PART XIII MISCELLANEOUS SPECIAL PROVISIONS
C1CHAPTER VI OTHER PROVISIONS
Miscellaneous
C2582 Funding bonds issued in respect of interest on certain debts.
M11
Where any funding bonds are issued to a creditor in respect of any liability to pay interest on any debt to which this section applies—
a
the issue of the bonds shall be treated for F6all the purposes of the Corporation Tax Acts as if it were the payment of an amount of that interest equal to the value of the bonds at the time of their issue, and
b
F7where paragraph (a) above or section 380 of ITTOIA 2005 (which makes provision similar to that paragraph for income tax purposes) applies the redemption of the bonds shall not be treated for those purposes as the payment of any amount of that interest.
2
Where an issue of bonds is treated by virtue of subsection (1) above F8or section 380 of ITTOIA 2005 as if it were the payment of an amount of interest, and any person by or through whom the bonds are issued would be required by virtue of any provision of the Tax Acts to deduct income tax from that amount of interest if it had been actually paid by or through him, the following provisions shall have effect—
a
subject to paragraph (b) below, any such person—
i
shall retain bonds the value of which at the time of their issue is equal to income tax on that amount of interest at the F1applicable rate for the year of assessment in which the bonds are issued, and
ii
shall be acquitted in respect of any such retention in the same way as if he had deducted such tax from the interest, and
iii
shall be chargeable with that tax accordingly, but may tender the bonds retained in satisfaction thereof;
b
where F2. . . it is impracticable to retain bonds on account of income tax under paragraph (a) above—
F3i
any such person shall be relieved from the obligation to retain bonds and account for income tax under that paragraph, on his furnishing to the Board a statement of the names and addresses of the persons to whom the bonds have been issued and the amount of the bonds issued to each such person; and
ii
tax in respect of the amount of interest treated by virtue of this section F9or section 380 of ITTOIA 2005 as having been paid by the issue of the bonds shall be charged under Case VI of Schedule D F10(corporation tax) or under Chapter 2 of Part 4 of ITTOIA 2005 (income tax) for the chargeable period in which the bonds are issued on the persons receiving or entitled to the bonds.
F42A
In subsection (2) above “the applicable rate”, in relation to a year of assessment, means whichever of the basic rate and the lower rate for that year is the rate at which the person by or through whom the bonds are issued would have had to deduct income tax from the amount of interest in question if that amount had been actually paid by or through him.
3
This section applies to any debt incurred, whether in respect of any money borrowed or otherwise, by any government, public authority or public institution whatsoever, or by any body corporate whatsoever.
F53A
Chapter 2 of Part 4 of the Finance Act 1996 has effect subject to and in accordance with this section, notwithstanding anything in section 80(5) of that Act (matters to be brought into account in the case of loan relationships only under Chapter 2 of Part 4 of that Act).
4
For the purposes of this section “funding bonds” includes any bonds, stocks, shares, securities or certificates of indebtedness.
Pt 13 Ch. 6: ss. 573, 575 and 576 transposed to Pt. 13 Ch. 5A (6.4.2007 with effect in accordance with s. 1034(1) of the affecting Act) by Income Tax Act 2007 (c. 3), Sch. 1 paras. 117(3), 119(7), 120(7) (with Sch. 2)