The Alternative Finance Arrangements (Amendment) Order 2009

EXPLANATORY NOTE

(This note is not part of the Order)

This Order amends Chapter 5 of Part 2 of the Finance Act 2005 (c. 7) and Chapter 6 of Part 6 of the Corporation Tax Act 2009 (c. 4). These provisions deal with alternative finance arrangements in the income tax and corporation tax codes respectively. Where certain conditions apply, these provisions allow for amounts paid or received under Shari’a-compliant financial arrangements, which do not involve interest, to be treated as interest for income tax purposes or as loan relationship debits and credits for corporation tax purposes.

Article 2 introduces four amendments to Chapter 5 of Part 2 of the Finance Act 2005. Article 2(2) amends section 46 (alternative finance arrangements), which sets out the definition of “financial institution”, in three ways. First, a new section 46(2)(da) is substituted which extends the categories of bond-issuers to include profit share agency arrangements under section 49A (alternative finance arrangements: profit share agency). Secondly, a new section 46(2)(f) adds an insurance company as defined by section 431(2) (interpretative provisions relating to insurance companies) of the Income and Corporation Taxes Act 1988 (c. 1) (“ICTA”). Thirdly, a new section 46(2)(g) adds a person authorised in a jurisdiction outside the United Kingdom to carry on a business which consists of effecting or carrying out contracts of insurance or substantially similar business, but not an insurance special purpose vehicle. Article 2(3) amends section 49A(1) so as to enable either a principal or an agent in a profit share agency arrangement to be a financial institution.

Article 3 introduces similar amendments to Chapter 6 of Part 6 of the Corporation Tax Act 2009. Article 3(2) amends section 502 (meaning of “financial institution”) in three ways. First, a new section 502(1)(e) is substituted which extends the categories of bond-issuers to include profit share agency arrangements under section 506 (profit share agency arrangements). Secondly, a new section 502(1)(g) adds an insurance company as defined by section 431(2) of ICTA. Thirdly, a new section 502(1)(h) adds a person authorised in a jurisdiction outside the United Kingdom to carry on a business which consists of effecting or carrying out contracts of insurance or substantially similar business, but not an insurance special purpose vehicle. Article 3(3) amends section 506(1) so as to enable either a principal or an agent in a profit share agency arrangement to be a financial institution.

A full and final Impact Assessment has not been produced for this instrument as a negligible impact on the private or voluntary sectors is foreseen. Full impact assessments for the legislation which this instrument amends can be located at: http://www.hmrc.gov.uk/ria/sharia.pdf and http://hmrc.gov.uk/ria/ria-alt-finance.pdf.