Corporation Tax Act 2009

Chapter 18 General and supplementary provisions

Connections between persons

466 Companies connected for an accounting period

(1) This section and sections 467 to 471 have effect for the purposes of any provisions of this Part which apply this section (but this does not affect the application of section 1316(1) (meaning of “connected” persons) for other purposes of this Part).

(2) There is a connection between a company (“A”) and another company (“B”) for an accounting period if there is a time in the period when—

(a) A controls B,

(b) B controls A, or

(c) A and B are both controlled by the same person.

(3) But A and B are not taken to be controlled by the same person just because they have been under the control of—

(a) the Crown,

(b) a Minister of the Crown,

(c) a government department,

(d) a Northern Ireland department,

(e) a foreign sovereign power, or

(f) an international organisation.

(4) Subsection (2) is subject to section 468 (connection between companies to be ignored in some circumstances).

(5) For a case where companies are treated as if one controlled the other, see section 383(5) (inter-partnership lending between connected company partners etc).

(6) Section 472 (meaning of “control”) applies for the purposes of this section.

467 Connections where partnerships are involved

(1) This section applies for the purposes of the provisions which apply section 466 (“the relevant provisions”) if—

(a) a trade or business is carried on by a firm, and

(b) the firm stands in the position of a creditor or debtor as respects a money debt.

(2) The questions about connections specified in subsection (3) must be determined as if each of the partners in the firm separately (rather than the firm), stood in that position as respects the debt to the extent of that partner’s appropriate share.

(3) The questions are—

(a) whether for the purposes of this Part there is a connection for the purposes of the relevant provisions between any two companies for an accounting period in the case of a loan relationship, and

(b) how far any amount is treated under this Part in any particular way as a result of there being, or not being, such a connection.

(4) For the purposes of subsection (2), a partner’s “appropriate share” is the same share as the share in which any profit or loss for the accounting period in question would be apportioned to the partner in accordance with the firm’s profit-sharing arrangements.

(5) The references in subsections (2) to (4) to partners do not include references to the general partner of a limited partnership which is a collective investment scheme.

468 Connection between companies to be ignored in some circumstances

(1) In the case of a company (“the creditor”) which has a creditor relationship, any connection for an accounting period between the creditor and another company which stands in the position of a debtor as respects the debt is ignored for the purposes of the relevant provisions if the creditor is a party to the relationship in circumstances where—

(a) conditions A to E in section 469 (creditors who are financial traders) are met, or

(b) conditions A, B and C in section 471 (creditors who are insurance companies carrying on basic life assurance and general annuity business) are met.

(2) In subsection (1) “the relevant provisions” means any provisions of this Part which apply section 466.

(3) Subsection (4) applies if for any accounting period subsection (1) has effect in the case of a creditor relationship of a company.

(4) Subsection (1) does not apply for determining whether there is a connection between the two companies for the purposes of so much of any of the relevant provisions or of section 467 as relates to the corresponding debtor relationship.

(5) For the purposes of this section and section 469, a company is treated as standing in the position of a debtor if it indirectly stands in that position by reference to a series of loan relationships or relevant money debts.

(6) In subsection (5) “relevant money debt” means a money debt which would be a loan relationship if a company directly stood in the position of creditor or debtor.

469 Creditors who are financial traders

(1) This section sets out the conditions referred to in section 468(1)(a).

(2) Condition A is that the creditor disposes of or acquires assets representing creditor relationships in the course of carrying on any activities forming an integral part of a trade carried on by it in the accounting period.

(3) Condition B is that the asset representing the creditor relationship was acquired in the course of those activities.

(4) Condition C is that that asset—

(a) is listed on a recognised stock exchange at the end of that period, or

(b) is a security the redemption of which must occur within 12 months of its issue.

(5) Condition D is that there is a time in that period when assets of the same kind as the asset representing the creditor relationship are beneficially owned by persons other than the creditor.

(6) Condition E is that in that period there is not more than 3 months in total during which the equivalent of at least 30% of the assets of that kind is beneficially owned by connected companies.

(7) Section 470 supplements this section.

470 Section 469: supplementary provisions

(1) For the purposes of conditions D and E in section 469 assets are taken to be of the same kind if they—

(a) are treated as being of the same kind by the practice of any recognised stock exchange, or

(b) would be so treated if dealt with on such an exchange.

(2) For the purposes of condition E in section 469 an asset is beneficially owned by a connected company if there is a connection between—

(a) the company which beneficially owns it, and

(b) a company which stands in the position of a debtor as respects the money debt by reference to which any loan relationship represented by that asset exists.

(3) Whether there is a connection for the purposes of subsection (2) at any time in an accounting period (“the relevant time”) is determined in accordance with section 466(2), (3), (5) and (6)—

(a) applying the conditions in section 466(2) only at the relevant time, and

(b) ignoring section 468.

471 Creditors who are insurance companies carrying on BLAGAB

(1) This section sets out the conditions referred to section 468(1)(b)).

(2) Condition A is that the creditor is an insurance company carrying on basic life assurance and general annuity business in the accounting period.

(3) Condition B is that the asset representing the creditor relationship is linked for that period to that business.

(4) Condition C is that conditions C, D and E in section 469 are met in relation to that asset.

472 Meaning of “control”

(1) This section has effect for the purposes of any provisions of this Part which apply this section (but this does not affect the application of section 1316(2) (meaning of “control”) for other purposes of this Part).

(2) For those purposes “control”, in relation to a company, means the power of a person to secure that the affairs of the company are conducted in accordance with the person’s wishes—

(a) by means of the holding of shares or the possession of voting power in or in relation to the company or any other company, or

(b) as a result of any powers conferred by the articles of association or other document regulating the company or any other company.

(3) Trading shares held by a company and any voting power or other powers arising from such shares are ignored for the purposes of this section.

(4) For the purposes of subsection (3) shares held by a company are trading shares if—

(a) a profit on a sale of the shares would be treated as a trading receipt of a trade carried on by the company, and

(b) the shares are not assets of an insurance company’s long-term insurance fund.

(5) Subsection (6) applies in the case of any firm to which section 1259 (calculation of firm’s profits and losses) applies.

(6) For any accounting period of the firm, property, rights or powers held or exercisable for its purposes are treated for the purposes of this section as if—

(a) the property, rights or powers had been apportioned between, and were held or exercisable by, the partners severally, and

(b) the apportionment had been in the same shares as those in which the profit or loss of the period would be apportioned between the partners in accordance with the firm’s profit-sharing arrangements.

(7) In subsection (6) the references to partners do not include references to the general partner of a limited partnership which is a collective investment scheme.

473 Meaning of “major interest”

(1) In this Part references to a company (“A”) having a major interest in another company (“B”) are to be read as follows.

(2) A has a major interest in B at any time if at that time—

(a) A and one other person (“C”), taken together, have control of B, and

(b) A and C each have interests, rights and powers representing at least 40% of the holdings, rights and powers as a result of which A and C are taken to have control of B.

(3) The reference in subsection (2)(b) to interests, rights and powers does not include interests, rights or powers arising from shares held by a company if—

(a) a profit on a sale of the shares would be treated as a trading receipt of a trade carried on by the company, and

(b) the shares are not assets of an insurance company’s long-term insurance fund.

(4) Section 474 makes provision about how this section operates where connected companies or partnerships are involved.

(5) For the purposes of this section and section 474, a company (“D”) is connected with another company (“E”) if—

(a) D controls E,

(b) E controls D, or

(c) D and E are both controlled by the same company.

(6) Section 472 (meaning of “control”) applies for the purposes of this section and section 474.

(7) If two or more persons taken together have the power mentioned in section 472(2) (as read with the other provisions of section 472) as respects the affairs of a company (“B”), they are taken for the purposes of subsection (2)(a) to have control of B.

474 Treatment of connected companies and partnerships for section 473

(1) For the purposes of section 473(2), all the interests, rights and powers of any company connected with another company are attributed to the other company before determining any question—

(a) whether two persons taken together have control of a company at any time, or

(b) whether a person has at any time interests, rights and powers representing at least 40% of the holdings, rights and powers in respect of a company.

(2) If section 1259 (calculation of firm’s profits and losses) applies, any property, rights or powers held or exercisable for the purposes of the firm are treated for the purposes of section 473, as respects any time in an accounting period of the firm, on the basis of the assumptions in subsection (3).

(3) The assumptions are that—

(a) the property, rights or powers had been apportioned between, and were held or exercisable by, the partners in the firm severally, and

(b) the apportionment was in the same shares as those in which the profit or loss of the accounting period would be apportioned between the partners under the firm’s profit-sharing arrangements.

(4) Subsection (5) applies if—

(a) a trade or business is carried on by a firm, and

(b) the firm stands in the position of a creditor or debtor as respects a money debt.

(5) The questions in subsection (6) are to be determined as if each of the partners in the firm separately, instead of the firm, stood in the position of a creditor or, as the case may be, a debtor as respects the money debt to the extent of that partner’s appropriate share (see subsection (8)).

(6) The questions are—

(a) whether a company has a major interest in another company for an accounting period in the case of a loan relationship, or

(b) how far any amount is treated under this Part in any particular way as a result of a company having or, as the case may be, not having such a major interest.

(7) The references to partners in subsections (3) and (5) do not include a reference to the general partner of a limited partnership which is a collective investment scheme.

(8) For the purposes of subsection (5), a partner’s “appropriate share” is the same share as the partner’s share under the firm’s profit-sharing arrangements of any profit or loss calculated in accordance with section 1259 for the accounting period in question.

475 Meaning of expressions relating to exchange gains and losses

(1) References in this Part to exchange gains or exchange losses, in relation to a company, are references respectively to—

(a) profits or gains which arise as a result of comparing at different times the expression in one currency of the whole or some part of the valuation put by the company in another currency on an asset or liability of the company, or

(b) losses which so arise.

(2) If the result of such a comparison is that neither an exchange gain nor an exchange loss arises, for the purposes of this Part an exchange gain of nil is taken to arise in the case of that comparison.

(3) The Treasury may make provision by regulations as to the way in which exchange gains or losses are to be calculated for the purposes of this section in a case where fair value accounting is used by the company.

(4) The regulations may be made so as to apply to periods of account beginning before the regulations are made, but not earlier than the beginning of the calendar year in which they are made.

(5) Any reference in this Part to an exchange gain or loss from a loan relationship of a company is a reference to an exchange gain or loss arising to a company in relation to an asset or liability representing a loan relationship of the company.

Other general definitions

476 Other definitions

(1) In this Part—

• “alternative finance arrangements” has the meaning given in section 501(2),

• “associate” has the meaning given by section 417(3) of ICTA,

• “collective investment scheme” has the meaning given by section 235 of FISMA 2000,

• “debt” includes a debt the amount of which is to be ascertained by reference to matters which vary from time to time,

• “equity instrument” has the meaning it has for accounting purposes,

• “gilt-edged securities” means any securities which—

  (a)

  are gilt-edged securities for the purposes of TCGA 1992 (see Schedule 9 to that Act), or

  (b)

  will be such securities on the making of any order under paragraph 1 of Schedule 9 to that Act the making of which is anticipated in the prospectus under which they are issued,

• “impairment” includes uncollectability,

• “impairment loss” means a debit in respect of the impairment of a financial asset,

• “income statement” has the meaning it has for accounting purposes,

• “international organisation” has the meaning given in subsection (2) (and also see subsection (3)),

• “loan” includes any advance of money and related expressions are to be read accordingly,

• “non-trading credit” and “non-trading debit” are to be read in accordance with section 301 (but also see sections 330 and 482(1)),

• “profit-sharing arrangements”, in relation to a firm, has the meaning given in section 1262(4) (allocation of firm’s profits or losses between partners),

• “share”, in relation to a company, means any share in the company under which an entitlement to receive distributions may arise (except as provided in section 522(6)), but does not include a share in a building society,

• “statement of changes in equity” has the meaning it has for accounting purposes,

• “statement of comprehensive income” has the meaning it has for accounting purposes,

• “statement of income and retained earnings” has the meaning it has for accounting purposes,

• “statement of recognised income and expense” has the meaning it has for accounting purposes,

• “statement of total recognised gains and losses” has the meaning it has for accounting purposes,

• “tax advantage” has the meaning given by section 840ZA of ICTA,

• “this Part” is to be read in accordance with section 294(2), and

• “trade” and “purposes of trade” are to be read in accordance with section 298.

(2) In this Part “international organisation” means an organisation of which—

(a) two or more sovereign powers are members, or

(b) the governments of two or more sovereign powers are members.

(3) If, in any proceedings, any question arises whether a person is an international organisation for the purposes of any provision of this Part, a certificate issued by or under the authority of the Secretary of State stating any fact relevant to that question is conclusive evidence of that fact.