Finance Act 2002 (c. 23)

SCHEDULES

SCHEDULE 26 U.K. Derivative contracts

Modifications etc. (not altering text)

C1 Sch. 26 modified by 1996 c. 8, s. 86(3C) (as inserted (24.7.2002 with effect as mentioned in s. 82(2) of the amending Act) by 2002 c. 23, s. 82, Sch. 25 Pt. 1 para. 6(3))

C2 Sch. 26 extended (retrospective to 30.9.2002) by Finance Act 2003 (c. 14), s. 177(4)(8)(11)

C3 Sch. 26 applied by 1988 c. 1, s. 440(2B) (as amended (with effect in accordance with s. 52(3) of the amending Act) by Finance Act 2004 (c. 12), Sch. 10 para. 70)

C4 Sch. 26 modified by 1996 c. 8, s. 94A (as inserted (with effect in accordance with s. 52(3) of the amending Act) by Finance Act 2004 (c. 12), Sch. 10 para. 13)

C5 Sch. 26 applied (with modifications) (5.10.2004) by Energy Act 2004 (c. 20), s. 198(2), Sch. 9 para. 24 (with s. 38(2)); S.I. 2004/2575, art. 2(1), Sch. 1

C6 Sch. 26 applied (with modifications) (5.10.2004) by Energy Act 2004 (c. 20), s. 198(2), Sch. 9 para. 12 (with s. 38(2)); S.I. 2004/2575, art. 2(1), Sch. 1

C7 Sch. 26 modified (8.6.2005) by Railways Act 2005 (c. 14), s. 60(2), Sch. 10 para. 7; S.I. 2005/1444, art. 2(1), Sch. 1

C8 Sch. 26 modified (8.6.2005) by Railways Act 2005 (c. 14), s. 60(2), Sch. 10 para. 19; S.I. 2005/1444, art. 2(1), Sch. 1

C9 Sch. 26 modified (19.7.2006) by Finance Act 2006 (c. 25), s. 136(2)(e)

C10 Sch. 26 modified (22.7.2008) by Crossrail Act 2008 (c. 18), Sch. 13 para. 24(b)

C11 Sch. 26 modified (22.7.2008) by Crossrail Act 2008 (c. 18), Sch. 13 para. 15

Part 6 U.K. Special computational provisions

Deemed assignment of derivative contracts on company ceasing to be resident in UKetc U.K.

[F1 22A (1) This paragraph applies if at any time (“the relevant time”)—

(a) a company ceases to be resident in the United Kingdom, or

(b) in the case of a company not resident in the United Kingdom, the rights and liabilities of the company under a derivative contract to any extent cease to be held or owed for the purposes of a permanent establishment of the company in the United Kingdom in circumstances not involving a related transaction.

(2) In a case falling within sub-paragraph (1)(a), this Schedule shall have effect as if the company had—

(a) immediately before the relevant time, assigned its rights and liabilities under its derivative contracts for a consideration of an amount equal to their fair value at that time, and

(b) immediately reacquired them for a consideration of the same amount.

(3) Sub-paragraph (2) does not apply in relation to a derivative contract to the extent that, immediately after the relevant time, the company’s rights and liabilities under the contract are held or owed for the purposes of a permanent establishment of the company in the United Kingdom.

(4) In a case falling within sub-paragraph (1)(b), this Schedule shall have effect as if the company had—

(a) immediately before the relevant time, assigned the rights and liabilities, so far as ceasing to be held or owed for the purposes of the permanent establishment, for a consideration of an amount equal to their fair value at that time, and

(b) immediately reacquired them for a consideration of the same amount.

F2 (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

Textual Amendments

F1 Sch. 26 para. 22A and cross-heading inserted (with effect in accordance with Sch. 9 para. 3(2) of the amending Act) by Finance Act 2004 (c. 12), Sch. 9 para. 3(1)

F2 Sch. 26 para. 22A(5) repealed (with effect in accordance with s. 52(3) of the amending Act) by Finance Act 2004 (c. 12), Sch. 10 para. 54, Sch. 42 Pt. 2(6)

Derivative contracts for unallowable purposes U.K.

23 (1) Where in any accounting period a derivative contract of a company has an unallowable purpose, this paragraph shall apply for the purpose of determining the credits and debits which fall, in the case of the company, to be brought into account for the purposes of this Schedule.

(2) Subject to sub-paragraph (4), the credits to be brought into account in the case of the derivative contract for the accounting period shall not include so much of the exchange credits F3 ... as respects the contract as, on a just and reasonable apportionment, is referable to the unallowable purpose.

(3) Subject to sub-paragraph (4), the debits to be brought into account in the case of the derivative contract for the accounting period shall not include so much of the debits F4 ... as respects the contract as, on a just and reasonable apportionment, is referable to the unallowable purpose.

(4) If, in the case of the derivative contract,—

(a) the amount of the debits referable to the unallowable purpose, in accordance with sub-paragraph (3), for that accounting period, exceeds

(b) the amount of the exchange credits referable to that purpose, in accordance with sub-paragraph (2), for that accounting period,

the difference between the amounts (the “net loss”) may be brought into account as a debit to the extent permitted by sub-paragraph (5).

(5) An amount of accumulated net losses may be brought into account for an accounting period if, and to the extent that, there is for that period an amount of accumulated credits (other than exchange credits).

(6) For the purposes of sub-paragraph (5) the amount of accumulated net losses is, in relation to an accounting period,—

(a) the amount of any net loss arising, in the case of the derivative contract, for that accounting period or any earlier accounting period, in accordance with sub-paragraph (4), less

(b) the amount of any such net loss as was brought into account in accordance with sub-paragraph (5) in any earlier accounting period.

(7) For the purposes of sub-paragraph (5) the amount of accumulated credits (other than exchange credits) is, in relation to an accounting period,—

(a) the amount of any credits (other than exchange credits) arising, in the case of the derivative contract, for that accounting period or any earlier accounting period, less

(b) an amount equal to [F5 —

(i) so much of any debits arising, in the case of the derivative contract, for that accounting period or any earlier accounting period as is not, in accordance with sub-paragraph (3), referable to the unallowable purpose, and

(ii)] to the amount of any net loss, arising in the case of the derivative contract, which was brought into account in accordance with sub-paragraph (5) in any earlier accounting period.

(8) Amounts which, by virtue of this paragraph, are not brought into account for the purposes of this Schedule as respects any matter are in consequence also amounts which, in accordance with paragraph 1(2), are not to be brought into account for the purposes of corporation tax as respects that matter apart from this Schedule.

(9) For the purposes of this paragraph, a credit is an exchange credit, in the case of a company, to the extent that it is attributable to any exchange gains arising to the company F6 ....

(10) This paragraph is supplemented by paragraph 24.24

Textual Amendments

F3 Words in Sch. 26 para. 23(2) repealed (with effect in accordance with s. 52(3) of the amending Act) by Finance Act 2004 (c. 12), Sch. 10 para. 55, Sch. 42 Pt. 2(6)

F4 Words in Sch. 26 para. 23(3) repealed (with effect in accordance with s. 52(3) of the amending Act) by Finance Act 2004 (c. 12), Sch. 10 para. 55, Sch. 42 Pt. 2(6)

F5 Words in Sch. 26 para. 23(7)(b)(i)(ii) inserted (with effect in accordance with Sch. 9 para. 4(2) of the amending Act) by Finance Act 2004 (c. 12), Sch. 9 para. 4(1)

F6 Words in Sch. 26 para. 23(9) repealed (with effect in accordance with Sch. 11 Pt. 2(6) Note 3 of the amending Act) by Finance (No. 2) Act 2005 (c. 22), Sch. 11 Pt. 2(6)

Derivative contracts for unallowable purposes: supplementary U.K.

24 (1) For the purposes of paragraph 23 a derivative 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—

(a) is party to the contract, or

(b) enters into transactions which are related transactions by reference to that contract,

include a purpose (“the unallowable purpose”) which is not amongst the business or other commercial purposes of the company.

(2) For the purposes of this paragraph 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.

(3) For the purposes of this paragraph, where one of the purposes for which a company—

(a) is party to a derivative contract at any time, or

(b) enters into a transaction which is a related transaction by reference to any derivative contract of the company,

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 or, as the case may be, for which the company enters into that transaction.

(4) The reference in sub-paragraph (3) 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).

[F7 (5) In this paragraph “tax advantage” has the meaning given by section 840ZA of the Taxes Act 1988.]

Textual Amendments

F7 Sch. 26 para. 24(5) substituted (6.4.2007) by Income Tax Act 2007 (c. 3), s. 1034(1), Sch. 1 para. 422(2) (with Sch. 2)

Debits and credits treated as relating to capital expenditure U.K.

25 (1) This paragraph applies where any debit or credit F8 ... for any accounting period in respect of a company’s derivative contract is allowed by generally accepted accounting practice to be treated, in the accounts of the company, as an amount brought into account in determining the value of a fixed capital asset or project.

(2) Notwithstanding the application to it of the treatment allowed by generally accepted accounting practice, the debit or credit shall be brought into account for the purposes of corporation tax, for the accounting period for which it is given, in the same way as a debit or credit which, in accordance with generally accepted accounting practice, is brought into account in determining the company’s profit or loss for that period.

(3) No debit may be brought into account by virtue of this paragraph if it is taken into account in arriving at the amount of expenditure in relation to which a debit may be given by Schedule 29 to this Act.

[F9 (4) Where a debit is brought into account by a company in accordance with sub-paragraph (1), no debit shall be brought into account in respect of—

(a) the writing down of so much of the value of the fixed capital asset or project as is attributable to that debit, or

(b) so much of any amortisation or depreciation as represents a writing off of the interest component of the asset.]

Textual Amendments

F8 Words in Sch. 26 para. 25(1) repealed (with effect in accordance with s. 52(3) of the amending Act) by Finance Act 2004 (c. 12), Sch. 10 para. 56(2), Sch. 42 Pt. 2(6)

F9 Sch. 26 para. 25(4) added (with effect in accordance with s. 52(3) of the amending Act) by Finance Act 2004 (c. 12), Sch. 10 para. 56(3)

Debits and credits recognised in equity or shareholders' funds U.K.

[F10 25A Where in accordance with generally accepted accounting practice a debit or credit for a period in respect of a derivative contract of a company—

(a) is recognised in equity or shareholders' funds, and

(b) is not recognised in any of the statements mentioned in [F11 paragraph 17B(1)],

the debit or credit shall be brought into account for that period for the purposes of this Chapter in the same way as a debit or credit that, in accordance with generally accepted accounting practice, is brought into account in determining the company's profit or loss for that period.]

Textual Amendments

F10 Sch. 26 para. 25A inserted (7.4.2005) by Finance Act 2005 (c. 7), Sch. 4 para. 35

F11 Words in Sch. 26 para 25A substituted (retrospective to 7.4.2005) by Finance (No. 2) Act 2005 (c. 22), Sch. 6 para. 4(3)(6)

Transfers of value to connected companies U.K.

26 (1) This paragraph applies where—

(a) as a result of [F12 the failure to exercise in full all the rights under an option of a company which, until that failure,] was a derivative contract of the company, there is a transfer of value by the company (“the transferor”) to a company which is a connected company in relation to it (“the transferee”), and

(b) the transferee is not chargeable to corporation tax, in respect of the derivative contract, under or by virtue of this Schedule.

(2) In order to determine, for the purposes of sub-paragraph 1(a), whether there is a transfer of value, it shall be assumed that—

(a) if there had not been a connection between the transferor and the transferee, [F13 all the rights under the option would have been exercised in full], and

(b) if there had not been such a connection, [F14 all those rights would have been exercised in full on the latest date on which they were exercisable].

(3) Where this paragraph applies in relation to [F15 an option] of the transferor, the transferor shall bring the appropriate amount into account in accordance with paragraph 15 for the appropriate accounting period as a credit in respect of the derivative contract.

(4) In sub-paragraph (3)—

(a) the appropriate accounting period is the accounting period of the transferor in which the option expired [F16 or would have expired if none of the rights under it had been exercised], and

[F17 (b) the appropriate amount—

(i) if the option expired, is the amount (if any) paid by the transferor to the transferee for the grant of the option by the transferee, and

(ii) if any rights under the option were exercised (in whole or in part), is the amount (if any) so paid less so much of it as is referrable, on a just and reasonable basis, to the rights which have been so exercised.]

(5) In this paragraph “option” has the same meaning as in paragraph 12, apart from sub-paragraph (10).

(6) For the purposes of this paragraph, a company is a connected company in relation to another company if, in the accounting period in question, there is a connection between the company and that other company; and whether there is a connection between those companies shall be determined in accordance with sections 87(3) and (4) and 87A of the Finance Act 1996 (c. 8) (disregarding section 88 of that Act).

Textual Amendments

F12 Words in Sch. 26 para. 26(1)(a) substituted (with effect in accordance with Sch. 5 para. 19(6) to the amending Act) by Finance Act 2007 (c. 11), Sch. 5 para. 19(2)

F13 Words in Sch. 26 para. 26(2)(a) substituted (with effect in accordance with Sch. 5 para. 19(6) to the amending Act) by Finance Act 2007 (c. 11), Sch. 5 para. 19(3)(a)

F14 Words in Sch. 26 para. 26(2)(b) substituted (with effect in accordance with Sch. 5 para. 19(6) to the amending Act) by Finance Act 2007 (c. 11), Sch. 5 para. 19(3)(b)

F15 Words in Sch. 26 para. 26(3) substituted (with effect in accordance with Sch. 5 para. 19(6) to the amending Act) by Finance Act 2007 (c. 11), Sch. 5 para. 19(4)

F16 Words in Sch. 26 para. 26(4)(a) inserted (with effect in accordance with Sch. 5 para. 19(6) to the amending Act) by Finance Act 2007 (c. 11), Sch. 5 para. 19(5)(a)

F17 Sch. 26 para. 26(4)(b) substituted (with effect in accordance with Sch. 5 para. 19(6) to the amending Act) by Finance Act 2007 (c. 11), Sch. 5 para. 19(5)(b)

Exchange gains and losses where derivative contracts not on arm’s length terms U.K.

27 (1) Sub-paragraph (2) applies where—

(a) a company is party to a derivative contract in an accounting period,

(b) as regards the derivative contract, an exchange gain or exchange loss arises to the company for the accounting period in question, and

(c) the profits and losses of the company fall by virtue of Schedule 28AA to the Taxes Act 1988 (provision not at arm’s length) to be computed for tax purposes as if the company were not party to the derivative contract.

(2) Where this sub-paragraph applies, any exchange gains and losses which arise to the company from the derivative contract for the accounting period in question shall be left out of account in determining the credits and debits which are, in the case of the company, to be brought into account for the purposes of this Schedule.

(3) Sub-paragraph (4) applies where—

(a) a company is party to a derivative contract in an accounting period,

(b) as regards the derivative contract, an exchange gain or exchange loss arises to the company for the accounting period in question, and

(c) the profits and losses of the company fall by virtue of Schedule 28AA to the Taxes Act 1988 to be computed for tax purposes as if the terms of the derivative contract were those that would have been agreed by the company and the other party to the derivative contract had they been dealing at arm’s length.

(4) Where this sub-paragraph applies, the credits and debits which are, in the case of the company, to be brought into account for the purposes of this Schedule shall be determined on the assumption that, in the accounting period in question, the amount of any exchange gain or loss arising to the company from the derivative contract is the adjusted amount.

(5) In sub-paragraph (4) the “adjusted amount” is the amount of an exchange gain or loss (including an exchange gain of nil) which would have arisen from the derivative contract if the terms of the contract were those that would have been agreed by the company and the other party to the derivative contract had they been dealing at arm’s length.

Disposals for consideration not fully recognised by accounting practice U.K.

[F18 27A (1) This paragraph applies where in any accounting period (“the relevant accounting period”) a company, with the relevant avoidance intention, disposes of rights or liabilities under a derivative contract (in whole or in part) for consideration which—

(a) is not wholly in the form of money or a debt that falls to be settled by the payment of money, and

(b) is not fully recognised.

(2) The relevant avoidance intention is the intention of eliminating or reducing the credits to be brought into account for the purposes of this Schedule.

(3) Consideration is not fully recognised if, as a result of the application of generally accepted accounting practice, the full amount or value of the consideration is not recognised in determining the company's profit or loss for the relevant accounting period or any other accounting period.

(4) In determining the credits to be brought into account by the company for the period for the purposes of this Schedule, it is to be assumed that the whole of the consideration is recognised in determining the company's profit or loss for the relevant accounting period.

(5) But this paragraph does not apply if paragraph 1(2) of Schedule 28AA to the Taxes Act 1988 (provision not at arm's length) operates in relation to the disposal so as to increase the tax liability of the company.]

Textual Amendments

F18 Sch. 26 para. 27A inserted (with effect in accordance with Sch. 22 para. 4(3) of the amending Act) by Finance Act 2008 (c. 9), Sch. 22 para. 4(2)

Transactions within groups U.K.

28 (1) This paragraph applies where, as a result of any transaction or series of transactions falling within sub-paragraph (2), one of the companies there referred to (“the transferee company”) directly or indirectly replaces the other (“the transferor company”) as a party to a derivative contract.

(2) The transactions or series of transactions referred to in sub-paragraph (1) are—

(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;

(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; and

(d) any transfer between two companies which is a qualifying overseas transfer within the meaning [F19 given by the definition treated as inserted into section 431(2) of the Taxes Act 1988 by paragraph 6(9) of Schedule 19AC to that Act] (transfer of business of overseas life insurance company).

[F20 (3) For the purpose of determining the credits and debits to be brought into account for the purposes of this Schedule in respect of the derivative contract—

(a) for the accounting period in which the transaction or, as the case may be, the first of the series of transactions takes place, the transferor company shall be treated as having entered into that transaction for a consideration equal to the notional carrying value of the contract; and

(b) for any accounting period in which it is a party to the contract, the transferee company shall be treated as if it had acquired the contract for a consideration equal to its notional carrying value.

For the purposes of this sub-paragraph the notional carrying value is the amount that would have been the carrying value of the derivative contract in the accounts of the transferor company if a period of account had ended immediately before the date when the company ceased to be party to the contract.]

[F21 (3ZA) In any case where a discount (within the meaning given by section 100(3A) of the Finance Act 1996) arises in respect of the transaction or the series of transactions, the consideration for the purposes of sub-paragraph (3)(a) is to be increased by the amount of the discount.]

[F22 (3ZB) This paragraph does not apply where—

(a) the transferor company is party to arrangements in accordance with which there is likely to be a transfer of rights or liabilities under the derivative contract by the transferee company to another person in circumstances in which this paragraph would not apply, and

(b) the purpose, or one of the main purposes, of the arrangements is to secure a tax advantage for the transferor company or a person connected with it.

(3ZC) In sub-paragraph (3ZB) above—

(a) “arrangements” includes any agreement, understanding, scheme, transaction or series of transactions,

(b) “tax advantage” has the meaning given by section 840ZA of the Taxes Act 1988, and

(c) “transfer” includes any arrangement which equates in substance to a transfer (including an acquisition or disposal of, or increase or decrease in, a share of the profits or assets of a partnership);

and section 839 of the Taxes Act 1988 (connected persons) applies for the purposes of that sub-paragraph.

(3ZD) This paragraph does not apply in relation to a disposal if paragraph 27A applies in relation to it.]

[F23 (3A) Where the debits or credits to be brought into account for the purposes of this Schedule in respect of any amounts fall to be determined in accordance with sub-paragraph (3), Schedule 28AA to the Taxes Act 1988 (provision not at arm’s length) does not apply in relation to those amounts.]

[F24 (4) References in this paragraph to one company replacing another as party to a derivative contract shall include references to a company becoming party to any derivative contract which—

(a) confers rights or imposes liabilities, or

(b) both confers rights and imposes liabilities,

where those rights or liabilities, or rights and liabilities, are equivalent to those of the other company under a derivative contract to which that other company has previously ceased to be party.]

F25 (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(6) In this paragraph references to companies being members of the same group of companies shall be construed in accordance with section 170 of the Taxation of Chargeable Gains Act 1992 (c. 12).

(7) This paragraph has effect subject to paragraphs 29 and 30.

Textual Amendments

F19 Words in Sch. 26 para. 28(2)(d) substituted (with effect in accordance with reg. 1 of the amending S.I.) by The Overseas Life Insurance Companies Regulations 2004 (S.I. 2004/2200), regs. 1(1), 11(4)

F20 Sch. 26 para. 28(3) substituted (with effect in accordance with Sch. 7 para. 22(4)-(6) of the amending Act) by Finance (No. 2) Act 2005 (c. 22), Sch. 7 para. 22(2)

F21 Sch. 26 para. 28(3ZA) inserted (with effect in accordance with Sch. 6 para. 22(3)(4) of the amending Act) by Finance Act 2006 (c. 25), Sch. 6 para. 22(2)

F22 Sch. 26 para. 28(3ZB)-(3ZD) inserted (with effect in accordance with Sch. 22 para. 5(3) of the amending Act) by Finance Act 2008 (c. 9), Sch. 22 para. 5(2)

F23 Sch. 26 para. 28(3A) inserted (with effect in accordance with s. 37 of the amending Act) by Finance Act 2004 (c. 12), Sch. 5 para. 15

F24 Sch. 26 para. 28(4) substituted (with effect in accordance with s. 179(5) of the amending Act) by Finance Act 2003 (c. 14), s. 179(3)

F25 Sch. 26 para. 28(5) repealed (with effect in accordance with Sch. 9 para. 17(1) to the amending Act) by Finance Act 2007 (c. 11), Sch. 9 para. 1(2)(g), Sch. 27 Pt. 2(9)

Modifications etc. (not altering text)

C12 Sch. 26 para. 28 modified by S.I. 1997/473, reg. 53G (as inserted (30.1.2003) by The Friendly Societies (Modification of the Corporation Tax Acts) (Amendment) Regulations 2003 (S.I. 2003/23), regs. 1(1), 10)

C13 Sch. 26 para. 28 excluded (with effect in accordance with reg. 1(2) of the amending S.I.) by The Taxation of Securitisation Companies Regulations 2006 (S.I. 2006/3296), regs. 1(1), 20

C14 Sch. 26 para. 28 excluded (with effect in accordance with reg. 1(2) of the amending S.I.) by The Taxation of Insurance Securitisation Companies Regulations 2007 (S.I. 2007/3402), regs. 1(1), 11

Transactions within groups: exceptions relating to insurance U.K.

29 (1) Paragraph 28 does not apply by virtue of sub-paragraph 2(a) or (b) of that paragraph in relation to any transfer of an asset, or of any rights or duties under or interest in an asset, where the asset was within one of the categories set out in section [F26 440(4)(a), (d) and (e)] of the Taxes Act 1988 (assets held for certain categories of long term business) either immediately before the transfer or immediately afterwards.

(2) Paragraph 28 does not apply by virtue of sub-paragraph 2(c) or (d) of that paragraph in relation to any transfer of an asset, or of any rights or duties under or interest in an asset, where the asset—

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

(b) is not an asset within that category immediately afterwards.

(3) For the purposes of sub-paragraph (2) 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 an asset within one category immediately before the transfer, and

(b) is an asset within the corresponding category immediately afterwards.

(4) In this paragraph “overseas life insurance company” has the same meaning as in Chapter 1 of Part 12 of the Taxes Act 1988.

Textual Amendments

F26 Words in Sch. 26 para. 29(1) substituted (with effect in accordance with s. 38(2) of the amending Act) by Finance Act 2007 (c. 11), Sch. 7 para. 75(3) (with Sch. 7 Pt. 2)

Modifications etc. (not altering text)

C15 Sch. 26 para. 29 modified by S.I. 2005/2014, reg. 44A (as inserted (with effect in accordance with reg. 1(2) of the amending S.I.) by The Friendly Societies (Modification of the Corporation Tax Acts) (Amendment) Regulations 2007 (S.I. 2007/2134), regs. 1(1), 34)

Transactions within groups: [F27 fair value accounting] U.K.

[F28 30 (1) Paragraph 28 does not apply where the transferor company uses [F29 fair value accounting] as respects the derivative contract in question, but in any such case—

(a) the amount to be brought into account by the transferor company in respect of the transaction referred to in that paragraph, or in respect of the series of transactions there referred to, taken together, must be the fair value of the derivative contract as at the date of transfer to the transferee company; and

[F30 (b) for any accounting period in which it is a party to the contract, the transferee company shall be treated for the purpose of determining the credits and debits to be brought into account for the purposes of this Schedule in respect of the contract as if it had acquired the contract for a consideration equal to the amount mentioned in paragraph (a) (but on the assumption that sub-paragraph (1A) is omitted).]

[F31 (1A) In any case where a discount (within the meaning given by section 100(3A) of the Finance Act 1996) arises in respect of the transaction or the series of transactions, the amount to be brought into account by virtue of sub-paragraph (1)(a) is to be increased by the amount of the discount.]

(2) In this paragraph “transferor company” and “transferee company” have the same meaning as in paragraph 28.]

Textual Amendments

F27 Words in Sch. 26 para. 30 heading substituted (with effect in accordance with s. 52(3) of the amending Act) by Finance Act 2004 (c. 12), Sch. 10 para. 57(a)

F28 Sch. 26 para. 30 substituted (with effect in accordance with s. 179(5) of the amending Act) by Finance Act 2003 (c. 14), s. 179(4)

F29 Words in Sch. 26 para. 30(1) substituted (with effect in accordance with s. 52(3) of the amending Act) by Finance Act 2004 (c. 12), Sch. 10 para. 57(b)

F30 Sch. 26 para. 30(1)(b) substituted (with effect in accordance with Sch. 6 para. 23(4)(5) of the amending Act) by Finance Act 2006 (c. 25), Sch. 6 para. 23(2)

F31 Sch. 26 para. 30(1A) inserted (with effect in accordance with Sch. 6 para. 23(4)(5) of the amending Act) by Finance Act 2006 (c. 25), Sch. 6 para. 23(3)

Transferee leaving group after replacing transferor as party to derivative contract U.K.

[F32 30A (1) This paragraph applies in any case where—

(a) paragraph 28 applies—

(i) by virtue of sub-paragraph (2)(a) of that paragraph (“case A”), or

(ii) by virtue of sub-paragraph (2)(b) of that paragraph (“case B”), but

(b) before the end of the relevant 6 year period, the transferee company ceases to be a member of the relevant group.

(2) In any such case, this Schedule shall have effect as if the transferee company had—

(a) immediately before that cessation, assigned its rights and liabilities under the relevant derivative contract for a consideration of an amount equal to their fair value at that time, and

(b) immediately reacquired them for a consideration of the same amount,

but only if Condition 1 or 2 is satisfied and sub-paragraph (5) does not apply.

(3) Condition 1 is that if sub-paragraph (2) has effect, a credit would in consequence of paragraph (a) of that sub-paragraph fall to be brought into account for the purposes of this Schedule by the transferee company.

(4) Condition 2 is that—

(a) Condition 1 is not satisfied,

(b) the company has a hedging relationship between the relevant derivative contract and a creditor relationship, and

(c) in consequence of paragraph 12A(2)(a) of Schedule 9 to the Finance Act 1996, a credit falls to be brought into account by the transferee company for the purposes of Chapter 2 of Part 4 of the Finance Act 1996 in respect of the creditor relationship.

(5) Where the transferee company ceases to be a member of the relevant group by reason only of an exempt distribution (see sub-paragraph (8))—

(a) sub-paragraph (2) does not have effect, but

(b) if there is chargeable payment within 5 years after the making of the exempt distribution, sub-paragraph (6) applies.

[F33 (5A) Where rights and liabilities under a derivative contract are transferred as part of the process of a [F34 merger or] transfer to which paragraph 30B or 30D applies, and in consequence of the [F34 merger or] transfer the transferee company ceases to be a member of a group (“Group 1”)—

(a) the transferee shall not be treated for the purposes of this paragraph as having left Group 1, and

(b) if in consequence of the [F34 merger or] transfer the transferee becomes a member of another group (“Group 2”) it shall be treated, for the purposes of this paragraph, as if Group 1 and Group 2 were the same.]

(6) Where this sub-paragraph applies, this Chapter shall have effect as if—

(a) the transferee company had, immediately before the making of the chargeable payment, assigned its rights and liabilities under the relevant derivative contract,

(b) the assignment had been for a consideration of an amount equal to the fair value of those rights and liabilities immediately before the transferee company ceased to be a member of the relevant group, and

(c) the transferee company had immediately reacquired those rights and liabilities for a consideration of the same amount,

but only if Condition 1 or 2, as modified by sub-paragraph (7), is satisfied.

(7) The modifications are that—

(a) in Condition 1, the references to sub-paragraph (2), and paragraph (a) of that sub-paragraph, are to be taken respectively as references to sub-paragraph (6) and paragraphs (a) and (b) of that sub-paragraph, and

(b) in Condition 2, the reference to paragraph 12A(2)(a) of Schedule 9 to the Finance Act 1996 is to be taken as a reference to paragraph 12A(6)(a) and (b) of that Schedule.

(8) In this paragraph—

• “assignment”, in relation to Scotland, means an assignation;

• “chargeable payment” has the meaning given by section 214(2) of the Taxes Act 1988;

• “exempt distribution” means a distribution which is exempt by virtue of section 213(2) [F35 or 213A] of the Taxes Act 1988;

• “creditor relationship” has the same meaning as in Chapter 2 of Part 4 of the Finance Act 1996 (see section 103(1) of that Act);

• “the relevant 6 year period” means the period of 6 years following—

  (a)

  in case A, the transaction mentioned in paragraph 28(2)(a), or

  (b)

  in case B, the last of the series of transactions mentioned in paragraph 28(2)(b);

• “the relevant derivative contract” means the derivative contract mentioned in paragraph 28(1);

• “the relevant group” means—

  (a)

  in case A, the group mentioned in paragraph 28(2)(a), or

  (b)

  in case B, the group mentioned in paragraph 28(2)(b);

• “the transferee company” means the company referred to as such in paragraph 28(1).]

Textual Amendments

F32 Sch. 26 para. 30A and cross-heading inserted (with effect in accordance with Sch. 7 para. 24(2) of the amending Act) by Finance (No. 2) Act 2005 (c. 22), Sch. 7 para. 24(1)

F33 Sch. 26 para. 30A(5A) inserted (with effect in accordance with reg. 3(1) of the amending S.I.) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2007 (S.I. 2007/3186), reg. 1(2), Sch. 1 para. 20(2)

F34 Words in Sch. 26 para. 30A(5A) inserted (with effect in accordance with reg. 3 of the amending S.I.) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2008 (S.I. 2008/1579), Sch. 3 para. 2

F35 Words in Sch. 26 para. 30A(8) inserted (with effect in accordance with reg. 3(1) of the amending S.I.) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2007 (S.I. 2007/3186), reg. 1(2), Sch. 1 para. 20(3)

Modifications etc. (not altering text)

C16 Sch. 26 para. 30A(5A) modification to earlier affecting provision S.I. 2007/3186, reg. 3(1) (8.7.2008) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2008 (S.I. 2008/1579), regs. 1(2), 4(1)

C17 Sch. 26 para. 30A(8) modification to earlier affecting provision S.I. 2007/3186, reg. 3(1) (8.7.2008) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2008 (S.I. 2008/1579), regs. 1(2), 4(1)

[F36 30B (1) This paragraph applies on a merger which satisfies the conditions specified in sub-paragraph (2), where— U.K.

(a) an SE is formed by the merger of two or more companies in accordance with Articles 2(1) and 17(2)(a) or (b) of Council Regulation (EC) 2157/2001 on the Statute for a European Company (Societas Europaea),

(b) an SCE is formed by the merger of two or more cooperative societies, at least one of which is a society registered under the Industrial and Provident Societies Act 1965, in accordance with Articles 2(1) and 19 of Council Regulation (EC) 1435/ 2003 on the Statute for a European Cooperative Society (SCE),

(c) the merger is effected by the transfer by one or more companies of all their assets and liabilities to a single existing company, or

(d) the merger is effected by the transfer by two or more companies of all their assets and liabilities to a single new company (other than an SE or an SCE) in exchange for the issue by the transferee, to each person holding shares in or debentures of a transferor, of shares or debentures.

(2) The conditions mentioned in sub-paragraph (1) are that—

(a) each of the merging companies is resident in a member State,

(b) the merging companies are not all resident in the same State,

(c) either—

(i) immediately after the merger the transferee is resident in the United Kingdom and within the charge to corporation tax in accordance with section 6 of the Taxes Act 1988, or

(ii) immediately after the merger the transferee is not resident in the United Kingdom but is within the charge to corporation tax in accordance with section 11 of the Taxes Act 1988, F37 ...

(d) in the case of a merger to which sub-paragraph (1)(a), (b) or (c) applies, either—

(i) the transfer of assets and liabilities is made in exchange for the issue by the transferee, to each person holding shares in or debentures of a transferor, of shares or debentures, or

(ii) sub-paragraph (i) is not satisfied in relation to the transfer by reason only, and to the extent only, that the transferee is prevented from complying with that sub-paragraph by section 658 of the Companies Act 2006 (rule against limited company acquiring own shares) or a corresponding provision of the law of another member State preventing the issue of shares or debentures to itself, [F38 and

(e) in the case of a merger to which sub-paragraph (1)(c) or (d) applies, in the course of the merger each transferor ceases to exist without being in liquidation (within the meaning given by section 247 of the Insolvency Act 1986 (c. 55)).]

(3) Where this paragraph applies, in determining [F39 the] credits and debits to be brought into account for the purposes of this [F40 Schedule] in respect of a derivative contract, if the rights and liabilities under the derivative contract are transferred in the course of the merger, the transferor and the transferee companies shall be treated as having entered into the transfer for a consideration equal to the notional carrying value (within the meaning given by paragraph 28(3)) of the derivative contract.

(4) Paragraph 30 shall apply, with any necessary modifications, in relation to this paragraph as in relation to paragraph 28.

F41 (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(6) Sub-paragraph (3) shall apply in relation to a merger only if—

(a) it is effected for bona fide commercial reasons, and

(b) it does not form part of a scheme or arrangements of which the main purpose, or one of the main purposes, is avoiding liability to corporation tax, capital gains tax or income tax.

(7) But sub-paragraph (6) shall not have the effect of preventing sub-paragraph (3) from applying if before the merger the Commissioners for Her Majesty's Revenue and Customs have on the application of any of the merging companies notified them that the Commissioners are satisfied that sub-paragraph (6) will not have that effect.

(8) Section 138(2) to (5) of the Taxation of Chargeable Gains Act 1992 shall have the same effect in relation to sub-paragraph [F42 (7)] above as in relation to section 138(1).

(9) For the purposes of this paragraph—

(a) “cooperative society” means a society registered under the Industrial and Provident Societies Act 1965 or a similar society governed by the law of a member State other than the United Kingdom,

(b) “transferor” means—

(i) in relation to a merger to which sub-paragraph (1)(a) applies, each company merging to form the SE,

(ii) in relation to a merger to which sub-paragraph (1)(b) applies, each cooperative society merging to form the SCE, and

(iii) in relation to a merger to which sub-paragraph (1)(c) or (d) applies, each company transferring all of its assets and liabilities,

(c) “transferee” means—

(i) in relation to a merger to which sub-paragraph (1)(a) applies, the SE,

(ii) in relation to a merger to which sub-paragraph (1)(b) applies, the SCE, and

(iii) in relation to a merger to which sub-paragraph (1)(c) or (d) applies, the company to which assets and liabilities are transferred, and

F43 (d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .]

Textual Amendments

F36 Sch. 26 paras. 30B, 30C substituted for Sch. 26 para. 30B (with effect in accordance with reg. 3(2) of the amending S.I.) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2007 (S.I. 2007/3186), reg. 1(2), Sch. 2 para. 10

F37 Word in Sch. 26 para. 30B(2)(c) omitted (with effect in accordance with reg. 3 of the amending S.I.) by virtue of The Corporation Tax (Implementation of the Mergers Directive) Regulations 2008 (S.I. 2008/1579), Sch. 3 para. 3(2)(a)

F38 Sch. 26 para. 30B(2)(e) and word inserted (with effect in accordance with reg. 3 of the amending S.I.) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2008 (S.I. 2008/1579), Sch. 3 para. 3(2)(b)

F39 Word in Sch. 26 para. 30B(3) inserted (with effect in accordance with reg. 3 of the amending S.I.) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2008 (S.I. 2008/1579), Sch. 3 para. 3(3)

F40 Word in Sch. 26 para. 30B(3) substituted (with effect in accordance with reg. 3 of the amending S.I.) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2008 (S.I. 2008/1579), Sch. 3 para. 3(3)

F41 Sch. 26 para. 30B(5) omitted (with effect in accordance with reg. 3 of the amending S.I.) by virtue of The Corporation Tax (Implementation of the Mergers Directive) Regulations 2008 (S.I. 2008/1579), Sch. 3 para. 3(4)

F42 Word in Sch. 26 para. 30B(8) substituted (with effect in accordance with reg. 3 of the amending S.I.) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2008 (S.I. 2008/1579), Sch. 3 para. 3(5)

F43 Sch. 26 para. 30B(9)(d) omitted (with effect in accordance with reg. 3 of the amending S.I.) by virtue of The Corporation Tax (Implementation of the Mergers Directive) Regulations 2008 (S.I. 2008/1579), Sch. 3 para. 3(6)

Modifications etc. (not altering text)

C18 Sch. 26 para. 30B(2)(d) modified (temp.) (8.7.2008) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2008 (S.I. 2008/1579), regs. 1(2), 6(1), Sch. 4 para. 4(a) (with reg. 6(2))

[F36 30C (1) This paragraph applies on a merger which satisfies the conditions specified in sub-paragraph (2), where— U.K.

(a) an SE is formed by the merger of two or more companies in accordance with Articles 2(1) and 17(2)(a) or (b) of Council Regulation (EC) 2157/2001 on the Statute for a European Company (Societas Europaea),

(b) an SCE is formed by the merger of two or more cooperative societies, at least one of which is a society registered under the Industrial and Provident Societies Act 1965, in accordance with Articles 2(1) and 19 of Council Regulation (EC) 1435/ 2003 on the Statute for a European Cooperative Society (SCE),

(c) the merger is effected by the transfer by one or more companies of all their assets and liabilities to a single existing company, or

(d) the merger is effected by the transfer by two or more companies of all their assets and liabilities to a single new company (other than an SE or an SCE) in exchange for the issue by the transferee, to each person holding shares in or debentures of a transferor, of shares or debentures.

(2) The conditions mentioned in sub-paragraph (1) are that—

(a) each merging company is resident in a member State,

(b) the merging companies are not all resident in the same State,

(c) in the course of the merger a company resident in the United Kingdom (“company A”) transfers to a company resident in another member State (“company B”) all assets and liabilities relating to a business which company A carried on in a member State other than the United Kingdom through a permanent establishment,

(d) the transfer mentioned in paragraph (c) includes the transfer of rights and liabilities under a derivative contract, F44 ...

(e) in the case of a merger to which sub-paragraph (1)(a), (b) or (c) applies, either—

(i) the transfer of assets and liabilities is made in exchange for the issue by the transferee, to each person holding shares in or debentures of a transferor, of shares or debentures, or

(ii) sub-paragraph (i) is not satisfied in relation to the transfer by reason only, and to the extent only, that the transferee is prevented from complying with that sub-paragraph by section 658 of the Companies Act 2006 (rule against limited company acquiring own shares) or a corresponding provision of the law of another member State preventing the issue of shares or debentures to itself, [F45 and

(f) in the case of a merger to which sub-paragraph (1)(c) or (d) applies, in the course of the merger each transferor ceases to exist without being in liquidation (within the meaning given by section 247 of the Insolvency Act 1986 (c. 55)).]

(3) Where tax would have been chargeable under the law of one or more other member States in respect of the transfer of rights and liabilities under the derivative contract but for the Mergers Directive, Part 18 of the Taxes Act (double taxation relief) including any arrangements having effect by virtue of section 788 of that Act (bilateral relief) shall apply as if that tax had been chargeable.

(4) In calculating tax notionally chargeable under sub-paragraph (3) it shall be assumed—

(a) that to the extent permitted by the law of the other member State losses arising on the transfer are set against gains arising on the transfer, and

(b) that any relief due to Company A under that law is claimed.

(5) Sub-paragraphs (6) to (9) of paragraph 30B apply for the purposes of this paragraph as they apply for the purposes of that paragraph.]

Textual Amendments

F36 Sch. 26 paras. 30B, 30C substituted for Sch. 26 para. 30B (with effect in accordance with reg. 3(2) of the amending S.I.) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2007 (S.I. 2007/3186), reg. 1(2), Sch. 2 para. 10

F44 Word in Sch. 26 para. 30C(2)(d) omitted (with effect in accordance with reg. 3 of the amending S.I.) by virtue of The Corporation Tax (Implementation of the Mergers Directive) Regulations 2008 (S.I. 2008/1579), Sch. 3 para. 4(a)

F45 Sch. 26 para. 30C(2)(f) and word inserted (with effect in accordance with reg. 3 of the amending S.I.) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2008 (S.I. 2008/1579), Sch. 3 para. 4(b)

Modifications etc. (not altering text)

C19 Sch. 26 para. 30C(2)(e) modified (temp.) (8.7.2008) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2008 (S.I. 2008/1579), regs. 1(2), 6(1), Sch. 4 para. 4(b) (with reg. 6(2))

[F46 30D (1) This paragraph applies where— U.K.

(a) a company resident in one member State transfers to a company resident in another member State the whole or part of a business carried on in the United Kingdom,

(b) the transfer is wholly in exchange for shares or debentures issued by the transferee to the transferor,

(c) the transferor and the transferee each make a claim under this paragraph, and

[F47 (d) the transferee—

(i) is resident in the United Kingdom immediately after the transfer, or

(ii) is within the charge to corporation tax immediately after the transfer in accordance with section 11 of the Taxes Act 1988.]

(2) This paragraph also applies where a company transfers part of its business to one or more companies if—

(a) the transferor is resident in one member State,

(b) the part of the transferor's business which is to be transferred is carried on by the transferor in the United Kingdom,

(c) at least one transferee is resident in a member State other than that in which the transferor is resident (and each transferee is resident in a member State, but not necessarily the same one),

(d) the transferor continues to carry on a business after the transfer,

(e) the conditions in sub-paragraph (1)(c) and (d) are satisfied (for which purpose references to the transferee shall be treated as references to each of the transferees), and

(f) either of the following conditions is satisfied.

(3) Condition 1 is that the transfer is made in exchange for the issue of shares in or debentures of each transferee company to the persons holding shares in or debentures of the transferor.

(4) Condition 2 is that the transfer is not made in exchange for the issue of shares in or debentures of each transferee by reason only, and to the extent only, that a transferee is prevented from complying with Condition 1 by section 658 of the Companies Act 2006 (rule against limited company acquiring own shares) or by a corresponding provision of the law of another member State preventing the issue of shares or debentures to itself.

F48 (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(6) Where this paragraph applies, in determining [F49 the] credits and debits to be brought into account for the purposes of this [F50 Schedule] in respect of a derivative contract, if the rights and liabilities under the derivative contract are transferred in the course of the transfer of the business or part mentioned in sub-paragraph (1) or (2), the transferor and the transferee companies shall be treated as having entered into the transfer for a consideration equal to the notional carrying value (within the meaning given by paragraph 28(3)) of the derivative contract.

(7) Paragraph 30 shall have effect (with any necessary modifications) in relation to this paragraph as it has effect in relation to paragraph 28.

Textual Amendments

F46 Sch. 26 paras. 30D-30F and cross-heading inserted (with effect in accordance with reg. 3(1) of the amending S.I.) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2007 (S.I. 2007/3186), reg. 1(2), Sch. 1 para. 19

F47 Sch. 26 para. 30D(1)(d) substituted (with effect in accordance with reg. 3 of the amending S.I.) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2008 (S.I. 2008/1579), Sch. 3 para. 5(2)

F48 Sch. 26 para. 30D(5) omitted (with effect in accordance with reg. 3 of the amending S.I.) by virtue of The Corporation Tax (Implementation of the Mergers Directive) Regulations 2008 (S.I. 2008/1579), Sch. 3 para. 5(3)

F49 Word in Sch. 26 para. 30D(6) inserted (with effect in accordance with reg. 3 of the amending S.I.) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2008 (S.I. 2008/1579), Sch. 3 para. 5(4)(a)

F50 Word in Sch. 26 para. 30D(6) substituted (with effect in accordance with reg. 3 of the amending S.I.) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2008 (S.I. 2008/1579), Sch. 3 para. 5(4)(b)

Modifications etc. (not altering text)

C20 Sch. 26 paras. 30D-30F modification to earlier affecting provision S.I. 2007/3186, reg. 3(1) (8.7.2008) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2008 (S.I. 2008/1579), regs. 1(2), 4(1)

C21 Sch. 26 para. 30D(4) modified (temp.) (8.7.2008) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2008 (S.I. 2008/1579), regs. 1(2), 6(1), Sch. 4 para. 4(c) (with reg. 6(2))

30E (1) This paragraph applies where— U.K.

(a) a company resident in the United Kingdom transfers to a company resident in another member State the whole or part of a business which immediately before the transfer the transferor carried on in a member State other than the United Kingdom through a permanent establishment,

(b) the transfer is wholly or partly in exchange for shares or debentures issued by the transferee to the transferor or to the persons holding shares in or debentures of the transferor,

(c) the transfer includes the transfer of rights or liabilities under a derivative contract, and

(d) the transferor makes a claim under this paragraph.

(2) This paragraph also applies where a company resident in the United Kingdom transfers part of its business to one or more companies if—

(a) the part of the transferor's business which is to be transferred was carried on immediately before the transfer in a member State other than the United Kingdom through a permanent establishment,

(b) at least one transferee is resident in a member State other than the United Kingdom (and each transferee is resident in a member State, but not necessarily the same one),

(c) the transferor continues to carry on a business,

(d) the conditions in sub-paragraph (1)(c) and (d) are satisfied, and

(e) either of the following conditions is satisfied.

(3) Condition 1 is that the transfer is made in exchange for the issue of shares in or debentures of each transferee company to the persons holding shares in or debentures of the transferor.

(4) Condition 2 is that the transfer is not made in exchange for the issue of shares in or debentures of each transferee by reason only, and to the extent only, that a transferee is prevented from complying with Condition 1 by section 658 of the Companies Act 2006 (rule against limited company acquiring own shares) or by a corresponding provision of the law of another member State preventing the issue of shares or debentures to itself.

(5) Where tax would have been chargeable under the law of one or more other member States in respect of the transfer of rights and liabilities under the derivative contract but for the Mergers Directive, Part 18 of the Taxes Act 1988 (double taxation relief) including any arrangements having effect by virtue of section 788 of that Act (bilateral relief) shall apply as if that tax had been chargeable.

(6) In calculating tax notionally chargeable under sub-paragraph (5) it shall be assumed—

(a) that to the extent permitted by the law of the other member State losses arising on the transfer are set against gains arising on the transfer, and

(b) that any relief due to the transferor under that law is claimed.

Textual Amendments

F46 Sch. 26 paras. 30D-30F and cross-heading inserted (with effect in accordance with reg. 3(1) of the amending S.I.) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2007 (S.I. 2007/3186), reg. 1(2), Sch. 1 para. 19

Modifications etc. (not altering text)

C20 Sch. 26 paras. 30D-30F modification to earlier affecting provision S.I. 2007/3186, reg. 3(1) (8.7.2008) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2008 (S.I. 2008/1579), regs. 1(2), 4(1)

C22 Sch. 26 para. 30E(4) modified (temp.) (8.7.2008) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2008 (S.I. 2008/1579), regs. 1(2), 6(1), Sch. 4 para. 4(d) (with reg. 6(2))

30F (1) Paragraph 30D or 30E shall apply in relation to the transfer of the whole or part of a business only if— U.K.

(a) it is effected for bona fide commercial reasons, and

(b) it does not form part of a scheme or arrangements of which the main purpose, or one of the main purposes, is avoiding liability to income tax, corporation tax or capital gains tax.

(2) But sub-paragraph (1) shall not prevent paragraph 30D or 30E from applying in relation to a transfer if before the transfer the Commissioners for Her Majesty's Revenue and Customs have on the application of the transferor and transferee or transferees notified them that the Commissioners are satisfied that sub-paragraph (1) will not prevent paragraph 30D or 30E from applying in relation to the transfer.

(3) Section 138(2) to (5) of the TCGA 1992 shall have the same effect in relation to sub-paragraph (2) above as in relation to section 138(1).]

Textual Amendments

F46 Sch. 26 paras. 30D-30F and cross-heading inserted (with effect in accordance with reg. 3(1) of the amending S.I.) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2007 (S.I. 2007/3186), reg. 1(2), Sch. 1 para. 19

Modifications etc. (not altering text)

C20 Sch. 26 paras. 30D-30F modification to earlier affecting provision S.I. 2007/3186, reg. 3(1) (8.7.2008) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2008 (S.I. 2008/1579), regs. 1(2), 4(1)

[F51 30G (1) This paragraph applies in relation to a transfer of a business, or a part of a business, where— U.K.

(a) the transfer is of a kind [F52 mentioned in paragraph 30D(1) or (2) (or which would be of such a kind] if the business, or the part of the business, transferred were carried on by the transferor in the United Kingdom and [F53 the condition] mentioned in paragraph 30D(1)d) were satisfied in relation to the transferee, or each of the transferees), and

(b) the transferor is a transparent entity.

(2) Where this paragraph applies paragraph [F54 30D] does not apply in relation to the transfer.

(3) If, as a result of a transfer to which this paragraph applies, a transfer profit would, but for the Mergers Directive, have been chargeable to tax under the law of a member State other than the United Kingdom, Part 18 of the Taxes Act 1988 (double taxation relief), including any arrangements having effect by virtue of section 788 of that Act (bilateral relief), shall apply as if that tax, calculated in accordance with sub-paragraph (5), had been chargeable.

(4) In sub-paragraph (3) “transfer profit” means a profit accruing to a transparent entity in respect of a derivative contract (or which would be treated as accruing to that entity were it not transparent) by reason of the transfer of [F55 rights and liabilities under the derivative contract] by the transparent entity to the transferee.

(5) Tax is calculated in accordance with this sub-paragraph if—

(a) so far as permitted under the law of the relevant member State, losses arising on the transfer [F56 of those rights and liabilities] are set against profits arising on the transfer [F56 of those rights and liabilities], and

(b) any relief available under that law has been claimed.

Textual Amendments

F51 Sch. 26 paras. 30G-30I and cross-heading inserted (with effect in accordance with reg. 3(3) of the amending S.I.) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2007 (S.I. 2007/3186), reg. 1(2), Sch. 3 para. 4

F52 Words in Sch. 26 para. 30G(1)(a) substituted (with effect in accordance with reg. 3 of the amending S.I.) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2008 (S.I. 2008/1579), Sch. 3 para. 6(2)(a)

F53 Words in Sch. 26 para. 30G(1)(a) substituted (with effect in accordance with reg. 3 of the amending S.I.) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2008 (S.I. 2008/1579), Sch. 3 para. 6(2)(b)

F54 Word in Sch. 26 para. 30G(2) substituted (with effect in accordance with reg. 3 of the amending S.I.) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2008 (S.I. 2008/1579), Sch. 3 para. 6(3)

F55 Words in Sch. 26 para. 30G(4) substituted (with effect in accordance with reg. 3 of the amending S.I.) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2008 (S.I. 2008/1579), Sch. 3 para. 6(4)

F56 Words in Sch. 26 para. 30G(5)(a) inserted (with effect in accordance with reg. 3 of the amending S.I.) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2008 (S.I. 2008/1579), Sch. 3 para. 6(5)

Modifications etc. (not altering text)

C23 Sch. 26 paras. 30G-30I modification to earlier affecting provision S.I. 2007/3186, reg. 3(3) (8.7.2008) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2008 (S.I. 2008/1579), regs. 1(2), 4(2)

30H (1) This paragraph applies in relation to a merger if— U.K.

(a) the merger is of a kind [F57 mentioned in paragraph 30B(1)],

(b) the conditions in paragraph 30B(2) are satisfied in relation to the merger, and

(c) one or more of the merging companies is a transparent entity.

(2) Where this paragraph applies, if the assets and liabilities of a transparent entity are transferred to another company by reason of the merger, paragraph [F58 30B shall not apply in relation to the transfer].

(3) If, as a result of a merger in relation to which this paragraph applies, a merger profit would, but for the Mergers Directive, have been chargeable to tax under the law of a member State other than the United Kingdom, Part 18 of the Taxes Act 1988 (double taxation relief), including any arrangements having effect by virtue of section 788 of that Act (bilateral relief), shall apply as if that tax, calculated in accordance with sub-paragraph (5), had been chargeable.

(4) In sub-paragraph (3) “merger profit” means a profit in respect of a derivative contract accruing to a transparent entity (or which would be treated as accruing to that entity were it not transparent) by reason of the transfer of [F59 rights and liabilities under the derivative contract] by the transparent entity to another company on the merger.

(5) Tax is calculated in accordance with this sub-paragraph if—

(a) so far as is permitted under the law of the relevant member State, losses arising on the transfer [F60 of those rights and liabilities] are set against profits arising on the transfer [F60 of those rights and liabilities], and

(b) any relief available under that law has been claimed.

Textual Amendments

F51 Sch. 26 paras. 30G-30I and cross-heading inserted (with effect in accordance with reg. 3(3) of the amending S.I.) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2007 (S.I. 2007/3186), reg. 1(2), Sch. 3 para. 4

F57 Words in Sch. 26 para. 30H(1)(a) substituted (with effect in accordance with reg. 3 of the amending S.I.) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2008 (S.I. 2008/1579), Sch. 3 para. 7(2)

F58 Words in Sch. 26 para. 30H(2) substituted (with effect in accordance with reg. 3 of the amending S.I.) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2008 (S.I. 2008/1579), Sch. 3 para. 7(3)

F59 Words in Sch. 26 para. 30H(4) substituted (with effect in accordance with reg. 3 of the amending S.I.) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2008 (S.I. 2008/1579), Sch. 3 para. 7(4)

F60 Words in Sch. 26 para. 30H(5)(a) inserted (with effect in accordance with reg. 3 of the amending S.I.) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2008 (S.I. 2008/1579), Sch. 3 para. 7(5)

Modifications etc. (not altering text)

C23 Sch. 26 paras. 30G-30I modification to earlier affecting provision S.I. 2007/3186, reg. 3(3) (8.7.2008) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2008 (S.I. 2008/1579), regs. 1(2), 4(2)

30I (1) In paragraphs [F61 30B] to 30H [F62 and this paragraph], unless the contrary intention appears— U.K.

(a) “the Mergers Directive” means Council Directive 90/434/ EEC of 23rd July 1990 on mergers, transfers &c.,

(b) “company” F63 ... means an entity listed as a company in the Annex to the Mergers Directive, and

(c) “transparent entity” means an entity which is resident in a member State other than the United Kingdom and is listed as a company in the Annex to the Mergers Directive, but which does not have an ordinary share capital (within the meaning given by section 832 of the Taxes Act).

(2) For the purposes of those paragraphs F64 ..., a company is resident in a member State if—

(a) it is within a charge to tax under the law of the State as being resident for that purpose, and

(b) it is not regarded, for the purpose of any double taxation relief arrangements to which the State is a party, as resident in a territory not within a member State.]

Textual Amendments

F51 Sch. 26 paras. 30G-30I and cross-heading inserted (with effect in accordance with reg. 3(3) of the amending S.I.) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2007 (S.I. 2007/3186), reg. 1(2), Sch. 3 para. 4

F61 Word in Sch. 26 para. 30I(1) substituted (with effect in accordance with reg. 3 of the amending S.I.) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2008 (S.I. 2008/1579), Sch. 3 para. 8(2)(a)

F62 Words in Sch. 26 para. 30I(1) inserted (with effect in accordance with reg. 3 of the amending S.I.) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2008 (S.I. 2008/1579), Sch. 3 para. 8(2)(b)

F63 Words in Sch. 26 para. 30I(1)(b) omitted (with effect in accordance with reg. 3 of the amending S.I.) by virtue of The Corporation Tax (Implementation of the Mergers Directive) Regulations 2008 (S.I. 2008/1579), Sch. 3 para. 8(2)(c)

F64 Words in Sch. 26 para. 30I(2) omitted (with effect in accordance with reg. 3 of the amending S.I.) by virtue of The Corporation Tax (Implementation of the Mergers Directive) Regulations 2008 (S.I. 2008/1579), Sch. 3 para. 8(3)

Modifications etc. (not altering text)

C23 Sch. 26 paras. 30G-30I modification to earlier affecting provision S.I. 2007/3186, reg. 3(3) (8.7.2008) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2008 (S.I. 2008/1579), regs. 1(2), 4(2)

Derivative contracts with non-residents U.K.

[F36 31 (1) This paragraph applies in relation to a company where, as a result of any transaction,—

(a) the company and a non-resident both become party to a derivative contract,

(b) the company becomes party to a derivative contract to which a non-resident is party, or

(c) a non-resident becomes party to a derivative contract to which the company is party.

(2) For each accounting period for any part of which the company and the non-resident are both party to a derivative contract, the credits and debits which fall, in the case of the company, to be brought into account for the purposes of this Schedule as respects the derivative contract shall not include, in a case where that contract makes provision for notional interest payments, any relevant debit arising in relation to that contract.

(3) For the purposes of sub-paragraph (2) the amount of a relevant debit shall be computed by determining, as regards that accounting period, the amount (if any) by which—

(a) the aggregate of any notional interest payments made by the company to the non-resident while the company and the non-resident are both party to the derivative contract, exceeds

(b) the aggregate of any notional interest payments made by the non-resident to the company during that time.

(4) For the purposes of sub-paragraphs (2) and (3) a notional interest payment is any payment the amount of which falls to be determined (wholly or mainly) by applying to a notional principal amount specified in a derivative contract, for a period so specified, a rate the value of which at all times is the same as that of a rate of interest so specified.

(5) Sub-paragraph (2) shall not apply where the company is a bank, building society, financial trader or recognised clearing house and—

(a) the company is party to the derivative contract solely for the purposes of a trade or part of a trade carried on by it in the United Kingdom, and

(b) it is party to the derivative contract otherwise than as agent or nominee of another person.

(6) Sub-paragraph (2) shall not apply where—

(a) the non-resident is party to the derivative contract solely for the purposes of a trade or part of a trade carried on by him in the United Kingdom through a branch or agency, and

(b) he is party to the derivative contract otherwise than as agent or nominee of another person.

(7) Sub-paragraph (2) shall not apply where arrangements made in relation to the territory in which the non-resident is resident—

(a) have effect by virtue of section 788 of the Taxes Act 1988, and

(b) make provision, whether for relief or otherwise, in relation to interest (as defined in the arrangements).

(8) Where the non-resident is party to the contract as agent or nominee of another person, sub-paragraph (7) shall have effect as if the reference to the territory in which the non-resident is resident were a reference to the territory in which that other person is resident.

(9) In this paragraph—

• “non-resident” means a person who is not resident in the United Kingdom;

• “recognised clearing house” has the meaning given by section 285 of the Financial Services and Markets Act 2000 (c. 8).

Textual Amendments

F36 Sch. 26 paras. 30B, 30C substituted for Sch. 26 para. 30B (with effect in accordance with reg. 3(2) of the amending S.I.) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2007 (S.I. 2007/3186), reg. 1(2), Sch. 2 para. 10

Modifications etc. (not altering text)

C24 Sch. 26 para. 31(6)(a) modified (with effect in accordance with s. 153(4) of the amending Act) by Finance Act 2003 (c. 14), s. 153(2)(d)

Amounts imputed under Schedule 28AA to the Taxes Act 1988 U.K.

[F65 31A (1) This paragraph applies where, in pursuance of Schedule 28AA to the Taxes Act 1988 (provision not at arm’s length), an amount falls to be treated as any of the following—

(a) an amount of profits or losses (disregarding any charges or expenses) arising to a company from any of its derivative contracts or related transactions;

(b) charges or expenses incurred by a company under or for the purposes of any of its derivative contracts or related transactions.

(2) That Schedule shall have effectF66 ... so as to require credits or debits relating to the amount so treated to be brought into account for the purposes of this Chapter to the same extent as they would be in the case of an actual amount of—

(a) profits or losses (disregarding any charges or expenses) arising to the company from the derivative contract or related transaction, or

(b) charges or expenses incurred under or for the purposes of the derivative contract or related transaction,

as the case may be.]]

Textual Amendments

F36 Sch. 26 paras. 30B, 30C substituted for Sch. 26 para. 30B (with effect in accordance with reg. 3(2) of the amending S.I.) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2007 (S.I. 2007/3186), reg. 1(2), Sch. 2 para. 10

F65 Sch. 26 para. 31A inserted (with effect in accordance with s. 37 of the amending Act) by Finance Act 2004 (c. 12), Sch. 5 para. 15(3)

F66 Words in Sch. 26 para. 31A(2) repealed (with effect in accordance with s. 52(3) of the amending Act) by Finance Act 2004 (c. 12), Sch. 10 para. 58, Sch. 42 Pt. 2(6)