Section 43: Tier Two Capital
Summary
1.Section 43 prevents the payments on banks’ and parent undertakings of banks’ Tier Two regulatory capital debt instruments from being treated as distributions for corporation tax (CT) purposes and ensures that the issue of such instruments does not break the banks corporate group for CT group relief purposes. Both these changes are subject to an anti-avoidance rule to prevent abuse.
Details of the Section
2.New subsection (2) inserts new section 162(1A) into the Corporation Tax Act 2010 (CTA 2010). New section 162(1A) ensures that loans forming part of a banks’ Tier Two capital are treated as ‘normal commercial loans’ for the purposes of the CT group relief rules. This change prevents a bank or a parent undertaking of a bank which issues Tier Two instruments from breaking its corporate group for CT purposes.
3.Subsection (3) inserts new section 164A into CTA 2010. New section 164A ensures instruments which form part of the bank’s or parent undertaking of a bank’s Tier Two capital resources are treated as though they are normal commercial loans and that this is not the case where a main purpose (or one of the main purposes) of a loan is obtaining a tax advantage.
4.New subsection (5) inserts new section 1032A into CTA 2010. New section 1032A(1) ensures that a payment made in respect of Tier Two securities is a not a distribution for tax purposes and that this is not the case where a main purpose (or one of the main purposes) of a payment is obtaining a tax advantage.
Background
5.Once the Capital Requirements Directive IV (CRD IV) is in force, bank’s Tier Two capital must have more loss absorbing features than previously. Tier Two capital will also have to count as Tier Two throughout the life of the instrument (including after CRD IV is in force). Both these requirements have caused tax issues in relation to the CT distributions and group relief rules which these provisions seek to address.
6.This section was announced and came into force on 26 October 2012.
