Finance Act 1996

Restriction on writing off overseas sovereign debt etc.

8 (1) This paragraph applies for the purposes of the use, as respects any loan relationship of a company and in conformity with paragraph 5 above, of an authorised accruals basis of accounting.

(2) Where the company is one to which a relevant overseas debt is owed, the debits and credits to be brought into account on that basis for the purposes of this Chapter shall be determined, for any accounting period of the company, on the assumption that it is not permissible for more than the relevant percentage of the debt to be estimated to be bad.

(3) For the purposes of this paragraph the relevant percentage of a debt for any accounting period of a company is (subject to sub-paragraph (4) below) such percentage (which may be zero) as may be determined, by reference to the position at the end of the relevant period of account, in accordance with regulations made by the Treasury.

(4) Where, apart from this sub-paragraph, the relevant percentage of a debt for any accounting period is more than the adjusted base percentage of that debt for that period, the relevant percentage of the debt for that period shall be taken to be equal to its adjusted base percentage for that period.

(5) For the purposes of this paragraph the adjusted base percentage of a debt for any accounting period shall be calculated by—

(a) taking the percentage which, in accordance with section 88B of the Taxes Act 1988 and any regulations made under that section, was or (assuming the debt to have been a debt of the company at the end of the base period) would have been the base percentage for that debt; and

(b) increasing that base percentage by five percentage points for every complete year (except the first) between—

(i) the time by reference to which the base percentage was, or would have been, determined, and

(ii) the end of the relevant period of account.

(6) In this paragraph “the relevant period of account”, in relation to any accounting period of a company, means the period of account ending with that accounting period or, if a period of account does not end with that accounting period, the last period of account of the company to end before the end of that accounting period.

(7) In this paragraph “relevant overseas debt” means any debt which—

(a) satisfies one of the conditions specified in sub-paragraph (8) below; but

(b) is neither interest on a debt nor a debt which represents the consideration for the provision of goods or services.

(8) Those conditions are—

(a) that the debt is owed by an overseas State authority; or

(b) that payment of the debt is guaranteed by an overseas State authority; or

(c) that the debt is estimated to be bad for the purposes of this Chapter wholly or mainly because due payment is or may be prevented, restricted or subjected to conditions—

(i) by virtue of any law of a State or other territory outside the United Kingdom or any act of an overseas State authority; or

(ii) under any agreement entered into in consequence or anticipation of such a law or act.

(9) In this paragraph “overseas State authority” means—

(a) a State or other territory outside the United Kingdom;

(b) the government of such a State or territory;

(c) the central bank or other monetary authority of such a State or territory;

(d) a public or local authority in such a State or territory; or

(e) a body controlled by such a State, territory, government, bank or authority;

and for this purpose “controlled” shall be construed in accordance with section 840 of the Taxes Act 1988.

(10) The Treasury shall not make any regulations under this paragraph unless a draft of them has been laid before and approved by a resolution of the House of Commons.