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2013 Autumn Statement: finance implications
Practical Law UK Legal Update 8-550-9107 (Approx. 7 pages)
2013 Autumn Statement: finance implications
by Practical Law Finance
| Published on 06 Dec 2013 • United Kingdom |
Key announcements of interest to finance lawyers arising from the Chancellor of the Exchequer's 2013 Autumn Statement. (Free access.)
Speedread
The Chancellor, George Osborne, delivered his 2013 Autumn Statement on 5 December 2013. In it he set out details of the government's plans for the economy based on the latest forecasts from the Office for Budget Responsibility. Of particular interest to finance lawyers are:
- Changes to the bank levy rules.
- Anti-avoidance measures relating to the use of derivatives.
- The extension of funding initiatives for small and medium-sized enterprises.
The Chancellor, George Osborne, delivered his 2013 Autumn Statement on 5 December 2013. In it he set out details of the government's plans for the economy based on the latest forecasts from the Office for Budget Responsibility.
The following announcements in the Autumn Statement are of particular interest to finance lawyers.
For details of Practical Law's comprehensive coverage of the 2013 Autumn Statement, including links to tailored practice area updates, see 2013 Autumn Statement.
Taxation of finance transactions
The following business tax announcements in the Autumn Statement, all of which appear driven by the desire to curtail corporate tax avoidance, may be of interest to finance lawyers. For detailed information on the business tax implications of the Autumn Statement, see Legal update, 2013 Autumn Statement: business tax implications.
Tax avoidance: total return swaps linked to company profits
HMRC has published draft legislation (for inclusion in the Finance Bill 2014) denying deductions for payments under derivatives that are linked to profits. (For information on the taxation of derivatives generally, see Practice note, Derivatives: tax.)
The draft legislation introduces new section 695A of the Corporation Tax Act 2009. Under this:
- The new rules apply to arrangements (typically, total return swaps) that:
- involve one or more derivatives if two members (A and B) of the same group are party (whether or not at the same time) to the arrangements (defined widely); and
- directly or indirectly in connection with which there is, in substance, a payment (directly or indirectly) from one of those group companies (paying company) to the other comprising (part of) the profits of the paying company or a company in the same group as one or both parties (profit transfer).
- No credit or debit is to be brought into account in respect of (any of) the derivative(s) that relates to the profit transfer
- However, credits and debits are not denied under these rules to the extent that the relevant derivatives (alone or with other derivatives outside the arrangements) are in a hedging relationship with one or more derivatives between the paying company and a company that is not in the same group as A or B (or both). However, this provision is disapplied to credits or debits arising directly or indirectly in connection with arrangements of which (one of) the main purpose(s) is securing a tax advantage for any person.
This measure applies, with some exceptions, to credits and debits arising on or after 5 December 2013, regardless of when the relevant arrangements were entered into.
For more information on derivatives generally and total return swaps in particular, see Practice notes, Derivatives: overview (UK) and Equity derivatives: overview (UK): Total return swaps.
Taxation of corporate debt and derivative contracts
The government will introduce legislation to clarify and rationalise the taxation of corporate partners where loan relationships and derivative contracts are held by a partnership. These changes follow consultation on the review of the legislation governing the taxation of corporate debt and derivative contracts. For background to the consultation, see Legal update, Corporate debt and derivative contract reform: consultation launched.
For more information on this measure, see Legal update, 2013 Autumn Statement: business tax implications: Corporate debt and derivatives rules: reform.
Close company loans to participators rules unchanged
The rules that impose a tax charge on a close company that makes a loan to a participator are aimed at deterring close companies from transferring value to participators otherwise than as dividends or remuneration. A consultation on reforming the rules was launched in July 2013 (see Legal update, Close company loans to participators reform consultation but the government has announced that the close company loan rules will remain unchanged.
Controlled foreign companies: finance exemptions
The Finance Bill 2014 will include amendments to the controlled foreign companies (CFC) finance exemptions to address the transfer offshore of profits from existing UK intra-group lending. The measures include a targeted anti-avoidance rule that will exclude certain loans from being qualifying loan relationships. The new rule will apply to a CFC's creditor relationship if:
- A loan (UK creditor relationship) is made by a UK resident company that is connected with the CFC (or which was connected with a company with which the CFC is connected) to a connected non-UK resident company.
- An arrangement is made in connection with the UK creditor relationship.
- (One of) the main purpose(s) of the arrangement is to reduce the loan relationship credits or increase the loan relationship debits of the UK resident company.
This measure will apply to arrangements entered into on or after 5 December 2013.
Funding initiatives
Lending to small and medium-sized enterprises (SMEs)
The government will use unspent funding from the Business Finance Partnership (BFP) to provide a further £250 million to the British Business Bank, which will allow it to:
- Invest in late-stage venture capital funds that invest in high-growth-potential SMEs.
- Launch a new scheme to support to support the provision of lease and asset finance.
- Launch a programme of wholesale guarantees for SME loans.
For more information on the BFP, see Practice note, Government finance initiatives: Business Finance Partnership.
The government also announced that it will consult on proposals to require banks to share information on their SME customers with other lenders through credit reference agencies, with the intention of legislating in the next session of Parliament.
UK Export Finance
The government announced measures to enable UK Export Finance (UKEF) to deliver more appropriate export finance support to exporters. In particular, the government intends to:
- Double UKEF's maximum commitment limit to £50 billion.
- Broaden the scope of the Direct Lending Scheme and Working Capital Scheme.
For more information on UKEF and the schemes it supports, see Practice note, Government finance initiatives: Export capital scheme and Direct lending scheme.
Taxation of banks and large group companies
Bank levy: rates and review
The Finance Bill 2014 will include legislation to increase the rates of the bank levy from 0.130% to 0.156% (for short-term liabilities) and from to 0.065% to 0.078% (for long-term equity and liabilities) from 1 January 2014.
In addition, the Finance Bill 2014 will introduce changes to the bank levy rules, including to:
- Treat all derivatives as short term (see Practice note, Bank levy: Long-term equity and liabilities and short-term liabilities). This change applies from January 2015.
- Restrict relief for a bank’s high quality liquid assets (see Practice note, Bank levy: Chargeable equity and liabilities and High quality liquid assets) to the rate applicable to long-term liabilities (see Practice note, Bank levy: Long-term equity and liabilities and short-term liabilities). This change applies from January 2015.
- Exclude liabilities in respect of collateral that has been passed on to a central counterparty from the calculation of the levy. This change applies from January 2014.
These changes follow a consultation launched on 4 July 2013 (see Legal update, Bank levy review 2013) and a response document will be published alongside the draft legislation on 10 December 2013.
For more information, see Legal update, 2013 Autumn Statement: business tax implications: Bank levy: rates and review.
Code of Practice on Taxation for Banks
The government published further revised draft legislation to implement HMRC's duty to publish an annual report on the operation of the Code of Practice on Taxation for Banks (Code). The first annual report will cover the period 5 December 2013 to 31 March 2015 and will include the names of banks that have, and have not, adopted the Code. The report may also name any bank that, in HMRC’s opinion, is not complying with the Code.
The government also published:
- A revised governance protocol.
- Revised guidance on establishing HMRC's view on a bank's compliance with the Code.
- A list of the 264 banks that have adopted or readopted the Code as of 5 December 2013.
Debt cap rules: updated provisions
HMRC has published draft legislation (for inclusion in the Finance Bill 2014) amending HMRC's regulation-making power in elections to make intra-group transfers of debt cap charges with a securitisation structure (see Practice note, Limits on tax deductions for interest: the debt cap: Tax liabilities of securitisation companies) to permit the imposition of conditions on the making of elections. This modification is to have effect on or after the date of Royal Assent to the Finance Bill 2014.
The draft legislation also modifies the definition of a group in the debt cap rules to ensure that group structures including companies or other bodies corporate without ordinary share capital (such as companies limited by guarantee), do not fall outside the debt cap rules.
For more information on these measures, see Legal update, 2013 Autumn Statement: business tax implications: Debt cap: grouping rules.
For information on securitisation structures, see Practice note, Securitisation: overview.
Finance Bill 2014
We expect the government to publish responses to a large number of tax consultations and draft legislation for the Finance Bill 2014 on or before 10 December, see Practice note, Finance Bill 2014: provision by provision analysis and status. Practical Law Finance will report on those aspects of interest to finance lawyers once the draft legislation is published.
Sources:
- HM Treasury: 2013 Autumn Statement (landing page).
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