.

(6) An income deduction is—

(a) a deduction in calculating income for income tax purposes, or

(b) a deduction from total income.

809BZL Deemed interest

(1) This section applies if—

(a) there is a type 3 finance arrangement,

(b) a relevant member is a person within the charge to income tax, and

(c) in accordance with generally accepted accounting practice the partnership's accounts record an amount as a finance charge in respect of the advance.

(2) For income tax purposes the relevant member may treat the amount as interest payable by the partnership on a loan.

(3) The reference in subsection (1) to the partnership's accounts includes a reference to the accounts of any relevant member.

(4) If an amount is treated as interest (“deemed interest”) under subsection (2), to find out when it is paid—

(a) treat the payments mentioned in section 809BZJ(2)(d) as consisting of amounts for repaying the advance and amounts (“the interest elements”) in respect of interest on the advance,

(b) treat the interest elements of the payments as paid when the payments are paid, and

(c) treat the deemed interest as paid at the times when the interest elements are treated as paid.

(5) A relevant member is a person who—

(a) was a member of the partnership immediately before the relevant change in relation to it occurred, and

(b) is not the lender.”