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Finance Act 2002

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This is the original version (as it was originally enacted).

Financial instruments

69Qualifying contracts for unallowable purposes

(1)After section 168 of the Finance Act 1994 (c. 9) insert—

168AQualifying contracts for unallowable purposes

(1)Where in any accounting period a qualifying contract to which a company is party has an unallowable purpose, any amounts which for that period fall, in the case of the company, to be brought into account for the purposes of section 155 above as part of amount B shall (subject to subsection (2) below) not include so much of the amounts given by the accounting method used as respects the contract as, on a just and reasonable apportionment, is referable to the unallowable purpose.

(2)The total of any amounts which by virtue of subsection (1) above are not to be brought into account in the accounting period as part of amount B may not exceed the maximum amount.

(3)For the purposes of subsection (2) above, the maximum amount, in relation to the accounting period, is—

(a)if in the accounting period amount B exceeds amount A, the amount by which amount B exceeds amount A; and

(b)if in the accounting period amount A exceeds or equals amount B, nil.

(4)For the purposes of subsection (3) above, amount A and amount B shall be determined in relation to the qualifying contract in accordance with section 155 above and, in so determining amount B, so much of any amount as is referable to the unallowable purpose of the contract shall (notwithstanding subsection (1) above) be brought into account.

(5)For the purposes of this section a qualifying contract to which a company is party shall be taken to have an unallowable purpose in an accounting period where the purposes for which, at times during that period, the company is party to the contract include a purpose (“the unallowable purpose”) which is not amongst the business or other commercial purposes of the company.

(6)For the purposes of this section the business and other commercial purposes of a company do not include the purposes of any part of its activities in respect of which it is not within the charge to corporation tax.

(7)For the purposes of this section, where one of the purposes for which a company is party to a qualifying contract at any time is a tax avoidance purpose, that purpose shall be taken to be a business or other commercial purpose of the company only where it is not the main purpose, or one of the main purposes, for which the company is party to the contract at that time.

(8)The reference in subsection (7) above to a tax avoidance purpose is a reference to any purpose that consists in securing a tax advantage (whether for the company or any other person).

(9)In this section “tax advantage” has the same meaning as in Chapter 1 of Part 17 of the Taxes Act 1988 (tax avoidance)..

(2)Subject to subsection (3), this section has effect for accounting periods ending on or after 26th July 2001 in relation to any qualifying contract to which a company is party, unless the company has ceased to be a party to the contract before that date.

(3)Where such an accounting period begins before 26th July 2001, there shall not be included in the amounts, which by virtue of section 168A(1) of the Finance Act 1994 (c. 9) (as it has effect subject to section 168A(2) (maximum amount)) are not to be brought into account, such part of those amounts as, on a just and reasonable apportionment, is attributable to the part of the accounting period which falls before 26th July 2001.

(4)For the purposes of subsection (3), section 168A(3) shall have effect for the purposes of determining the maximum amount in section 168A(2) as if the references in section 168A(3) to amount A and amount B were references to such part of amount A or amount B as, on a just and reasonable apportionment, is attributable to the part of the accounting period which falls after 25th July 2001.

70Forward premiums and discounts under currency contracts

(1)In section 153 of the Finance Act 1994 (c. 9) (qualifying payments), for subsections (4) and (5) (premiums and discounts) substitute—

(5)For the purposes of this Chapter, in the case of any qualifying contract which is a currency contract,—

(a)the amount of any forward discount arising under the contract to a qualifying company shall be treated as a qualifying payment received by the company; and

(b)the amount of any forward premium arising under the contract from a qualifying company shall be treated as a qualifying payment made by the company.

(6)The amounts of any forward discounts and premiums arising under a contract to a qualifying company shall be determined for the purposes of subsection (5) above—

(a)in accordance with subsections (7) to (9) below in the case of a currency contract which provides for a rate of exchange between the reporting currency and another currency, and

(b)in accordance with subsection (10) below in the case of a currency contract which provides for a rate of exchange between two currencies, neither of which is the reporting currency.

(7)For the purposes of subsection (5)(a) above, the cases where a forward discount arises under a currency contract to a company are those cases where—

(a)the acquisition spot price exceeds the acquisition contract price, or

(b)the sale contract price exceeds the sale spot price;

and the amount of the forward discount is the amount of the excess mentioned in paragraph (a) or (b) above, as the case may be.

(8)For the purposes of subsection (5)(b) above, the cases where a forward premium arises under a currency contract from a company are those cases where—

(a)the acquisition contract price exceeds the acquisition spot price, or

(b)the sale spot price exceeds the sale contract price;

and the amount of the forward premium is the amount of the excess mentioned in paragraph (a) or (b) above, as the case may be.

(9)In subsections (7) and (8) above—

  • “the acquisition contract price” means the amount of any currency (other than the reporting currency) to be acquired under the contract by the company, expressed in the reporting currency, using the rate of exchange determined by the terms of the contract;

  • “the acquisition spot price” means the amount of any currency (other than the reporting currency) to be acquired under the contract by the company, expressed in the reporting currency, using such rate of exchange for the date on which the company becomes entitled to rights and subject to duties under the contract as is used for the purposes of the company’s accounts (as defined in section 156(6) below);

  • “the sale contract price” means the amount of any currency (other than the reporting currency) to be disposed of under the contract by the company, expressed in the reporting currency, using the rate of exchange determined by the terms of the contract;

  • “the sale spot price” means the amount of any currency (other than the reporting currency) to be disposed of under the contract by the company, expressed in the reporting currency, using such rate of exchange for the date on which the company becomes entitled to rights and subject to duties under the contract as is used for the purposes of the company’s accounts (as defined in section 156(6) below).

(10)Where this subsection has effect in accordance with subsection (6)(b) above, the amounts of any forward premiums and discounts arising under the contract are the amounts which, in accordance with generally accepted accounting practice, are brought into account in the same way as any forward premiums and discounts which fall to be determined in accordance with subsections (7) and (8) above.

(11)Subsection (5) above is subject to subsection (12) below.

(12)Where a qualifying company is using, as respects a qualifying contract which is a currency contract, a basis of accounting which conforms to generally accepted accounting practice and—

(a)an amount which would, but for this subsection, fall to be treated as a qualifying payment by virtue of subsection (5) above is brought into account by the company, in accordance with that basis of accounting, as a qualifying payment made or received by the company but otherwise than by virtue of being a forward premium or discount, or

(b)that basis of accounting is such that no forward premiums or discounts are treated as arising under a qualifying contract,

subsection (5) above shall not have effect in relation to that amount or, as the case may be, in relation to that contract.

(13)In this section “the reporting currency” means sterling, unless the case is one where section 93 of the Finance Act 1993 (use of foreign currency) applies, in which case it means the currency which is the relevant foreign currency for the purposes of that section..

(2)This section has effect for accounting periods ending on or after 26th July 2001 in relation to any currency contract to which a company is party, unless the company has ceased to be a party to the contract before that date.

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