The Scottish Water (Transfer of Functions, etc.) (Tax Provisions) Order 2002

Explanatory Note

(This note is not part of the Order)

This Order makes provision consequential on the Water Industry (Scotland) Act 2002 (“the 2002 Act”). In particular it ensures that the transfer of functions, property and liabilities from the three Scottish water authorities to Scottish Water (the new body corporate established by the 2002 Act) on 1st April 2002 does not give rise to any adverse or beneficial tax consequences.

Article 1 provides for citation and commencement, and article 2 for interpretation.

Article 3 introduces articles 4 to 7.

Article 4 treats Scottish Water, for all purposes of corporation tax, as being the same person as each of the three Scottish water authorities, and vice versa. The article also makes the following particular provisions relating to corporation tax—

• it provides that, for the purposes of section 393 of the Income and Corporation Taxes Act 1988 (trading losses) (“the 1988 Act”) and section 400 of that Act (write-off of government investment), the three Scottish water authorities shall be treated as together having carried on a single trade before 1st April 2002.

• it provides that section 400 of the 1988 Act shall not apply in relation to any debt transferred to Scottish Water from the three Scottish water authorities.

• it provides that, for the purposes of corporation tax on chargeable gains, Scottish Water shall be treated as having acquired the assets transferred to it from the three Scottish water authorities at the time when they were acquired by those authorities, and that expenditure incurred by any of those authorities on any of those assets shall be treated, in computing the chargeable gain or allowable loss on a subsequent disposal by Scottish Water of that asset, as if it had been incurred by Scottish Water.

Article 5 provides that the existence or exercise of any of the powers of the Scottish Ministers under the 2002 Act shall not be regarded as constituting or creating arrangements within the meaning of section 410 of the 1998 Act (arrangements for transfer of company to another group or consortium).

Article 6 provides that nothing in, or done under, this Order or Part 3 of the 2002 Act shall be regarded as a scheme or arrangement for the purposes of section 30 of the Taxation of Chargeable Gains Act 1992 (tax-free benefits).

Article 7 provides that no transfer from the three Scottish water authorities to Scottish Water effected by virtue of the 2002 Act shall give rise to any liability to stamp duty.