Finance Bill 2002
Amendment 174 Page 332 Line 27
Amendment 175 Page 332 Line 33
Amendment 176 Page 333 Line 18
Amendment 177 Page 334 Line 23
Amendment 178 Page 334 Line 4
Mr Paul Boateng (Labour, Brent South)
174
Schedule 26, page 332, line 27, leave out from ?which? to ?or? in line 28 and insert ?, if the future were to run to delivery, would fall to be delivered at the date and price agreed when the contract is made,?.
Mr Paul Boateng
175
Schedule 26, page 332, line 33, leave out paragraph (a) and insert-
?(a) where the contract for differences relates to fluctuations in the value or price of property described in the contract, the property so described, or?.
Mr Paul Boateng
176
Schedule 26, page 333, line 18, leave out ?referred to? and insert ?described?.
Mr Paul Boateng
177
Schedule 26, page 333, line 23, at end insert-
?( ) a future;
( ) an option;?.
Mr Paul Boateng
178
Schedule 26, page 334, line 4, leave out from ?terms? to ?not? in line 8 and insert ?provide-
(a) that, after setting off their obligations to each other under the contract, a cash payment is to be made by one party to the other in respect of the excess, if any, or
(b) that each party is liable to make to the other party a cash payment in respect of all that party's obligations to the other under the contract,
and do?.
EXPLANATORY NOTE
SUMMARY
1. The purpose of these amendments is to clarify the definitions and interpretative provisions used in the derivative contracts rules.
DETAILS OF THE AMENDMENT
2. Amendments 174 to 176 clarify what is meant by ?underlying subject matter? (USM). It is important to know what the USM of a contract is, since the nature of it may determine whether the contract falls within the Schedule or not.
3. Amendment 174 modifies what is meant by USM in the case of a future. It makes it absolutely clear that this is the asset that falls to be delivered under the terms of the contract and is nothing to do with the means of payment of the price, even if that is settled not by cash but by handing over say a parcel of gilts to the value of the agreed price.
4. Amendments 175 and 176 modify what is meant by USM in the case of a contract for differences. They make it clear that this is the asset whose fluctuations in value are the true economic determinant of the contract, and is nothing to do with the means of settlement of the contract.
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5. Amendment 177 adds ?futures? and ?options? to the list of assets or contracts in paragraph 12(5) which cannot be ?contracts for differences?. This ensures that a contract will always only fall within one category. That is important because different types of contract have different tax treatments.
6. Amendment 178 amends paragraph 12(10) so as to ensure that a contract in which gross payments are made by both parties to the contract to each other, rather than a net payment of the difference by only one party to the other, is not regarded as a future or option.
BACKGROUND
7. The measures included in the Finance Bill as Schedule 26 represent the outcome of a major consultative process between the Government and representatives of, and advisers to, business. Two consultative documents and a Technical Note have been produced, and two rounds of draft clauses have been published, most recently on 19 December 2001.
8. Amendments 174 to 178 take account of representations made in response to that note and in further discussions and correspondence with business and professional bodies since the Bill was published.