Corporation Tax Act 2010

[F1 437C Present value of a lease U.K.

(1) For the purposes of section 437A, the present value of a lease is the present value of the amounts mentioned in subsection (2).

(2) The amounts are—

(a) the amounts payable under the lease after the relevant time, and

(b) any residual amount.

(3) Subsection (2)(a) does not apply to amounts payable by the lessor or to amounts that represent—

(a) charges for services, or

(b) qualifying UK or foreign tax to be paid by the lessor.

(4) Present value is to be calculated by using the interest rate implicit in the lease.

(5) The interest rate implicit in the lease is the interest rate that would apply in accordance with normal commercial criteria, including, in particular, generally accepted accounting practice (where applicable).

(6) But if a rate cannot be determined in accordance with subsection (5), the interest rate implicit in the lease is taken to be 1% above LIBOR.

(7) For this purpose—

(a) LIBOR means the London interbank offered rate on the applicable day for deposits for a term of 12 months in the applicable currency,

(b) the applicable day is the day comprising or including the relevant time (or, if that day is not a business day, the first business day after it), and

(c) the applicable currency is the currency in which payments under the lease are payable.

(8) If—

(a) the lessee has an option to continue the lease for a period after expiry of its initial term, and

(b) it is reasonably certain at the relevant time that the lessee will exercise that option,

references in this section to amounts payable under the lease include amounts payable under the lease as continued for any such period.

(9) If the lease also relates to land or assets that are not plant or machinery, the present value of the lease is so much of the present value of the amounts mentioned in subsection (2) as is attributable to the plant or machinery on a just and reasonable apportionment.

(10) In this section, “qualifying UK or foreign tax” and “residual amount” have the meaning given in section 70YE of CAA 2001. ]

Textual Amendments

F1 Ss. 437A-437C inserted (with effect in accordance with Sch. 6 para. 27 of the amending Act) by Finance Act 2011 (c. 11), Sch. 6 para. 22