Finance Act 2006

Alternative finance arrangementsU.K.

95Profit share agencyU.K.

(1)In section 46(1) of FA 2005 (alternative finance arrangements: definition) for “or 49.” substitute “ , 49 or 49A. ”

(2)In section 49 of FA 2005 (profit share return)—

(a)for subsection (2) substitute—

“(2)Amounts paid or credited as mentioned in subsection (1)(c) by a financial institution under arrangements falling within this section are profit share return for the purposes of this Chapter.”, and

(b)in the heading for “profit share return” substitute “ deposit ”.

(3)After section 49 of FA 2005 insert—

“49AAlternative finance arrangements: profit share agency

(1)Subject to section 52, arrangements fall within this section if they are arrangements under which—

(a)a person (“the principal”) appoints a financial institution as his agent,

(b)the agent uses money provided by the principal with a view to producing a profit,

(c)the principal is entitled, to a specified extent, to profits resulting from the use of the money,

(d)the agent is entitled to any additional profits resulting from the use of the money (and may also be entitled to a fee to be paid by the principal), and

(e)payments in pursuance of the entitlement specified in paragraph (c) equate, in substance, to the return on an investment of the money at interest.

(2)Amounts paid or credited by a financial institution in accordance with an entitlement of the kind specified in subsection (1)(c) are profit share return for the purposes of this Chapter.

(3)The principal shall not be treated for the purposes of the Tax Acts as entitled to profits to which the agent is entitled in accordance with subsection (1)(d).”

(4)After section 50(2) of FA 2005 (treatment of alternative finance arrangements: companies) insert—

“(2A)Where a company is a party to arrangements falling within section 49A, Chapter 2 of Part 4 of FA 1996 (loan relationships) has effect in relation to the arrangements as if—

(a)the arrangements were a loan relationship to which the company is a party,

(b)the amount provided under the arrangements were—

(i)in relation to a company which is the principal under the arrangements, the amount of a loan made by the company to the agent, and

(ii)in relation to a company which is the agent under the arrangements, the amount of a loan made to it by the principal, and

(c)profit share return payable to or by the company under the arrangements were interest payable under that loan relationship.”

(5)In section 52 of FA 2005 (provision not at arm's length)—

(a)in subsection (1)(a) for “or section 49,” substitute “ , 49 or 49A, ”,

(b)in subsection (3) for “or section 49.” substitute “ , 49 or 49A. ”, and

(c)in subsection (5) for “49,” substitute “ 49 or 49A, ”.

(6)In the heading to section 54 of FA 2005 “Section 49” becomes “Sections 49 and 49A”.

(7)In the definition of “profit share return” in section 57 of FA 2005 for “section 49(2)” substitute “ sections 49(2) and 49A(2) ”.

(8)In paragraph 1(b) of Schedule 2 to FA 2005 after “49” insert “ or 49A ”.

(9)In section 148 of FA 2003 (meaning of “permanent establishment”) after subsection (5A) insert—

“(5B)Where profit share return is paid, in accordance with arrangements to which section 49A of FA 2005 applies (alternative finance arrangements: profit share agency), to a company that is not resident in the United Kingdom, the company is not regarded as having a permanent establishment in the United Kingdom merely by virtue of anything done for the purposes of the arrangements by the other party to the arrangements or by any other person acting for the company in relation to the arrangements.”

(10)In section 127(1) of FA 1995 (persons not treated as UK representatives) renumber paragraph (cc) as paragraph (ca) and insert after it—

“(cb)where the income consists of profit share return in accordance with arrangements to which section 49A of FA 2005 applies (alternative finance arrangements: profit share agency), the other party to the arrangements or any other person acting for the non-resident in relation to the arrangements;”.

(11)Section 56 of FA 2005 (commencement and transitional) shall have effect in relation to the commencement of this section—

(a)as if references to Chapter 5 of Part 2 of that Act were references to this section,

(b)as if references to 6th April 2005 were references to—

(i)1st April 2006 in relation to corporation tax, and

(ii)6th April 2006 in relation to income tax, and

(c)as if references to section 49 were references to section 49A.

96Diminishing shared ownershipU.K.

(1)In section 46(1) of FA 2005 (alternative finance arrangements: definition) after “47” insert “ , 47A, ”.

(2)In section 47 of FA 2005 (alternative finance return)—

(a)omit subsection (5),

(b)in subsections (6) and (7) after “is to be taken” insert “ for the purposes of this Chapter ”, and

(c)in the heading for “alternative finance return” substitute “ purchase and re-sale ”.

(3)After section 47 of FA 2005 insert—

“47AAlternative finance arrangements: diminishing shared ownership

(1)Subject to section 52, arrangements fall within this section if under them—

(a)a financial institution acquires a beneficial interest in an asset, and

(b)another person (“the eventual owner”)—

(i)also acquires a beneficial interest in the asset,

(ii)is to make payments to the financial institution amounting in aggregate to the consideration paid for the acquisition of its beneficial interest,

(iii)is to acquire the financial institution's beneficial interest (whether or not in stages) as a result of those payments,

(iv)is to make other payments to the financial institution (whether in pursuance of a lease forming part of the arrangements, or otherwise),

(v)has the exclusive right to occupy or otherwise use the asset,

(vi)is exclusively entitled to any income, profit or gain arising from or attributable to the asset (including, in particular, any increase in the asset's value).

(2)For the purposes of subsection (1)(a) it is immaterial—

(a)whether or not the financial institution acquires its beneficial interest from the eventual owner,

(b)whether the eventual owner or another person other than the financial institution also has a beneficial interest in the asset, and

(c)whether or not the financial institution also has a legal interest in the asset.

(3)Subsection (1)(b)(v) does not prevent the eventual owner from granting an interest or right in relation to the asset to someone other than—

(a)the financial institution,

(b)a person controlled by the financial institution within the meaning of section 840 of ICTA, and

(c)a person controlled by a person who also controls the financial institution, in each case within the meaning of section 840 of ICTA;

provided that the grant is not required by the financial institution or by arrangements to which the financial institution is party.

(4)Subsection (1)(b)(vi) does not prevent the financial institution from having responsibility for, or a share in any loss arising out of, any reduction in the asset's value (and subsection (1)(b)(ii) is subject to this subsection).

(5)Payments by the eventual owner under arrangements to which this section applies are alternative finance return for the purposes of this Chapter except in so far as they amount to—

(a)payments of the kind described in subsection (1)(b)(ii), or

(b)payments in respect of any arrangement fee or legal or other costs or expenses which the eventual owner is required under the arrangements to pay.

(6)Arrangements to which this section applies shall not be treated as a partnership for the purposes of the Taxes Acts (within the meaning of the Taxes Management Act 1970).”

(4)In section 50 of FA 2005 (treatment of alternative finance arrangements: companies)—

(a)in subsection (1) after “section 47” insert “ or 47A ”,

(b)at the beginning of subsection (1)(b) add “ in the case of arrangements within section 47, ”, and

(c)after subsection (1)(b) insert—

“(ba)in the case of arrangements within section 47A, the consideration paid by the financial institution for the acquisition of its beneficial interest were the amount of a loan made (as the case requires) to the company by, or by the company to, the other party to the arrangements,”.

(5)In section 52 of FA 2005 (provision not at arm's length)—

(a)in subsection (1)(a) after “47” insert “ , 47A ”,

(b)in subsection (3) after “47” insert “ , 47A ”, and

(c)in subsection (4) for “47,” substitute “ 47 or 47A, ”.

(6)In section 53 of FA 2005 (sale and purchase of asset)—

(a)in subsection (1) after “47” insert “ or 47A ”,

(b)after subsection (2) add—

“(3)In the application of this section to section 47A a reference to the effective return is a reference to the alternative finance return.”, and

(c)in the heading after “47” insert “ or 47A ”.

(7)In the definition of “alternative finance return” in section 57 of FA 2005 for “section 47(5)” substitute “ sections 47(6) and (7) and 47A(5) ”.

(8)This section shall have effect in relation to alternative finance arrangements entered into on or after—

(a)1st April 2006 in relation to corporation tax, and

(b)6th April 2006 in relation to income tax.

97Beneficial loans to employeesU.K.

(1)For the purposes of Chapter 7 of Part 3 of ITEPA 2003 (taxable benefits: loans) a reference to a loan includes a reference to an arrangement which—

(a)is an alternative finance arrangement to which section 47 or 47A FA 2005 applies, or

(b)would be an alternative finance arrangement to which one of those sections applied if one of the parties were a financial institution.

(2)In the application of that Chapter by virtue of subsection (1)—

(a)a reference to interest shall be treated as including a reference to alternative finance return, and

(b)a reference to the amount outstanding shall be taken to be—

(i)in the case of arrangements to which section 47 applies, a reference to the purchase price minus such part of the aggregate payments made as does not represent alternative finance return, and

(ii)in the case of arrangements to which section 47A applies, a reference to the amount of the financial institution's original beneficial interest minus such part of the aggregate payments made as does not represent alternative finance return.

(3)This section shall have effect in relation to arrangements entered into on or after 22nd March 2006.

98RegulationsU.K.

(1)The Treasury may by order amend Chapter 5 of Part 2 to FA 2005 (alternative finance arrangements) so as to introduce provision relating to arrangements which in the Treasury's opinion—

(a)equate in substance to a loan, deposit or other transaction of a kind that generally involves the payment of interest, but

(b)achieve a similar effect without including provision for the payment of interest.

(2)An order under subsection (1) may, in particular—

(a)include provision of a kind similar to provision already made by Chapter 5 of Part 2;

(b)make other provision about the treatment for the purposes of the Tax Acts of arrangements to which the order applies;

(c)make provision generally or only in relation to specified cases or circumstances;

(d)make different provision for different cases or circumstances;

(e)include consequential provision (which may include provision amending a provision of the Tax Acts);

(f)include incidental or transitional provision.

(3)An order under subsection (1)—

(a)shall be made by statutory instrument, and

(b)shall not be made unless a draft has been laid before and approved by resolution of the House of Commons.