The Tax Treatment of Financing Costs and Income (Correction of Mismatches: Partnerships and Pensions) Regulations 2012

Amendment to Part 7 of the Taxation (International and Other Provisions) Act 2010

2.—(1) The Taxation (International and Other Provisions) Act 2010 is amended as follows.

(2) After section 332C(1) insert—

“332D    Partnerships: interest in relation to borrowing

(1) This section applies where—

(a) a member of the worldwide group is a member of a partnership at any time during a period of account of the worldwide group,

(b) at any time during the period of account, a liability (“the group liability”) owed to the partnership in respect of borrowing by that member or another member of the worldwide group (“the borrower”) is outstanding, and

(c) the borrower is a relevant group company.

(2) For the purposes mentioned in subsection (7), the financial statements of the worldwide group for the period of account are to be treated as if—

(a) they did not disclose any amounts falling within section 332(1)(a) to (d) relating to the group liability, and

(b) they disclosed instead such amounts as would have fallen within that provision had the financial statements been prepared on the following two assumptions.

(3) The first assumption is that, at each time during the period of account at which the group liability was outstanding, each member of the partnership was owed the appropriate proportion of the group liability by the same person, and on the same terms, as it was in fact owed to the partnership.

(4) In subsection (3) “the appropriate proportion”, in relation to a member of the partnership at any time, is the proportion of the partnership’s profits to which the member is entitled at that time under the partnership’s profit sharing arrangements.

(5) The second assumption is that, during the period of account, each member of the partnership received the appropriate proportion of any expenses relating to the group liability.

(6) In subsection (5) “the appropriate proportion” in relation to a member of the partnership, is the proportion of the partnership’s profits to which the member is entitled, over the period of account of the worldwide group, under the partnership’s profit sharing arrangements.

(7) The purposes referred to in subsection (2) are the purposes of—

(a) this Chapter, and

(b) any other provision of the Corporation Tax Acts(2) so far as it applies for the purposes of this Chapter.

332E    Partnerships: other income

(1) This section applies where—

(a) a member of the worldwide group is a member of a partnership at any time during a period of account of the worldwide group,

(b) during the period of account, the partnership receives income (“the relevant partnership income”) in relation to finance leases or debt factoring relating to that member or another member of the worldwide group (“the borrower”), and

(c) the borrower is relevant group company.

(2) For the purposes mentioned in subsection (5), the financial statements of the worldwide group for the period of account are to be treated as if—

(a) they did not disclose any expenses relating to the relevant partnership income, and

(b) they disclosed instead such amounts as would have fallen within section 332(1)(e) or (f), had the financial statements been prepared on the following assumption.

(3) The assumption is that, during the period of account, each member of the partnership received the appropriate proportion of the expenses relating to the relevant partnership income.

(4) In subsection (3) “the appropriate proportion”, in relation to a member of the partnership, is the proportion of the partnership’s profits to which the member is entitled, over the period of account of the worldwide group, under the partnership’s profit sharing arrangements.

(5) The purposes referred to in subsection (2) are the purposes of—

(a) this Chapter, and

(b) any other provision of the Corporation Tax Acts so far as it applies for the purposes of this Chapter.”

(1)

Section 332C was inserted by paragraph 27 of Schedule 5 to the Finance (No 3) Act 2010.

(2)

“The Corporation Tax Acts” is defined in Schedule 1 to the Interpretation Act 1978 (c. 30) as meaning the enactments relating to the taxation of the income and chargeable gains of companies and of company distributions”.