Finance Act 1996

Continuity of treatment: groups etc. U.K.

12 (1) Subject to paragraph 15 below, this paragraph applies where, as a result of— U.K.

[F1 (a) a related transaction between two companies that are—

(i) members of the same group, and

(ii) within the charge to corporation tax in respect of that transaction,

(b) a series of transactions having the same effect as a related transaction between two companies each of which—

(i) has been a member of the same group at any time in the course of that series of transactions, and

(ii) is within the charge to corporation tax in respect of the related transaction,]

[F2 (c) a transfer between two companies of business consisting of the effecting or carrying out of contracts of long-term insurance which has effect under an insurance business transfer scheme;]

(d) any transfer between two companies which is a qualifying overseas transfer within the meaning of paragraph 4A of Schedule 19AC to the Taxes Act 1988 (transfer of business of overseas life insurance company),

one of those companies (“the transferee company”) directly or indirectly replaces the other (“the transferor company”) as a party to a loan relationship.

(2) The credits and debits to be brought into account for the purposes of this Chapter in the case of the two companies shall be determined as follows—

(a) the transaction, or series of transactions, by virtue of which the replacement takes place shall be disregarded except

[F3 (i) for the purpose of determining the debits or credits to be brought into account in respect of exchange gains or losses and identifying the company which is to bring them into account; or

(ii)] for the purpose of identifying the company in whose case any debit or credit not relating to that transaction, or those transactions, is to be brought into account; and 

(b) the transferor company and the transferee company shall be deemed (except for [F4 those purposes] ) to be the same company.

[F5 (2A) This paragraph does not apply where the transferor company uses an authorised mark to market basis of accounting as respects the loan relationship, but in any such case—

[F6 (a) the amount to be brought into account by the transferor company in respect of the transaction, the result of the series of transactions, or the transfer must be—

(i) where an asset is to be brought into account, the fair value of the asset, or of the rights under or interest in the asset, and

(ii) where a liability is to be brought into account, the fair value of the liability,

as at the date on which the transferee company becomes party to the loan relationship;

(aa) the amount to be brought into account by the transferee company in respect of the transaction, the result of the series of transactions, or the transfer must be the same as the amount brought into account by the transferor company in respect of the transaction, or, as the case may be, the result of the series of transactions, or the transfer; and]

(b) paragraph (b) of sub-paragraph (2) above shall have effect for the purposes of section 90 of this Act (changes of accounting method).]

(3) This paragraph does not apply by virtue of sub-paragraph (1)(a) or (b) above in relation to any transfer of an asset, or of any rights under or interest in an asset, where the asset was within one of the categories set out in section 440(4)(a) to (e) of the Taxes Act 1988 (assets held for certain categories of [F7 long-term] business) either immediately before the transfer or immediately afterwards.

(4) This paragraph does not apply by virtue of sub-paragraph (1)(c) or (d) above in relation to any transfer of an asset, or of any rights under or interest in an asset, where—

(a) the asset was within one of the categories set out in section 440(4) of the Taxes Act 1988 immediately before the transfer; and

(b) is not within that category immediately afterwards.

(5) For the purposes of sub-paragraph (4) above, where one of the companies is an overseas life insurance company an asset shall be taken to be within the same category both immediately before the transfer and immediately afterwards if it—

(a) was within one category immediately before the transfer; and

(b) is within the corresponding category immediately afterwards.

(6) References in this paragraph to one company replacing another as a party to a loan relationship shall include references to a company becoming a party to any loan relationship under which its rights [F8 , or (as the case may be) its obligations,] are equivalent to those of the other company under a loan relationship of which that other company has previously ceased to be a party.

(7) For the purposes of sub-paragraph (6) above a person’s rights under a loan relationship are equivalent to rights under another such relationship if they entitle the holder of an asset representing the relationship—

(a) to the same rights against the same persons as to capital, interest and dividends, and

(b) to the same remedies for the enforcement of those rights,

notwithstanding any difference in the total nominal amounts of the assets, in the form in which they are held or in the manner in which they can be transferred.

[F9 (7A) For the purposes of sub-paragraph (6) above a person’s obligations under a debtor relationship are equivalent to obligations under another such relationship if they subject the holder of the liability representing the relationship—

(a) to the same obligations to the same persons as to capital, interest and dividends, and

(b) to the same remedies for the enforcement of those obligations,

notwithstanding any difference in the total nominal amounts of the assets representing the corresponding creditor relationships, in the form in which those assets are held or in the manner in which they can be transferred.]

[F10 (8) Sub-paragraph (5) of paragraph 11 above has effect for the purposes of this paragraph as it has effect for the purposes of that paragraph.]

[F11 (9) In this paragraph—

• “contracts of long-term insurance” means contracts which fall within Part II of Schedule 1 to the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001;

• “insurance business transfer scheme” means a scheme falling within section 105 of the Financial Services and Markets Act 2000, including an excluded scheme falling within Case 2, 3 or 4 of subsection (3) of that section;

• “overseas life insurance company” has the same meaning as in Chapter 1 of Part 12 of the Taxes Act 1988.]

Textual Amendments

F1 Sch. 9 para. 12(1)(a)(b) substituted (28.7.2000 with effect in relation to transactions entered into, or series of transactions begun, on or after 1.4.2000) by 2000 c. 17, s. 102, Sch. 29 Pt. II para. 44(4)(5)

F2 Sch. 9 para. 12(1)(c) substituted (1.12.2001 with effect as mentioned in art. 94(4) of the amending S.I.) by S.I. 2001/3629, art. 94(2)

F3 Words in Sch. 9 para. 12(2)(a) inserted (with effect in accordance with Sch. 37 para. 3(7) of the amending Act) by Finance Act 2003 (c. 14), Sch. 37 para. 3(2)

F4 Words in Sch. 9 para. 12(2)(b) substituted (with effect in accordance with Sch. 37 para. 3(7) of the amending Act) by Finance Act 2003 (c. 14), Sch. 37 para. 3(3)

F5 Sch. 9 para. 12(2A) inserted (24.7.2002 with effect as mentioned in s. 82(2) of the amending Act) by Finance Act 2002 (c. 23), s. 82(1), Sch. 25 Pt. 1 para. 29

F6 Sch. 9 para. 12(2A)(a)(aa) substituted for Sch. 9 para. 12(2A)(a) (with effect in accordance with Sch. 37 para. 3(7) of the amending Act) by Finance Act 2003 (c. 14), Sch. 37 para. 3(4)

F7 Words in Sch. 9 para. 12(3) substituted (1.12.2001) by S.I. 2001/3629, art. 96(1)(a)

F8 Words in Sch. 9 para. 12(6) inserted (with effect in accordance with Sch. 37 para. 3(7) of the amending Act) by Finance Act 2003 (c. 14), Sch. 37 para. 3(5)

F9 Sch. 9 para. 12(7A) inserted (with effect in accordance with Sch. 37 para. 3(7) of the amending Act) by Finance Act 2003 (c. 14), Sch. 37 para. 3(6)

F10 Sch. 9 para. 12(8) substituted (24.7.2002 with effect as mentioned in s. 79(3) of the amending Act) by Finance Act 2002 (c. 23), s. 79(2), Sch. 23 Pt. 1 para. 12 (with Sch. 23 Pt. 3 para. 25)

F11 Sch. 9 para. 12(9) substituted (1.12.2001 with effect as mentioned in art. 94(4) of the amending S.I.) by S.I. 2001/3629, art. 94(3)

Modifications etc. (not altering text)

C1 Sch. 9 para. 12 modified (retrospective to 1.4.1996) by S.I. 1997/473, reg. 52 (as amended (1.12.2001) by S.I. 2001/3629, art. 163)

C2 Sch. 9 para. 12(2) applied (27.7.1999 with effect as mentioned in s. 81(12) of the amending Act) by 1999 c. 16, s. 81(9)