Part 3

Income tax, corporation tax and capital gains tax
Chapter 2

Other provisions

Loan relationships

Convertible securities etc: issuing company not to be connected company
73
1
In section 92 of the Finance Act 1996 (convertible securities etc) after subsection (1D) (which is inserted by section 72) insert—
1E
This section does not apply to an asset representing a creditor relationship of a company if, for the accounting period in which the asset comes into existence, there is a connection between the company and the company which is the issuing company in relation to that asset.
1F
If, in the case of an asset representing a creditor relationship of a company, the company and the company which is the issuing company in relation to that asset become companies between which, for any accounting period, there is a connection—
a
the asset shall cease to be an asset to which this section applies, and
b
it shall be treated, for the purposes of subsection (7)(a) below, as having ceased to be such an asset at the time when the circumstances giving rise to that connection arose.
1G
Section 87(3) above (connection between a company and another person for an accounting period) applies for the purposes of subsections (1E) and (1F) above.
.
2
The amendments made by this section do not have effect for the purpose of determining, in relation to such part of an accounting period as falls before 19th December 2001, whether an asset is, or has ceased to be, an asset to which section 92 of the Finance Act 1996 applies.
3
Subsection (4) has effect where—
a
an asset is, immediately before 19th December 2001, an asset to which section 92 of the Finance Act 1996 applies, but
b
on that date, by virtue only of the amendments of that section made by this section, the asset ceases to be an asset to which that section applies.
4
Where this subsection has effect, the asset shall be taken to have ceased immediately before 19th December 2001 to be an asset to which section 92 of the Finance Act 1996 applies and, accordingly, any deemed disposal and re-acquisition under subsection (7) of that section shall be treated as having taken place immediately before that date.
5
Subject to subsections (2) to (4), the amendments made by this section have effect for accounting periods ending on or after 19th December 2001 in relation to any asset representing a creditor relationship of a company—
a
unless the creditor relationship in question is one to which the company ceased to be a party before that date, or
b
unless, as regards the company holding the asset representing the creditor relationship immediately before 19th December 2001 (“the creditor company”) and the company which brought that asset into existence (“the issuing company”), the first or the second condition is satisfied.
6
The first condition is that, during any period before 19th December 2001 when the creditor company was holding the asset, there was an accounting period in which there was no connection between the creditor company and the issuing company.
7
The second condition is that immediately before 19th December 2001—
a
the creditor company was not a 100 per cent subsidiary of the issuing company,
b
the issuing company was not a 100 per cent subsidiary of the creditor company, and
c
the creditor company and the issuing company were not 100 per cent subsidiaries of the same company.
8
Section 87(3) of the Finance Act 1996 (c. 8) (connection between a company and another person for an accounting period) applies for the purposes of subsection (6).
9
In its application for the purposes of subsection (7), section 838 of the Taxes Act 1988 (meaning of “subsidiaries” for the purposes of the Tax Acts) has effect as if in subsection (1)(b) of that section—
a
“a 100 per cent subsidiary” were substituted for “a 75 per cent subsidiary”, and
b
“not less than 100 per cent” were substituted for “not less than 75 per cent”.