Finance Act 2012

1 U.K. In Chapter 4 of Part 4 of FA 2004 (registered pension schemes: tax reliefs and exemptions) after section 196A insert—

“196B Employer asset-backed contributions: denial of relief (1)

(1) An employer (“E”) is not to be given relief in respect of a contribution (“E's contribution”) paid by E under a registered pension scheme if conditions A, B and C are met.

(2) Condition A is that—

(a) under an arrangement (“the asset-backed arrangement”)—

(i) a person (“the borrower”) receives money or another asset (“the advance”) from another person (“the lender”),

(ii) the borrower, or a person connected with the borrower, makes a disposal of an asset (“the security”) to or for the benefit of the lender or a person connected with the lender, and

(iii) the lender, or a person connected with the lender, is entitled to payments in respect of the security,

(b) the borrower is E or a person connected with E, and

(c) the advance is (wholly or partly) paid or provided by the lender out of E's contribution (directly or indirectly),

and the case is not one in relation to which either condition A in section 196C or condition A in section 196D is met.

(3) For the purposes of subsection (2)(a)(iii) it does not matter if an entitlement of the lender, or a person connected with the lender, is subject to any condition.

(4) Condition B is that the asset-backed arrangement is not a structured finance arrangement.

(5) Condition C is that it is reasonable to suppose that the amount of one or more of the payments mentioned in subsection (2)(a)(iii) has been, or is to be, determined (wholly or partly) on the basis that, in essence, the whole or a part of the advance represents a loan which is (wholly or partly) to be repaid by way of one or more of those payments.

(6) For the purposes of subsection (5) it does not matter—

(a) that the repayment of the loan might be subject to any condition, or

(b) that the accounts of any person do not record a financial liability in respect of the whole or a part of the advance or that the whole or a part of the advance is not otherwise treated as representing a loan for the purposes of the accounts of any person,

but, subject to that, all relevant circumstances are to be taken into account in order to get to the essence of the matter.

(7) For the purposes of this section—

(a) the borrower and the lender are not connected with one another if that would otherwise be the case,

(b) if the borrower is not E, references to a person connected with the borrower include a person connected with E who would not otherwise be connected with the borrower, and

(c) “loan” includes any advance of money.

196C Employer asset-backed contributions: denial of relief (2)

(1) An employer (“E”) is not to be given relief in respect of a contribution (“E's contribution”) paid by E under a registered pension scheme if conditions A and B are met.

(2) Condition A is that—

(a) under an arrangement (“the asset-backed arrangement”) a person (“the transferor”) makes a disposal of an asset (“the security”) to a partnership,

(b) the transferor is E or a person connected with E,

(c) the transferor, or a person connected with the transferor, is a member of the partnership immediately after the disposal (whether or not a member immediately before it),

(d) under the asset-backed arrangement the partnership receives money or another asset (“the advance”) from a person (“the lender”) other than the transferor,

(e) the advance is (wholly or partly) paid or provided by the lender out of E's contribution (directly or indirectly),

(f) there is a relevant change in relation to the partnership (see section 196E), and

(g) under the asset-backed arrangement the share in the partnership's profits of the person involved in the relevant change (see section 196E) is determined by reference (wholly or partly) to payments in respect of the security.

(3) If the transferor is not E, for the purposes of this section references to a person connected with the transferor include a person connected with E who would not otherwise be connected with the transferor.

(4) For the purposes of subsection (2)(g) it does not matter if any determination of the share in the partnership's profits of the person involved in the relevant change as mentioned is subject to any condition.

(5) Condition B is that the asset-backed arrangement is not a structured finance arrangement.

196D Employer asset-backed contributions: denial of relief (3)

(1) An employer (“E”) is not to be given relief in respect of a contribution (“E's contribution”) paid by E under a registered pension scheme if conditions A and B are met.

(2) Condition A is that—

(a) a partnership holds an asset (“the security”) at any time before an arrangement (“the asset-backed arrangement”) is made,

(b) under the asset-backed arrangement the partnership receives money or another asset (“the advance”) from another person (“the lender”),

(c) the advance is (wholly or partly) paid or provided by the lender out of E's contribution (directly or indirectly),

(d) there is a relevant change in relation to the partnership (see section 196E), and

(e) under the asset-backed arrangement the share in the partnership's profits of the person involved in the relevant change (see section 196E) is determined by reference (wholly or partly) to payments in respect of the security.

(3) For the purposes of subsection (2)(e) it does not matter if any determination of the share in the partnership's profits of the person involved in the relevant change as mentioned is subject to any condition.

(4) Condition B is that the asset-backed arrangement is not a structured finance arrangement.

196E What is a “relevant change in relation to the partnership” etc?

(1) For the purposes of sections 196C and 196D there is a relevant change in relation to the partnership if condition X or Y is met.

(2) Condition X is that, in connection with the asset-backed arrangement, the lender or a person connected with the lender becomes a member of the partnership at any time.

(3) Condition Y is that—

(a) in connection with the asset-backed arrangement, there is at any time a change in a member's share in the partnership's profits, and

(b) the member is the lender or a person connected with the lender or a person who in connection with the asset-backed arrangement becomes at any time connected with the lender.

(4) For the purposes of subsections (2) and (3) an event occurs in connection with the asset-backed arrangement if it occurs directly or indirectly in consequence of it or otherwise in connection with it.

(5) For the purposes of sections 196C and 196D references to the person involved in the relevant change are—

(a) if it is condition X that is met, to the lender or the person connected with the lender (as the case may be), and

(b) if it is condition Y that is met, to the member of the partnership in whose share in the partnership's profits there is a change.

196F Employer asset-backed contributions: anti-avoidance

(1) This section applies if—

(a) an employer (“E”) pays a contribution (“E's contribution”) under a registered pension scheme,

(b) conditions A and C in section 196B are met or condition A in section 196C or 196D is met,

(c) the asset-backed arrangement is a structured finance arrangement and, accordingly, condition B in section 196B, 196C or 196D (as the case may be) is not met,

(d) at any time (“the relevant time”) E, or a person connected with E, enters into an arrangement (“the avoidance arrangement”), and

(e) the main purpose, or one of the main purposes, of E or the person connected with E in entering into the avoidance arrangement is to secure that the total amount of the relevant payments will be less than the amount of E's contribution.

(2) If the relevant time is the same as the time at which the advance is received or earlier, section 196B, 196C or 196D (as the case may be) applies in relation to E's contribution as if condition B in that section were met.

(3) Otherwise, the amount of the relevant financial liability as at the relevant time is treated as follows as relevant—

(a) for corporation tax purposes, the amount is treated as if it were a profit which E has in respect of E's loan relationships chargeable to corporation tax under section 299 of CTA 2009 for E's accounting period in which the relevant time falls, or

(b) for income tax purposes, the amount is treated as if it were an amount of income of E chargeable to income tax under Chapter 8 of Part 5 of ITTOIA 2005 for the tax year in which the relevant time falls.

(4) The amount treated as profit or income by subsection (3)(a) or (b) is not to exceed the total amount of relief given in respect of E's contribution.

(5) For the purposes of this section—

(a) “the advance” and “the asset-backed arrangement” have the same meaning as in section 196B, 196C or 196D (as the case may be),

(b) “the relevant financial liability” means the financial liability mentioned in section 809BZA(3), 809BZF(3) or 809BZJ(3) of ITA 2007 or section 758(3), 763(3) or 767(3) of CTA 2010 (as the case may be) in respect of the advance,

(c) “the relevant payments” means the payments which reduce that liability as so mentioned, and

(d) the amount of the relevant financial liability as at the relevant time is to be determined in accordance with generally accepted accounting practice.

196G Employer asset-backed contributions: reduction of financial liability under structured finance arrangement

(1) This section applies if—

(a) an employer (“E”) pays a contribution (“E's contribution”) under a registered pension scheme,

(b) conditions A and C in section 196B are met or condition A in section 196C or 196D is met,

(c) the asset-backed arrangement is a structured finance arrangement and, accordingly, condition B in section 196B, 196C or 196D (as the case may be) is not met, and

(d) there occurs an event (“the relevant event”)—

(i) which is not the making of a relevant payment, but

(ii) by virtue of which, in accordance with generally accepted accounting practice, the amount of the relevant financial liability is reduced to nil or in part.

(2) If the relevant financial liability is reduced to nil, Chapter 5B of Part 13 of ITA 2007 or Chapter 2 of Part 16 of CTA 2010 (as the case may be) is no longer to apply in relation to the asset-backed arrangement from when the relevant event occurs.

(3) But no person is, by virtue of subsection (2), to be placed in a position which is more advantageous than the position in which the person would have been had this section never applied; and, in order to give effect to this principle, such assessments to tax or adjustments to any assessment to tax as are just and reasonable are to be made.

(4) In any case, the amount of the reduction of the relevant financial liability mentioned in subsection (1)(d) is treated as follows as relevant—

(a) for corporation tax purposes, the amount is treated as if it were a profit which E has in respect of E's loan relationships chargeable to corporation tax under section 299 of CTA 2009 for E's accounting period in which the relevant event occurs, or

(b) for income tax purposes, the amount is treated as if it were an amount of income of E chargeable to income tax under Chapter 8 of Part 5 of ITTOIA 2005 for the tax year in which the relevant event occurs.

(5) The amount treated as profit or income by subsection (4)(a) or (b) is not to exceed the total amount of relief given in respect of E's contribution.

(6) For the purposes of this section—

(a) “the advance” and “the asset-backed arrangement” have the same meaning as in section 196B, 196C or 196D (as the case may be),

(b) “the relevant financial liability” means the financial liability mentioned in section 809BZA(3), 809BZF(3) or 809BZJ(3) of ITA 2007 or section 758(3), 763(3) or 767(3) of CTA 2010 (as the case may be) in respect of the advance,

(c) “relevant payment” means a payment which reduces that liability as so mentioned, and

(d) the amount of the relevant financial liability before its reduction by virtue of the relevant event and the amount of the reduction are to be determined in accordance with generally accepted accounting practice.

196H Employer asset-backed contributions: extension of section 196G

(1) This section applies if—

(a) an employer (“E”) pays a contribution (“E's contribution”) under a registered pension scheme,

(b) conditions A and C in section 196B are met or condition A in section 196C or 196D is met,

(c) the asset-backed arrangement is a structured finance arrangement and, accordingly, condition B in section 196B, 196C or 196D (as the case may be) is not met, and

(d) after the beginning of 21 March 2012, an event (“the relevant event”) listed in subsection (4) occurs.

(2) Section 196G applies as if the relevant event were an event (other than the making of a relevant payment) by virtue of which, in accordance with generally accepted accounting practice, the amount of the relevant financial liability is reduced to nil.

(3) For this purpose, in section 196G(4) references to E's accounting period, or the tax year, in which the relevant event occurs are to be read as references to E's accounting period, or the tax year, in which falls the time immediately before the occurrence of the relevant event.

(4) The events are—

(a) if E is a company within the charge to corporation tax when E's contribution is paid, E ceases to be within that charge;

(b) if E is a limited liability partnership in relation to which section 863(1) of ITTOIA 2005 or section 1273(1) of CTA 2009 applies when E's contribution is paid, that provision ceases to apply in relation to E;

(c) if E is a firm for the purposes of ITTOIA 2005 (see section 847) or CTA 2009 (see section 1257) (other than a limited liability partnership) when E's contribution is paid, the partnership ceases to carry on the trade, profession or business in question;

(d) in any case—

(i) if E is a company, E enters administration or the winding up of E starts;

(ii) if E is a partnership, the partnership is dissolved;

(iii) if E is an individual, E dies.

(5) Sections 10(3) and 12(7) of CTA 2009 apply for the purposes of subsection (4)(d)(i).

196I Employer asset-backed contributions: “advances” under structured finance arrangements

(1) This section applies if—

(a) an employer pays a contribution under a registered pension scheme,

(b) condition A in section 196B, 196C or 196D is met,

(c) the asset-backed arrangement is a structured finance arrangement and, accordingly, condition B in section 196B, 196C or 196D (as the case may be) is not met, and

(d) the advance gives rise to a loan within the meaning of Chapter 3 (see section 162).

(2) Section 180(4) does not prevent the advance from being a scheme administration employer payment (if it would otherwise do so).

(3) For the purposes of this section “the advance” and “the asset-backed arrangement” have the same meaning as in section 196B, 196C or 196D (as the case may be).

196J Employer asset-backed contributions: supplementary

(1) This section applies for the purposes of sections 196B to 196I.

(2) References to relief being given in respect of a contribution paid by an employer under a registered pension scheme are references to relief being given by way of—

(a) the contribution being deducted in computing the amount of the employer's profits for the purposes of Part 2 of ITTOIA 2005 or Part 3 of CTA 2009 (trading income),

(b) the contribution being treated as an expense of management of the employer for the purposes of Chapter 2 of Part 16 of CTA 2009 (expenses of management: companies with investment business), or

(c) the contribution being brought into account at Step 1 in section 76(7) of ICTA (expenses of insurance companies) in respect of the employer.

(3) Whether a person is connected with another person is determined in accordance with section 1122 of CTA 2010.

(4) “Structured finance arrangement” means an arrangement which is a type 1, type 2 or type 3 finance arrangement for the purposes of Chapter 5B of Part 13 of ITA 2007 or Chapter 2 of Part 16 of CTA 2010 (structured finance arrangements).

(5) Sections 774 to 776 of CTA 2010 apply as they apply for the purposes of Chapter 2 of Part 16 of that Act.”