Corporation Tax Act 2009

Chapter 7 U.K. Shares with guaranteed returns etc

Application of Part 5 to certain shares as rights under creditor relationship U.K.

522 Introduction to Chapter U.K.

(1) This Chapter contains rules for Part 5 to apply in some cases as if at some times in the accounting period of a company (“A”) which holds certain kinds of shares in another company (“B”) the shares were rights under a creditor relationship of A.

(2) See, in particular—

(a) section 523 (application of Part 5 to some shares as rights under creditor relationship), and

(b) sections 524 and 526 (which describe the two kinds of shares to which the rules apply: shares subject to outstanding third party obligations and non-qualifying shares).

(3) In this Chapter references to the investing company are to A and references to the issuing company are to B.

(4) For the purposes of this Chapter a company is treated as continuing to hold a share even though the share has been transferred to another person—

(a) under a repo or stock lending arrangement, or

(b) under a transaction which is treated as not involving any disposal as a result of section 26 of TCGA 1992 (mortgages and charges not to be treated as disposals).

(5) But subsection (4) does not apply for the purposes of section 535 (shares ceasing to be shares to which section 523 applies).

(6) For the purposes of this Chapter, the definition of “share” in section 476(1) only applies so far as it provides that “share” does not include a share in a building society.

(7) See section 116B of TCGA 1992 for the effect for the purposes of that Act of shares beginning or ceasing to be shares to which section 523 applies.

523 Application of Part 5 to certain shares as rights under creditor relationship U.K.

(1) This section applies in relation to the times in a company's accounting period when—

(a) the company holds a share in another company, and

(b) either—

(i) section 524 (shares subject to outstanding third party obligations) applies to the share, or

(ii) that section does not so apply, but section 526 (non-qualifying shares) does.

(2) Part 5 applies as if at those times—

(a) the share were rights under a creditor relationship of the investing company, and

(b) any distribution in respect of the share were not a distribution (and accordingly were within Part 5).

(3) But no debits are to be brought into account by the investing company for the purposes of Part 5 as respects the share, except where—

(a) this section applies because of subsection (1)(b)(ii), and

(b) the associated transactions condition is met (see section 532).

(4) In this Chapter references to “the share” are to the share mentioned in subsection (1).

(5) For special rules about the amounts to be brought into account where this section applies, see section 534.

Shares subject to outstanding third party obligations U.K.

F1 524 Shares subject to outstanding third party obligations U.K.

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Textual Amendments

F1 Pt. 6 Ch. 7 omitted (retrospective and with effect in accordance with Sch. 24 paras. 12, 13-16 of the amending Act) by virtue of Finance Act 2009 (c. 10), Sch. 24 paras. 8(c)(i), 12

525 Meaning of “interest-like investment” U.K.

(1) In section 524 “interest-like investment” means a share whose nature is such that its fair value—

(a) is likely to increase at a rate which represents a return on an investment of money at a commercial rate of interest, and

(b) is unlikely to deviate to a substantial extent from that rate of increase.

(2) Fluctuations in value resulting from changes in exchange rates are ignored for the purposes of subsection (1).

(3) For the purposes of subsection (1), the fair value of a share which is subject to outstanding third party obligations (see section 524(2)) must include the fair value of the obligations.

(4) For the purposes of subsection (1), it is assumed—

(a) that any third party obligations will be fully met at the time at which they are due, and

(b) that no transaction (or series of transactions) intended to prevent the condition in subsection (1)(a) or (b) from being met will be or has been entered into.

Non-qualifying shares U.K.

F1 526 Non-qualifying shares U.K.

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Textual Amendments

F1 Pt. 6 Ch. 7 omitted (retrospective and with effect in accordance with Sch. 24 paras. 12, 13-16 of the amending Act) by virtue of Finance Act 2009 (c. 10), Sch. 24 paras. 8(c)(i), 12

F1 527 The increasing value condition U.K.

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Textual Amendments

F1 Pt. 6 Ch. 7 omitted (retrospective and with effect in accordance with Sch. 24 paras. 12, 13-16 of the amending Act) by virtue of Finance Act 2009 (c. 10), Sch. 24 paras. 8(c)(i), 12

F1 528 Regulations about income-producing assets U.K.

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Textual Amendments

F1 Pt. 6 Ch. 7 omitted (retrospective and with effect in accordance with Sch. 24 paras. 12, 13-16 of the amending Act) by virtue of Finance Act 2009 (c. 10), Sch. 24 paras. 8(c)(i), 12

F1 529 The redemption return condition U.K.

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Textual Amendments

F1 Pt. 6 Ch. 7 omitted (retrospective and with effect in accordance with Sch. 24 paras. 12, 13-16 of the amending Act) by virtue of Finance Act 2009 (c. 10), Sch. 24 paras. 8(c)(i), 12

F1 530 The redemption return condition: excepted shares U.K.

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Textual Amendments

F1 Pt. 6 Ch. 7 omitted (retrospective and with effect in accordance with Sch. 24 paras. 12, 13-16 of the amending Act) by virtue of Finance Act 2009 (c. 10), Sch. 24 paras. 8(c)(i), 12

F1 531 The redemption return condition: unallowable purposes U.K.

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Textual Amendments

F1 Pt. 6 Ch. 7 omitted (retrospective and with effect in accordance with Sch. 24 paras. 12, 13-16 of the amending Act) by virtue of Finance Act 2009 (c. 10), Sch. 24 paras. 8(c)(i), 12

F1 532 The associated transactions condition U.K.

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Textual Amendments

F1 Pt. 6 Ch. 7 omitted (retrospective and with effect in accordance with Sch. 24 paras. 12, 13-16 of the amending Act) by virtue of Finance Act 2009 (c. 10), Sch. 24 paras. 8(c)(i), 12

533 Power to change conditions for non-qualifying shares U.K.

(1) The Treasury may by regulations amend this Chapter so as to add, vary or remove conditions to be met for the purposes of section 526(2) (non-qualifying shares).

(2) If the Treasury add, vary or remove such a condition, they may also by regulations amend any of the enactments specified in subsection (3) so as to make provision for or in connection with taxation in the case of any asset or transaction which is or was mentioned in the condition.

(3) The enactments are—

(a) Part 5,

(b) this Part,

(c) Part 7 (derivative contracts),

(d) Chapters 1 to 3 of Part 6 of ICTA (company distributions), and

(e) Part 18 of ICTA (double taxation relief).

(4) Regulations under this section may make—

(a) different provision for different cases, and

(b) incidental, supplemental, consequential and transitional provision and savings.

(5) Regulations made under subsection (4)(b) may, in particular, include provision amending any enactment or any instrument made under an enactment.

Consequences of section 523 applying or ceasing to apply U.K.

F1 534 Amounts to be brought into account where section 523 applies U.K.

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Textual Amendments

F1 Pt. 6 Ch. 7 omitted (retrospective and with effect in accordance with Sch. 24 paras. 12, 13-16 of the amending Act) by virtue of Finance Act 2009 (c. 10), Sch. 24 paras. 8(c)(i), 12

535 Shares ceasing to be shares to which section 523 applies U.K.

(1) This section applies if at any time section 523 (application of Part 5 to certain shares as rights under creditor relationship) ceases to apply in the case of a share held by the investing company.

(2) The company is treated for the purposes of Part 5—

(a) as having disposed of the share immediately before that time for consideration of an amount equal to its fair value at that time, and

(b) as having immediately reacquired it for consideration of the same amount.