Part 3

Income tax, corporation tax and capital gains tax
Chapter 2

Other provisions

Financial instruments

Qualifying contracts for unallowable purposes
69
1
After section 168 of the Finance Act 1994 (c. 9) insert—

Qualifying contracts for unallowable purposes
168A
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.