Finance Act 1996

Further restriction on bringing into account losses on overseas sovereign debt etc.

9 (1) This paragraph applies where—

(a) for an accounting period in which a company ceases to be a party to a loan relationship (“the loss period”) any amount falls for the purposes of this Chapter to be brought into account in respect of that relationship in accordance with an authorised accruals basis of accounting;

(b) by the bringing into account of that amount in that period a loss incurred in connection with a relevant overseas debt falling within sub-paragraph (2) below is treated for the purposes of this Chapter as arising in that period;

(c) the amount of the loss is greater than 5 per cent. of the debt; and

(d) the loss is not one incurred on a disposal of the debt to an overseas State authority in a case in which the State or territory by reference to which it is an overseas State authority is the same as that by reference to which the debt is a relevant overseas debt.

(2) A relevant overseas debt falls within this sub-paragraph if—

(a) a deduction has been made in respect of the debt in accordance with section 74(1)(j) of the Taxes Act 1988 for any period of account of the company ending before 1st April 1996;

(b) any debit relating to the debt has been brought into account for the purposes of this Chapter in accordance with so much of any authorised accruals basis of accounting as relates to the matters mentioned in paragraph 5(1)(a) to (c) above; or

(c) the debt is one acquired by the company on or after 20th March 1990 for a consideration greater than the price which it might reasonably have been expected to fetch on a sale in the open market at the time of acquisition.

(3) Where this paragraph applies, the amounts brought into account for the purposes of this Chapter in the loss period shall be such as to secure that only so much of the loss as does not exceed 5 per cent. of the debt is treated for the purposes of this Chapter as arising in the loss period; but sub-paragraph (4) below applies as respects further parts of that loss until the loss is exhausted.

(4) A part of the loss may, in accordance with sub-paragraph (5) below, be brought into account for the purposes of this Chapter in the form of a debit for any accounting period after the loss period (“a subsequent period”).

(5) The amount of the debit brought into account under sub-paragraph (4) above for any subsequent period shall not exceed such amount as, together with any parts of the loss which for earlier periods have been represented by—

(a) the amount of the loss treated as arising in the loss period in accordance with sub-paragraph (3) above, or

(b) debits brought into account in accordance with this sub-paragraph,

is equal to 5 per cent. of the debt for each complete year that has elapsed between the beginning of the loss period and the end of the subsequent period.

(6) In this paragraph “overseas State authority” and “relevant overseas debt” have the same meanings as in paragraph 8 above.

(7) References in this paragraph to a loss do not include so much of any loss as falls to be disregarded for the purposes of this Chapter by virtue of paragraph 10 below or to any loss incurred before 1st April 1996.