Finance Act 2012

Section 31

SCHEDULE 5 Tax treatment of financing costs and income

1 Part 7 of TIOPA 2010 (tax treatment of financing costs and income) is amended as follows.

2 In section 262 (UK net debt of worldwide group for period of account of worldwide group), in subsection (4), for “dormant (within the meaning of section 1169 of the Companies Act 2006)” substitute “a dormant company”.

3 In section 276 (disallowance of deductions: appointment of authorised company for relevant period of account), after subsection (2) insert—

“(2A) In subsection (2), the reference to each company to which this Chapter applies does not include a company that is a dormant company throughout the relevant period of account.”

4 In section 280 (statement of allocated disallowances: requirements), after subsection (5) insert—

“(5A) An amount may not be specified in relation to a company under subsection (4)(b) if it accrues at a time at which the company is not a relevant group company.”

5 In section 288 (exemption of financing income: appointment of authorised company for relevant period of account), after subsection (2) insert—

“(2A) In subsection (2), the reference to each company to which this Chapter applies does not include a company that is a dormant company throughout the relevant period of account.”

6 In section 292 (statement of allocated exemptions: requirements), after subsection (5) insert—

“(5A) An amount may not be specified in relation to a company under subsection (4)(b) if it accrues at a time at which the company is not a UK group company.”

7 In section 296 (failure of reporting body to submit statement of allocated exemptions), after subsection (2) insert—

“(2A) Subsection (2) does not apply to a financing income amount if it accrues to the company in question at a time when it is not a UK group company.”

8 In Chapter 6 (tax avoidance), before section 306 insert—

“305A Schemes preventing this Part applying to a large group

(1) This section applies in relation to a period of account of a large group of entities if, apart from this section, this Part would not apply in relation to that period because of a failure by the group to meet the requirement of section 337(1)(b) (the worldwide group must contain one or more relevant group companies) throughout that period.

(2) If conditions A and B are met, this Part applies to the group as it would have applied had the scheme mentioned in condition A not been entered into.

(3) Condition A is that—

(a) at or before the end of the period of account, a scheme is entered into, and

(b) the main purpose, or one of the main purposes, for which a person becomes or is party to the scheme is to secure that the requirement of section 337(1)(b) is not met by the group throughout that period.

(4) Condition B is that the scheme is not an excluded scheme.”

9 (1) Section 313 (the financing expense amounts of a company) is amended as follows.

(2) In subsection (6), for “the same proportion” substitute “such proportion as is just and reasonable”.

(3) After that subsection insert—

“(6A) An amount may be reduced to nil under subsection (6).”

10 (1) Section 314 (the financing income amounts of a company) is amended as follows.

(2) In subsection (6), for “the same proportion” substitute “such proportion as is just and reasonable”.

(3) After that subsection insert—

“(6A) An amount may be reduced to nil under subsection (6).”

11 In section 316 (group treasury companies), omit subsection (4).

12 (1) Section 329 (the tested expense amount) is amended as follows.

(2) In subsection (3), for “arises as a result of a transaction that takes place” substitute “accrues”.

(3) After subsection (5) insert—

“(6) But subsection (5) does not apply if an election under section 331ZA has effect for the period of account.”

13 (1) Section 330 (the tested income amount) is amended as follows.

(2) In subsection (3), for “arises as a result of a transaction that takes place” substitute “accrues”.

(3) After subsection (5) insert—

“(6) But subsection (5) does not apply if an election under section 331ZA has effect for the period of account.”

14 After section 331 insert—

“331ZA Elections disapplying sections 329(5) and 330(5)

(1) The relevant reporting body of the worldwide group may elect that sections 329(5) and 330(5) are not to apply in relation to the group.

(2) The election must specify—

(a) the first period of account of the worldwide group in relation to which it has effect, and

(b) the name and tax reference of—

(i) each company that is a UK group company at the time the election is made, and

(ii) any other company that was a UK group company at any time during the period beginning at the same time as that period of account and ending when the election is made.

(3) An election has effect for the specified period of account and subsequent periods of account of the worldwide group (unless withdrawn under subsection (4) or replaced by a further election made in relation to the group).

(4) The relevant reporting body of the worldwide group may withdraw an election with effect from the beginning of the period of account specified in the withdrawal.

(5) “The relevant reporting body” means—

(a) if an appointment under section 288 has effect in relation to the specified period of account, the company appointed under that section, and

(b) if such an appointment does not have effect, the companies which are UK group companies at the relevant time, acting jointly.

But the companies within paragraph (b) do not include any company that is a dormant company throughout the specified period of account.

(6) An election or withdrawal must—

(a) be made by notice in writing to an officer of Revenue and Customs, and

(b) be received by HMRC within 12 months of the end of the specified period of account.

(7) The notice must be signed—

(a) in a case within paragraph (a) of subsection (5), by the appropriate person in relation to the company appointed under section 288, and

(b) in a case within paragraph (b) of that subsection, by the appropriate person in relation to each company within that paragraph.

(8) For the purposes of this section—

• “the appropriate person”, in relation to a company, means—

  (a)

  the proper officer of the company, or

  (b)

  such other person as may for the time being have the express, implied or apparent authority of the company to act on its behalf for the purposes of this Part,

  and subsections (3) and (4) of section 108 of TMA 1970 (responsibility of company officers: meaning of “proper officer”) apply as they apply for the purposes of that section;

• “relevant time” means—

  (a)

  in the case of an election, the time the election is made, and

  (b)

  in the case of a withdrawal of an election, the time the withdrawal is made;

• “specified period of account” means—

  (a)

  in the case of an election, the period specified under subsection (2)(a), and

  (b)

  in the case of a withdrawal of an election, the period specified under subsection (4).”

15 (1) Section 337 (meaning of “the worldwide group”) is amended as follows.

(2) The existing provision becomes subsection (1).

(3) After that subsection insert—

“(2) For the purposes of subsection (1), section 345(3) to (7) (meaning of “relevant group company”) has effect as if references to the worldwide group were to the group of entities mentioned in subsection (1).”

16 (1) In section 339 (meaning of “ultimate parent”), subsection (1) is amended as follows.

(2) In paragraph (b)(i)—

(a) for “not” substitute “neither”, and

(b) after “applies” insert “nor an entity formed under the law of a territory outside the United Kingdom which would be a partnership if formed under the law of any part of the United Kingdom”.

(3) In paragraph (c) omit the words from “or an entity that would be a collective investment scheme but for the fact that it is a body corporate”.

17 In section 348 (non-existent financial statements of the worldwide group), after subsection (5) insert—

“(6) Subsection (7) applies if—

(a) financial statements of the worldwide group are drawn up in respect of a period (“the whole period”), but

(b) the worldwide group was in existence for only part of that period (“the relevant part”).

(7) For the purposes of this Part (other than subsection (7))—

(a) those statements are to be ignored, and

(b) subsections (2) to (5) apply to the relevant part as they apply to the relevant period,

(and, accordingly, neither the whole period nor the remainder of it is to be treated as a period of account of the worldwide group to which this Part applies).”

18 After section 348 insert—

“348A Financial statements: business combinations to which the worldwide group is a party

(1) Subsection (2) applies where—

(a) a business combination or demerger occurs to which the worldwide group is party (“the relevant event”),

(b) as a result of the relevant event, there is a change in the identity of the ultimate parent of—

(i) the worldwide group, or

(ii) any other group which is party to the relevant event, and

(c) financial statements of the worldwide group are drawn up, or (in the absence of this section) would be treated as drawn up under section 348, for a period which begins before and ends after the relevant event (“the straddling period”).

(2) This Part (apart from this section) applies as if—

(a) no financial statements of the worldwide group had been drawn up for the straddling period,

(b) section 348 did not apply to that period, and

(c) IAS financial statements had been drawn up in respect of each of the following—

(i) the period beginning at the same time as the straddling period and ending immediately before the relevant event, and

(ii) the period beginning with the relevant event and ending at the same time as the straddling period.

(3) For the purposes of this section—

(a) “demerger” means a transaction by which one or more groups cease to be members of a group,

(b) a group is party to a business combination or demerger if the business combination or demerger affects one or more members of the group, and

(c) the reference to “IAS financial statements” is to be construed in accordance with section 348(5).”

19 In section 351 (expressions taking their meaning from international accounting standards), in subsection (1), before the entry for “effective interest method” insert—

• ““business combination”,”.

20 In section 353 (other expressions), at the appropriate place insert—

• ““dormant company” means—

  (a)

  a company that is “dormant” within the meaning of section 1169 of the Companies Act 2006, or

  (b)

  a company of an equivalent description which is incorporated outside the United Kingdom,

  other than, in the case of paragraph (a), a company in respect of which adjustments fall to be made under section 147(3) or (5) (transfer pricing: tax calculations to be based on arm’s length not actual provision),”.

21 After section 353A insert—

“353AA Power to make regulations where accounting standards change

(1) The Treasury may by regulations amend this Part to take account of any relevant accounting change resulting from a change in accounting standards.

(2) “Relevant accounting change” means a change in the way in which a company is permitted or required for accounting purposes to present, or disclose amounts in, consolidated financial statements of an ultimate parent of a group and its subsidiaries.

(3) “Change in accounting standards” means the issue, revocation, amendment or recognition of, or withdrawal of recognition from, an accounting standard by an accounting body.

(4) Regulations under this section may make provision subject to an election or other specified circumstances.

(5) Regulations under this section may apply to a pre-commencement period if they make provision in relation to a relevant accounting change which may or must be adopted, for accounting purposes, for a period of account, or part of a period of account, which coincides with that pre-commencement period.

(6) A statutory instrument containing regulations under this section to which subsection (7) applies may not be made unless a draft of the instrument has been laid before and approved by a resolution of the House of Commons.

(7) This subsection applies if the regulations contain any provision which has or may have the effect of increasing any person’s liability to tax.

(8) Any other statutory instrument containing regulations under this section is subject to annulment in pursuance of a resolution of the House of Commons.

(9) In this section—

• “accounting body” means the International Accounting Standards Board or the Accounting Standards Board, or a successor body to either of those Boards;

• “accounting standard” includes any statement of practice, guidance or other similar document;

• “pre-commencement period”, in relation to regulations, means an accounting period, or part of an accounting period, which begins before the regulations are made.”

22 (1) The amendment made by paragraph 21 has effect in relation to any change in accounting standards made on or after the day on which this Act is passed.

(2) The other amendments made by this Schedule have effect in relation to periods of account of the worldwide group ending on or after the day on which this Act is passed.