a

a payment which, by reason of any provision of the Taxes Acts (within the meaning of the Management Act) except section 209(4), is to be regarded as a distribution; and

3DA

The limit imposed by this subsection is—

a

where the amount of the payment does not exceed £100, 25 per cent of the amount of the payment;

b

where the amount of the payment exceeds £100 but does not exceed £1,000, £25;

c

where the amount of the payment exceeds £1,000, 2.5 per cent of the amount of the payment.

3DB

Where a benefit received in consequence of making a payment—

a

consists of the right to receive benefits at intervals over a period of less than twelve months;

b

relates to a period of less than twelve months; or

c

is one of a series of benefits received at intervals in consequence of making a series of payments at intervals of less than twelve months,

the value of the benefit shall be adjusted for the purposes of subsection (3C) above and the amount of the payment shall be adjusted for the purposes of subsection (3DA) above.

3DC

Where a benefit, other than a benefit which is one of a series of benefits received at intervals, is received in consequence of making a payment which is one of a series of payments made at intervals of less than twelve months, the amount of the payment shall be adjusted for the purposes of subsection (3DA) above.

3DD

Where the value of a benefit, or the amount of a payment, falls to be adjusted under subsection (3DB) or (3DC) above, the value or amount shall be multiplied by 365 and the result shall be divided by—

a

in a case falling within subsection (3DB)(a) or (b) above, the number of days in the period of less than twelve months;

b

in a case falling within subsection (3DB)(c) or (3DC) above, the average number of days in the intervals of less than twelve months;

and the reference in subsection (3DB) to subsection (3C) above is a reference to that subsection as it applies for the purposes of subsection (3B) above.

4

Where a company gives a sum of money to a charity, the gift shall in the hands of the charity be treated for the purposes of this Act as if it were an annual payment.

7AA

Where—

a

a qualifying donation to a charity is made by a company which is wholly owned by a charity, and

b

the company makes a claim for the donation, or any part of it, to be deemed for the purposes of section 338 to be a charge on income paid in an accounting period falling wholly or partly within the period of nine months ending with the date of the making of the donation,

the donation or part shall be deemed for those purposes to be a charge on income paid in that accounting period, and not in any later period.

A claim under this subsection must be made within the period of two years immediately following the accounting period in which the donation is made, or such longer period as the Board may allow.

“relevant gift” means a gift to which this section applies—

a

which satisfies the requirements of subsection (2) of section 25 of the M7Finance Act 1990 (as amended by section 39 of the Finance Act 2000); or

b

which would satisfy those requirements if paragraph (e) of that subsection were disregarded.

587B Gifts of shares and securities to charities etc.

1

Subsections (2) and (3) below apply where, otherwise than by way of a bargain made at arm’s length, an individual, or a company which is not itself a charity, disposes of the whole of the beneficial interest in a qualifying investment to a charity.

2

On a claim made in that behalf to an officer of the Board—

a

the relevant amount shall be allowed—

i

in the case of a disposal by an individual, as a deduction in calculating his total income for the purposes of income tax for the year of assessment in which the disposal is made;

ii

in the case of a disposal by a company, as a charge on income for the purposes of corporation tax for the accounting period in which the disposal is made; and

b

no relief in respect of the disposal shall be given under section 83A or any other provision of the Income Tax Acts;

but paragraph (a)(i) above shall not apply for the purposes of any computation under section 550(2)(a) or (b).

3

The consideration for which the charity’s acquisition of the qualifying investment is treated by virtue of section 257(2) of the 1992 Act as having been made—

a

shall be reduced by the relevant amount; or

b

where that consideration is less than that amount, shall be reduced to nil.

4

Subject to subsections (5) to (7) below, the relevant amount is an amount equal to—

a

where the disposal is a gift, the market value of the qualifying investment at the time when the disposal is made;

b

where the disposal is at an undervalue, the difference between that market value and the amount or value of the consideration for the disposal.

5

Where there are one or more benefits received in consequence of making the disposal which are received by the person making the disposal or a person connected with him, the relevant amount shall be reduced by the value of that benefit or, as the case may be, the aggregate value of those benefits; and section 839 applies for the purposes of this subsection.

6

Where the disposal is a gift, the relevant amount shall be increased by the amount of the incidental costs of making the disposal to the person making it.

7

Where the disposal is at an undervalue—

a

to the extent that the consideration for the disposal is less than that for which the disposal is treated as made by virtue of section 257(2)(a) of the 1992 Act, the relevant amount shall be increased by the amount of the incidental costs of making the disposal to the person making it; and

b

section 48 of that Act (consideration due after time of disposal) shall apply in relation to the computation of the relevant amount as it applies in relation to the computation of a gain.

8

In the case of a disposal by a company which is carrying on life assurance business—

a

if the company is charged to tax under Case I of Schedule D in respect of such business, subsections (2) and (3) above shall not apply;

b

if the company is not so charged to tax in respect of such business—

i

subsection (2)(a)(ii) above shall have effect as if for “a charge on income" there were substituted “an expense of management"; and

ii

the relevant amount given by subsection (4) above shall be reduced by so much (if any) of that amount as is not referable to basic life assurance and general annuity business;

and for the purpose of determining how much (if any) of that amount is not so referable, section 432A shall have effect as if that amount were a gain accruing on the disposal of the qualifying investment to the company.

9

In this section—

• “authorised unit trust” and “open-ended investment company” have the meanings given by section 468;

• “charity” has the same meaning as in section 506 and includes each of the bodies mentioned in section 507(1);

• “the incidental costs of making the disposal to the person making it” shall be construed in accordance with section 38(2) of the 1992 Act;

• “life assurance business” and related expressions have the same meaning as in Chapter I of Part XII;

• “offshore fund” means a collective investment scheme (within the meaning of the M8Financial Services Act 1986) which is constituted by any company, unit trust scheme or other arrangement falling within paragraph (a), (b) or (c) of section 759(1);

• “qualifying investment” means any of the following—

  1. a

     shares or securities which are listed or dealt in on a recognised stock exchange;

  2. b

     units in an authorised unit trust;

  3. c

     shares in an open-ended investment company; and

  4. d

     an interest in an offshore fund.

10

Subject to subsection (11) below, the market value of any qualifying investment shall be determined for the purposes of this section as for the purposes of the 1992 Act.

11

In the case of an interest in an offshore fund for which there are separate published buying and selling prices, section 272(5) of the 1992 Act (meaning of “market value” in relation to rights of unit holders in a unit trust scheme) shall apply with any necessary modifications for determining the market value of the interest for the purposes of this section.

za

amounts allowed as charges on income under section 587B(2)(a)(ii);

Employee share ownership plans

236A Relief for transfers to employee share ownership plans

Schedule 7C (which makes provision for roll-over relief where shares are transferred to an approved employee share ownership plan) shall have effect.

; or

f

the trustees appropriate shares to participants, one or more of whom have had free shares appropriated to them, at an earlier time in the same year of assessment, under a relevant share plan

4

For the purposes of sub-paragraph (2)(f) above the reference to persons having had free shares appropriated to them includes persons who would have had free shares appropriated to them but for their failure to obtain a performance allowance (within the meaning of paragraph 25 of Schedule 8 to the Finance Act 2000).

5

In sub-paragraph (2)(f) and (4) above—

• “free shares” has the same meaning as in Schedule 8 to the Finance Act 2000;

• “relevant share plan”, in relation to a profit sharing scheme, means an employee share ownership plan that—

  1. a

     was established by the grantor or a connected company, and

  2. b

     is approved under Schedule 8 to that Act.

6

For the purposes of sub-paragraph (5) above “connected company” means—

a

a company which controls or is controlled by the grantor or which is controlled by a company which also controls the grantor, or

b

a company which is a member of a consortium owning the grantor or which is owned in part by the grantor as a member of a consortium.

11A

1

In the case of a profit sharing scheme, scheme shares must not be shares—

a

in an employer company, or

b

in a company that—

i

has control of an employer company, and

ii

is under the control of a person or persons within sub-paragraph (2)(b)(i) below in relation to an employer company.

2

For the purposes of this paragraph a company is “an employer company” if—

a

the business carried on by it consists substantially in the provision of the services of the persons employed by it, and

b

the majority of those services are provided to—

i

a person who has, or two or more persons who together have, control of the company, or

ii

a company associated with the company.

3

For the purposes of sub-paragraph (2)(b)(ii) above a company shall be treated as associated with another company if both companies are under the control of the same person or persons.

4

For the purposes of sub-paragraphs (1) to (3) above—

a

references to a person include a partnership, and

b

where a partner, alone or together with others, has control of a company, the partnership shall be treated as having like control of that company.

5

For the purposes of this paragraph the question whether a person controls a company shall be determined in accordance with section 416(2) to (6).

2A

The Board shall not approve a profit sharing scheme unless they are satisfied—

a

that the arrangements for the scheme do not make any provision, and are not in any way associated with any provision made, for loans to some or all of the employees of—

i

the company that established the scheme, or

ii

in the case of a group scheme, any participating company, and

b

that the operation of the scheme is not in any way associated with such loans.

2B

For the purposes of sub-paragraph (2A) above “arrangements” includes any scheme, agreement or understanding, whether or not legally enforceable.

ca

the Board—

i

cease to be satisfied of the matters mentioned in paragraph 2(2A) above, or

ii

in the case of a scheme approved before 21st March 2000, are not satisfied of those matters; or

e

where—

i

the trustees make a qualifying transfer within subsection (3AA) below for a consideration, and

ii

they do not, during the period specified in subsection (5A) below, expend a sum of not less than the amount of that consideration for one or more qualifying purposes,

the expiry of that period.

3AA

For the purposes of subsection (1)(a) above a transfer is also a qualifying transfer if—

a

it is a transfer of relevant shares made to the trustees of the plan trust of an employee share ownership plan,

b

the plan is approved under Schedule 8 to the Finance Act 2000 when the transfer is made, and

c

the consideration (if any) for which the transfer is made does not exceed the market value of the shares.

3AB

For the purpose of determining whether a transfer by the trustees is a qualifying transfer within subsection (3AA) above, where on or after 21st March 2000—

a

the trustees transfer or dispose of part of a holding of shares (whether by way of a qualifying transfer or otherwise), and

b

the holding includes any relevant shares,

the relevant shares shall be treated as transferred or disposed of before any other shares included in that holding.

For this purpose “holding” means any number of shares of the same class held by the trustees, growing or diminishing as shares of that class are acquired or disposed of.

3AC

For the purposes of subsections (3AA) and (3AB) above—

• “market value” has the same meaning as in Schedule 8 to the Finance Act 2000; and

• “relevant shares” means—

  1. i

     shares that are held by the trustees of the employee share ownership trust at midnight on 20th March 2000, and

  2. ii

     shares purchased by those trustees with original funds after that time.

3AD

For the purposes of subsection (3AC) above—

a

“original funds” means any money held by the trustees of the employee share ownership trust in a bank or building society account at midnight on 20th March 2000, and

b

any payment made by the trustees after that time (whether to acquire shares or otherwise) shall be treated as made out of original funds (and not out of money received after that time) until those funds are exhausted.

5A

The period referred to in paragraph (e) of subsection (1) above is the period—

a

beginning with the qualifying transfer mentioned in that paragraph, and

b

ending nine months after the end of the period of account in which that qualifying transfer took place.

For this purpose the period of account means the period of account of the company that established the employee share ownership trust.

4

If the chargeable event falls within section 69(1)(e) above the chargeable amount is an amount equal to—

a

the amount of the consideration received for the qualifying transfer mentioned in section 69(1)(e) above, less

b

the amount of any expenditure by the trustees for a qualifying purpose during the period mentioned in section 69(5A) above.

a

in relation to animals or other creatures kept singly as they apply in relation to herds; and

b

in relation to shares in animals or other creatures as they apply in relation to animals or other creatures themselves.

1

This Chapter applies to determine entitlement to allowances under this Part in respect of expenditure on the provision of machinery or plant that is, or becomes, a fixture;

“fixture”, subject to subsection (2A) below, means machinery or plant that is so installed or otherwise fixed in or to a building or other description of land as to become, in law, part of that building or other land;

2A

In this Chapter—

• “fixture” includes any boiler, or water-filled radiator, installed in a building as part of a space or water heating system; and

• “relevant land”, in relation to such a fixture, means the building in which it is so installed.

8

Nothing in this Chapter affects the entitlement of any person to an allowance by virtue of section 154 (allowances in respect of contributions to capital expenditure).

3B

For the purposes of subsection (2)(e)(iii) above the consideration given by the company for the use of the principal secured shall not be treated as being to any extent dependent on the results of the company’s business or any part of it by reason only of the fact that the terms of the security provide—

a

for the consideration to be reduced in the event of the results improving, or

b

for the consideration to be increased in the event of the results deteriorating.

76A Disposal of interest in settled property: deemed disposal of underlying assets.

Schedule 4A to this Act has effect with respect to disposals for consideration of an interest in settled property.

76B Transfers of value by trustees linked with trustee borrowing.

Schedule 4B to this Act has effect with respect to transfers of value by trustees that are, in accordance with the Schedule, treated as linked with trustee borrowing.

85A Transfers of value: attribution of gains to beneficiaries.

Schedule 4C to this Act has effect with respect to the attribution to beneficiaries of gains accruing under Schedule 4B.

79A Restriction on set-off of trust losses.

1

This section applies to a chargeable gain accruing to the trustees of a settlement where—

a

in computing the gain, the allowable expenditure is reduced in consequence, directly or indirectly, of a claim to gifts relief in relation to an earlier disposal to the trustees;

b

the transferor on that earlier disposal, or any person connected with the transferor, has at any time—

i

acquired an interest in the settled property, or

ii

entered into an arrangement to acquire such an interest; and

c

in connection with that acquisition or arrangement any person has at any time received, or become entitled to receive, any consideration.

2

Where this section applies to a chargeable gain, no allowable losses accruing to the trustees (in the year in which the gain accrues or any earlier year) may be set against the gain.

This applies to the whole of the chargeable gain (and not just the element deferred as a result of the claim to gifts relief).

3

In this section—

a

“gifts relief” means relief under section 165 or 260; and

b

references to losses not being allowed to be set against a chargeable gain are to the losses not being allowed as a deduction against chargeable gains to the extent that they include that gain.

4

The references in subsection (1)(b) above to an interest in settled property have the same meaning as in Schedule 4A.

79B Attribution to trustees of gains of non-resident companies.

1

This section applies where trustees of a settlement are participators—

a

in a close company, or

b

in a company that is not resident in the United Kingdom but would be a close company if it were resident in the United Kingdom.

For this purpose “participator” has the same meaning as in section 13.

2

Where this section applies, nothing in any double taxation relief arrangements shall be read as preventing a charge to tax arising by virtue of the attribution to the trustees under section 13, by reason of their participation in the company mentioned in subsection (1) above, of any part of a chargeable gain accruing to a company that is not resident in the United Kingdom.

3

Where this section applies and—

a

a chargeable gain accrues to a company that is not resident in the United Kingdom but would be a close company if it were resident in the United Kingdom, and

b

all or part of the chargeable gain is treated under section 13(2) as accruing to a close company which is not chargeable to corporation tax in respect of the gain by reason of double taxation relief arrangements, and

c

had the company mentioned in paragraph (b) (and any other relevant company) not been resident in the United Kingdom, all or part of the chargeable gain would have been attributed to the trustees by reason of their participation in the company mentioned in subsection (1) above,

section 13(9) shall apply as if the company mentioned in paragraph (b) above (and any other relevant company) were not resident in the United Kingdom.

4

The references in subsection (3) above to “any other relevant company" are to any other company which if it were not resident in the United Kingdom would be a company in relation to which section 13(9) applied with the result that all or part of the chargeable gain was attributed to the trustees as mentioned in that subsection.

10

Subsection (3) or (7) above does not apply to the disposal of an interest created by or arising under a settlement which has relevant offshore gains at the material time.

The material time is—

a

in relation to subsection (3) above, the relevant time within the meaning of section 80;

b

in relation to subsection (7) above, the time found under subsection (8) above.

11

For the purposes of subsection (10) above, a settlement has relevant offshore gains at any time if, were the year of assessment to end at that time, there would be an amount of trust gains which by virtue of section 89(2) or paragraph 8(3) of Schedule 4C would be available to be treated as chargeable gains accruing to any beneficiaries of the settlement receiving capital payments in the following year of assessment.

403C Amount of relief in consortium cases.

1

In the case of a consortium claim the amount that may be set off against the total profits of the claimant company is limited by this section.

2

Where the claimant company is a member of the consortium, the amount that may be set off against the total profits of that company for the overlapping period is limited to the relevant fraction of the surrenderable amount.

That fraction is whichever is the lowest in that period of the following percentages—

a

the percentage of the ordinary share capital of the surrendering company that is beneficially owned by the claimant company;

b

the percentage to which the claimant company is beneficially entitled of any profits available for distribution to equity holders of the surrendering company; and

c

the percentage to which the claimant company would be beneficially entitled of any assets of the surrendering company available for distribution to its equity holders on a winding-up.

If any of those percentages have fluctuated in that period, the average percentage over the period shall be taken.

3

Where the surrendering company is a member of the consortium, the amount that may be set off against the total profits of the claimant company for the overlapping period is limited to the relevant fraction of the claimant company’s total profits for the overlapping period.

That fraction is whichever is the lowest in that period of the following percentages—

a

the percentage of the ordinary share capital of the claimant company that is beneficially owned by the surrendering company;

b

the percentage to which the surrendering company is beneficially entitled of any profits available for distribution to equity holders of the claimant company; and

c

the percentage to which the surrendering company would be beneficially entitled of any assets of the claimant company available for distribution to its equity holders on a winding-up.

If any of those percentages have fluctuated in that period, the average percentage over the period shall be taken.

4

In any case where the claimant or surrendering company is a subsidiary of a holding company which is owned by a consortium, for the references in subsection (2) or (3) above to the claimant or surrendering company there shall be substituted references to the holding company.

5

Expressions used in this section and in section 403A have the same meanings in this section as in that section.

6

Schedule 18 has effect for supplementing this section.

171A Notional transfers within a group.

1

This section applies where—

a

two companies (“A” and “B”) are members of a group of companies; and

b

A disposes of an asset to a person who is not a member of the group (“C”).

2

Subject to subsections (3) and (4) below, A and B may, by notice in writing to an officer of the Board, jointly elect that, for the purposes of corporation tax on chargeable gains—

a

the asset, or any part of it, shall be deemed to have been transferred by A to B immediately before the disposal to C;

b

section 171(1) shall be deemed to have applied to that transfer; and

c

the disposal of the asset or part to C shall be deemed to have been made by B.

3

No election may be made under subsection (2) above unless section 171(1) would have applied to an actual transfer of the asset or part from A to B.

4

An election under that subsection must be made before the second anniversary of the end of the accounting period of A in which the disposal to C was made.

5

Any payment by A to B, or by B to A, in pursuance of an agreement between them in connection with the election—

a

shall not be taken into account in computing profits or losses of either company for corporation tax purposes, and

b

shall not for any purposes of the Corporation Tax Acts be regarded as a distribution or a charge on income,

provided it does not exceed the amount of the chargeable gain or allowable loss that is treated, as a result of the disposal, as accruing to B.

92 The basic rule: sterling to be used.

1

Where a company carries on a business, the profits or losses of the business for an accounting period shall for the purposes of corporation tax be computed and expressed in sterling; but this is subject to section 93 below.

2

In this section—

• “losses” includes management expenses and any allowances falling to be made under section 28 or 61(1) of the M33Capital Allowances Act 1990;

• “profits” includes gains, income and any charges falling to be made under section 28 or 61(1) of that Act.

93 Use of currency other than sterling.

1

This section applies where in an accounting period a company carries on a business and either the first condition or the second condition is fulfilled.

2

The first condition is that—

a

the accounts of the company as a whole are prepared in a currency other than sterling in accordance with normal accounting practice; and

b

in the case of a company which is not resident in the United Kingdom, the company makes a return of accounts for its branch in the United Kingdom prepared in such a currency in accordance with such practice.

3

The second condition is that—

a

the accounts of the company as a whole are prepared in sterling but, so far as relating to the business, they are prepared, using the closing rate/net investment method, from financial statements prepared in a currency other than sterling; or

b

in the case of a company which is not resident in the United Kingdom, the company makes a return of accounts for its branch in the United Kingdom prepared in sterling but, so far as relating to the business, it is prepared, using that method, from financial statements prepared in such a currency.

4

The profits or losses of the business for an accounting period shall for the purposes of corporation tax be found by—

a

taking the amount of all the profits and losses of the business for the period computed and expressed in the relevant foreign currency;

b

taking account of any of the following which are so computed and expressed—

i

any management expenses brought forward under section 75(3) of the Taxes Act 1988 from an earlier accounting period;

ii

any losses of the business brought forward under section 392B or 393 of that Act from such a period; and

iii

any non-trading deficits on loan relationships brought forward under section 83 of the M34Finance Act 1996 from the previous accounting period; and

c

taking the sterling equivalent of the amount found by applying paragraphs (a) and (b) above.

5

In the application of section 22B, 34, 35, 38C, 38D or 79A of the M35Capital Allowances Act 1990 for the purposes of subsection (4)(a) or (b) above, it shall be assumed that any sterling amount mentioned in any of those sections is its equivalent expressed in the relevant foreign currency.

6

Where in an accounting period—

a

a company carries on different parts of a business through different branches (whether within or outside the United Kingdom); and

b

this section would apply differently in relation to different parts if they were separate businesses,

those parts shall be treated for the purposes of this section as if they were separate businesses for that period.

7

In this section, unless the context otherwise requires—

• “accounts”, in relation to a company, means—

  1. a

     the annual accounts of the company prepared in accordance with Part VII of the M36Companies Act 1985 or Part VIII of the M37Companies (Northern Ireland) Order 1986; or

  2. b

     if the company is not required to prepare such accounts, the accounts which it is required to keep under the law of its home State; or

  3. c

     if the company is not so required to keep accounts, such of its accounts as most closely correspond to accounts which it would have been required to prepare if the provisions of that Part applied to it;

• “branch” includes any collection of assets and liabilities;

• “the closing rate/net investment method” means the method so called as described under the title “Foreign currency translation” in the Statement of Standard Accounting Practice issued in April 1983 by the Institute of Chartered Accountants in England and Wales;

• “home State”, in relation to a company, means the country or territory under whose laws the company is incorporated;

• “losses” has the same meaning as in section 92 above except that it does not include allowable losses within the meaning of the M38Taxation of Chargeable Gains Act 1992;

• “profits” has the same meaning as in section 92 above except that it does not include chargeable gains within the meaning of that Act;

• “the relevant foreign currency” means the currency other than sterling or, where the first condition is fulfilled and two different such currencies are involved, the currency in which the return of accounts is prepared;

• “return of accounts”, in relation to a branch in the United Kingdom, means a return of such accounts of the branch as may be required by the Inland Revenue under paragraph 3 of Schedule 18 to the Finance Act 1998 (company tax returns, assessments and related matters).

94 Rules for ascertaining currency equivalents.

1

Any receipt or expense which is to be taken into account in making a computation under subsection (1) of section 92 above for an accounting period, and is denominated in a currency other than sterling, shall be translated into its sterling equivalent—

a

if either of the conditions mentioned in subsection (2) below is fulfilled, by reference to the rate used in the preparation of the accounts of the company as a whole for that period;

b

if neither of those conditions is fulfilled, by reference to the London closing exchange rate for the relevant day.

2

The conditions are—

a

that the rate is an arm’s length exchange rate for the relevant day;

b

that the rate is an average arm’s length exchange rate for a period ending with that day, or for a period not exceeding three months which includes that day, and the arm’s length exchange rate for any day in that period (except the first) is not significantly different from that for the preceding day.

3

Subject to subsections (5) and (7) below, any amount found by applying paragraphs (a) and (b) of subsection (4) of section 93 above shall be translated into its sterling equivalent by reference to the London closing exchange rate for the relevant day.

4

The following—

a

any receipt or expense which is to be taken into account in making a calculation for the purposes of subsection (4)(a) or (b) of section 93 above, and is denominated in a currency other than the relevant foreign currency; and

b

any such sterling amount as is referred to in subsection (5) of that section,

shall be translated into its equivalent expressed in the relevant foreign currency by reference to the London closing exchange rate for the relevant day.

5

Where section 93 above applies by virtue of the first condition mentioned in that section, then, as regards the business or part of the business, the company—

a

may elect, by a notice given to an officer of the Board, that as from the first day of the accounting period in which the notice is given, an average arm’s length exchange rate shall be used for the purposes of subsection (3) above instead of the rate there mentioned; and

b

may withdraw such an election, by a notice so given, as from the first day of the first accounting period beginning on or after the date of the notice.

6

Where an election under subsection (5) above is withdrawn, no further election may be made under that subsection so as to take effect before the third anniversary of the day on which the withdrawal takes effect.

7

Where—

a

section 93 above applies by virtue of the second condition mentioned in that section; and

b

the accounts of the company, so far as relating to the business or part of the business, are prepared by reference to an average arm’s length exchange rate,

that exchange rate shall be used for the purposes of subsection (3) above instead of the rate there mentioned.

8

In this section—

• “accounts” has the same meaning as in section 93 above;

• “arm’s length exchange rate” means such exchange rate as might reasonably be expected to be agreed between persons dealing at arm’s length;

• “average arm’s length exchange rate”, in relation to a period, means the rate which represents an appropriate average of arm’s length exchange rates for the period;

• “the relevant day” means—

  1. a

     for the purposes of subsections (1), (2) and (4)(a) above, the day on which the company becomes entitled to the receipt or incurs (or is treated as incurring) the expense;

  2. b

     for the purposes of subsection (3) above, the last day of the accounting period in question;

  3. c

     for the purposes of subsection (4)(b) above, the day on which the company incurs the capital expenditure.

9

Nothing in this section affects the operation of Chapter IV of Part VII of the Taxes Act 1988 (controlled foreign companies) or Chapter II of this Part.

10

Nothing in paragraph 88 of Schedule 18 to the M39Finance Act 1998 (company tax returns, assessments and related matters) shall be taken to prevent any amount which is taken to be conclusively determined for the purposes of the Corporation Tax Acts from being translated under this section by reference to an exchange rate which was not used to determine the amount which can no longer be altered.

2

Regulations under subsection (1) above may describe the excluded business by reference to any circumstances appearing to the Board to be relevant.

3

The Board may by regulations—

a

make provision as to the circumstances in which a trustee who is a policy holder or annuitant residing in the United Kingdom is to be treated for the purposes of this section as not so residing; and

b

provide that nothing in Chapter II of Part XIII shall apply to a policy or contract which constitutes overseas life assurance business by virtue of any such provision as is mentioned in paragraph (a) above.

4

Regulations under subsection (1) or (3) above may contain such supplementary, incidental, consequential or transitional provision as appears to the Board to be appropriate.

the proportion A/B where—

A is the total of the linked liabilities of the company which are liabilities of the internal linked fund in which the asset is held and are referable to that category of business;

B is the total of the linked liabilities of the company which are liabilities of that fund.

6

In this section—

• “internal linked fund”, in relation to an insurance company, means an account—

  1. a

     to which linked assets are appropriated by the company; and

  2. b

     which may be divided into units the value of which is determined by the company by reference to the value of those assets;

• “linked liabilities” means liabilities in respect of benefits to be determined by reference to the value of linked assets.

8

In subsection (6) above “appropriate part”, in relation to the investment reserve, means—

a

where none (or none but an insignificant proportion) of the liabilities of the long term business are with-profits liabilities, the part of that reserve which bears to the whole the proportion A/B where—

A is the amount of the liabilities of the category of business in question;

B is the whole amount of the liabilities of the long term business; and

b

in any other case, the part of that reserve which bears to the whole the proportion C/D where—

C is the amount of the with-profits liabilities of the category of business in question;

D is the whole amount of the with-profits liabilities of the long term business.

9A

In this section and sections 432C and 432D “net value”, in relation to any assets, means the excess of the value of the assets over any liabilities which—

a

represent a money debt; and

b

are liabilities of an internal linked fund in which the assets are held;

and in this subsection “internal linked fund” has the same meaning as in section 432ZA.

9B

In this section—

• “investment reserve”, in relation to an insurance company, means the excess of the value of the assets of the company’s long term business over the aggregate of—

  1. a

     the liabilities of that business; and

  2. b

     any liabilities of the long term business fund which represent a money debt;

• “money debt” has the same meaning as in Chapter II of Part IV of the M41Finance Act 1996.

3A

1

This paragraph applies where—

a

any money debt of an insurance company is represented by a liability which is a liability of the long term business fund of the company; and

b

any question arises for the purposes of the Corporation Tax Acts as to the extent to which any debits or credits given for the purposes of this Chapter in respect of that debt or liability are referable to any category of the company’s long term business.

2

If any debits relate to interest payable in respect of the late payment of any benefits, they are referable to the category of long term business which comprises the effecting and carrying out of the policies or contracts under which the benefits are payable.

3

If the liability is a liability of an internal linked fund of the company, any debits or credits are referable—

a

to the category of long term business to which the fund relates; or

b

where the fund relates to two or more categories of such business, to those categories in the same proportion as the linked assets in the fund are apportioned to them under section 432ZA(4) of the Taxes Act 1988 (linked assets).

4

In any case not falling within sub-paragraph (2) or (3) above, there shall be referable to any category of long term business the relevant fraction of any debits or credits.

5

For the purpose of determining that fraction, subsections (6) and (8) of section 432A of the Taxes Act 1988 (apportionment of income and gains) shall have effect as if—

a

the debits or credits were income not directly referable to any category of business;

b

the reference in subsection (6)(a) to assets directly referable to a category of business were a reference to assets linked to that category of business; and

c

subsection (9) of that section were omitted.

6

In this paragraph “internal linked fund” has the same meaning as in section 432ZA of the Taxes Act 1988 (linked assets).