Part 1 Introductory
About this Schedule
1 (1) This Schedule entitles a company carrying on a ring fence trade, on making a claim in respect of an accounting period beginning on or after 1st January 2006, to a supplement (initially of 6%, but variable by Treasury order) in respect of—
(a) qualifying pre-commencement expenditure incurred before the trade is set up and commenced,
(b) losses incurred in the trade, and
(c) some or all of the supplement allowed in respect of earlier periods.
(2) Part 2 makes provision about the application and interpretation of this Schedule.
(3) Part 3 makes provision about supplement in relation to expenditure incurred by the company—
(a) with a view to carrying on a ring fence trade, but
(b) in an accounting period before the company sets up and commences that trade.
(4) Part 4 makes provision about supplement in relation to losses incurred in carrying on the ring fence trade.
(5) There is a limit on the number of accounting periods (6) in respect of which a company may claim supplement.
(6) In determining the amount of supplement allowable, reductions fall to be made in respect of—
(a) disposal receipts in respect of any asset representing qualifying pre-commencement expenditure,
(b) ring fence losses that could be set off under section 393A or 393B against ring fence profits of earlier periods,
(c) ring fence losses incurred in earlier periods that fall to be set off under section 393 against profits of succeeding periods,
(d) unrelieved group ring fence profits.
Part 2 Application and interpretation
Qualifying companies
2 This Schedule applies in relation to any company which—
(a) carries on a ring fence trade, or
(b) is engaged in any activities with a view to carrying on a ring fence trade,
and in this Schedule any such company is referred to as a “qualifying company”.
Accounting periods
3 (1) In this Schedule, in the case of any qualifying company,—
“the commencement period” means the accounting period in which the company sets up and commences its ring fence trade;
“post-commencement period” means any accounting period beginning on or after 1st January 2006—
which is the commencement period, or
which ends after the commencement period;
“pre-commencement period” means any accounting period—
beginning on or after 1st January 2006, and
ending before the commencement period.
(2) For the purposes of this Schedule a company not within the charge to corporation tax which incurs any expenditure is to be treated as having such accounting periods as it would have if—
(a) it carried on a trade consisting of the activities in respect of which the expenditure is incurred, and
(b) it had started to carry on that trade when it started to carry on the activities in the course of which the expenditure is incurred.
(3) In the case of an accounting period (a “straddling period”) of any qualifying company beginning before 1st January 2006 and ending on or after that date—
(a) so much of the straddling period as falls before 1st January 2006, and
(b) so much of the straddling period as falls on or after that date,
are treated as separate accounting periods for the purposes of this Schedule.
(4) But special provision is made elsewhere in this Schedule in relation to straddling periods (see paragraphs 5, 18 and 21(4) to (6)).
The relevant percentage
4 (1) For the purposes of this Schedule, the relevant percentage for any accounting period beginning on or after 1st January 2006 is 6%.
(2) The Treasury may by order vary the percentage for the time being specified in sub-paragraph (1) above for such accounting periods as may be specified in the order.
Limit on number of accounting periods for which supplement may be claimed
5 (1) A company may claim supplement under this Schedule in respect of no more than 6 accounting periods.
(2) The accounting periods in respect of which claims are made need not be consecutive.
(3) A claim for supplement by the company under Schedule 19B (exploration expenditure supplement) in respect of an accounting period is to count for the purposes of this paragraph as a claim for supplement under this Schedule in respect of that accounting period.
(4) But, if the company makes a claim for supplement under this Schedule in respect of the deemed accounting period, any claim for supplement by the company under Schedule 19B in respect of the Schedule 19B deemed accounting period is to be ignored for the purposes of this paragraph.
(5) For this purpose—
“the deemed accounting period” means the deemed accounting period under paragraph 3(3) beginning on 1st January 2006, and
“the Schedule 19B deemed accounting period” means the deemed accounting period under paragraph 3(3) of Schedule 19B ending before 1st January 2006.
Qualifying pre-commencement expenditure
6 (1) For the purposes of this Schedule, expenditure is “qualifying pre-commencement expenditure” if it meets conditions A to D.
(2) Condition A is that the expenditure is incurred on or after 1st January 2006.
(3) Condition B is that the expenditure is incurred in the course of oil extraction activities.
(4) Condition C is that the expenditure is incurred by a person with a view to carrying on a ring fence trade but before the person sets up and commences the ring fence trade.
(5) Condition D is that the expenditure—
(a) is subsequently allowable as a deduction in calculating the profits of the ring fence trade for the commencement period (whether or not any part of it is so allowable for any post-commencement period), or
(b) is relevant R&D expenditure incurred by an SME.
(6) For the purposes of this paragraph, expenditure incurred by a company is “relevant R&D expenditure incurred by an SME” if—
(a) the company makes an election under section 1045 of CTA 2009 (R&D tax relief for SMEs: alternative treatment of pre-trading expenditure) in respect of that expenditure, but
(b) the company does not make a claim for an R&D tax credit under section 1054 of that Act in respect of that expenditure.
(7) In the case of any qualifying pre-commencement expenditure which is relevant R&D expenditure incurred by an SME, the amount of that expenditure is treated for the purposes of this Schedule as being equal to 150% of its actual amount.
(8) In the case of any qualifying pre-commencement expenditure which is relevant R&D expenditure incurred by a large company, the amount of that expenditure is treated for the purposes of this Schedule as being equal to 125% of its actual amount.
(9) For this purpose “relevant R&D expenditure incurred by a large company” means qualifying Chapter 5 expenditure as defined by section 1076 of CTA 2009 (R&D tax relief for large companies).
Unrelieved group ring fence profits for accounting periods
7 (1) There is an amount of unrelieved group ring fence profits for an accounting period of a qualifying company (“company Q”) if—
(a) the company and any other company (“company X”) are members of the same group of companies, within the meaning given by section 413(3)(a), and
(b) company X has an amount of taxable ring fence profits (see paragraph 8) for a corresponding accounting period.
(2) An accounting period of company X corresponds to an accounting period of company Q if—
(a) it coincides with, or falls wholly within, the accounting period of company Q, or
(b) it falls partly within the accounting period of company Q.
(3) If an accounting period of company X—
(a) coincides with an accounting period of company Q, or
(b) falls wholly within an accounting period of company Q,
there is, for the accounting period of company Q, an amount of unrelieved group ring fence profits equal to the whole of company X's taxable ring fence profits for its accounting period.
(4) If an accounting period of company X falls partly within an accounting period of company Q—
(a) there is an amount of unrelieved group ring fence profits for the accounting period of company Q, and
(b) that amount is an amount equal to the part of company X's taxable ring fence profits for its accounting period that is attributable, on an apportionment in accordance with section 834(4), to the part of that period which falls within the accounting period of company Q.
(5) This paragraph applies for the purposes of this Schedule.
Taxable ring fence profits of an accounting period
8 For the purposes of this Schedule, a company has taxable ring fence profits for an accounting period if it has an amount of ring fence profits which is chargeable to corporation tax for that accounting period after any group relief claimed under Chapter 4 of Part 10.
Part 3 Pre-commencement supplement
Supplement in respect of a pre-commencement accounting period
9 (1) If—
(a) a qualifying company incurs qualifying pre-commencement expenditure in respect of a ring fence trade, and
(b) the expenditure is incurred before the commencement period,
the company may claim supplement under this Part of this Schedule (“pre-commencement supplement”) in respect of one or more pre-commencement periods.
(2) Any pre-commencement supplement allowed on a claim in respect of a pre-commencement period is to be treated as expenditure—
(a) which is incurred by the company in the commencement period, and
(b) which is allowable as a deduction in calculating the profits of the ring fence trade for that period.
(3) The amount of the supplement for any pre-commencement period in respect of which a claim under this paragraph is made is the relevant percentage for that period of the reference amount for that period.
(4) If the pre-commencement period is a period of less than twelve months, the amount of the supplement for the period (apart from this sub-paragraph) is to be reduced proportionally.
(5) Paragraphs 10 to 13 have effect for the purpose of determining the reference amount for a pre-commencement period.
The mixed pool of qualifying pre-commencement expenditure and supplement previously allowed
10 (1) For the purpose of determining the amount of any pre-commencement supplement, a qualifying company is to be taken to have had, at all times in the pre-commencement periods of the company, a continuing mixed pool of—
(a) the relevant amount (if any) which the company carries forward under Schedule 19B,
(b) qualifying pre-commencement expenditure, and
(c) pre-commencement supplement.
(2) The pool is to be taken to have consisted of—
(a) the relevant amount (if any) which the company carries forward under Schedule 19B,
(b) the company's qualifying pre-commencement expenditure, allocated to the pool for each pre-commencement period in accordance with sub-paragraph (3), and
(c) the company's pre-commencement supplement, allocated to the pool for each pre-commencement period in accordance with sub-paragraph (4).
(3) To allocate qualifying pre-commencement expenditure to the pool for any pre-commencement period, take the following steps—
(a) Step 1: count as eligible expenditure for that period so much of the qualifying pre-commencement expenditure mentioned in paragraph 9(1) as was incurred in that period,
(b) Step 2: find the total of all the eligible expenditure for that period (amount E),
(c) Step 3: if paragraph 11 applies, reduce amount E in accordance with that paragraph,
(d) Step 4: if paragraph 12 applies, reduce (or, as the case may be, further reduce) amount E in accordance with that paragraph,
and so much of amount E as remains after making those reductions is to be taken to have been added to the pool in that period.
(4) If any pre-commencement supplement is allowed on a claim in respect of a pre-commencement period, the amount of that supplement is to be taken to have been added to the pool in that period.
(5) In this paragraph references to the relevant amount (if any) which the company carries forward under Schedule 19B are to the amount in its mixed pool for the purposes of Part 3 of Schedule 19B immediately before 1st January 2006.
Reduction in respect of disposal receipts under the Capital Allowances Act
11 (1) This paragraph applies in the case of the qualifying company if—
(a) it incurs qualifying pre-commencement expenditure in respect of a ring fence trade in any pre-commencement period,
(b) it would, on the relevant assumption, be entitled to an allowance under any provision of the Capital Allowances Act in respect of that expenditure,
(c) an event occurs in relation to any asset representing the expenditure in any pre-commencement period, and
(d) the event would, on the relevant assumption, require a disposal value (the “deductible amount”) to be brought into account under any provision of the Capital Allowances Act for any pre-commencement period.
(2) The relevant assumption is that the company was carrying on the ring fence trade—
(a) when the expenditure was incurred, and
(b) when the event giving rise to the disposal value occurred.
(3) For the purpose of allocating qualifying pre-commencement expenditure to the pool for each pre-commencement period—
(a) find the total amount of the disposal values in the case of all such events (amount D), and
(b) taking later periods before earlier periods, reduce (but not below nil) amount E for any pre-commencement period by setting against it so much of amount D as does not fall to be set against amount E for a later pre-commencement period.
Reduction in respect of unrelieved group ring fence profits
12 (1) This paragraph applies if there is an amount of unrelieved group ring fence profits for a pre-commencement period.
(2) For the purpose of allocating qualifying pre-commencement expenditure to the pool for that period—
(a) find so much (if any) of amount E for that period as remains after any reduction falling to be made under paragraph 11, and
(b) reduce that amount (but not below nil) by setting against it a sum equal to the aggregate of the amounts of unrelieved group ring fence profits for the period.
The reference amount for a pre-commencement period
13 For the purposes of this Part of this Schedule, the reference amount for a pre-commencement period is the amount in the pool at the end of the period—
(a) after the addition to the pool of any qualifying pre-commencement expenditure allocated to the pool for that period in accordance with paragraph 10(3), but
(b) before determining, and adding to the pool, the amount of any pre-commencement supplement claimed in respect of the period.
Claims for pre-commencement supplement
14 (1) Any claim for pre-commencement supplement in respect of a pre-commencement period must be made as a claim for the commencement period.
(2) Paragraph 74 of Schedule 18 to the Finance Act 1998 (company tax returns etc: time limit for claims for group relief) applies in relation to a claim for pre-commencement supplement as it applies in relation to a claim for group relief.
Part 4 Post-commencement supplement
Supplement in respect of a post-commencement period
15 (1) A qualifying company which incurs a ring fence loss (see paragraph 17) in a post-commencement period may claim supplement under this Part of this Schedule (“post-commencement supplement”) in respect of—
(a) that period, or
(b) any subsequent accounting period in which it carries on its ring fence trade.
(2) Any post-commencement supplement allowed on a claim in respect of a post-commencement period is to be treated for the purposes of the Corporation Tax Acts (other than this Part of this Schedule or Part 4 of Schedule 19B) as if it were a loss—
(a) which is incurred in carrying on the ring fence trade in that period, and
(b) which falls in whole to be set off under section 393 against trading income from the ring fence trade in succeeding accounting periods.
(3) Paragraph 74 of Schedule 18 to the Finance Act 1998 (company tax returns etc: time limit for claims for group relief) applies in relation to a claim for post-commencement supplement as it applies in relation to a claim for group relief.
Amount of post-commencement supplement for a post-commencement period
16 (1) The amount of the post-commencement supplement for any post-commencement period in respect of which a claim under paragraph 15 is made is the relevant percentage for that period of the reference amount for that period.
(2) If the post-commencement period is a period of less than twelve months, the amount of the supplement for the period (apart from this sub-paragraph) is to be reduced proportionally.
(3) Paragraphs 19 to 23 have effect for the purpose of determining the reference amount for a post-commencement period.
Ring fence losses
17 (1) If—
(a) in any post-commencement period (“the period of the loss”) a qualifying company carrying on a ring fence trade incurs a loss in the trade, and
(b) some or all of the loss falls to be set off under section 393 against trading income from the trade in succeeding accounting periods,
so much of the loss as falls to be so set off is a “ring fence loss” of the company.
(2) In determining for the purposes of this Part of this Schedule how much of a loss incurred in a ring fence trade falls to be set off as mentioned in sub-paragraph (1)(b), the following assumptions are to be made.
(3) The first assumption is that every claim is made that could be made by the company under section 393A to set losses incurred in the ring fence trade against ring fence profits of earlier post-commencement periods.
(3A) The second assumption is that (where appropriate) section 393B applies in relation to every such claim under section 393A.
(4) This paragraph is subject to paragraph 18 (special rule for straddling periods).
(5) This paragraph has effect for the purposes of this Part of this Schedule.
Special rule for straddling periods
18 (1) This paragraph applies if the period of the loss in which a ring fence loss is incurred is the deemed accounting period under paragraph 3(3) beginning on 1st January 2006 (“the deemed accounting period”).
(2) The amount of the ring fence loss in the deemed accounting period is determined as follows.
Step 1
Calculate so much of the ring fence loss in the straddling period as, for the purposes of Part 4 of Schedule 19B, is attributable to qualifying E&A allowances for the straddling period.
The amount given by this step is “the qualifying Schedule 19B amount”.
Step 2
Calculate so much of the ring fence loss in the straddling period as is attributable to allowances for the straddling period under Part 6 of the Capital Allowances Act in respect of relevant expenditure.
For the purposes of this step “relevant expenditure” means expenditure incurred by the company on or after 1st January 2006 which, but for that fact, would be qualifying E&A expenditure for the purposes of Schedule 19B.
For the purposes of this step a ring fence loss is attributable to those allowances to the extent that the amount of the loss (less the qualifying Schedule 19B amount) does not exceed the amount of those allowances for that period.
The amount given by this step is “the amount of the post-1st January 2006 E&A allowances”.
Step 3
Deduct the qualifying Schedule 19B amount and the amount of the post-1st January 2006 E&A allowances from the amount of the ring fence loss in the straddling period.
Step 4
Apportion the remaining amount of that loss (if any) to the deemed accounting period in proportion to the number of days in the deemed accounting period that fall in the straddling period.
The amount given by this step is “the amount of the apportioned loss”.
Step 5
The amount of the ring fence loss in the deemed accounting period is the amount of the apportioned loss plus the amount of the post-1st January 2006 E&A allowances.
(3) In this paragraph “the straddling period”, in relation to a qualifying company, means an accounting period of the company—
(a) beginning before 1st January 2006, and
(b) ending on or after that date,
disregarding paragraph 3(3).
(4) In this paragraph references to the ring fence loss in the straddling period are to that loss determined on the assumption that the straddling period is the period of the loss for the purposes of paragraph 17.
(5) This paragraph has effect for the purposes of this Part of this Schedule.
The pool of ring fence losses and the pool of non-qualifying Schedule 19B losses
19 (1) For the purpose of determining the amount of any post-commencement supplement, a qualifying company is to be taken at all times in its post-commencement periods to have a continuing mixed pool (the “ring fence pool”) of—
(a) the carried forward qualifying Schedule 19B amount,
(b) the company's ring fence losses, and
(c) post-commencement supplement.
(2) The ring fence pool continues even if the amount in it is nil.
(3) For the purpose of determining the amount of any post-commencement supplement, a qualifying company is also to be taken in its post-commencement periods to have a non-qualifying pool consisting of the carried forward non-qualifying Schedule 19B amount.
(4) But the non-qualifying pool ceases to exist when the amount in it is reduced to nil.
(5) In this paragraph—
“the carried forward qualifying Schedule 19B amount”, in relation to a qualifying company, means the amount in its qualifying pool for the purposes of Part 4 of Schedule 19B immediately before 1st January 2006, and
“the carried forward non-qualifying Schedule 19B amount”, in relation to a qualifying company, means the amount in its non-qualifying pool for the purposes of Part 4 of Schedule 19B immediately before 1st January 2006.
The ring fence pool
20 (1) The ring fence pool consists of—
(a) the carried forward qualifying Schedule 19B amount,
(b) the company's ring fence losses, allocated to the pool in accordance with sub-paragraph (2)(a), and
(c) the company's post-commencement supplement, allocated to the pool in accordance with sub-paragraph (2)(b).
(2) The allocation of ring fence losses and post-commencement supplement to the pool is as follows—
(a) the amount of a ring fence loss is added to the pool in the period of the loss, and
(b) if any post-commencement supplement is allowed on a claim in respect of a post-commencement period, the amount of that supplement is added to the pool in that period.
(3) The amount in the ring fence pool is subject to reductions in accordance with the following provisions of this Part of this Schedule.
(4) If a reduction in the amount in the ring fence pool falls to be made in any accounting period, the reduction is to be made—
(a) after the addition to the pool of the amount of any ring fence losses allocated to the pool in that period in accordance with sub-paragraph (2)(a), but
(b) before determining, and adding to the pool, the amount of any supplement claimed in respect of the period,
and references to the amount in the pool are to be read accordingly.
(5) In this paragraph “the carried forward qualifying Schedule 19B amount”, in relation to a qualifying company, means the amount in its qualifying pool for the purposes of Part 4 of Schedule 19B immediately before 1st January 2006.
Reductions in respect of utilised ring fence losses
21 (1) If one or more ring fence losses are set off under section 393 against any profits of a post-commencement period, reductions are to be made in that period in accordance with this paragraph.
(2) If the company has a non-qualifying pool, the amount in the non-qualifying pool is to be reduced (but not below nil) by setting against it a sum equal to the total amount so set off.
(3) If—
(a) any of that sum remains after being so set against the amount in the non-qualifying pool, or
(b) the company does not have a non-qualifying pool,
the amount in the ring fence pool is to be reduced (but not below nil) by setting against it so much of that sum as so remains or (as the case may be) a sum equal to the total amount set off as mentioned in sub-paragraph (1).
(4) If the post-commencement period is the deemed accounting period under paragraph 3(3) beginning on 1st January 2006 (“the deemed accounting period”), the amount of the profits of the deemed accounting period is determined as follows.
(5) The amount of the profits of the straddling period is apportioned to the deemed accounting period in proportion to the number of days in the deemed accounting period that fall in the straddling period.
(6) The apportioned amount is taken for the purposes of this paragraph to be the amount of the profits of the deemed accounting period.
(7) In this paragraph “the straddling period”, in relation to a qualifying company, means an accounting period of the company—
(a) beginning before 1st January 2006, and
(b) ending on or after that date,
disregarding paragraph 3(3).
Reductions in respect of unrelieved group ring fence profits
22 (1) If there is an amount of unrelieved group ring fence profits for a post-commencement period, reductions are to be made in that period in accordance with this paragraph.
(2) If, after making any reductions that fall to be made in accordance with paragraph 21, the company does not have a non-qualifying pool, the remaining amount in the ring fence pool is to be reduced (but not below nil) by setting against it a sum equal to the aggregate of the amounts of unrelieved group ring fence profits for the period.
(3) If, after making any reductions that fall to be made in accordance with paragraph 21, the company has an amount in a non-qualifying pool, the amount in that pool is to be reduced (but not below nil) by setting against it a sum equal to the aggregate of the amounts of unrelieved group ring fence profits for the period.
(4) If any of that sum remains after being so set against the amount in the non-qualifying pool, the remaining amount in the ring fence pool is to be reduced (but not below nil) by setting against it so much of that sum as so remains.
(5) For the purposes of this paragraph references to the remaining amount in the ring fence pool are references to so much (if any) of the amount in the ring fence pool as remains after making any reductions that fall to be made in accordance with paragraph 21.
The reference amount for a post-commencement period
23 For the purposes of this Part of this Schedule the reference amount for a post-commencement period is so much of the amount in the ring fence pool as remains after making any reductions required by paragraph 21 or 22.
PART I QUALIFYING INVESTMENTS
1 Investments specified in any of the following paragraphs of this Part of this Schedule are qualifying investments for the purposes of section 506.
2 Any investment falling within Part I, Part II, apart from paragraph 13 (mortgages etc.) or Part III of Schedule 1 to the Trustee Investments Act 1961.
3 Any investment in a common investment fund established under section 22 of the Charities Act 1960 , section 24 of the Charities Act 1993 or section 25 of the Charities Act (Northern Ireland) 1964 or in any similar fund established for the exclusive benefit of charities by or under any enactment relating to any particular charities or class of charities.
3A Any investment in a common deposit fund established under section 22A of the Charities Act 1960 or section 25 of the Charities Act 1993 or in any similar fund established for the exclusive benefit of charities by or under any enactment relating to any particular charities or class of charities.
4 Any interest in land, other than an interest held as security for a debt of any description.
5 Shares in, or securities of, a company which are listed on a recognised stock exchange . . . .
6 Units, or other shares of the investments subject to the trusts, of a unit trust scheme within the meaning given by section 237(1) of the Financial Services and Markets Act 2000.
6A Shares in an open-ended investment company.
7 (1) Deposits with a bank in respect of which interest is payable at a commercial rate.
(2) A deposit mentioned in sub-paragraph (1) above is not a qualifying investment if it is made as part of an arrangement under which a loan is made by the authorised institution to some other person.
(3) In this paragraph “bank” has the meaning given by section 840A.
7A Uncertificated eligible debt security units as defined in section 552(2) of ITTOIA 2005.
8 Certificates of deposit as defined in section 56(5).
9 (1) Any loan or other investment as to which the Board are satisfied, on a claim made to them in that behalf, that the loan or other investment is made for the benefit of the charitable company and not for the avoidance of tax (whether by the charitable company or any other person).
(2) The reference in sub-paragraph (1) above to a loan includes a loan which is secured by a mortgage or charge of any kind over land.
PART II QUALIFYING LOANS
10 1 For the purposes of section 506, a loan which is not made by way of investment is a qualifying loan if it consists of—
(a) a loan made to another charity for charitable purposes only; or
(b) a loan to a beneficiary of the charitable company which is made in the course of carrying out the purposes of the charitable company; or
(c) money placed on current account with a bank otherwise than as part of such an arrangement as is mentioned in paragraph 7(2) above; or
(d) any other loan as to which the Board are satisfied, on a claim made to them in that behalf, that the loan is made for the benefit of the charitable company and not for the avoidance of tax (whether by the charitable company or by some other person).
(2) In this paragraph “bank” has the meaning given by section 840A.
PART III ATTRIBUTION OF EXCESS NON-QUALIFYING EXPENDITURE TO EARLIER CHARGEABLE PERIODS
11 This Part of this Schedule applies in the circumstances specified in subsection (6) of section 506 and in this Part—
(a) “the primary period” means the chargeable period of the charity concerned in which there is such an excess as is mentioned in that subsection;
(b) “unapplied non-qualifying expenditure” means so much of the excess referred to in that subsection as does not exceed the non-qualifying expenditure of the primary period; and
(c) “earlier period”, in relation to an amount of unapplied non-qualifying expenditure, means any chargeable period of the charity concerned which ended not more than six years before the end of the primary period.
12 (1) So much of the unapplied non-qualifying expenditure as is not shown by the charity to be the expenditure of non-taxable sums received by the charity in the primary period shall be treated in accordance with paragraph 13 below as non-qualifying expenditure of earlier periods.
(2) In sub-paragraph (1) above “non-taxable sums” means donations, legacies and other sums of a similar nature which, apart from section 505(1) of this Act and section 256 of the 1992 Act, are not within the charge to tax.
13 (1) Where, in accordance with paragraph 12 above, an amount of unapplied non-qualifying expenditure (“the excess expenditure”) falls to be treated as non-qualifying expenditure of earlier periods—
(a) it shall be attributed only to those earlier periods (if any) which, apart from the attribution, (but taking account of any previous operation of this paragraph) the relevant income and gains exceed the aggregate of the qualifying and non-qualifying expenditure incurred in that period; and
(b) the amount to be attributed to any such earlier period shall not be greater than the excess of that period referred to in paragraph (a) above.
(2) Where there is more than one earlier period to which the excess expenditure can be attributed in accordance with sub-paragraph (1) above, it shall be attributed to later periods in priority to earlier periods.
(3) In so far as any of the excess expenditure cannot be attributed to earlier periods in accordance with this paragraph, it shall be disregarded for the purposes of section 506(6) (and this Part of this Schedule).
14 All such adjustments shall be made, whether by way of the making of assessments or otherwise, as may be required in consequence of the provisions of this Part of this Schedule.
SCHEDULE 21 TAX RELIEF IN CONNECTION WITH SCHEMES FOR RATIONALIZING INDUSTRY AND OTHER REDUNDANCY SCHEMES
Sections 570 and 572.
PART I PRELIMINARY
1 (1) In this Schedule—
“scheme” means a scheme which is for the time being certified or has at any time been certified by the Secretary of State under section 568;
“payment” means a payment made under a scheme, being a payment made to a person carrying on a trade to which the scheme relates and not being a payment made by way of repayment of contributions;
“the person chargeable” means, in relation to any such payment, the person liable to pay any tax which may fall to be paid by reason of the receipt of the payment;
“damage” includes any loss, liability, expense or other burden, and references to the amount of any damage are references to the sum which would be fair compensation for that damage;
“contribution” includes part of a contribution, and “deductible contribution” means a contribution allowed to be deducted under section 568, any reduction under Part III of this Schedule being left out of account; and
“asset” includes part of an asset.
(2) For the purposes of this Schedule, a sum received by any person by way of repayment of contributions shall be deemed to be by way of repayment of the last contribution paid by him, and, if the sum exceeds the amount of that contribution, by way of repayment of the penultimate contribution so paid, and so on.
PART II RELIEF IN RESPECT OF CERTAIN PAYMENTS
2 The question whether any, and if so, what, relief is to be given shall be determined separately in relation to each payment made under the scheme in respect of the trade, but for the purpose of determining that question regard shall be had, as provided by the following provisions of this Part of this Schedule, to the sum (“the total payment”) produced by adding the amount of the payment to the amount of any payments previously so made.
3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4 No relief shall be given in respect of the payment unless the total payment, or the amount of the damage in respect of which the total payment has been made, whichever is the smaller, exceeds the aggregate amount of the deductible contributions which have been paid in furtherance of the scheme in respect of the trade in question before the payment is made, exclusive of any contributions which have been repaid before the payment is made.
5 The amount of the reduction to be made in respect of the payment shall be arrived at by—
(a) ascertaining the sum which bears to the excess mentioned in paragraph 4 above the same proportion that the amount mentioned in paragraph 3(b) above bears to the amount mentioned in paragraph 3(a); and
(b) deducting from that sum the total amount of any reductions which have been or fall to be made under this Schedule in respect of payments previously made under the scheme in respect of the trade.
6 (1) For the purposes of this Schedule, and subject to sub-paragraph (2) below, damage shall be deemed to be damage in respect of which relief may be given under the Tax Acts if and only if—
(a) the damage is attributable to any of the following events, that is to say, the demolition, destruction or putting out of use of any asset, or the disposition or termination of an interest in any asset, and, by reason of that event, an allowance falls to be made under Part 2 or 3 of the Capital Allowances Act in calculating the profits of a trade; or
(b) the damage consists of any loss, liability, expense or other burden in respect of which an allowance may be made in computing the profits of the trade for the purposes of the Tax Acts.
(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Where any event occurs which would give rise to an allowance under the Tax Acts in respect of any asset in taxing, or computing the profits of, a trade but for any of the following matters, that is to say—
(a) that there are no profits against which the allowance could be made, or
(b) that account is required to be taken of allowances previously made or deemed to have been made in respect of the asset; or
(c) that account is required to be taken of any sum which falls to be written off the expenditure incurred on the asset for the purpose of determining whether any and if so what allowance may be given by reason of the event; or
(d) that account is required to be taken of any sum falling to be taken into account as sale, insurance, salvage or compensation moneys, the like consequences shall ensue under this Schedule as if an allowance had fallen to be made by reason of that event.
(4) Where any damage is attributable to a permanent change in the purposes for which an asset is used, or the temporary or permanent putting out of use of an asset, the question whether the damage is damage in respect of which relief may be given under the Tax Acts shall be determined as if the damage had been attributable to a sale of the asset on the date upon which the change or putting out of use took place.
PART III EXCLUSION OF RELIEF IN RESPECT OF CONTRIBUTIONS PAID AFTER RELIEF HAS BEEN GIVEN UNDER PART II
7 The provisions of this Part of this Schedule shall have effect where—
(a) a contribution is paid under a scheme in respect of a trade; and
(b) before the contribution is paid, payments have been made under the scheme to the person carrying on the trade; and
(c) reductions have been made, under Part II of this Schedule, in the amounts which, by reason of those payments, are to be treated as trading receipts of the trade.
8 There shall be ascertained—
(a) the total amount of those reductions; and
(b) the sum by which that total would have been decreased if the contribution, and any previous contributions to which this Part of this Schedule applies, had been paid before any of the payments were made.
9 For the purpose of determining what deduction is to be made in respect of the contribution under section 568, the contribution shall be deemed to be reduced by the sum specified in paragraph 8(b) above, but—
(a) for the purpose of the application of paragraph 8 above in relation to contributions subsequently paid under the scheme in respect of the trade, the total amount of the reductions referred to in that paragraph shall be treated as decreased by that sum; and
(b) for the purpose of the application of paragraph 5 above in relation to payments subsequently made under the scheme in respect of the trade, the total amount of the reductions referred to in that paragraph shall be treated as decreased by that sum.
10 When two or more contributions are paid at the same time, the provisions of this Part of this Schedule shall have effect as if they were a single contribution.
1 (1) The Board may make regulations providing for this Schedule to apply, as from a prescribed date, in relation to any exempt approved scheme which is of a prescribed kind.
(2) The Board may make regulations providing for prescribed provisions of this Schedule to apply, as from a prescribed date, in prescribed circumstances, and subject to any prescribed omissions or modifications, in relation to any exempt approved scheme of another prescribed kind.
(3) In this Schedule “prescribed” means prescribed by regulations made by the Board.
2 (1) The administrator of a scheme in relation to which this Schedule applies shall, in prescribed circumstances and at a prescribed time, either produce to the Board a written valuation such as is mentioned in sub-paragraph (2) below or give to the Board a certificate such as is mentioned in sub-paragraph (3) below.
(2) The valuation must be a valuation of the assets held for the purposes of the scheme and the liabilities of the scheme, must be determined in accordance with prescribed principles and fulfil prescribed requirements, and must be signed by a person with qualifications of a prescribed kind.
(3) The certificate must state whether or not the value of the assets (as determined in accordance with prescribed principles) exceeds the value of the liabilities (as so determined) by a percentage which is more than a prescribed maximum, must be in a prescribed form, and must be signed by a person with qualifications of a prescribed kind.
3 (1) Subject to paragraph 4(4) below, where a valuation produced under paragraph 2 shows, or a certificate given under that paragraph states, that the value of the assets exceeds the value of the liabilities by a percentage which is more than the prescribed maximum, the administrator of the scheme shall within a prescribed period submit to the Board for their approval proposals which comply with sub-paragraph (2) below.
(2) The proposals must be proposals for reducing (or, subject to paragraph (b) below, eliminating) the excess in a way or ways set out in the proposals and falling within sub-paragraph (3) below; and they must be such as to secure that—
(a) by the end of a prescribed period the percentage (if any) by which the value of the assets exceeds the value of the liabilities is no more than the prescribed maximum; and
(b) if the way, or one of the ways, set out in the proposals falls within sub-paragraph (3)(a) below, there remains an excess which is of a level not less than the prescribed minimum.
(3) Subject to sub-paragraph (4) below, the permitted ways of reducing or eliminating the excess are—
(a) making payments to an employer;
(b) suspending for a period (of five years or less) set out in the proposals an employer’s obligation to pay contributions under the scheme or reducing for such a period the amount of an employer’s contributions under the scheme;
(c) suspending for a period (of five years or less) set out in the proposals the obligation of employees to pay contributions under the scheme or reducing for such a period the amount of employees’ contributions under the scheme;
(d) improving existing benefits provided under the scheme;
(e) providing new benefits under the scheme;
(f) such other ways as may be prescribed.
(4) In prescribed circumstances sub-paragraph (3) above shall apply subject to such omissions or modifications as may be prescribed.
(5) Subject to paragraph 4(4) below, if the administrator of the scheme fails to submit proposals to the Board within the period mentioned in subparagraph (1) above, or if the proposals submitted to them within that period are not approved by the Board within a further prescribed period, paragraph 7 below shall apply.
4 (1) Where a valuation has been produced under paragraph 2 above, the Board may serve on the administrator of the scheme a notice requiring him to furnish the Board, within a prescribed period, with such particulars relating to the valuation as may be specified in the notice.
(2) Where a certificate has been given under paragraph 2 above, the Board may serve on the administrator of the scheme a notice requiring him to produce to the Board, within a prescribed period, a written valuation such as is mentioned in paragraph 2(2) above.
(3) Where a valuation has been produced in compliance with a notice served under sub-paragraph (2) above, the Board may serve on the administrator of the scheme a further notice requiring him to furnish the Board, within a prescribed period, with such particulars relating to the valuation as may be specified in the notice.
(4) Where a notice is served on the administrator of a scheme under sub-paragraph (1) or (2) above, paragraph 3(1) and (5) above shall cease to apply.
5 (1) Where particulars have been furnished under paragraph 4 above, or a valuation has been produced under that paragraph, the Board shall, within a prescribed period, serve on the administrator of the scheme a notice—
(a) stating that they accept the valuation produced under paragraph 2 or, as the case may be, 4 above; or
(b) stating that they do not accept the valuation so produced, and specifying their estimate of the value of the liabilities of the scheme at the relevant time and their estimate of the value of the assets held for the purposes of the scheme at that time.
(2) For the purposes of sub-paragraph (1)(b) above, the relevant time is the time specified in the valuation produced under paragraph 2 or 4 above as the time by reference to which the values of the assets and liabilities are determined.
(3) Where—
(a) in a case falling within sub-paragraph (1)(a) above, the valuation shows that the value of the assets exceeds the value of the liabilities by a percentage which is more than the prescribed maximum; or
(b) in a case falling within sub-paragraph (1)(b) above, the value of the assets as estimated by the Board exceeds the value of the liabilities as so estimated by a percentage which is more than the prescribed maximum;
the administrator of the scheme shall within a prescribed period submit to the Board for their approval proposals which comply with paragraph 3(2) to (4) above.
(4) If the administrator of the scheme fails to submit proposals to the Board within the period mentioned in sub-paragraph (3) above, or if proposals submitted to them within that period are not approved by the Board within a further prescribed period, paragraph 7 below shall apply.
6 (1) Where proposals are submitted to the Board under paragraph 3(1) or 5(3) above and they approve them within the further prescribed period mentioned in paragraph 3(5) or 5(4) above, the administrator of the scheme shall carry out the proposals within the period mentioned in paragraph 3(2) above.
(2) If the administrator fails to carry out the proposals within that period, paragraph 7 below shall apply.
7 (1) Where this paragraph applies the Board may specify a percentage equivalent to the fraction—
A
B
where—
A represents their estimate of the value of the liabilities of the scheme at the relevant time increased by a prescribed percentage; and
B represents their estimate of the value of the assets held for the purposes of the scheme at that time.
(2) For the purposes of this paragraph the relevant time is the time specified—
(a) in the valuation produced or certificate given under paragraph 2 above; or
(b) where a valuation has been produced under paragraph 4 above, in that valuation,
as the time by reference to which the values of the assets and liabilities are determined.
(3) Where a percentage has been so specified—
(a) section 592(2) shall apply only to that percentage of any income derived in the relevant period from the assets held for the purposes of the scheme;
(b) section 592(3) shall apply only to that percentage of any underwriting commissions applied in the relevant period for the purposes of the scheme;
(c) section 551 of ITTOIA 2005 shall by virtue of section 56(3)(b) of this Act not apply only to that percentage of any profits or gains arising to the scheme in the relevant period; and
(d) section 271(1)(g) of the 1992 Act (capital gains tax exemption) shall apply only to that percentage of any gain accruing on the disposal in the relevant period of any of those assets.
(4) Sub-paragraphs (5) to (8) below shall apply where a percentage has been so specified, securities are transferred in the relevant period, and the transferor or transferee is such that, if he became entitled to any interest on them, exemption could be allowed under section 592(2).
(5) Section 715(1)(k) shall not apply.
(6) Where, in consequence of sub-paragraph (5) above, section 713(2)(a) or (3)(b) applies, the sum concerned shall be treated as reduced by an amount equal to the specified percentage of itself.
(7) Where, in consequence of sub-paragraph (5) above, section 713(2)(b) or (3)(a) applies, the relief concerned shall be treated as reduced by an amount equal to the specified percentage of itself.
(8) For the purposes of section 714(5), the amount of interest falling to be reduced by the amount of the allowance shall be treated as the amount found after applying section 592(2).
(9) In sub-paragraphs (4) to (8) above expressions which also appear in sections 710 to 728 have the same meanings as in those sections.
(10) In this paragraph “the relevant period” means the period begining at the relevant time and ending when it is proved to the satisfaction of the Board that the value of the assets (as determined in accordance with prescribed principles) exceeds the value of the liabilities (as so determined) by a percentage which is no more than the prescribed maximum.
7A (1) This paragraph applies if a calculation falls to be made under paragraph 7 above in a case where—
(a) relief is to be given under section 454 of ITTOIA 2005 (listed deeply discounted securities held since 26th March 2003: relief for losses) in respect of a loss sustained on the disposal of securities, and
(b) had there been a profit on the disposal it would have been eligible for relief from tax for the year of assessment in which the loss is sustained by virtue of section 592(2).
(2) That relief is to be given before the calculation under paragraph 7 above is made.
(3) Then the amount of income to which the specified percentage is applied by virtue of sub-paragraph (3)(a) of that paragraph is reduced by the amount of that relief.
(4) In this paragraph “disposal” has the same meaning as in Chapter 8 of Part 4 of ITTOIA 2005.
8 (1) The Board may make regulations providing that an appeal may be brought against a notice under paragraph 5(1)(b) above as if it were notice of the decision of the Board on a claim made by the administrator of the scheme concerned.
(2) Regulations under this paragraph may include—
(a) provision that bringing an appeal shall suspend the operation of paragraph 5(3) and (4) above; and
(b) other provisions consequential on the provision that an appeal may be brought (including provisions modifying this Schedule).
Preliminary
1 (1) This Schedule shall be deemed to have come into force on 17th March 1987 and, subject to sub-paragraphs (2) and (3) below, applies in relation to any retirement benefits scheme approved by the Board before the passing of the Finance (No.2) Act 1987 (23rd July 1987).
(2) The Board may by regulations provide that, in circumstances prescribed in the regulations, this Schedule or any provision of it shall not apply or shall apply with such modifications as may be so prescribed.
(2A) Regulations under sub-paragraph (2) above—
(a) may include provision authorising the Board to direct that this Schedule or any provision of it shall not apply in any particular case where in the opinion of the Board the facts are such that its application would not be appropriate;
(b) may take effect (and may authorise any direction given under them to take effect) as from 17th March 1987 or any later date;
(c) may make such supplementary provision as appears to the Board to be necessary or expedient.
(3) This Schedule shall not apply to a retirement benefits scheme if, before the end of 1987, the administrator of the scheme gave notice to the Board that it is not to apply.
(4) Where a notice is given to the Board under sub-paragraph (3) above, the scheme shall, with effect from 17th March 1987 or (if later) the date with effect from which it was approved, cease to be approved.
Accelerated accrual
2 (1) This paragraph applies where an employee becomes a member of the scheme on or after 17th March 1987.
(2) Notwithstanding anything to the contrary in the rules of the scheme, they shall have effect as if they did not allow the provision for the employee of a pension exceeding one-thirtieth of his relevant annual remuneration for each year of service up to a maximum of 20.
3 (1) This paragraph applies where an employee becomes a member of the scheme on or after 17th March 1987 and the scheme allows him to commute his pension or part of it for a lump sum or sums.
(2) If the employee’s full pension (that is, the pension before any commutation) is equal to or less than a basic rate commutable pension, the rules of the scheme shall have effect (notwithstanding anything in them to the contrary) as if they did not allow him to obtain by way of commutation a lump sum or sums exceeding in all a basic rate lump sum.
(3) If the employee’s full pension is greater than a basic rate commutable pension but less than a maximum rate commutable pension, the rules of the scheme shall have effect (notwithstanding anything in them to the contrary) as if they did not allow him to obtain by way of commutation a lump sum or sums exceeding in all the aggregate of—
(a) a basic rate lump sum, and
(b) an amount equal to the relevant percentage of the difference between a basic rate lump sum and a maximum rate lump sum.
(4) In this paragraph, as it applies in relation to an employee—
(a) a “basic rate commutable pension” means a pension of one-sixtieth of his relevant annual remuneration for each year of service up to a maximum of 40;
(b) a “maximum rate commutable pension” means a pension of one-thirtieth of his relevant annual remuneration for each year of service up to a maximum of 20;
(c) a “basic rate lump sum” means a lump sum of three-eightieths of his relevant annual remuneration for each year of service up to a maximum of 40;
(d) a “maximum rate lump sum” means a lump sum of such amount as may be determined by or under regulations made by the Board for the purposes of this paragraph and paragraph 4 below;
(e) “the relevant percentage” means the difference between a basic rate commutable pension and the employee’s full pension expressed as a percentage of the difference between a basic rate commutable pension and a maximum rate commutable pension.
4 (1) This paragraph applies where an employee becomes a member of the scheme on or after 17th March 1987 and the scheme provides a lump sum or sums for him otherwise than by commutation of his pension or part of it.
(2) If the employee’s pension is equal to or less than a basic rate non-commutable pension, the rules of the scheme shall have effect (notwithstanding anything in them to the contrary) as if they did not allow the payment to him, otherwise than by way of commutation, of a lump sum or sums exceeding in all a basic rate lump sum.
(3) If the employee’s pension is greater than a basic rate non-commutable pension but less than a maximum rate non-commutable pension the rules of the scheme shall have effect (notwithstanding anything in them to the contrary) as if they did not allow the payment to him, otherwise than by way of commutation, of a lump sum or sums exceeding in all the aggregate of—
(a) a basic rate lump sum, and
(b) an amount equal to the relevant percentage of the difference between a basic rate lump sum and a maximum rate lump sum.
(4) In this paragraph, as it applies in relation to an employee—
(a) a “basic rate non-commutable pension” means a pension of one-eightieth of his relevant annual remuneration for each year of service up to a maximum of 40,
(b) a “maximum rate non-commutable pension” means a pension of one-fortieth of his relevant annual remuneration for each year of service up to a maximum of 20,
(c) “basic rate lump sum” and “maximum rate lump sum” have the same meanings as in paragraph 3 above, and
(d) “the relevant percentage” means the difference between a basic rate non-commutable pension and the employee’s actual pension expressed as a percentage of the difference between a basic rate non-commutable pension and a maximum rate non-commutable pension.
Final remuneration
5 (1) his paragraph applies where an employee who is a member of the scheme retires on or after 17th March 1987.
(2) The rules of the scheme shall have effect as if they provided that in determining the employee’s relevant annual remuneration for the purpose of calculating benefits, no account should be taken of anything excluded from the definition of “remuneration” in section 612(1).
(3) In the case of an employee—
(a) whose employer is a company and who at any time in the last ten years of his service is a controlling director of the company, or
(b) whose relevant annual remuneration for the purpose of calculating benefits, so far as the remuneration is ascertained by reference to years beginning on or after 6th April 1987, would (apart from this Schedule) exceed the permitted maximum,
the rules of the scheme shall have effect as if they provided that his relevant annual remuneration must not exceed his highest average annual remuneration for any period of three or more years ending within the period of ten years which ends with the date on which his service ends.
(4) In the case of an employee within paragraph (b) of sub-paragraph (3) above who retires before 6th April 1991, the rules of the scheme shall have effect as if they provided that his relevant annual remuneration must not exceed the higher of—
(a) the average annual remuneration referred to in that sub-paragraph, and
(b) his remuneration (within the meaning given by section 612(1)) assessable to income tax under Schedule E for the year of assessment 1986-87.
(5) For the purposes of this paragraph a person is a controlling director of a company if—
(a) he is a director (as defined in section 612), and
(b) he is within paragraph (b) of section 417(5),
in relation to the company.
Lump sums
6 (1) This paragraph applies where an employee becomes a member of the scheme on or after 17th March 1987.
(2) If the rules of the scheme allow the employee to obtain, (by commutation of his pension or otherwise), a lump sum or sums calculated by reference to his relevant annual remuneration, they shall have effect as if they included a rule that in calculating a lump sum any excess of that remuneration over the permitted maximum should be disregarded.
Additional voluntary contributions
7 (1) This paragraph applies where—
(a) the rules of the scheme make provision for the payment by employees of voluntary contributions, and
(b) on or after 8th April 1987 an employee enters into arrangements to pay such contributions.
(2) Notwithstanding anything in the rules of the scheme, they shall have effect as if they did not allow the payment to the employee of a lump sum in commutation of a pension if or to the extent that the pension is secured by the voluntary contributions.
8 (1) This paragraph applies where an employee who is a member of the scheme (“the main scheme”)is also a member of an approved scheme (“the voluntary scheme”)which provides additional benefits to supplement those provided by the main scheme and to which no contributions are made by any employer of his.
(2) Any rules of the main scheme imposing a limit on the amount of a benefit provided for the employee shall have effect (notwithstanding anything in them to the contrary)as if they provided for the limit to be reduced by the amount of any like benefit provided for the employee by the voluntary scheme.
Supplementary
9 In this Schedule “relevant annual remuneration” means final remuneration or, if the scheme provides for benefits to be calculated by reference to some other annual remuneration, that other annual remuneration.
Interpretation
1 (1) In this Schedule—
“the date of the change” shall be construed in accordance with paragraph 3(2) below;
“eligible scheme” shall be construed in accordance with paragraph 2(4) below;
“the personal pension provisions of this Act” means this Schedule and the other provisions of Chapter IV of Part XIV;
“prescribed” (except in paragraph 2(3)(c)) means specified in, or determined in accordance with, regulations;
“regulations” means regulations made by the Board.
(2) Any power conferred by this Schedule to make regulations includes power to make different provision for different cases or different purposes.
Eligible schemes
2 (1) This Schedule applies to any retirement benefits scheme which is for the time being approved under Chapter I of Part XIV.
(2) Sub-paragraph (1) above is subject to the following provisions of this paragraph.
(3) This Schedule applies to a retirement benefits scheme only if—
(a) it is an occupational pension scheme, as defined in section 1 of the Pension Schemes Act 1993 or section 1 of the Pensions Schemes (Northern Ireland) Act 1993;
(b) it is a money-purchase scheme, as defined in section 181 of the Pension Schemes Act 1993 or section 176 of the Pensions Schemes (Northern Ireland) Act 1993;
(c) any documents relating to the scheme which are prescribed under section 631(1) are such that, subject to approval under paragraph 3 below, the scheme is capable of being an approved personal pension scheme for the purposes of Chapter IV of Part XIV as from the date of the change; and
(d) such other conditions as may be prescribed are satisfied in the case of the scheme.
(4) Any retirement benefits scheme to which this Schedule applies is referred to in this Schedule as an “eligible scheme".
Approval of eligible schemes as approved personal pension schemes
3 (1) The trustees of an eligible scheme may at any time on or after 1st October 2000 apply to the Board for approval of the scheme under this paragraph.
(2) If an application under sub-paragraph (1) above is granted, the eligible scheme shall, as from such date as the Board may specify in granting the application (the “date of the change”),—
(a) irrevocably cease to be approved, and to be capable of approval, under Chapter I of Part XIV; and
(b) become an approved personal pension scheme (and subject accordingly to section 631(4) and the other provisions of Chapter IV of Part XIV).
(3) The date of the change must not be earlier than 6th April 2001.
(4) An application under sub-paragraph (1) above shall be in such form, shall contain such information, and shall be accompanied by such documents, in such form, and prepared as at such time, as the Board may prescribe.
(5) The Board may at their discretion grant or refuse an application under sub-paragraph (1) above.
(6) The Board’s discretion under sub-paragraph (5) above shall be subject to the restrictions set out in sections 632 to 638A and this Schedule.
(7) The Board shall give notice to the applicant of the grant or refusal of an application.
(8) A notice under sub-paragraph (7) above shall, in the case of a refusal, state the grounds for the refusal.
(9) If, at any time after the making of an application under sub-paragraph (1) above, the eligible scheme concerned ceases to be approved under Chapter I of Part XIV otherwise than by virtue of the operation of sub-paragraph (2)(a) above, the scheme shall not, by virtue of that application, become an approved personal pension scheme.
Excessive funding of certain individual members
4 (1) The Board may refuse or withhold approval under paragraph 3 above in the case of an eligible scheme of a prescribed description if or so long as they are not satisfied that prescribed requirements will be fulfilled with respect to—
(a) the value of any prescribed benefits which may be provided for or in respect of an individual member of a prescribed description, and
(b) the value of the assets held for the purpose of providing benefits for or in respect of that member,
if approval under paragraph 3 above is granted.
(2) Regulations may make provision for or in connection with cases where the value mentioned in paragraph (b) of sub-paragraph (1) above exceeds, or exceeds by more than a prescribed percentage, the value mentioned in paragraph (a) of that sub-paragraph.
(3) The provision that may be made by virtue of sub-paragraph (2) above includes provision for or in connection with eliminating or reducing any such excess within a prescribed period by one or more prescribed methods.
(4) Regulations may make provision for the purposes of this paragraph for or in connection with—
(a) the valuation of benefits; or
(b) the valuation of assets.
(5) The provision that may be made by virtue of sub-paragraph (4)(a) or (b) above includes provision with respect to, or in connection with,—
(a) the person by whom any such valuation is to be made;
(b) the method or principles of valuation to be used;
(c) certification of any such valuations and of any prescribed matters relating to or connected with them;
(d) any facts, matters or assumptions by reference to which any such valuation is to be made;
(e) any tables to be used for the purpose of making any such valuation;
(f) the basis on which any such tables are to be prepared;
(g) the manner in which any such tables are to be applied.
(6) The methods or principles of valuation and the tables that may be prescribed by virtue of sub-paragraph (5) above include methods or principles or, as the case may be, tables published by the Government Actuary for any purposes of the personal pension provisions of this Act.
Directions as to contributions between valuation and date of change etc.
5 (1) The Board may give directions for or in connection with—
(a) prohibiting the making of contributions during the post-valuation period, or
(b) restricting the amount of the contributions that may be made during that period,
by or in respect of members of a converting scheme.
(2) Directions under sub-paragraph (1) above—
(a) may be given in respect of schemes generally, schemes of a particular description or any particular scheme or schemes; and
(b) may make different provision in relation to different schemes or different members.
(3) Any directions under sub-paragraph (1) above must be complied with by—
(a) the trustees and managers, or administrators, of any scheme to which the directions relate;
(b) any member of such a scheme to whom the directions relate; and
(c) any person who is the employer of such a member.
(4) If there is any contravention of, or failure to comply with, directions under sub-paragraph (1) above, the Board may—
(a) refuse or withhold approval of the conversion application in question; or
(b) revoke or vary any approval granted or any conditions pending the satisfaction of which approval is withheld.
(5) Sub-paragraph (4) above is without prejudice to any other powers of the Board.
(6) In this paragraph—
“conversion application”, in the case of a converting scheme, means the application under paragraph 3(1) above in respect of the scheme;
“converting scheme” means a scheme in respect of which an application under paragraph 3(1) above has been made and not withdrawn or finally refused;
“the post-valuation period”, in the case of a converting scheme, means the period which—
begins with the day as at which any valuation for the purposes of paragraph 4 above is made in connection with the conversion application; and
ends with the day preceding the date of the change (or, if earlier, the date on which the conversion application is withdrawn or finally refused).
(7) For the purposes of this paragraph, an application is “finally refused” when it has been refused by the Board and—
(a) the time for appealing under section 651 against the refusal has expired without such an appeal being made; or
(b) an appeal under that section against the refusal has been withdrawn or finally disposed of in a way which affirms refusal of the application.
(8) Any directions under this paragraph must be given in writing.
Scheme rules to allow changes for purpose of conversion
6 An approved retirement benefits scheme shall be taken to include provisions allowing the making of changes to any provisions of the scheme for the purpose of enabling the scheme to become an eligible scheme, notwithstanding anything to the contrary in any provision of the scheme.
Interpretation
1 (1) In this Schedule—
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
“dividend manufacturer” has the meaning given by paragraph 2(1) below;
“dividend manufacturing regulations” means regulations made by the Treasury under this Schedule;
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
“manufactured dividend” . . . and “manufactured overseas dividend” shall be construed respectively in accordance with paragraphs 2 . . . and 4 below, as shall references to the gross amount thereof;
“manufactured interest” means an amount—
which is representative of a periodical payment of interest on United Kingdom securities, and
which, under a contract or other arrangements for the transfer of the securities, one of the parties is required to pay to the other;
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
“overseas dividend” means any interest, dividend or other annual payment payable in respect of any overseas securities;
“overseas dividend manufacturer” has the meaning given by paragraph 4(1) below;
“overseas securities” means—
shares, stock or other securities issued by a government or public or local authority of a territory outside the United Kingdom or by any other body of persons not resident in the United Kingdom;. . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
“overseas tax” means tax under the law of a territory outside the United Kingdom;
“overseas tax credit” means any such credit under the law of a territory outside the United Kingdom in respect of overseas tax as corresponds to a tax credit;
“prescribed” means prescribed in dividend manufacturing regulations;
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
“securities” includes any loan stock or similar security;
“transfer” includes any sale or other disposal;
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“United Kingdom equities” means shares of any company resident in the United Kingdom;
“United Kingdom securities” means securities of the government of the United Kingdom, of any public or local authority in the United Kingdom or of any company or other body resident in the United Kingdom, but does not include . . . United Kingdom equities.
(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Manufactured dividends on UK equities: general
2 (1) This paragraph applies in any case where, under a contract or other arrangements for the transfer of United Kingdom equities, one of the parties (a “dividend manufacturer”) is required to pay to the other (“the recipient”) an amount (a “manufactured dividend”) which is representative of a dividend on the equities.
(1A) Sub-paragraphs (1C) to (1E) apply where—
(a) a manufactured dividend is paid by a dividend manufacturer, and
(b) the dividend of which the manufactured dividend is representative is taxable.
(1B) For this purpose a dividend is “taxable” if—
(a) it is received by the dividend manufacturer and the charge to corporation tax on income applies to it, or
(b) it is received by a person other than the dividend manufacturer and the charge to corporation tax on income would have applied to it if it had been received by the dividend manufacturer.
(1C) Where the dividend manufacturer carries on a trade to which the manufactured dividend relates, and neither sub-paragraph (1D) nor (1E) applies, the manufactured dividend is to be treated as an expense of the trade.
(1D) Where the dividend manufacturer has investment business to which the manufactured dividend relates, the manufactured dividend is to be treated as expenses of management of the business for the purposes of Part 16 of CTA 2009.
(1E) Where the dividend manufacturer carries on life assurance business to which the manufactured dividend relates, the manufactured dividend is to be treated as if, to the extent that it is referable to basic life assurance and general annuity business, it were an expense payable falling to be brought into account at step 3 of section 76(7).
(1F) For the purposes of sub-paragraph (1E), the manufactured dividend is to be treated as referable to basic life assurance and general annuity business to the extent that the dividend of which it is representative—
(a) is received by the dividend manufacturer and is so referable by virtue of section 432A, or
(b) is received by a person other than the dividend manufacturer, and would have been so referable by virtue of section 432A if it had it been received by the dividend manufacturer.
(2) Where a manufactured dividend is paid by a dividend manufacturer who is a company resident in the United Kingdom, the Corporation Tax Acts shall have effect—
(a) in relation to the recipient, and persons claiming title through or under him, as if the manufactured dividend were a dividend on the UK equities in question; . . .
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Where a manufactured dividend to which sub-paragraph (2) above does not apply is paid by any person—
(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) the Corporation Tax Acts shall have effect in relation to the recipient, and persons claiming title through or under him, as if the manufactured dividend were a dividend on the United Kingdom equities in question; . . .
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3A) In its application in relation to a manufactured dividend by virtue of sub-paragraph (2) or (3), Part 9A of CTA 2009 (company distributions) has effect subject to the following modification.
(3B) The modification is that—
(a) the definition of “the payer” in section 931T is to be treated as omitted, and
(b) references in that Part to the payer are to be treated as references to the company that pays the dividend of which the manufactured dividend is representative.
(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6) . . . Where—
(a) a dividend manufacturer pays a manufactured dividend . . . , . . . , and
(aa) the dividend manufacturer is a non-UK resident company within the charge to corporation tax,
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
the dividend manufacturer shall, on paying the manufactured dividend, provide the recipient with a statement in writing setting out the matters specified in sub-paragraph (7) below.
(7) Those matters are—
(a) the amount of the manufactured dividend;
(b) the date of the payment of the manufactured dividend; and
(c) the amount of the tax credit to which, by virtue of sub-paragraph (3)(b) above or section 573(2) of ITA 2007, the recipient or a person claiming title through or under him either—
(i) is entitled in respect of the manufactured dividend, or
(ii) would be so entitled were all the conditions of a right to a tax credit satisfied, in the case of the recipient or that person, as respects the dividend which the recipient is deemed to receive.
(8) The duty imposed by sub-paragraph (6) above shall be enforceable at the suit or instance of the recipient.
Deductibility of manufactured payment in the case of the manufacturer
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2A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Manufactured dividends representative of foreign income dividends
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2B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Manufactured interest on UK securities: general
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3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Manufactured interest on gilt-edged securities etc.
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3A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Manufactured overseas dividends
4 (1) This paragraph applies in any case where, under a contract or other arrangements for the transfer of overseas securities, one of the parties (the “overseas dividend manufacturer”) is required to pay to the other (“the recipient”) an amount representative of an overseas dividend on the overseas securities; and in this Schedule the “manufactured overseas dividend” means any payment which the overseas dividend manufacturer makes in discharge of that requirement.
(1A) Sub-paragraphs (1C) to (1E) apply where the overseas dividend of which the manufactured overseas dividend is representative is taxable.
(1B) For this purpose an overseas dividend is “taxable” if—
(a) it is received by the overseas dividend manufacturer and the charge to corporation tax on income applies to it, or
(b) it is received by a person other than the overseas dividend manufacturer and the charge to corporation tax on income would have applied to it if it had been received by the overseas dividend manufacturer.
(1C) Where the overseas dividend manufacturer carries on a trade to which the manufactured overseas dividend relates, and neither sub-paragraph (1D) nor (1E) applies, the manufactured overseas dividend is to be treated as an expense of the trade.
(1D) Where the overseas dividend manufacturer has investment business to which the manufactured overseas dividend relates, the manufactured overseas dividend is to be treated as expenses of management of the business for the purposes of Part 16 of CTA 2009.
(1E) Where the overseas dividend manufacturer carries on life assurance business to which the manufactured overseas dividend relates, the manufactured overseas dividend is to be treated as if, to the extent that it is referable to basic life assurance and general annuity business, it were an expense payable falling to be brought into account at step 3 of section 76(7).
(1F) For the purposes of sub-paragraph (1E), the manufactured overseas dividend is to be treated as referable to basic life assurance and general annuity business to the extent that the overseas dividend of which it is representative—
(a) is received by the overseas dividend manufacturer and is so referable by virtue of section 432A, or
(b) is received by a person other than the dividend manufacturer, and would have been so referable by virtue of section 432A if it had it been received by the dividend manufacturer.
(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3B) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Where a manufactured overseas dividend is paid after deduction of the amount required by section 922(2) of ITA 2007 (amount of income tax to be deducted at source), or where the amount of tax required under section 923 of that Act (income tax to be accounted for and paid) in respect of such a dividend has been accounted for and paid, then for all purposes of the Corporation Tax Acts. . . —
(a) the manufactured overseas dividend shall be treated in relation to the recipient, and all companies claiming title through or under the recipient, as if it were an overseas dividend of an amount equal to the gross amount of the manufactured overseas dividend, but paid after the withholding therefrom, on account of overseas tax, of the relevant amount in relation to the amount deducted under section 922(2) of ITA 2007 or the whole of the amountaccounted for and paid under section 923 of that Act; and
(b) the relevant amount in relation to the amount so deducted or the whole of the amountso accounted for and paid shall accordingly be treated in relation to the recipient, and all companies claiming title through or under the recipient, as an amount so withheld instead of as an amount on account of income tax.
For the meaning of references in this paragraph to the relevant amount in relation to an amount deducted under section 922(2) of ITA 2007, see paragraph 4A.
(4A) In its application in relation to a manufactured overseas dividend by virtue of sub-paragraph (4), Part 9A of CTA 2009 (company distributions) has effect—
(a) as if the manufactured overseas dividend were an overseas dividend on the overseas securities in question, and
(b) subject to the following modification.
(4B) The modification is that—
(a) the definition of “the payer” in section 931T is to be treated as omitted, and
(b) references in that Part to the payer are to be treated as references to the company that pays the dividend of which the manufactured overseas dividend is representative.
(5) For the purposes of this paragraph—
(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) the gross amount of a manufactured overseas dividend is an amount equal to the gross amount of that overseas dividend of which the manufactured overseas dividend is representative, as mentioned in sub-paragraph (1) above; and
(c) the gross amount of an overseas dividend is an amount equal to the aggregate of—
(i) so much of the overseas dividend as remains after the deduction of the overseas tax (if any) chargeable on it;
(ii) the amount of the overseas tax (if any) so deducted; and
(iii) the amount of the overseas tax credit (if any) in respect of the overseas dividend.
(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(7AA) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(7A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(9) Without prejudice to Chapter 9 of Part 6 of CTA 2009 (manufactured interest), the references in this paragraph to all the purposes of the Corporation Tax Acts do not include the purposes of Part 5 of that Act (loan relationships).
4A (1) A reference in paragraph 4(4)(a) or (b) to the relevant amount in relation to an amount deducted under section 922(2) of ITA 2007 is—
(a) where the deduction is made in respect of a manufactured overseas dividend that is treated as paid under paragraph 13(1) of Schedule 13 to FA 2007 (sale and repurchase of securities), to amount A, and
(b) otherwise, to the amount deducted under section 922(2) of ITA 2007.
(2) Amount A is—
(a) in a case to which sub-paragraph (3) applies, the amount deducted under section 922(2) of ITA 2007,
(b) in a case to which sub-paragraph (4) applies—
(i) the amount deducted under section 922(2) of ITA 2007, less
(ii) the excess mentioned in that sub-paragraph, and
(c) in any other case, nil.
(3) This sub-paragraph applies to a case in which—
(a) an amount is actually paid by way of manufactured overseas dividend,
(b) the amount so paid equals the relevant net amount, and
(c) it is reasonable to assume that, in deciding the repurchase price of the securities, no account was taken of the fact that the amount would be so paid.
(4) This sub-paragraph applies to a case in which—
(a) an amount is actually paid by way of manufactured overseas dividend,
(b) the amount so paid exceeds the relevant net amount, and
(c) it is reasonable to assume that, in deciding the repurchase price of the securities, no account was taken of the fact that the amount would be so paid.
(5) In this paragraph “the repurchase price” of the securities means the price at which the payer of the manufactured overseas dividend is entitled or obliged to sell the securities, or similar securities, to the recipient of the manufactured overseas dividend.
(6) In this paragraph “the securities” means the securities in respect of which the overseas dividend of which the manufactured overseas dividend is representative is paid.
(7) In this paragraph “the relevant net amount” means—
(a) the gross amount of the overseas dividend of which the manufactured overseas dividend is representative, less
(b) the amount deducted under section 922(2) of ITA 2007.
Dividends and interest passing through the market
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5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unapproved manufactured payments
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6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Irregular manufactured payments
7 (1) . . . In any case where (apart from this paragraph)—
(a) an amount paid by way of manufactured dividend would exceed the amount of the dividend of which it is representative, or
(b) the aggregate of—
(i) an amount paid by way of . . . manufactured overseas dividend, and
(ii) the tax required to be accounted for in connection with the making of that payment,
would exceed the gross amount (as determined in accordance with paragraph . . . 4 above) of the . . . overseas dividend of which it is representative . . . ,
the payment shall, to the extent of an amount equal to the excess, not be regarded for the purposes of this Schedule as made in discharge of the requirement referred to in paragraph 2(1). . . or 4(1) above, as the case may be, but shall instead to that extent be taken for all purposes of the Corporation Tax Acts to constitute a separate fee for entering into the contract or other arrangements under which it was made, notwithstanding anything in paragraph 2 above or anything in paragraph 4 other than in sub-paragraph (1A).
(1A) Sub-paragraph (1) above does not apply in the case of the amount of any . . . manufactured overseas dividend which falls in accordance with section 540 of CTA 2009 to be treated for the purposes of Part 5 of that Act as interest under a loan relationship.
(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) For the purpose of giving relief under any provision of the Corporation Tax Acts in a case falling within paragraph . . . 4(1) above where (apart from this paragraph) the aggregate referred to in sub-paragraph (1)(b) above would be less than the gross amount there mentioned—
(a) the gross amount of the . . . manufactured overseas dividend shall be taken to be an amount equal to the aggregate referred to in sub-paragraph (1)(b) above, . . .
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
notwithstanding anything in paragraph . . . 4 above.
(4) In this paragraph “relief” means relief by way of—
(a) deduction in computing profits or gains; or
(b) deduction . . . against . . . total profits.
Manufactured payments under arrangements having an unallowable purpose
7A (1) This paragraph applies in any case where—
(a) a manufactured payment falls to be made by a company in an accounting period in pursuance of any arrangements (see sub-paragraphs (9) and (10) for definitions), and
(b) the arrangements have an unallowable purpose at any time (see sub-paragraphs (3) to (5)).
But this is subject to sub-paragraph (8) below (cases where tax relief is denied apart from this paragraph).
(2) The company is not entitled, by virtue of anything in this Schedule or any provision of regulations under it, or otherwise, to any relevant tax relief (see sub-paragraph (10)), to the extent that the relief is in respect of, or referable to, the whole or any part of so much of the manufactured payment as, on a just and reasonable apportionment, is attributable to the unallowable purpose.
(3) Arrangements have an unallowable purpose at any time if at that time the purposes for which the company is a party to—
(a) the arrangements,
(b) any related transaction (see sub-paragraphs (6) and (7)), or
(c) any transaction in pursuance of the arrangements,
include a purpose (“the unallowable purpose”) which is not among the business or other commercial purposes of the company.
(4) The business and other commercial purposes of a company do not include the purposes of any part of its activities in respect of which it is not within the charge to corporation tax.
(5) Where one of the purposes for which a company is at any time a party to—
(a) any arrangements,
(b) any related transaction in the case of any arrangements, or
(c) any transaction in pursuance of any arrangements,
is a tax avoidance purpose, that purpose shall be taken to be a business or other commercial purpose of the company only where it is not the main purpose, or one of the main purposes, for which the company is party to the arrangements or transaction at that time.
(6) One or more transactions are to be regarded as related transactions, in the case of any arrangements, if it would be reasonable to assume, from either or both of—
(a) the likely effect of the transactions, and
(b) the circumstances in which the transactions are entered into or effected,
that none of the transactions would have been entered into or effected independently of the arrangements.
(7) Transactions are not prevented from being related transactions, in the case of any arrangements, just because the transactions—
(a) are not between the same parties, or
(b) are not between the parties to the arrangements.
(8) This paragraph does not apply if, as a result of any of the following provisions—
(a) section 1219(2)(b) of CTA 2009 (expenses of management of companies with investment business: unallowable purposes),
(b) section 76(4)(d) (expenses of insurance companies: unallowable purposes),
(c) section 441 of CTA 2009 (loan relationships with unallowable purposes),
the company in question is not entitled to a relevant tax relief in respect of, or referable to, the whole or any part of the manufactured payment.
The reference to section 76 is a reference to that section as it has effect in relation to accounting periods beginning on or after 1st April 2004.
(9) Any reference in this paragraph to a manufactured payment falling to be made by a company includes a reference to a manufactured payment which is deemed by or under any provision of the Tax Acts to be made by a company (and references to a transaction, or to a company being party to a transaction, are to be construed accordingly).
(10) In this paragraph—
“arrangements” includes schemes, arrangements and understandings of any kind, whether or not legally enforceable, and shall be taken to include any related transactions;
“manufactured payment” means any of the following—
any manufactured dividend;
any manufactured interest;
any manufactured overseas dividend;
any payment which by virtue of paragraph 7(1) constitutes a fee;
“related transaction” shall be construed in accordance with sub-paragraphs (6) and (7) above;
“relevant tax relief” means any of the following—
any deduction in computing profits or gains for the purposes of corporation tax;
any deduction against total profits;
the bringing into account of any debit for the purposes of Part 5 of CTA 2009 (loan relationships);
the surrender of an amount by way of group relief;
“tax advantage” has the meaning given by section 840ZA;
“tax avoidance purpose” means any purpose that consists in securing a tax advantage (whether for the company in question or any other person);
and sub-paragraphs (3) to (7) above have effect for the purposes of this paragraph.
Dividend manufacturing regulations: general
8 (1) Dividend manufacturing regulations may make provision for—
(a) such manufactured dividends . . . or manufactured overseas dividends as may be prescribed,
(aa) such persons who receive, or become entitled to receive, manufactured dividends . . . or manufactured overseas dividends as may be prescribed, or
(b) such dividend manufacturers . . . or overseas dividend manufacturers as may be prescribed,
to be treated in prescribed circumstances otherwise than as mentioned in paragraphs 2 and 4 above for the purposes of such provisions of the Corporation Tax Acts as may be prescribed.
(1A) Dividend manufacturing regulations may provide, in relation to prescribed cases where a person makes or receives the payment of any amount representative of an overseas dividend, or is treated for any purposes of this Schedule or such regulations as a person making or receiving such a payment—
(a) for any entitlement of that person to claim relief under Part XVIII to be extinguished or reduced to such extent as may be found under the regulations; and
(b) for the adjustment, by reference to any provision having effect under the law of a territory outside the United Kingdom, of any amount falling to be taken, for any prescribed purposes of the Corporation Tax Acts . . . , to be the amount paid or payable by or to any person in respect of any sale, repurchase or other transfer of the overseas securities to which the payment relates.
(2) Dividend manufacturing regulations may make provision with respect to—
(a) the accounts and other records which are to be kept,
(b) the vouchers which are to be issued or produced,
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
by persons by . . . whom manufactured dividends . . . are paid.
(2A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Dividend manufacturing regulations may—
(a) make provision for prescribed provisions of the Management Act to apply for corporation tax purposes in relation to manufactured dividends, manufactured interest or manufactured overseas dividends with such modifications, specified in the regulations, as the Treasury think fit;
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Dividend manufacturing regulations may make different provision for different cases.
SCHEDULE 24 ASSUMPTIONS FOR CALCULATING CHARGEABLE PROFITS, CREDITABLE TAX AND CORRESPONDING UNITED KINGDOM TAX OF FOREIGN COMPANIES
Section 747(6).
General
1 (1) The company shall be assumed to be resident in the United Kingdom.
(2) Nothing in sub-paragraph (1) above requires it to be assumed that there is any change in the place or places at which the company carries on its activities.
(3) For the avoidance of doubt, it is hereby declared that, if any sums forming part of the company’s profits for an accounting period have been received by the company without any deduction of or charge to tax and have been so received by virtue of section 1279 of CTA 2009 the effect of the assumption in sub-paragraph (1) above is that those sums are to be brought within the charge to tax for the purposes of calculating the company’s chargeable profits or corresponding United Kingdom tax.
(3A) In any case where—
(a) it is at any time necessary for any purpose of Chapter IV of Part XVII to determine in the case of any person the chargeable profits of the company for an accounting period, and
(b) at that time—
(i) it has not been established in the case of that person that that or any earlier accounting period of the company is an accounting period in respect of which an apportionment under section 747(3) falls to be made, . . .
(ii) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
in determining the chargeable profits of the company for the accounting period mentioned in paragraph (a) above, it shall be assumed, for the purposes of those provisions of paragraphs 2 and 10 below which refer to the first accounting period in respect of which an apportionment under section 747(3) falls to be made . . . , that that period (but not any earlier period) is an accounting period in respect of which such an apportionment falls to be made . . . .
(4) In any case where—
(a) it is at any time necessary for any purpose of Chapter IV of Part XVII to determine in the case of any person the chargeable profits of the company for an accounting period, and
(b) at that time it has not been established in the case of that person that that or any earlier accounting period of the company is an accounting period in respect of which an apportionment under section 747(3) falls to be made,
in determining the chargeable profits of the company for the accounting period mentioned in paragraph (a) above, it shall be assumed, for the purposes of those provisions of paragraph 9 below which refer to the first accounting period in respect of which an apportionment under section 747(3) falls to be made, that such an apportionment falls to be made in respect of that period (but not in respect of any earlier period).
(5) Nothing in this Schedule affects any liability for, or the computation of, corporation tax in respect of a trade which is carried on by a company resident outside the United Kingdom through a permanent establishment in the United Kingdom.
(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2 (1) The company shall be assumed to have become resident in the United Kingdom (and, accordingly, within the charge to corporation tax) at the beginning of the first accounting period—
(a) in respect of which an apportionment under section 747(3) falls to be made, . . .
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
and that United Kingdom residence shall be assumed to continue throughout subsequent accounting periods of the company (whether or not an apportionment falls to be made in respect of all or any of them) until the company ceases to be controlled by persons resident in the United Kingdom.
(2) Except in so far as the following provisions of this Schedule otherwise provide, for the purposes of calculating a company’s chargeable profits or corresponding United Kingdom tax for any accounting period which is not the first such period referred to in sub-paragraph (1) above (and, in particular, for the purpose of applying any relief which is relevant to two or more accounting periods), it shall be assumed that a calculation of chargeable profits or, as the case may be, corresponding United Kingdom tax has been made for every previous accounting period throughout which the company was, by virtue of sub-paragraph (1) above, assumed to have been resident in the United Kingdom.
3 The company shall be assumed not to be a close company.
4 (1) Subject to sub-paragraph (2) below, where any relief under the Corporation Tax Acts is dependent upon the making of a claim or election, the company shall be assumed to have made that claim or election which would give the maximum amount of relief and to have made that claim or election within any time limit applicable to it , except that the company shall be assumed not to have made an election under section 18A of CTA 2009.
(1A) Sub-paragraph (2) below applies to any accounting period of the company—
(a) in respect of which an apportionment under section 747(3) falls to be made; . . .
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) Where this sub-paragraph applies to an accounting period of the company, then if, by notice given to an officer of the Board at any time not later than the expiry of the period of twenty months following the end of the accounting period or within such longer period as the Board may in any particular case allow, the United Kingdom resident company which has or, as the case may be, any two or more United Kingdom resident companies which together have, a majority interest in the company so request, the company shall be assumed—
(a) not to have made any claim or election specified in the notice; or
(b) to have made a claim or election so specified, being different from one assumed by sub-paragraph (1) above but being one which (subject to compliance with any time limit) could have been made in the case of a company within the charge to corporation tax; or
(c) to have disclaimed or required the postponement, in whole or in part, of an allowance if (subject to compliance with any time limit) a company within the charge to corporation tax could have disclaimed the allowance or, as the case may be, required such a postponement.
(2A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2B) For the purposes of sub-paragraph (1) an election under section 9A of CTA 2010 (designated currency of a UK resident investment company) is not to be regarded as an election upon which relief under the Corporation Tax Acts is dependent, and sub-paragraph (2)(b) does not apply in relation to such an election.
(2C) But if, by notice given to an officer of the Board, the United Kingdom resident company which has or, as the case may be, any two or more United Kingdom resident companies which together have, a majority interest in the company so request, the company shall be assumed (subject to section 9A(2) of CTA 2010) to have made an election under section 9A of that Act in the form specified in the notice (and accordingly that section and section 9B of that Act apply to determine the effect (if any) of that election).
(3) For the purposes of this paragraph, a United Kingdom resident company has, or two or more United Kingdom resident companies together have, a majority interest in the company if on the apportionment of the company’s chargeable profits for the relevant accounting period under section 747(3) more than half of the amount of those profits—
(a) which are apportioned to all United Kingdom resident companies, and
(b) which give rise to any liability on any such companies under subsection (4)(a) of that section,
are apportioned to the United Kingdom resident company or companies concerned.
(3A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) In sub-paragraph (3) above “the relevant accounting period” means the accounting period or, as the case may be, the first accounting period in which the relief in question is or would be available in accordance with sub-paragraph (1) above.
4A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Group relief etc.
5 (1) The company shall be assumed to be neither a member of a group of companies nor a member of a consortium for the purposes of any provision of the Tax Acts.
(2) Where, under Part 5 of CTA 2010, any relief is in fact surrendered by the company and allowed to another company by way of group relief, it shall be assumed that the chargeable profits of the company, apart from this paragraph, are to be increased by an amount of additional profits equal to the amount of the relief so surrendered and allowed.
6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Company reconstructions
8 Without prejudice to the operation of Chapter 1 of Part 22 of CTA 2010 in a case where the company is the predecessor, within the meaning of that Chapter, and a company resident in the United Kingdom is the successor, within the meaning of that Chapter—
(a) the assumption that the company is resident in the United Kingdom shall not be regarded as requiring it also to be assumed that the company is within the charge to tax in respect of a trade for the purposes of that Chapter, and
(b) except in so far as the company is actually within that charge (by carrying on the trade through a permanent establishment in the United Kingdom), it shall accordingly be assumed that the company can never be the successor, within the meaning of that Chapter, to another company (whether resident in the United Kingdom or not).
Losses in pre-direction accounting periods
9 (1) . . . This paragraph applies in any case where the company incurred a loss in a trade in an accounting period—
(a) which precedes the first accounting period in respect of which an apportionment under section 747(3) falls to be made (“the starting period”); and
(b) which ended less than six years before the beginning of the starting period; and
(c) in which the company was not resident . . . in the United Kingdom;
and in this paragraph any such accounting period is referred to as a “ pre-apportionment period”.
(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) If a claim is made for the purpose by the United Kingdom resident company or companies referred to in paragraph 4(2) above, the chargeable profits (if any) of the company for accounting periods beginning with that pre-apportionment period which is specified in the claim and in which a loss is incurred as mentioned in sub-paragraph (1) above shall be determined (in accordance with the provisions of this Schedule other than this paragraph) on the assumption that that pre-apportionment period was the first accounting period in respect of which an apportionment under section 747(3) fell to be made.
(4) A claim under sub-paragraph (3) above shall be made by notice given to an officer of the Board within the period of twenty months following the end of the starting period or within such longer period as the Board may in any particular case allow.
(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(7) Nothing in—
(a) paragraph 10 of Schedule 18 to the Finance Act 1998 (claims or elections in company tax returns), or
(b) Schedule 1A to the Management Act (claims or elections not included in returns),
shall apply, whether by virtue of section 754 or otherwise, to a claim under sub-paragraph (3) above.
Capital allowances and expenditure on car hire
10 (1) Subject to paragraph 12 below, if, in an accounting period falling before the beginning of the first accounting period—
(a) in respect of which an apportionment under section 747(3) falls to be made, . . .
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
the company incurred any capital expenditure on the provision of plant or machinery for the purposes of its trade, that plant or machinery shall be assumed, for the purposes of Part 2 of the Capital Allowances Act, to have been provided for purposes wholly other than those of the trade and not to have been brought into use for the purposes of that trade until the beginning of that first accounting period, and section 13 of that Act (use for qualifying activity of plant or machinery provided for other purposes) shall apply accordingly.
(2) This paragraph shall be construed as one with Part 2 of the Capital Allowances Act.
11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unremittable overseas income
12 For the purposes of the application of Part 18 of CTA 2009 to the company’s income it shall be assumed—
(a) that any reference in section 1274(3) or (4) of that Act to the United Kingdom is a reference to both the United Kingdom and the territory in which the company is in fact resident; and
(b) that a claim under section 1275 of that Act (claim for relief for unremittable income) may be made on behalf of the company by the United Kingdom resident company or companies referred to in paragraph 4(2) above.
Exchange gains and losses
13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transfer pricing
20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SCHEDULE 25 Cases where section 747(3) does not apply
Section 748.
PART I ACCEPTABLE DISTRIBUTION POLICY
1 The provisions of this Part of this Schedule have effect for the purposes of paragraph (a) of subsection (1) of section 748 and the other provisions of Chapter IV of Part XVII which refer to a company pursuing an acceptable distribution policy.
2 (1) Subject to paragraph 2A below, a controlled foreign company pursues an acceptable distribution policy in respect of a particular accounting period if, and only if—
(a) a dividend which is not paid out of specified profits is paid for that accounting period . . . ; and
(b) the dividend is paid during, or not more than eighteen months after the expiry of, that period or at such later time as the Board may, in any particular case, allow; and
(c) the dividend is paid at a time when the company is not resident in the United Kingdom (whether or not it is at that time a controlled foreign company); and
(d) the amount of the dividend or, if there is more than one, of the aggregate of those dividends which is paid to persons resident in the United Kingdom is not less than90 per cent. of the company’s net chargeable profits for the accounting period referred to in paragraph (a) above or, where sub-paragraph (4) or (5) below applies, of the appropriate portion of those profits;
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1A) A payment of dividend to a company shall not fall within sub-paragraph (1)(d) above unless it is taken into account in computing the company’s income for corporation tax and—
(a) it is chargeable neither under Chapter 2 of Part 3 of CTA 2009 as profits of a trade carried on wholly or partly in the United Kingdom nor under section 436A (gross roll-up business: separate charge on profits); or
(b) if it is chargeable under Chapter 2 of Part 3 of CTA 2009 as profits of a trade carried on wholly or partly in the United Kingdom, or under section 436A, it is not involved in a UK tax avoidance scheme;
and paragraph 2B below has effect for the purposes of paragraph (b) above.
(1B) A dividend paid by a company shall not fall within sub-paragraph (1)(d) above if, and to the extent that, the profits which are the relevant profits in relation to the dividend derive from dividends or other distributions paid to the company at any time which are dividends or other distributions—
(a) to which section 1285 of CTA 2009 applied; or
(b) to which that section would have applied if the company had been resident in the United Kingdom at that time.
Subsections (3) and (4) of section 799 (double taxation relief: computation of underlying tax) apply for the purposes of this sub-paragraph as they apply for the purposes of subsection (1) of that section.
(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) For the purposes of this paragraph and paragraph 2A below, a dividend which is not paid for the period or periods the profits of which are, in relation to the dividend, the relevant profits for the purposes of section 799 shall be treated (subject to sub-paragraph (3A) below) as so paid.
(3A) For the purposes of this paragraph and paragraph 2A below—
(a) where a dividend is paid for a period which is not an accounting period but falls wholly within an accounting period, it shall be treated as paid for that accounting period, and
(b) where a dividend (“the actual dividend”) is paid for a period which falls within two or more accounting periods—
(i) it shall be treated as if it were a number of separate dividends each of which is paid for so much of the period as falls wholly within an accounting period, and
(ii) the necesssary apportionment of the amount of the actual dividend shall be made to determine the amount of the separate dividends.
(4) This sub-paragraph applies where—
(a) throughout the accounting period in question all the issued shares of the controlled foreign company are of a single class, and
(b) at the end of that accounting period some of those shares are held by persons resident outside the United Kingdom, and
(c) at no time during that accounting period does any person have an interest in the company other than an interest derived from the issued shares of the company;
and in a case where this sub-paragraph applies the appropriate portion for the purposes of sub-paragraph (1)(d) above is the fraction of which the denominator is the total number of the issued shares of the company at the end of the accounting period in question and, subject to sub-paragraph (8) below, the numerator is the number of those issued shares by virtue of which persons resident in the United Kingdom have interests in the company at that time.
(5) This sub-paragraph applies where—
(a) throughout the accounting period in question there are only two classes of issued shares of the controlled foreign company and, of those classes, one (“non-voting shares”) consists of non-voting fixed-rate preference shares and the other (“voting shares”) consists of shares which carry the right to vote in all circumstances at general meetings of the company; and
(b) at the end of that accounting period some of the issued shares of the company are held by persons resident outside the United Kingdom; and
(c) at no time during that accounting period does any person have an interest in the company other than an interest derived from non-voting or voting shares;
and in a case where this sub-paragraph applies the appropriate portion of the profits referred to in sub-paragraph (1)(d) above is the amount determined in accordance with sub-paragraph (6) below.
(6) The amount referred to in sub-paragraph (5) above is that given by the formula—
Py
Q
R
+
(
X
-
P
)
y
Y
Z
where—
P is the amount of any dividend falling within (a) and (b) of sub-paragraph (1) above which is paid in respect of the non-voting shares or, if there is more than one such dividend, of the aggregate of them;
Q is, subject to sub-paragraph (8) below, the number of the non-voting shares by virtue of which persons resident in the United Kingdom have interests in the company at the end of the accounting period in question;
R is the total number at that time of the issued non-voting shares;
X is the net chargeable profits for the accounting period in question;
Y is, subject to sub-paragraph (8) below, the number of voting shares by virtue of which persons resident in the United Kingdom have interests in the company at the end of that accounting period; and
Z is the total number at that time of the issued voting shares.
(7) For the purposes of sub-paragraph (5)(a) above, non-voting fixed-rate preference shares are shares—
(a) which are fixed-rate preference shares as defined in paragraph 1 of Schedule 18; and
(b) which either carry no right to vote at a general meeting of the company or carry such a right which is contingent upon the non-payment of a dividend on the shares and which has not in fact become exercisable at any time prior to the payment of a dividend for the accounting period in question.
(8) In any case where the immediate interests held by persons resident in the United Kingdom who have indirect interests in a controlled foreign company at the end of a particular accounting period do not reflect the proportion of the shares or, as the case may be, shares of a particular class in the company by virtue of which they have those interests (as in the case where they hold, directly or indirectly, part of the shares in a company which itself holds, directly or indirectly, some or all of the shares in the controlled foreign company) the number of those shares shall be treated as reduced for the purposes of sub-paragraph (4) or (6) above, as the case may be, to such number as may be appropriate having regard to—
(a) the immediate interests held by the persons resident in the United Kingdom; and
(b) any intermediate shareholdings between those interests and the shares in the controlled foreign company.
(9) The definition of “profits” in section 747(6)(b) does not apply to any reference in this paragraph to specified profits or to relevant profits for the purposes of section 799.
2A (1) Paragraph 2 above shall have effect in accordance with this paragraph to determine whether a controlled foreign company . . . pursues an acceptable distribution policy in respect of a particular accounting period (“the relevant accounting period”).
(2) Subject to sub-paragraphs (4) and (4A) below, where the distribution condition is satisfied in relation to the relevant accounting period, then, in addition to any dividend which falls within paragraph 2(1)(a) above apart from this paragraph—
(a) any dividend which is paid for the accounting period (“the preceding period”) immediately preceding the relevant accounting period and which is not an excluded dividend shall be treated as falling within that paragraph, and
(b) if the distribution condition is satisfied in relation to the preceding period, any dividend which is paid for the accounting period immediately preceding the preceding period and which is not an excluded dividend shall be treated as falling within that paragraph,
and so on; and in this sub-paragraph “dividend” means a dividend not paid out of specified profits.
(3) For the purposes of this paragraph, the distribution condition is satisfied in relation to any accounting period if—
(a) a dividend or dividends are paid for the period to persons resident in the United Kingdom,
(b) the amount or, as the case may be, aggregate amount of any dividends falling within paragraph (a) above is not less than—
(i) the relevant profits for that period, or
(ii) where paragraph 2(4) or (5) above applies (with the modifications of paragraph 2 made by sub-paragraph (5) below), the appropriate portion of those profits, and
(c) any dividends falling within that paragraph are paid not later than the time by which any dividend paid for the relevant accounting period is required by paragraph 2(1)(b) above to be paid;
or if there are no relevant profits for the period.
(4) Where, by reason only of the fact that a company pursued an acceptable distribution policy in respect of any accounting period (“the earlier period”) earlier than the relevant accounting period, no apportionment under section 747(3) fell to be made in respect of the earlier period, sub-paragraph (2) above shall apply to any dividend required to be taken into account for the purpose of showing that the company pursued an acceptable distribution policy in respect of the earlier period only to the extent (if any) to which that dividend was not required to be taken into account for that purpose.
(4A) Sub-paragraph (2) does not apply where the distribution condition is satisfied in relation to the relevant accounting period, but—
(a) the relevant profits for that period do not include income within sub-paragraph (4B), and
(b) if that income were included, the distribution condition would not be satisfied in relation to that period.
(4B) The income within this sub-paragraph is—
(a) any income which accrues during the relevant accounting period to the trustees of a settlement in relation to which the company is a settlor or a beneficiary, and
(b) any income which accrues during that period to a partnership of which the company is a partner, apportioned between the company and the other partners on a just and reasonable basis.
(4C) Where there is more than one settlor or beneficiary in relation to the settlement mentioned in sub-paragraph (4B)(a), the income is to be apportioned between the company and the other settlors or beneficiaries on a just and reasonable basis.
(4D) In sub-paragraph (4B)(b) “partnership” includes an entity established under the law of a country or territory outside the United Kingdom of a similar character to a partnership; and “partner” is to be read accordingly.
(5) The modifications of paragraph 2 above referred to in sub-paragraph (3)(b) above are that—
(a) the references in sub-paragraphs (4) and (5) to the accounting period in question are to be read as references to the accounting period for which the dividend or dividends are paid,
(b) the references in those sub-paragraphs to sub-paragraph (1)(d) are to be read as references to sub-paragraph (3)(b) above, and
(c) the reference in the definition of “X” in sub-paragraph (6) to net chargeable profits is to be read as a reference to relevant profits.
(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(8) For the purposes of this paragraph—
(aa) a dividend is an excluded dividend if it is paid, in whole or in part, out of the total profits from which (in accordance with section 747(6)(a)) the chargeable profits for an excluded period are derived,
(a) a period is an excluded period if it is an accounting period in respect of which an apportionment under section 747(3) falls to be made, and
(b) relevant profits for any accounting period are the profits which would be the relevant profits of that period for the purposes of section 799 if a dividend were actually paid for that period.
2B (1) This paragraph has effect for the purposes of paragraph 2(1A)(b) above.
(2) No payment of dividend by a controlled foreign company for an accounting period shall be regarded as involved in a UK tax avoidance scheme by reason only that there is no charge to tax under section 747(4)(a) if the controlled foreign company pursues an acceptable distribution policy for that accounting period.
(3) “UK tax avoidance scheme” means a scheme or arrangement the purpose, or one of the main purposes, of which is to achieve a reduction in United Kingdom tax.
(4) A scheme or arrangement achieves a reduction in United Kingdom tax if, apart from the scheme or arrangement, any company—
(a) would have been liable for any such tax or for a greater amount of any such tax; or
(b) would not have been entitled to a relief from or repayment of any such tax or would have been entitled to a smaller relief from or repayment of any such tax.
(5) In this paragraph—
“arrangement” means an arrangement of any kind, whether in writing or not;
“United Kingdom tax” means corporation tax or any tax chargeable as if it were corporation tax.
3 (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4A) Subject to sub-paragraph (5) below, for the purposes of this Part of this Schedule, the net chargeable profits of a controlled foreign company for any accounting period are—
(a) its chargeable profits for that period, less
(b) the amount (if any) which, if an apportionment under section 747(3) fell to be made in respect of the period, would be the company’s unrestricted creditable tax for that period;
and for the purposes of this sub-paragraph “unrestricted creditable tax” in relation to a company’s accounting period means the amount which would be its creditable tax for that period if the reference in section 751(6)(a) to Part XVIII did not include section 797.
(5) In any case where—
(a) a controlled foreign company pays a dividend for any period out of specified profits, and
(b) those profits represent dividends received by the company, directly or indirectly, from another controlled foreign company,
so much of those specified profits as is equal to the dividend referred to in paragraph (a) above shall be left out of account in determining, for the purposes of this Part of this Schedule,. . . the chargeable profits of the controlled foreign company referred to in that paragraph for any accounting period.
4 (1) For the purposes of this Part of this Schedule, where—
(a) a controlled foreign company pays a dividend (“the initial dividend”) to another company which is also not resident in the United Kingdom, and
(b) that other company or another company which is related to it pays a dividend (“the subsequent dividend”) to a United Kingdom resident, and
(c) the subsequent dividend is paid at a time when the company paying it is not resident in the United Kingdom; and
(d) the subsequent dividend is paid out of profits which are derived, directly or indirectly, from the whole or part of the initial dividend,
so much of the initial dividend as is represented by the subsequent dividend shall be regarded as paid to the United Kingdom resident and shall be taken to satisfy the conditions in paragraph 2(1A) above.
(1A) A payment to a company shall not be a subsequent dividend within the meaning of sub-paragraph (1)(b) above unless it is taken into account in computing the company’s income for corporation tax and—
(a) it is chargeable neither under Chapter 2 of Part 3 of CTA 2009 as profits of a trade carried on wholly or partly in the United Kingdom nor under section 436A (gross roll-up business: separate charge on profits); or
(b) if it is chargeable under Chapter 2 of Part 3 of CTA 2009 as profits of a trade carried on wholly or partly in the United Kingdom, or under section 436A, it is not involved in a UK tax avoidance scheme;
and paragraph 4A below has effect for the purposes of paragraph (b) above.
(2) For the purposes of this paragraph, one company is related to another if neither is resident in the United Kingdom and the other—
(a) controls directly or indirectly, or
(b) is a subsidiary of a company which controls directly or indirectly,
at least 10 per cent. of the voting power in the first-mentioned company; and where one company is so related to another and that other is so related to a third company, the first company is for the purposes of this paragraph related to the third, and so on where there is a chain of companies, each of which is related to the next.
4A (1) This paragraph has effect for the purposes of paragraph 4(1A)(b) above.
(2) No payment to a company resident in the United Kingdom which represents the whole or part of a dividend paid by a controlled foreign company for an accounting period shall be regarded as involved in a UK tax avoidance scheme by reason only that—
(a) there is no charge to tax under section 747(4)(a) if the controlled foreign company pursues an acceptable distribution policy for that accounting period, and
(b) so much of the dividend as is represented by that payment will (if paragraph 4(1) above has effect) fall to be brought into account in determining whether the controlled foreign company has done so.
(3) “UK tax avoidance scheme” means a scheme or arrangement the purpose, or one of the main purposes, of which is to achieve a reduction in United Kingdom tax.
(4) A scheme or arrangement achieves a reduction in United Kingdom tax if, apart from the scheme or arrangement, any company—
(a) would have been liable for any such tax or for a greater amount of any such tax; or
(b) would not have been entitled to a relief from or repayment of any such tax or would have been entitled to a smaller relief from or repayment of any such tax.
(5) In this paragraph—
“arrangement” means an arrangement of any kind, whether in writing or not;
“United Kingdom tax” means corporation tax or any tax chargeable as if it were corporation tax.
PART II EXEMPT ACTIVITIES
5 (1) The provisions of this Part of this Schedule have effect for the purposes of paragraph (b) of subsection (1) of section 748.
(1A) Except as provided in paragraph 8 below, the provisions of this Part of this Schedule apply in relation to a company which is resident in an EEA territory in the same way as they apply in relation to a company which is resident elsewhere.
(2) In the case of a controlled foreign company—
(a) which is, by virtue of section 749(5), presumed to be resident in a territory in which it is subject to a lower level of taxation, and
(b) the business affairs of which are, throughout the accounting period in question, effectively managed in a territory outside the United Kingdom other than one in which companies are liable to tax by reason of domicile, residence or place of management,
references in the following provisions of this Part of this Schedule to the territory in which that company is resident shall be construed as references to the territory falling within paragraph (b) above, or, if there is more than one, to that one of them which may be notified to the Board by the United Kingdom resident company or companies referred to in paragraph 4(2) of Schedule 24.
(3) In the case of a controlled foreign company—
(a) which is, by virtue of section 749(5), presumed to be resident in a territory in which it is subject to a lower level of taxation,
(b) the business affairs of which are, throughout the accounting period in question, effectively managed in a special administrative region, and
(c) which is liable to tax for that period in that region,
references in the following provisions of this Part of this Schedule to the territory in which that company is resident shall be construed as references to that region.
(4) In sub-paragraph (3) above “special administrative region” means the Hong Kong or the Macao Special Administrative Region of the People’s Republic of China.
(5) Where sub-paragraph (3) above applies, it applies in place of sub-paragraph (2).
6 (1) Throughout an accounting period a controlled foreign company is engaged in exempt activities if, and only if, each of the following conditions is fulfilled—
(a) that, throughout that accounting period, the company has a business establishment in the territory in which it is resident; and
(b) that, throughout that accounting period, its business affairs in that territory are effectively managed there; and
(c) that any of sub-paragraphs (2) or (3) below applies to the company.
(2) This sub-paragraph applies to a company if—
(a) at no time during the accounting period in question does the main business of the company consist of either—
(i) investment business, or
(ii) dealing in goods for delivery to or from the United Kingdom or to or from connected or associated persons; and
(b) in the case of a company which is mainly engaged in wholesale, distributive financial or service business in that accounting period, less than 50 per cent. of its gross trading receipts from that business is derived directly or indirectly from persons falling within sub-paragraph (2A) below.
(2A) Those persons are—
(a) persons who are connected or associated with the company;
(b) persons who have a 25 per cent assessable interest in the company in the case of the accounting period in question; . . .
(c) if the company is a controlled foreign company in that accounting period by virtue of subsection (1A) of section 747, persons who are connected or associated with either or both of the two persons mentioned in that subsection ;
(d) persons not falling within paragraphs (a) to (c) above which are companies resident in the United Kingdom;
(e) persons not falling within paragraphs (a) to (c) above which are companies not resident in the United Kingdom which carry on business through a permanent establishment in the United Kingdom;
(f) persons not falling within paragraphs (a) to (c) above who are individuals habitually resident in the United Kingdom;
but where the company is a controlled foreign company falling within sub-paragraph (2B) below, paragraphs (d) to (f) above shall be disregarded.
(2B) A controlled foreign company falls within this sub-paragraph if either—
(a) its main business is the effecting or carrying out of contracts of long-term insurance, other than protection business; or
(b) it is a member of an insurance group and its main business is insuring or reinsuring large risks.
Paragraph 11A below has effect for the interpretation of this sub-paragraph.
(2C) For the purposes of sub-paragraph (2)(b) above, a company’s gross trading receipts from a business shall be regarded as directly or indirectly derived from a person falling within sub-paragraph (2A)(e) above only to the extent that they are derived directly or indirectly from contracts or other arrangements relating to that person’s permanent establishment in the United Kingdom.
(3) This sub-paragraph applies to a company which is a holding company if at least 90 per cent. of its gross income during the accounting period in question is received by it in the territory in which it is resident and is derived directly from companies which it controls and which, throughout that period—
(a) are resident in the territory in which the holding company is resident; and
(b) are not themselves holding companies . . . , but otherwise are, in terms of this Schedule, engaged in exempt activities or are, in terms of sub-paragraph (5A) below, exempt trading companies ;
and a holding company to which this sub-paragraph applies is in this Part of this Schedule referred to as a “local holding company”.
(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4ZA) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4AA) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4B) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4BB) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4C) For the purposes of sub-paragraph (2A)(b) above, a person has a 25 per cent. assessable interest in a controlled foreign company in the case of an accounting period of the company if, on an apportionment of the chargeable profits and creditable tax (if any) of the company for that accounting period under section 747(3), at least 25 per cent. of the controlled foreign company’s chargeable profits for the accounting period would be apportioned to that person.
(5) Any reference in sub-paragraph (3) above to a company which a holding company . . . controls includes a reference to a trading company to which sub-paragraph (5ZA) or (5ZB) below applies.
(5ZA) This sub-paragraph applies to a trading company in which the holding company . . . holds the maximum amount of ordinary share capital which is permitted under the law of the territory—
(a) in which the trading company is resident; and
(b) from whose laws the trading company derives its status as a company.
(5ZB) This sub-paragraph applies to a trading company if—
(a) it is a controlled foreign company by virtue of subsection (1A) of section 747; and
(b) the person who satisfies the requirement in paragraph (b) of that subsection in relation to the company also controls the holding company . . . .
(5A) For the purposes of sub-paragraph (3) above, a company is an exempt trading company throughout any period if—
(a) it is a trading company throughout each of its accounting periods which falls wholly or partly within that period; and
(b) each of those accounting periods is one as regards which—
(i) the condition in section 747(1)(c) is not satisfied; or
(ii) the conditions in section 748(1)(e) are satisfied; or
(iii) the conditions in section 748(3)(a) and (b) are satisfied.
(5B) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5C) For the purposes of this paragraph, the gross income of a holding company . . . during an accounting period includes—
(a) any income which accrues during that period to the trustees of a settlement in relation to which the company is a settlor or a beneficiary, and
(b) any income which accrues during that period to a partnership of which the company is a partner, apportioned between the company and the other partners on a just and reasonable basis.
(5D) Where there is more than one settlor or beneficiary in relation to the settlement mentioned in sub-paragraph (5C)(a), the income is to be apportioned between the company and the other settlors or beneficiaries on a just and reasonable basis.
(5E) In sub-paragraph (5C)(b) “partnership” includes an entity established under the law of a country or territory outside the United Kingdom of a similar character to a partnership; and “partner” is to be read accordingly.
(6) The following provisions of this Part of this Schedule have effect in relation to this paragraph.
7 (1) For the purposes of paragraph 6(1)(a) above, a “business establishment”, in relation to a controlled foreign company, means premises—
(a) which are, or are intended to be, occupied and used with a reasonable degree of permanence; and
(b) from which the company’s business in the territory in which it is resident is wholly or mainly carried on.
(2) For the purposes of sub-paragraph (1) above the following shall be regarded as premises—
(a) an office, shop, factory or other building or part of a building; or
(b) a mine, an oil or gas well, a quarry or any other place of extraction of natural resources; or
(c) a building site or the site of a construction or installation project;
but such a site as is referred to in paragraph (c) above shall not be regarded as premises unless the building work or the project, as the case may be, has a duration of at least twelve months.
8 (1) Subject to sub-paragraph (4) below, the condition in paragraph 6(1)(b) above shall not be regarded as fulfilled in relation to a company which is not resident in an EEA territory unless—
(a) the number of persons employed by the company in the territory in which it is resident is adequate to deal with the volume of the company’s business; and
(b) any services provided by the company for persons resident outside that territory are not in fact performed in the United Kingdom.
(2) For the purposes of sub-paragraph (1)(a) above, persons who are engaged wholly or mainly in the business of the company and whose remuneration is paid by a person connected with, and resident in the same territory as, the company shall be treated as employed by the company.
(3) In the case of a holding company . . . , sub-paragraph (2) above shall apply with the omission of the words “wholly or mainly”.
(4) For the purposes of sub-paragraph (1)(b) above, no account shall be taken of services—
(a) provided through a permanent establishment of the controlled foreign company if the profits or gains of the business carried on through the permanent establishment are within the charge to tax in the United Kingdom; or
(b) provided through any other person whose profits or gains from the provision of the services are within the charge to tax in the United Kingdom and who provides the services for a consideration which is, or which is not dissimilar from what might reasonably be expected to be, determined under a contract entered into at arm’s length; or
(c) which are no more than incidental to services provided outside the United Kingdom.
(5) The condition in paragraph 6(1)(b) above shall not be regarded as fulfilled in relation to a company which is resident in an EEA territory unless there are sufficient individuals working for the company in the territory who have the competence and authority to undertake all, or substantially all, of the company's business.
(6) For the purposes of sub-paragraph (5) above, individuals are not to be regarded as working for a company in any territory unless—
(a) they are employed by the company in the territory, or
(b) they are otherwise directed by the company to perform duties on its behalf in the territory.
9 (1) Subject to sub-paragraph (3) below, for the purposes of paragraph 6(2)(a)(i) above, each of the following activities constitutes investment business—
(a) the holding of securities, or intellectual property;
(b) dealing in securities, other than in the capacity of a broker;
(c) the leasing of any description of property or rights; and
(d) the investment in any manner of funds which would otherwise be available, directly or indirectly, for investment by or on behalf of any person (whether resident in the United Kingdom or not) who has, or is connected or associated with a person who has, control, either alone or together with other persons, of the controlled foreign company in question.
(1A) In sub-paragraph (1)(a) above “intellectual property” includes (in particular)—
(a) any industrial, commercial or scientific information, knowledge or expertise;
(b) any patent, trade mark, registered design, copyright or design right;
(c) any licence or other right in respect of intellectual property;
(d) any rights under the law of a country outside the United Kingdom which correspond or are similar to those falling within paragraph (b) or (c) above.
(2) In sub-paragraph (1)(b) above “broker” includes any person offering to sell securities to, or purchase securities from, members of the public generally.
(3) For the purposes of paragraph 6(2) above, in the case of a company which is mainly engaged in business falling within paragraph 11(1)(c) below, nothing in sub-paragraph (1) above shall require the main business of the company to be regarded as investment business.
10 Goods which are actually delivered into the territory in which the controlled foreign company is resident shall not be taken into account for the purposes of paragraph 6(2)(a)(ii) above.
11 (1) For the purposes of paragraph 6(2)(b) above, each of the following activities constitutes wholesale, distributive financial or service business—
(a) dealing in any description of goods wholesale rather than retail;
(b) the business of shipping or air transport, that is to say, the business carried on by an owner of ships or the business carried on by an owner of aircraft (“owner” including, for this purpose, any charterer);
(c) banking, deposit-taking, money-lending or debt-factoring, or any business similar to banking, deposit-taking, money-lending or debt-factoring;
(d) the administration of trusts;
(e) dealing in securities in the capacity of a broker, as defined in paragraph 9(2) above;
(f) dealing in commodity or financial futures;. . .
(g) the effecting or carrying out of contracts of insurance; and
(h) the provision of services not falling within any of the preceding paragraphs.
(1A) For the purposes of sub-paragraph (1)(g) above “contract of insurance” has the meaning given by Article 3(1) of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001.
(2) In a case where the gross trading receipts of a company include an amount in respect of the proceeds of sale of any description of property or rights, the cost to the company of the purchase of that property or those rights shall be a deduction in calculating the company’s gross trading receipts for the purposes of paragraph 6(2)(b) above.
(3) In the case of a controlled foreign company engaged in a business falling within sub-paragraph (1)(c) above—
(a) no payment of interest received from a company resident in the United Kingdom which is connected or associated with the controlled foreign company shall be regarded for the purposes of paragraph 6(2)(b) above as a receipt derived directly or indirectly from a person falling within paragraph 6(2A) above, but
(b) it shall be conclusively presumed that the condition in paragraph 6(2)(b) above is not fulfilled if, at any time during the accounting period in question, the amount by which the aggregate value of the capital interests in the company held directly or indirectly by—
(i) the persons who have control of the company, and
(ii) any person connected or associated with those persons,
exceeds the value of the company’s fixed assets is 15 per cent. or more of the amount by which the company’s outstanding capital exceeds that value , and
(c) it shall also be conclusively presumed that the condition in paragraph 6(2)(b) is not fulfilled if 10% or more of the company’s gross trading receipts from all businesses carried on by it in the accounting period in question, taken together, are receipts other than interest and are directly or indirectly derived from persons—
(i) which are companies resident in the United Kingdom,
(ii) which are companies not resident in the United Kingdom but which carry on business through a permanent establishment in the United Kingdom, or
(iii) who are individuals habitually resident in the United Kingdom,
but for this purpose a company’s gross trading receipts shall be regarded as directly or indirectly derived from a person falling within sub-paragraph (ii) above only to the extent that they are derived directly or indirectly from contracts or other arrangements relating to that person’s permanent establishment in the United Kingdom.
(4) For the purposes of this paragraph, in relation to a controlled foreign company—
(a) “capital interest” means an interest in the issued share capital or reserves of the company or in a loan to or deposit with the company or the liability of a guarantor under a guarantee given to or for the benefit of the company;
(b) except in the case of the liability of a guarantor, the value of a capital interest is its value as shown in the company’s accounts;
(c) in the case of the liability of a guarantor, the value shall be taken to be the market value of the benefit which the controlled foreign company derives from the provision of the guarantee;
(d) the value of the company’s fixed assets means the value, as shown in the company’s accounts, of the plant, premises and trade investments employed in the company’s business; and
(e) “outstanding capital” means the total value of all the capital interests in the company, less the value, as shown in the company’s accounts, of any advances made by the company to persons resident outside the United Kingdom and falling within paragraph (i) or paragraph (ii) of sub-paragraph (3)(b) above.
(5) For the purposes of sub-paragraph (4) above—
(a) “trade investments”, in relation to a controlled foreign company, means securities any profit on the sale of which would not be brought into account as a trading receipt in computing the chargeable profits of an accounting period in which that profit arose; and
(b) the reference in paragraph (e) to advances made to a person by the controlled foreign company includes, in the case of a company which is a person resident outside the United Kingdom and falling within paragraph (i) or paragraph (ii) of sub-paragraph (3)(b) above, any securities of that company which are held by the controlled foreign company but are not trade investments, as defined in paragraph (a) above;
and in this sub-paragraph “securities” includes stocks and shares.
(6) In the application of paragraph 6(2)(b) above in the case of a controlled foreign company engaged in insurance business of any kind—
(a) the reference to gross trading receipts which are derived directly or indirectly from connected or associated persons is a reference to those which, subject to sub-paragraph (7) below, are attributable, directly or indirectly, to liabilities undertaken in relation to any of those persons or their property;
(b) the only receipts to be taken into account are commissions and premiums received under insurance contracts;
(c) so much of any such commission or premium as is returned is not to be taken into account; and
(d) when a liability under an insurance contract is reinsured, in whole or in part, the amount of the premium which is attributable, directly or indirectly, to that liability shall be treated as reduced by so much of the premium under the reinsurance contract as is attributable to that liability.
(7) In determining, in relation to a controlled foreign company to which sub-paragraph (6) above applies, the gross trading receipts referred to in paragraph (a) of that sub-paragraph, there shall be left out of account any receipts under a local reinsurance contract which are attributable to liabilities which—
(a) are undertaken under an insurance contract made in the territory in which the company is resident; and
(b) are not reinsured under any contract other than a local reinsurance contract; and
(c) relate either to persons who are resident in that territory and are neither connected nor associated with the company or to property which is situated there and belongs to persons who are not so connected or associated;
and in paragraph (a) above “insurance contract” does not include a reinsurance contract.
(8) In sub-paragraph (7) above “local reinsurance contract” means a reinsurance contract—
(a) which is made in the territory in which the controlled foreign company is resident; and
(b) the parties to which are companies which are resident in that territory.
(9) For the purposes of sub-paragraphs (7) and (8) above, any question as to the territory in which a company is resident shall be determined in accordance with section 749 and, where appropriate, paragraph 5(2) above; and, for the purpose of the application of those provisions in accordance with this sub-paragraph, the company shall be assumed to be a controlled foreign company.
11A (1) This paragraph has effect for the interpretation of paragraph 6(2B) above.
(2) “Contract of long-term insurance” means any contract falling within Part II of Schedule 1 to the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001.
(3) “Protection business” means contracts of long-term insurance where—
(a) either—
(i) the contract has no surrender value; or
(ii) the consideration consists of a single premium and the surrender value does not exceed the amount of that premium; and
(b) the contract makes no provision for its conversion or extension in a manner which would result in its ceasing to fall within paragraph (a) above;
and references to protection business include a reference to reinsurance of protection business.
(4) “Insurance group” shall be construed in accordance with section 1165(5) of the Companies Act 2006, but does not include such an insurance group if it falls within sub-paragraph (5) below.
(5) Such an insurance group falls within this sub-paragraph if . . . the parent company is a subsidiary undertaking of a parent company which is neither—
(a) the parent company of an insurance group; nor
(b) a subsidiary undertaking of the parent company of an insurance group.
(6) A controlled foreign company is, in accordance with sub-paragraphs (4) and (5) above, a “member of an insurance group” if (within the meaning of that Part as so read) it is the parent company, or a subsidiary undertaking of the parent company, of an insurance group which is by virtue of sub-paragraph (4) above an insurance group for the purposes of paragraph 6(2B) above.
(7) A company’s main business is “insuring or reinsuring large risks” if (and only if)—
(a) the company’s main business is the effecting or carrying out of contracts of insurance; and
(b) 50% or more of its gross trading receipts from that business are derived from insuring or reinsuring large risks.
“Large risks” is defined in paragraph 11B below.
(8) In this paragraph—
“contract of insurance” has the meaning given by article 3(1) of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001;
“contract of long-term insurance” has the meaning given by sub-paragraph (2) above.
11B (1) In paragraph 11A above “large risks” means—
(a) risks falling within classes 4, 5, 6, 7, 11 and 12 of Part I of Schedule 1 to the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001;
(b) risks falling within classes 14 and 15 of that Part which relate to a business carried on by the policy holder;
(c) risks falling within classes 3, 8, 9, 10, 13 and 16 of that Part where the policy holder carries on a business in respect of which the condition specified in sub-paragraph (2) below is satisfied.
(2) The condition referred to in sub-paragraph (1)(c) above is that, in the case of that business of the policy holder, at least two of the three following criteria were exceeded in the most recent financial year beginning on or after 1st January 1999 for which the information is available—
(a) balance sheet total: 6.2 million euros;
(b) net turnover: 12.8 million euros;
(c) number of employees: 250.
(3) For the purposes of sub-paragraph (2) above as it applies where the policy holder is a company, within the meaning of section 1 of the Companies Act 2006. . . ,—
(a) “balance sheet total” has the meaning given by sections 382(5) and 465(5) of the Companies Act 2006;
(b) “net turnover” has the meaning given to “turnover” by section 474(1) of that Act; and
(c) “number of employees” has the meaning given by sections 382(6) and 465(6) of that Act;
and for a financial year which is a company’s financial year but not in fact a year, the net turnover of the company shall be proportionately reduced.
(4) Where the policy holder is a member of a group for which consolidated accounts (within the meaning of Directive 83/349/EEC) are drawn up, the question whether the condition in sub-paragraph (2) above is met shall be determined by reference to those accounts.
(5) For the purposes of sub-paragraph (1)(c) above as it applies where the policy holder is a professional association, joint venture or temporary grouping, the question whether the condition in sub-paragraph (2) above is met shall be determined by reference to the aggregate of the figures of the description in question for all the members of the professional association, joint venture or temporary grouping.
(6) In sub-paragraphs (1) to (5) above “business” includes a trade or profession and, for the purposes of sub-paragraph (1)(c) above, any activity of a professional association, joint venture or temporary grouping.
(7) For the purposes of this paragraph, where an amount is denominated in any accounts in a currency other than the euro, it shall be converted into its equivalent in euros using the London closing exchange rate for that currency and the euro for the last day of the period to which the accounts relate.
(8) In this paragraph—
“euro” means the single currency adopted or proposed to be adopted as its currency by a member State in accordance with the Treaty establishing the European Community;
“financial year”, in relation to any person, means the period (not exceeding 12 months) for which that person makes up accounts.
12 (1) Subject to sub-paragraph (2) below, in paragraphs 6 and 8(3) above and in sub-paragraphs (4) and (5) below “holding company” means—
(a) a company the business of which consists wholly or mainly in the holding of shares or securities of companies which are either local holding companies and its 90 per cent. subsidiaries or trading companies and either its 51 per cent. subsidiaries or companies falling within paragraph 6(5) above; or
(b) a company which would fall within paragraph (a) above if there were disregarded so much of its business as consists in the holding of property or rights of any description for use wholly or mainly by companies which it controls and which are resident in the territory in which it is resident.
(2) In determining whether a company is a holding company for the purposes of paragraph 6(3) above (and, accordingly, whether the company is or may be a local holding company), sub-paragraph (1) above shall have effect with the omission from paragraph (a) thereof of the words “either local holding companies and its 90 per cent. subsidiaries or”.
(3) In its application for the purposes of this paragraph, section 1154 of CTA 2010 has effect with the omission of the following—
(a) in subsection (2), the words “or indirectly”, and
(b) subsection (5).
(4) For the purposes of sub-paragraph (3) . . . of paragraph 6 above, as it applies in relation to a holding company part of whose business consists of activities other than the holding of shares or securities or the holding of property or rights as mentioned in paragraph (a) or (b) of sub-paragraph (1) above, the company’s gross income during any accounting period shall be determined as follows—
(a) there shall be left out of account so much of what would otherwise be the company’s gross income as is derived from any activity which, if it were the business in which the company is mainly engaged, would be such that paragraph 6(2) above would apply to the company; and
(b) to the extent that the receipts of the company from any other activity include receipts from the proceeds of sale of any description of property or rights, the cost to the company of the purchase of that property or those rights shall (to the extent that the cost does not exceed the receipts) be a deduction in calculating the company’s gross income, and no other deduction shall be made in respect of that activity.
(5) For the purposes of sub-paragraph (3) of paragraph 6 above, so much of the income of a holding company as—
(a) is derived directly from another company which it controls and which is not a holding company . . . but otherwise is, in terms of this Schedule, engaged in exempt activities or, in terms of sub-paragraph (5A) of that paragraph, is an exempt trading company, and
(b) was or could have been paid out of any non-trading income of that other company which is derived directly or indirectly from a third company connected or associated with it,
shall be treated, in relation to the holding company, as if it were not derived directly from companies which it controls.
(6) The reference in sub-paragraph (5) above to the non-trading income of a company is a reference to so much of its income as, if the company were carrying on its trade in the United Kingdom, would not be within the charge to corporation tax under section 35 of CTA 2009.
12A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Part 2A Trading Companies with Limited UK Connection
Introductory
12B (1) For the purposes of section 748(1)(ba), a controlled foreign company (“C”) is exempt for an accounting period if the requirements of this Part of this Schedule are satisfied.
(2) The requirements are those imposed as to C's—
(a) business establishment (see paragraph 12C),
(b) business activities (see paragraph 12D),
(c) UK connection (see paragraph 12E), and
(d) finance income and relevant IP income (see paragraph 12F).
Business establishment
12C (1) The requirement of this paragraph is that throughout the accounting period C has a business establishment in the territory in which it is resident.
(2) For the purposes of sub-paragraph (1)—
(a) paragraph 5(2) to (5) (special rules about residence of the company) applies as it applies for the purposes of Part 2 of this Schedule, and
(b) paragraph 7 (meaning of “business establishment”) applies as it applies for the purposes of paragraph 6(1)(a).
Business activities
12D (1) The requirement of this paragraph is that—
(a) C's business does not, at any time during the accounting period, include to a substantial extent non-exempt activities, or
(b) if C is wholly engaged in business falling within paragraph 11(1)(c) (banking etc), C's business does not, at any time during the accounting period, include to a substantial extent non-exempt activities which do not constitute investment business.
(2) For this purpose—
“non-exempt activities” means—
the holding or managing of shares or securities,
the holding of intellectual property,
dealing in securities, other than in the capacity of a broker,
the leasing of any description of property or rights,
the investment in any manner of funds which would otherwise be available, directly or indirectly, for investment by or on behalf of any person (whether resident in the United Kingdom or not) who has, or is connected or associated with a person who has, control, either alone or together with other persons, of C, and
if C is not a member of an insurance group throughout the accounting period, the effecting or carrying out of contracts of insurance between C and persons related to C;
“investment business” means activities within paragraphs (a) to (d) of paragraph 9(1).
(3) For the purposes of sub-paragraph (2)(f), a person is “related” to C if—
(a) the person is connected or associated with C,
(b) the person has a 25 per cent assessable interest in C in the case of the accounting period in question (within the meaning of paragraph 6(4C)), or
(c) if C is a controlled foreign company in that accounting period by virtue of subsection (1A) of section 747, the person is connected or associated with either or both of the two persons mentioned in that subsection.
(4) In sub-paragraph (2)—
“broker” includes any person offering to sell securities to, or purchase securities from, members of the public generally;
“contract of insurance” has the meaning given by Article 3(1) of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001;
“insurance group” has the meaning given by paragraph 11A(4);
“intellectual property” is to be construed in accordance with paragraph 9(1A);
“member of an insurance group” has the meaning given by paragraph 11A(6).
UK connection
12E (1) The requirement of this paragraph is that C does not have a significant connection with the United Kingdom during the accounting period.
(2) C has a significant connection with the United Kingdom during the accounting period if Condition A or B is met.
(3) Condition A is that—
(a) the UK-connected gross income of C's business for that period exceeds 10% of the gross income of that business for that period, and
(b) sub-paragraph (4) does not apply.
(4) This sub-paragraph applies if—
(a) at all times in the accounting period there are sufficient individuals working for C in the territory in which it is resident, or in any other territory outside of the United Kingdom, who have the competence and authority to undertake all, or substantially all, of C's business,
(b) C's relevant profits for the accounting period do not exceed 10% of C's relevant operating expenses for that period, and
(c) the UK-connected gross income of C's business for that period does not exceed 50% of the gross income of that business for that period.
(5) Condition B is that—
(a) the UK-connected related-party business expenditure of C's business for that period exceeds 50% of the total related-party business expenditure of C's business for that period, and
(b) during the accounting period C has been involved in a scheme where the main purpose, or one of the main purposes, of any party to the scheme in entering into the scheme is to achieve a reduction in corporation tax or any tax chargeable as if it were corporation tax.
(6) For the purposes of sub-paragraph (4)(a), individuals are not to be regarded as working for C in any territory unless—
(a) they are employed by C in the territory, or
(b) they are otherwise directed by C to perform duties on its behalf in the territory.
(7) In this paragraph—
“related-party business expenditure” means any expenditure, other than capital expenditure, which gives rise, directly or indirectly, to income of a person related to C;
“relevant profits”, for an accounting period, means the total profits of C for that period calculated in accordance with generally accepted accounting practice (disregarding any capital gains or losses), but before any deduction for interest or tax;
“relevant operating expenses” of C means operating expenses of C other than—
the cost of goods sold, and
related-party business expenditure;
“scheme” means any scheme, arrangements or understanding of any kind whatever, whether or not legally enforceable, involving one or more transactions;
“UK-connected gross income” means the gross income derived, directly or indirectly, from persons who are within the charge to United Kingdom tax for all or part of the accounting period;
“UK-connected related-party business expenditure” means related-party business expenditure which gives rise, directly or indirectly, to income of a person within the charge to United Kingdom tax in respect of that income;
“United Kingdom tax” means income tax or corporation tax;
and paragraph 12D(3) (persons “related” to C) applies for the purposes of this paragraph as it applies for the purposes of paragraph 12D(2)(f).
(8) In the case of a company which is within the charge to United Kingdom tax only because it carries on a trade in the United Kingdom through a permanent establishment there, for the purposes of sub-paragraph (7)—
(a) the gross income derived from that company is so much of the gross income as is attributable to that establishment, and
(b) the income received by that company is such of its income as is attributable to that establishment.
Finance income and relevant IP income
12F (1) The requirement of this paragraph is that not more than 5% of C's gross income for the accounting period falls within sub-paragraph (2).
(2) Gross income falls within this sub-paragraph to the extent that it is—
(a) finance income, or
(b) relevant IP income.
(3) “Finance income” means—
(a) any amount which in accordance with UK generally accepted accounting practice falls to be recognised as arising from a financial asset, and
(b) any return, in relation to an amount, which—
(i) is produced for C by an arrangement to which C is party, and
(ii) is economically equivalent to interest,
except to the extent that the return is taken into account in determining an amount within paragraph (a).
(4) “Relevant IP income” means royalties and receipts of a similar nature arising from intellectual property.
(5) For the purposes of sub-paragraph (3)(b), the amount of a return is the amount which by virtue of the return would, in calculating C's chargeable profits, be treated under section 486B of CTA 2009 (disguised interest to be regarded as profit from loan relationship) as a profit arising to C from a loan relationship.
(6) But, in calculating that profit for the purposes of sub-paragraph (5), sections 486B(7) and 486C to 486E of CTA 2009 are to be ignored.
(7) In this paragraph—
“economically equivalent to interest” is to be construed in accordance with section 486B(2) and (3) of CTA 2009;
“financial asset” means a financial asset as defined for the purposes of UK generally accepted accounting practice or international accounting standards;
“intellectual property” is to be construed in accordance with paragraph 9(1A).
Gross income
12G (1) References in this Part of this Schedule to C's gross income are to be construed in accordance with this paragraph.
(2) C's gross income for an accounting period does not include—
(a) any distribution that would not be included in C's chargeable profits by reason of it being exempt for the purposes of Part 9A of CTA 2009 (see section 931A of that Act), or
(b) any amount that would be taken into account in computing chargeable gains if C were within the charge to corporation tax.
(3) C's gross income for an accounting period includes—
(a) any income which accrues during that period to the trustees of a settlement in relation to which C is a settlor or a beneficiary, and
(b) any income which accrues during that period to a partnership of which C is a partner, apportioned between C and the other partners on a just and reasonable basis.
(4) Where there is more than one settlor or beneficiary in relation to the settlement mentioned in sub-paragraph (3)(a), the income is to be apportioned between C and the other settlors or beneficiaries on a just and reasonable basis.
(5) In this paragraph—
“distribution” has the same meaning as in the Corporation Tax Acts (see Part 23 of CTA 2010);
“partnership” includes an entity established under the law of a country or territory outside the United Kingdom of a similar character to a partnership; and “partner” is to be read accordingly.
Part 2B Companies Exploiting Intellectual Property with Limited UK Connection
Introductory
12H (1) For the purposes of section 748(1)(bb), a company (“C”) is exempt for an accounting period if the requirements of this Part of this Schedule are satisfied.
(2) The requirements are those imposed as to C's—
(a) business establishment (see paragraph 12I),
(b) intellectual property business (see paragraph 12J),
(c) other business activities (see paragraph 12K),
(d) UK connection (see paragraph 12L), and
(e) finance income (see paragraph 12M).
Business establishment
12I (1) The requirement of this paragraph is that throughout the accounting period C has a business establishment in the territory in which it is resident.
(2) For the purposes of sub-paragraph (1)—
(a) paragraph 5(2) to (5) (special rules about residence of the company) applies as it applies for the purposes of Part 2 of this Schedule, and
(b) paragraph 7 (meaning of “business establishment”) applies as it applies for the purposes of paragraph 6(1)(a).
Intellectual property business
12J (1) The requirement of this paragraph is that C's main business, throughout the accounting period, consists of the exploitation of intellectual property which does not have a relevant UK connection.
(2) For the purposes of sub-paragraph (1), if any part of C's main business consists of the exploitation of intellectual property which has a relevant UK connection, that part is to be ignored if it is an insignificant part of C's main business.
(3) Intellectual property has a relevant UK connection if—
(a) at any time during the accounting period or the 6 years immediately preceding that period, it has been held by a person resident in the United Kingdom, or
(b) activities relating to the creation, maintenance or enhancement of the intellectual property (other than activities of an incidental or insignificant nature) have been carried on by a person who for some or all of the period—
(i) beginning when the activities were first carried on by the person, and
(ii) ending at the end of the accounting period,
was related to C and within the charge to United Kingdom tax.
Other business activities
12K (1) The requirement of this paragraph is that—
(a) C does not, at any time during the accounting period, carry on any activities otherwise than in the course of its main business, or
(b) if it carries on any such activities (“secondary activities”), the secondary activities condition is met.
(2) The secondary activities condition is that either—
(a) the secondary activities do not, at any time during the accounting period, constitute a substantial part of the activities of C's business taken as a whole, or
(b) section 748(1)(b) or (ba) would apply to prevent an apportionment under section 747(3) falling to be made as regards that period, if C's business consisted only of the secondary activities carried on by it during the accounting period.
UK connection
12L (1) The requirement of this paragraph is that C does not have a significant connection with the United Kingdom during the accounting period.
(2) C has a significant connection with the United Kingdom during the accounting period if—
(a) all or a substantial proportion of C's gross income for that period consists of income from the exploitation of intellectual property which derives from persons within the charge to United Kingdom tax, or
(b) during that period C incurs expenditure (other than expenditure of an incidental or insignificant nature) on—
(i) R&D sub-contractor payments, or
(ii) the creation, development or maintenance of relevant intellectual property,
and that expenditure forms part of the income of a person who for some or all of that period is related to C and within the charge to United Kingdom tax.
(3) In this paragraph—
“R&D sub-contractor payment” means a payment made by C to another person in respect of research and development contracted out by C to that person;
“relevant intellectual property” means intellectual property which does not have a relevant UK connection (see paragraph 12J(3)) and which C exploits in the course of its main business.
Finance income
12M The requirement of this paragraph is that not more than 5% of C's gross income for the accounting period consists of finance income (within the meaning of paragraph 12F(3)).
Interpretation of Part 2B
12N (1) For the purpose of this Part of this Schedule—
“intellectual property” is to be construed in accordance with paragraph 9(1A);
“United Kingdom tax” means corporation tax or income tax;
and paragraph 12G (meaning of “gross income”) applies as it applies for the purposes of Part 2A of this Schedule.
(2) For the purposes of this Part of this Schedule a person is “related” to C at a particular time if at that time—
(a) the person is connected or associated with C,
(b) the person has a 25 per cent assessable interest in C in the case of the accounting period of C in which that time falls (within the meaning of paragraph 6(4C)), or
(c) if C is a controlled foreign company in the accounting period in which that time falls by virtue of subsection (1A) of section 747, the person is connected or associated with either or both of the two persons mentioned in that subsection.
(3) In the case of a company which is within the charge to United Kingdom tax only because it carries on a trade in the United Kingdom through a permanent establishment there—
(a) for the purposes of paragraph 12J(3)(b), the activities carried on by the company are such of the activities as are carried on through that establishment,
(b) for the purposes of paragraph 12L(2)(a), the income derived from that company is such of the income so derived as is attributable to that establishment, and
(c) for the purposes of paragraph 12L(2)(b), the income of that company is such of its income as is attributable to that establishment.
PART III THE PUBLIC QUOTATION CONDITION
13 (1) The provisions of this Part of this Schedule have effect for the purposes of section 748(1)(c).
(2) Subject to paragraph 14 below, a controlled foreign company fulfils the public quotation condition with respect to a particular accounting period if—
(a) shares in the company carrying not less than 35 per cent. of the voting power in the company (and not being shares entitled to a fixed rate of dividend, whether with or without a further right to participate in profits) have been allotted unconditionally to, or acquired unconditionally by, the public and, throughout that accounting period, are beneficially held by the public; and
(b) within the period of 12 months ending at the end of the accounting period, any such shares have been the subject of dealings on a recognised stock exchange situated in the territory in which the company is resident; and
(c) within that period of 12 months the shares have been listed in the official list of such a recognised stock exchange.
14 (1) The condition in paragraph 13(2) above is not fulfilled with respect to an accounting period of a controlled foreign company if at any time in that period the total percentage of the voting power in the company possessed by all of the company’s principal members exceeds 85 per cent.
(2) For the purposes of paragraph 13(2) above shares in a controlled foreign company shall be deemed to be beneficially held by the public if they are held by any person other than—
(a) a person connected or associated with the company; or
(b) a principal member of the company;
and a corresponding construction shall be given to the reference to shares which have been allotted unconditionally to, or acquired unconditionally by, the public.
15 (1) References in this Part of this Schedule to shares held by any person include references to any shares the rights or powers attached to which could, for the purposes of section 416, be attributed to that person under subsection (5) of that section.
(2) For the purposes of this Part of this Schedule—
(a) a person is a principal member of a controlled foreign company if he possesses a percentage of the voting power in the company of more than 5 per cent. and—
(i) where there are more than five such persons, if he is one of the five persons who possess the greatest percentages, or
(ii) if, because two or more persons possess equal percentage of the voting power in the company, there are no such five persons, he is one of six or more persons (so as to include those two or more who possess the equal percentages) who possess the greatest percentages; and
(b) a principal member’s holding consists of the shares which carry the voting power possessed by him.
(3) In arriving at the voting power which a person possesses, there shall be attributed to him any voting power which, for the purposes of section 416, would be attributed to him under subsection (5) or (6) of that section.
(4) In this Part of this Schedule “shares” include “stock”.
Part 3A Exempt Periods
Introductory
15A The provisions of this Part of this Schedule have effect for the purposes of section 748(1)(f).
Beginning of exempt period
15B (1) An exempt period begins in relation to a company (“X”) at a time (“the relevant time”) when—
(a) X is resident outside the United Kingdom,
(b) X is controlled by persons resident in the United Kingdom,
(c) there is at least one relevant UK corporate investor in X, and
(d) the requirements of paragraph 15C or 15D are met.
(2) There is a “relevant UK corporate investor in X” at a particular time if, at that time, there is a company which—
(a) is resident in the United Kingdom, and
(b) would, on the assumptions set out in sub-paragraph (3), be a company to which an apportionment of X's chargeable profits for the relevant accounting period would fall to be made in circumstances where section 747(5) would not prevent tax being chargeable on the company under section 747(4).
(3) The assumptions are—
(a) X has chargeable profits for the relevant accounting period,
(b) an apportionment of those profits falls to be made under section 747(3) for that period, and
(c) no reduction of those profits arises under section 751A, 751AA or 751AB.
(4) “The relevant accounting period” means the accounting period of X in which the time mentioned in sub-paragraph (2) falls.
15C (1) The requirements of this paragraph are that—
(a) no company was, at any time before the relevant time, a relevant UK corporate investor in X,
(b) no asset owned by X, or part of the business carried on by X, at the relevant time was previously owned, or carried on, by a company which—
(i) was under the control of persons resident in the United Kingdom at any time it owned the asset or carried on the part of the business, and
(ii) is or has been related to X,
(c) condition A, B, C or D is met, and
(d) no disqualifying relevant transaction occurs (see paragraph 15E).
(2) Condition A is that, immediately before the relevant time, X—
(a) was in existence, but
(b) was not a member of the same group of companies as any person who, at the relevant time, was a controlling UK person.
(3) Condition B is that—
(a) at the relevant time X is controlled by a company which is resident in the United Kingdom, and
(b) immediately before that time, X was controlled by that same company but that company was not then resident in the United Kingdom.
(4) Condition C is that—
(a) at the relevant time—
(i) X is controlled by a company which is resident in the United Kingdom (“the intermediate parent”), and
(ii) the intermediate parent is controlled by a company which is not resident in the United Kingdom (“the parent”), and
(b) immediately before that time X was controlled by the parent but not the intermediate parent.
(5) Condition D is that X—
(a) is a controlled foreign company at the time it is formed, and
(b) is formed by one or more persons for the purpose of controlling one or more companies in circumstances where it is expected that an exempt period will begin in relation to one or more of those companies at the time when X begins to control the company or companies.
(6) In this paragraph “controlling UK person” means a person resident in the United Kingdom who alone, or together with other such persons, controls X.
15D (1) The requirements of this paragraph are that—
(a) the relevant time falls after 23 March 2011,
(b) X has an accounting period during which 23 March 2011 falls,
(c) no company was, at any time during that accounting period, a relevant UK corporate investor in X,
(d) no company was, immediately before the relevant time, a relevant UK corporate investor in X,
(e) at the relevant time X is controlled by a company which—
(i) is resident in the United Kingdom, and
(ii) is not under the control of another body corporate, or two or more other bodies corporate taken together, and
(f) no disqualifying relevant transaction occurs (see paragraph 15E).
(2) In determining for the purposes of sub-paragraph (1)(e)(ii) whether a company is under the control of two or more bodies corporate taken together, a body corporate which holds less than 10% of the issued ordinary shares of that company is to be disregarded.
(3) For the purposes of sub-paragraph (2), a body corporate is treated as holding any shares held by persons who are connected or associated with the body corporate.
Disqualifying relevant transactions
15E (1) This paragraph applies for the purposes of paragraph 15C and 15D.
(2) A disqualifying relevant transaction occurs if—
(a) a relevant transaction occurs at the relevant time (whether or not the transaction occurs pursuant to an agreement entered into by X before that time), or
(b) a relevant transaction occurs on or after 9 December 2010 but before the relevant time and that transaction forms part of an avoidance scheme.
(3) “Relevant transaction” means—
(a) the making by X of a loan or advance of an amount (other than a negligible amount) to a person who, at the time it is made, is related to X and subject to United Kingdom tax,
(b) an increase (other than an increase of a negligible amount) in the amount of an existing loan or advance made by X to a person who, at the time of the increase, is related to X and subject to United Kingdom tax,
(c) a change in the terms or conditions of an existing loan or advance made by X where—
(i) the loan or advance is to a person who, at the time the change is made, is related to X and subject to United Kingdom tax, and
(ii) the change has an effect (other than a negligible effect) on the amount of interest payable, or
(d) a transaction to which sub-paragraph (4) applies.
(4) This sub-paragraph applies to a transaction if—
(a) it is referable to an activity carried on by X as part, or the whole, of any non-exempt activities carried on by X,
(b) the results of the transaction are reflected in the profits arising in an accounting period of X and are not negligible in value, and
(c) the results of the transaction alone, or together with the results of one or more other transactions, achieves a reduction in United Kingdom tax.
(5) A transaction achieves, or two or more transactions together achieve, a reduction in United Kingdom tax if, had the transaction or transactions not been effected, any person—
(a) would have been liable for any such tax or for a greater amount of any such tax, or
(b) would not have been entitled to a relief from or repayment of any such tax or would have been entitled to a smaller relief from or repayment of any such tax.
(6) In this paragraph—
“avoidance scheme” means a scheme the main purpose, or one of the main purposes, of any party to which in entering into the scheme is to secure that section 748(1)(f) prevents an apportionment falling to be made under section 747(3) as regards an accounting period, or accounting periods, of X;
“non-exempt activities” has the meaning given by paragraph 12D(2);
“scheme” means any scheme, arrangements or understanding of any kind whatever, whether or not legally enforceable, involving one or more transactions;
“United Kingdom tax” means corporation tax (or any tax chargeable as if it were corporation tax) or income tax.
Ending of exempt period
15F (1) An exempt period ends on the expiry of the period of 24 months which begins immediately after the first accounting period of X to end after the relevant time, unless sub-paragraph (2) applies.
(2) If an early termination event occurs after the relevant time but before the time the exempt period would end under sub-paragraph (1), the exempt period ends immediately before that event.
(3) An early termination event occurs if and when—
(a) a relevant transaction occurs, whether or not the transaction occurs pursuant to an agreement entered into by X before that time, or
(b) where the exempt period began because Condition D was met, X's business does not consist wholly in the holding of shares of companies which X controls, together with activities incidental to the holding of such shares.
Interpretation of Part 3A
15G (1) In this Part of this Schedule—
“group” means a company and any other companies it controls;
“the relevant time” has the meaning given by paragraph 15B;
“relevant transaction” has the meaning given by paragraph 15E;
“relevant UK corporate investor in X” has the meaning given by paragraph 15B(2);
“X” is to be construed in accordance with paragraph 15B.
(2) For the purposes of this Part of this Schedule a person is “related” to X at a particular time if—
(a) the person is connected or associated with X at that time,
(b) the person has a 25 per cent assessable interest in X in the case of the accounting period in which that time falls (within the meaning of paragraph 6(4C)), or
(c) if X is a controlled foreign company in the accounting period in which that time falls by virtue of subsection (1A) of section 747, the person is connected or associated with either or both of the two persons mentioned in that subsection.
PART IV REDUCTIONS IN UNITED KINGDOM TAX AND DIVERSION OF PROFITS
16 (1) The provisions of this Part of this Schedule have effect for the purposes of section 748(3).
(2) Any reference in paragraphs 17 and 18 below to a transaction—
(a) is a reference to a transaction the results of which are reflected in the profits arising in an accounting period of a controlled foreign company; and
(b) includes a reference to two or more transactions taken together, the results of at least one of which are so reflected.
17 (1) A transaction achieves a reduction in United Kingdom tax if, had the transaction not been effected, any person—
(a) would have been liable for any such tax or for a greater amount of any such tax; or
(b) would not have been entitled to a relief from or repayment of any such tax or would have been entitled to a smaller relief from or repayment of any such tax.
(2) In this Part of this Schedule and section 748(3) “United Kingdom tax” means income tax, corporation tax or capital gains tax.
18 It is the main purpose or one of the main purposes of a transaction to achieve a reduction in United Kingdom tax if this is the purpose or one of the main purposes—
(a) of the controlled foreign company concerned; or
(b) of a person who has an interest in that company at any time during the accounting period concerned.
19 (1) The existence of a controlled foreign company achieves a reduction in United Kingdom tax by a diversion of profits from the United Kingdom in an accounting period if it is reasonable to suppose that, had neither the company nor any company related to it been in existence—
(a) the whole or a substantial part of the receipts which are reflected in the controlled foreign company’s profits in that accounting period would have been received by a company or individual resident in the United Kingdom; and
(b) that company or individual or any other person resident in the United Kingdom either—
(i) would have been liable for any United Kingdom tax or for a greater amount of any such tax; or
(ii) would not have been entitled to a relief from or repayment of any such tax or would have been entitled to a smaller relief from or repayment of any such tax.
(2) For the purposes of sub-paragraph (1) above, a company is related to a controlled foreign company if—
(a) it is resident outside the United Kingdom; and
(b) it is connected or associated with the controlled foreign company; and
(c) in relation to any company or companies resident in the United Kingdom, it fulfils or could fulfil, directly or indirectly, substantially the same functions as the controlled foreign company.
(3) Any reference in sub-paragraph (1) above to a company resident in the United Kingdom includes a reference to such a company which, if the controlled foreign company in question were not in existence, it is reasonable to suppose would have been established.
SCHEDULE 26 RELIEFS AGAINST LIABILITY FOR TAX IN RESPECT OF CHARGEABLE PROFITS
Section 754(5).
Trading losses and group relief etc.
1 (1) In any case where—
(a) an amount of chargeable profits is apportioned to a company resident in the United Kingdom, and
(b) the company is entitled, or would on the making of a claim be entitled, in computing its profits for the appropriate accounting period, to a deduction in respect of any relevant allowance, . . .
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
then, on the making of a claim, a sum equal to corporation tax at the appropriate rate on so much of the relevant allowance . . . as is specified in the claim shall be set off against the company’s liability to tax under section 747(4)(a) in respect of the chargeable profits apportioned to it.
(2) In this paragraph—
(a) “the appropriate accounting period” means the accounting period for which, by virtue of section 754(2), the company is chargeable to tax by virtue of this Chapter in respect of the chargeable profits concerned; and
(b) “the appropriate rate” means the rate of corporation tax applicable to profits of the appropriate accounting period or, if there is more than one such rate, the average rate over the whole accounting period.
(3) In this paragraph “relevant allowance” means—
(a) any loss to which section 37 or 62(1) to (3) of CTA 2010 applies;
(b) any qualifying charitable donation;
(c) any expenses of management to which section 1219(1) of CTA 2009 applies;
(cc) any expenses deduction under section 76(1);
(d) so much of any allowance to which section 74 of the 1968 Act applies as falls within subsection (3) of that section; . . .
(e) any amount available to the company by way of group relief; and
(f) any non-trading deficit on its loan relationships.
(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) Where, by virtue of sub-paragraph (1) above, a sum is set off against a liability to tax, so much of the relevant allowance as gives rise to the amount set off shall be regarded for the purposes of the Tax Acts as having been allowed as a deduction against the company’s profits in accordance with the appropriate provisions of those Acts.
(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advance corporation tax
2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gains on disposal of shares in controlled foreign companies
3 (1) This paragraph applies in any case where—
(a) an accounting period of a controlled foreign company (“the apportionment period”) is one in respect of which an apportionment under section 747(3) falls to be made; and
(b) the company’s chargeable profits for the apportionment period have been apportioned among the persons in subsection (3) of that section; and
(c) a company resident in the United Kingdom (“the claimant company”) disposes of—
(i) shares in the controlled foreign company, or
(ii) shares in another company which, in whole or in part, give rise to the claimant company’s interest in the controlled foreign company,
being, in either case, shares acquired before the end of the apportionment period; and
(d) by virtue of the apportionment referred to in paragraph (b) above, a sum is, under section 747(4)(a), chargeable on the claimant company as if it were an amount of corporation tax; and
(e) the claimant company makes a claim for relief under this paragraph;
and in this paragraph the disposal mentioned in paragraph (c) above is referred to as “the relevant disposal”.
(2) Subject to the following provisions of this paragraph, in the computation under Chapter III of Part II of the 1992 Act of the gain accruing on the relevant disposal, the appropriate fraction of the sum referred to in sub-paragraph (1)(d) above shall be allowable as a deduction; but to the extent that any sum has been allowed as a deduction under this sub-paragraph it shall not again be allowed as a deduction on any claim under this paragraph (whether made by the claimant company or another company).
(3) In relation to the relevant disposal, the appropriate fraction is—
A
B
where—
A is the average market value in the apportionment period of the shares disposed of, and
B is the average market value in that period of the interest in the controlled foreign company which, in the case of the claimant company, was taken into account in the apportionment referred to in sub-paragraph (1)(b) above.
(4) Where, before the relevant disposal—
(a) a dividend is paid by the controlled foreign company, and
(b) the profits out of which the dividend is paid are those from which the chargeable profits referred to in sub-paragraph (1)(b) above are derived, and
(c) at least one of the two conditions in sub-paragraph (5) below is fulfilled,
this paragraph does not apply in relation to a sum chargeable under section 747(4)(a) in respect of so much of the chargeable profits as corresponds to the profits which the dividend represents.
(5) The conditions referred to in sub-paragraph (4) above are—
(a) that the effect of the payment of the dividend is such that the value of the shares disposed of by the relevant disposal is less after the payment than it was before it; and
(b) that, in respect of a dividend paid or payable on the shares disposed of by the relevant disposal, the claimant company is, by virtue of paragraph 4(2) below, entitled under Part 2 of TIOPA 2010 to relief (by way of underlying tax) by reference to sums which include the sum referred to in sub-paragraph (1)(d) above.
(6) A claim for relief under this paragraph shall be made before the expiry of the period of three months beginning—
(a) at the end of the accounting period in which the relevant disposal occurs; or
(b) if it is later, on the date on which the assessment to tax for which the claimant company is liable by virtue of section 747(4)(a) becomes final and conclusive.
(6A) Nothing in—
(a) paragraph 10 of Schedule 18 to the Finance Act 1998 (claims or elections in company tax returns), or
(b) Schedule 1A to the Management Act (claims or elections not included in returns),
shall apply, whether by virtue of section 754 or otherwise, to a claim under sub-paragraph (6) above.
(7) In identifying for the purposes of this paragraph shares in a company with shares of the same class which are disposed of by the relevant disposal, shares acquired at an earlier time shall be deemed to be disposed of before shares acquired at a later time.
Dividends from the controlled foreign company
4 (1) This paragraph applies in any case where—
(a) an accounting period of a controlled foreign company is one in respect of which an apportionment under subsection (3) of section 747 falls to be made; and
(b) the company’s chargeable profits for that period have been apportioned among the persons referred to in that subsection, and
(c) the controlled foreign company pays a dividend in whole or in part out of the total profits from which (in accordance with subsection (6)(a) of that section) those chargeable profits are derived.
(2) Subject to paragraphs 5 and 6 below, where this paragraph applies, the aggregate of the sums chargeable on companies resident in the United Kingdom in accordance with section 747(4)(a) in respect of the chargeable profits referred to in sub-paragraph (1)(b) above shall be treated for the purposes of Part 2 of TIOPA 2010 (double taxation relief) as if it were an amount of tax paid in respect of the profits concerned under the law of the territory in which the controlled foreign company was resident and, accordingly, as underlying tax for the purposes of Chapter II of that Part.
(3) In the following provisions of this paragraph and in paragraphs 5 and 6 below, the aggregate of the sums which, under sub-paragraph (2) above, fall to be treated as underlying tax is referred to as the “gross attributed tax”.
(4) If, in the case of a person who receives the dividend, section 36, 40, 41 or 42 of TIOPA 2010 has the effect of reducing the amount which (apart from that section) would have been the amount of the credit for foreign tax which is to be allowed to that person, then, for the purposes of sub-paragraph (5) below, the amount of that reduction shall be determined and so much of it as does not exceed the amount of the foreign tax, exclusive of underlying tax, for which credit is to be allowed in respect of the dividend is in that sub-paragraph referred to as “the wasted relief”.
(5) Except for the purpose of determining the amount of the wasted relief, the gross attributed tax shall be treated as reduced by the aggregate of the wasted relief arising in the case of all the persons falling within sub-paragraph (4) above and, on the making of a claim by any of the companies referred to in sub-paragraph (2) above—
(a) the amount of tax chargeable on the company in accordance with section 747(4)(a) in respect of the chargeable profits referred to in sub-paragraph (1) (b) above shall, where appropriate, be reduced; and
(b) all such adjustments (whether by repayment of tax or otherwise) shall be made as are appropriate to give effect to any reduction under paragraph (a) above.
5 (1) In so far as any provision of—
(a) arrangements which have effect under section 2(1) of TIOPA 2010 (double taxation relief by agreement with territories outside the United Kingdom), or
(b) unilateral relief arrangements for a territory outside the United Kingdom (as defined by section 8 of that Act),
makes relief which is related to foreign dividends received by a company resident in the United Kingdom conditional upon that company either having a particular degree of control of the company paying the dividend or being a subsidiary of another company which has that degree of control, that condition shall be treated as fulfilled in considering whether any such company is by virtue of paragraph 4(2) above entitled to relief under Part 2 of TIOPA 2010 in respect of any of the gross attributed tax.
(2) Notwithstanding anything in paragraph 4(2) above, in section 31(2)(b) and (3) of TIOPA 2010 the expression “underlying tax” does not include gross attributed tax.
(3) In a case where the controlled foreign company pays a dividend otherwise than out of specified profits and, on the apportionment referred to in paragraph 4(1) above, less than the whole of the chargeable profits of the controlled foreign company concerned is apportioned to companies which are resident in the United Kingdom and liable for tax thereon as mentioned in section 747(4)(a)—
(a) the gross attributed tax shall be regarded as attributable to a corresponding proportion of the profits in question, and in this sub-paragraph the profits making up that proportion are referred to as “taxed profits”;
(b) so much of the dividend as is received by, or by a successor in title of, any such company shall be regarded as paid primarily out of taxed profits; and
(c) so much of the dividend as is received by any other person shall be regarded as paid primarily out of profits which are not taxed profits.
(4) The reference in sub-paragraph (3)(b) above to a successor in title of a company resident in the United Kingdom is a reference to a person who is such a successor in respect of the whole or any part of that interest in the controlled foreign company by virtue of which an amount of its chargeable profits was apportioned to that company.
6 (1) In any case where—
(a) on a claim for relief under paragraph 3 above, the whole or any part of any sum has been allowed as a deduction on a disposal of shares in any company; and
(b) that sum forms part of the gross attributed tax in relation to a dividend paid by that company; and
(c) a person receiving the dividend in respect of the shares referred to in paragraph (a) above (“the primary dividend”) or any other relevant dividend is, by virtue of paragraph 4(2) above, entitled under Part 2 of TIOPA 2010 to relief (by way of underlying tax) by reference to the whole or any part of the gross attributed tax;
the amount which, apart from this paragraph, would be available by way of any such relief to the person referred to in paragraph (c) above shall be reduced or, as the case may be, extinguished by deducting therefrom the amount allowed by way of relief as mentioned in paragraph (a) above.
(2) For the purposes of sub-paragraph (1)(c) above, in relation to the primary dividend, another dividend is a relevant dividend if—
(a) it is a dividend in respect of shares in a company which is resident outside the United Kingdom; and
(b) it represents profits which, directly or indirectly, consist of or include the primary dividend.
PART I THE DISTRIBUTION TEST
Requirements as to distributions
1 (1) For the purposes of this Chapter, an offshore fund pursues a full distribution policy with respect to an account period if—
(a) a distribution is made for that account period or for some other period which, in whole or in part, falls within that account period; and
(b) subject to Part II of this Schedule, the amount of the distribution which is paid to the holders of material and other interests in the fund—
(i) represents at least 85 per cent. of the income of the fund for that period, and
(ii) is not less than 85 per cent. of the fund’s United Kingdom equivalent profits for that period; and
(c) the distribution is made during that account period or not more than six months, or such longer period as the Board may in any particular case allow, after the expiry of it; and
(d) the form of the distribution is such that—
(i) if any sum forming part of it were received in the United Kingdom by an individual resident there and did not form part of the profits of a trade, profession or vocation, that sum would fall to be chargeable to tax under a provision specified in section 830(2) of ITTOIA 2005, or
(ii) if any sum forming part of it were received in the United Kingdom by a company resident there and did not form part of the profits of a trade, profession or vocation, that sum would fall to be chargeable to tax . . . —
(a) under Part 5 of CTA 2009 (loan relationships) or Chapter 7 of Part 10 of that Act (annual payments not otherwise charged) in respect of income arising from securities out of the United Kingdom or from possessions out of the United Kingdom, or
(b) under Chapter 2 of Part 10 of CTA 2009 (dividends of non-UK resident companies) or Chapter 8 of that Part (income not otherwise charged);
and any reference in this sub-paragraph to a distribution made for an account period includes a reference to any two or more distributions so made or, in the case of paragraph (b), the aggregate of them.
(2) Subject to sub-paragraph (3) below, with respect to any account period for which—
(a) there is no income of the fund and there are no United Kingdom equivalent profits of the fund, or
(b) the amount of the gross income of the fund does not exceed 1 per cent. of the average value of the fund’s assets held during the account period,
the fund shall be treated as pursuing a full distribution policy notwithstanding that no distribution is made as mentioned in sub-paragraph (1) above.
(3) For the purposes of this Chapter, an offshore fund shall be regarded as not pursuing a full distribution policy with respect to an account period for which the fund does not make up accounts.
(4) For the purposes of this paragraph—
(a) where a period for which an offshore fund makes up accounts includes the whole or part of two or more account periods of the fund, then, subject to paragraph (c) below, income shown in those accounts shall be apportioned between those account periods on a time basis according to the number of days in each period which are comprised in the period for which the accounts are made up;
(b) where a distribution is made for a period which includes the whole or part of two or more account periods of the fund, then, subject to sub-paragraph (5) below, the distribution shall be apportioned between those account periods on a time basis according to the number of days in each period which are comprised in the period for which the distribution is made;
(c) where a distribution is made out of specified income but is not made for a specified period, that income shall be attributed to the account period of the fund in which it in fact arose and the distribution shall be treated as made for that account period; and
(d) where a distribution is made neither for a specified period nor out of specified income, then, subject to sub-paragraph (5) below, it shall be treated as made for the last account period of the fund which ended before the distribution was made.
(5) If, apart from this sub-paragraph, the amount of a distribution made, or treated by virtue of sub-paragraph (4) above as made, for an account period would exceed the income of that period, then, for the purposes of this paragraph—
(a) if the amount of the distribution was determined by apportionment under sub-paragraph (4)(b) above, the excess shall be re-apportioned, as may be just and reasonable, to any other account period which, in whole or in part, falls within the period for which the distribution was made or, if there is more than one such period, between those periods; and
(b) subject to paragraph (a) above, the excess shall be treated as an additional distribution or series of additional distributions made for preceding account periods in respect of which the distribution or, as the case may be, the aggregate distributions would otherwise be less than the income of the period, applying the excess to later account periods before earlier ones, until it is exhausted.
(6) In any case where—
(a) for a period which is or includes an account period, an offshore fund is subject to any restriction as regards the making of distributions, being a restriction imposed by the law of any territory outside the United Kingdom; and
(b) the fund is subject to that restriction by reason of an excess of losses over profits (applying the concepts of “profits” and “losses” in the sense in which and to the extent to which they are relevant for the purposes of the law in question);
then in determining for the purposes of the preceding provisions of this paragraph the amount of the fund’s income for that account period, there shall be allowed as a deduction any amount which, apart from this sub-paragraph, would form part of the income of the fund for that account period and which cannot be distributed by virtue of the restriction.
Funds operating equalisation arrangements
2 (1) In the case of an offshore fund which throughout any account period operates equalisation arrangements, on any occasion in that period when there is a disposal to which this sub-paragraph applies, the fund shall be treated for the purposes of this Part of this Schedule as making a distribution of an amount equal to so much of the consideration for the disposal as, in accordance with this paragraph, represents income accrued to the date of the disposal.
(2) Sub-paragraph (1) above applies to a disposal—
(a) which is a disposal of a material interest in the offshore fund concerned; and
(b) which is a disposal to which this Chapter applies (whether by virtue of section 758(3) or otherwise) or is one to which this Chapter would apply if subsections (5) and (6) of that section applied generally and not only for the purpose of determining whether, by virtue of subsection (3) of that section, there is a disposal to which this Chapter applies; and
(c) which is not a disposal with respect to which the conditions in subsection (4) of that section are fulfilled; and
(d) which is a disposal to the fund itself or to the persons concerned in the management of the fund (“the managers”) in their capacity as such.
(3) On a disposal to which sub-paragraph (1) above applies, the part of the consideration which represents income accrued to the date of the disposal is, subject to sub-paragraph (4) and paragraph 4(4) below, the amount which would be credited to the equalisation account of the offshore fund concerned in respect of accrued income if, on the date of the disposal, the material interest which is disposed of were acquired by another person by way of initial purchase.
(4) If, after the beginning of the period by reference to which the accrued income referred to in sub-paragraph (3) above is calculated, the material interest disposed of by a disposal to which sub-paragraph (1) above applies was acquired by way of initial purchase (whether or not by the person making the disposal)—
(a) there shall be deducted from the amount which, in accordance with sub-paragraph (3) above, would represent income accrued to the date of the disposal, the amount which on that acquisition was credited to the equalisation account of the fund in respect of accrued income; and
(b) if in that period there has been more than one such acquisition of that material interest by way of initial purchase, the deduction to be made under this sub-paragraph shall be the amount so credited to the equalisation account on the latest such acquisition prior to the disposal in question.
(5) Where, by virtue of this paragraph, an offshore fund is treated for the purposes of this Part of this Schedule as making a distribution on the occasion of a disposal, the distribution shall be treated for those purposes—
(a) as complying with paragraph 1(1)(d) above; and
(b) as made out of the income of the fund for the account period in which the disposal occurs; and
(c) as paid, immediately before the disposal, to the person who was then the holder of the interest disposed of.
(6) In any case where—
(a) a distribution in respect of an interest in an offshore fund is made to the managers of the fund, and
(b) their holding of that interest is in their capacity as such, and
(c) at the time of the distribution, the fund is operating equalisation arrangements,
the distribution shall not be taken into account for the purposes of paragraph 1(1) above except to the extent that the distribution is properly referable to that part of the period for which the distribution is made during which that interest has been held by the managers of the fund in their capacity as such.
(7) Subsection (2) of section 758 applies for the purposes of this paragraph as it applies for the purposes of that section.
Certain foreign income
3 (1) Sub-paragraph (2) below applies if any sums which form part of the income of an offshore fund falling within section 756A(1)(b) or (c) are of such a nature that—
(a) the holders of interests in the fund who are individuals domiciled and resident in the United Kingdom—
(i) are chargeable to tax under a provision specified in section 830(2) of ITTOIA 2005 in respect of such of those sums as are referable to their interests; or
(ii) if any of that income is derived from assets within the United Kingdom, would be so chargeable had the assets been outside the United Kingdom;
(aa) the holders of interests in the fund which are companies resident in the United Kingdom—
(i) are chargeable to tax under Part 5 of CTA 2009 (loan relationships) or Chapter 7 of Part 10 of that Act (annual payments not otherwise charged) in respect of income arising from securities out of the United Kingdom or from possessions out of the United Kingdom;
(ii) are chargeable to tax under Chapter 2 of Part 10 of CTA 2009 (dividends of non-UK resident companies) or Chapter 8 of that Part (income not otherwise charged); or
(iii) if any of that income is derived from assets within the United Kingdom, would have been chargeable under sub-paragraph (i) or (ii) had the assets been outside the United Kingdom; and
(b) the holders of interests who are not such companies or individuals would be chargeable as mentioned in paragraph (a) or (aa) above if they were resident in the United Kingdom or, in the case of individuals, if they were domiciled and both resident and ordinarily resident there.
(2) To the extent that sums falling within sub-paragraph (1) above do not actually form part of a distribution complying with paragraphs 1(1)(c) and (d) above, they shall be treated for the purposes of this Part of this Schedule—
(a) as a distribution complying with those paragraphs and made out of the income of which they form part; and
(b) as paid to the holders of the interests to which they are referable.
Commodity income
4 (1) To the extent that the income of an offshore fund for any account period includes profits from dealing in commodities, one half of those profits shall be left out of account in determining for the purposes of paragraphs 1(1)(b) and 5 below—
(a) the income of the fund for that period; and
(b) the fund’s United Kingdom equivalent profits for that period;
but in any account period in which an offshore fund incurs a loss in dealing in commodities the amount of that loss shall not be varied by virtue of this paragraph.
(2) In this paragraph “dealing in commodities” shall be construed as follows—
(a) “commodities” does not include currency, securities, debts or other assets of a financial nature but, subject to that, means tangible assets which are dealt with on a commodity exchange in any part of the world; and
(b) “dealing” includes dealing by way of futures contracts and traded options.
(3) Where the income of an offshore fund for any account period consists of profits from dealing in commodities and other income, then—
(a) in determining whether the condition in paragraph 1(1)(b) above is fulfilled with respect to that account period, the expenditure of the fund shall be apportioned in such manner as is just and reasonable between the profits from dealing in commodities and the other income; and
(b) in determining whether, and to what extent, any expenditure is deductible under section 1219 of CTA 2009 in computing the fund’s United Kingdom equivalent profits for that period, so much of the business of the fund as does not consist of dealing in commodities shall be treated as a business carried on by a separate company.
(4) Where there is a disposal to which paragraph 2(1) above applies, then, to the extent that any amount which was or would be credited to the equalisation account in respect of accrued income, as mentioned in sub-paragraph (3) or (4) of that paragraph, represents profits from dealing in commodities, one half of that accrued income shall be left out of account in determining under those sub-paragraphs the part of the consideration for the disposal which represents income accrued to the date of the disposal.
United Kingdom equivalent profits
5 (1) Any reference in this Schedule to the United Kingdom equivalent profits of an offshore fund for an account period is a reference to the amount which, on the assumptions in sub-paragraph (3) below, would be the total profits of the fund for that period on which, after allowing for any deductions available against those profits, corporation tax would be chargeable.
(2) In this paragraph the expression “profits” does not include chargeable gains.
(2A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) The assumptions referred to in sub-paragraph (1) above are—
(a) that the offshore fund is a company which, in the account period in question, but not in any other account period, is resident in the United Kingdom; and
(b) that the account period is an accounting period of that company; and
(c) that any dividends or distributions which, by virtue of Chapter 2 or 3 of Part 9A of CTA 2009, should be left out of account in computing income for corporation tax purposes are nevertheless to be brought into account in that computation . . . ; and
(d) that the provisions of the Corporation Tax Acts relating to profits, gains or losses arising from a creditor relationship (within the meaning of Part 5 of CTA 2009) apply as if the offshore fund were an authorised unit trust;and
(e) that the provisions of the Corporation Tax Acts relating to profits or losses arising from a derivative contract (within the meaning of Part 7 of CTA 2009) apply as if the offshore fund were an authorised unit trust.
(4) Without prejudice to any deductions available apart from this sub-paragraph, the deductions referred to in sub-paragraph (1) above include—
(a) a deduction equal to any amount which, by virtue of paragraph 1(6) above, is allowed as a deduction in determining the income of the fund for the account period in question; and
(b) a deduction equal to any amount of tax (paid under the law of a territory outside the United Kingdom) which was taken into account as a deduction in determining the income of the fund for the account period in question but which, because it is referable to capital rather than income, does not fall to be taken into account by virtue of section 811.
(5) For the avoidance of doubt it is hereby declared that, if any sums forming part of the offshore fund’s income for any period have been received by the fund without any deduction of or charge to tax and have been so received by virtue of section 1279 of CTA 2009or section 714 or 715 of ITTOIA 2005, the effect of the assumption in sub-paragraph (3)(a) above is that those sums are to be brought into account in determining the total profits referred to in sub-paragraph (1) above.
PART II MODIFICATIONS OF CONDITIONS FOR CERTIFICATION IN CERTAIN CASES
Exclusion of investments in distributing offshore funds
6 (1) In any case where—
(a) in an account period of an offshore fund (in this Part of this Schedule referred to as the “primary fund”), the assets of the fund consist of or include interests in another offshore fund; and
(b) those interests are such that, by virtue of section 760(3)(a), the primary fund could not, apart from this paragraph, be certified as a distributing fund in respect of that account period; and
(c) . . . that other fund could be certified as a distributing fund in respect of its account period or, as the case may be, each of its account periods which comprises the whole or any part of the account period of the primary fund;
then, in determining whether anything in section 760(3)(a) prevents the primary fund being certified as mentioned in paragraph (b) above, the interests of the primary fund in that other fund shall be left out of account except for the purposes of determining the total value of the assets of the primary fund.
(2) In this Part of this Schedule an offshore fund falling within sub-paragraph (1)(c) above is referred to as a “qualifying fund”.
(3) In a case falling within sub-paragraph (1) above—
(a) section 760(3)(a) shall have effect in relation to the primary fund with the modification in paragraph 7 below (in addition to that provided for by sub-paragraph (1) above); and
(b) Part I of this Schedule shall have effect in relation to the primary fund with the modification in paragraph 8 below.
7 The modification referred to in paragraph 6(3)(a) above is that, in any case where—
(a) at any time in the account period referred to in paragraph 6(1) above, the assets of the primary fund include an interest in an offshore fund or in any company (whether an offshore fund or not); and
(b) that interest falls to be taken into account in determining whether anything in section 760(3)(a) prevents the primary fund being certified as a distributing fund in respect of that account period; and
(c) at any time in that account period the assets of the qualifying fund include an interest in the offshore fund or company referred to in paragraph (a) above;
for the purposes of the application in relation to the primary fund of section 760(3)(a), at any time when the assets of the qualifying fund include the interest referred to in paragraph (c) above, the primary fund’s share of that interest shall be treated as an additional asset of the primary fund.
8 (1) The modification referred to in paragraph 6(3)(b) above is that, in determining whether the condition in paragraph 1(1)(b)(ii) above is fulfilled with respect to the account period of the primary fund referred to in paragraph 6(1) above, the United Kingdom equivalent profits of the primary fund for that period shall be treated as increased by the primary fund’s share of the excess income (if any) of the qualifying fund which is attributable to that period.
(2) For the purposes of this paragraph, the excess income of the qualifying fund for any account period of that fund is the amount (if any) by which its United Kingdom equivalent profits for that account period exceed the amount of the distributions made for that period, as determined for the purposes of the application of paragraph 1(1) above to the qualifying fund.
(3) If an account period of the qualifying fund coincides with an account period of the primary fund, then the excess income (if any) of the qualifying fund for that period is the excess income which is attributable to that period of the primary fund.
(4) In a case where sub-paragraph (3) above does not apply, the excess income of the qualifying fund which is attributable to an account period of the primary fund is the appropriate fraction of the excess income (if any) of the qualifying fund for any of its account periods which comprises the whole or any part of the account period of the primary fund and, if there is more than one such account period of the qualifying fund, the aggregate of the excess income (if any) of each of them.
(5) For the purposes of sub-paragraph (4) above, the appropriate fraction is—
A
B
where—
A is the number of days in the account period of the primary fund which are also days in an account period of the qualifying fund; and
B is the number of days in that account period of the qualifying fund or, as the case may be, in each of those account periods of that fund which comprises the whole or any part of the account period of the primary fund.
9 (1) The references in paragraphs 7 and 8(1) above to the primary fund’s share of—
(a) an interest forming part of the assets of the qualifying fund, or
(b) the excess income (as defined in paragraph 8 above) of the qualifying fund,
shall be construed as references to the fraction specified in sub-paragraph (2) below of that interest or excess income.
(2) In relation to any account period of the primary fund, the fraction referred to in sub-paragraph (1) above is—
C
D
where—
C is the average value of the primary fund’s holding of interests in the qualifying fund during that period; and
D is the average value of all the interests in the qualifying fund held by any persons during that period.
Offshore funds investing in trading companies
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Offshore funds with wholly-owned subsidiaries
11 (1) In relation to an offshore fund which has a wholly-owned subsidiary which is a company the provisions of . . . Part I of this Schedule shall have effect subject to the modifications in sub-paragraph (4) below.
(2) Subject to sub-paragraph (3) below, for the purposes of this paragraph, a company is a wholly-owned subsidiary of an offshore fund if and so long as the whole of the issued share capital of the company is—
(a) in the case of an offshore fund falling within section 756A(1)(a), directly and beneficially owned by the fund; and
(b) in the case of an offshore fund falling within section 756A(1)(b), directly owned by the trustees of the fund for the benefit of the fund; and
(c) in the case of an offshore fund falling within section 756A(1)(c), owned in a manner which, as near as may be, corresponds either to paragraph (a) or paragraph (b) above.
(3) In the case of a company which has only one class of issued share capital, the reference in sub-paragraph (2) above to the whole of the issued share capital shall be construed as a reference to at least 95 per cent. of that share capital.
(4) The modifications referred to in sub-paragraph (1) above are that, for the purposes of . . . Part I of this Schedule—
(a) that percentage of the receipts, expenditure, assets and liabilities of the subsidiary which is equal to the percentage of the issued share capital of the company concerned which is owned as mentioned in sub-paragraph (2) above shall be regarded as the receipts, expenditure, assets and liabilities of the fund; and
(b) there shall be left out of account the interest of the fund in the subsidiary and any distributions or other payments made by the subsidiary to the fund or by the fund to the subsidiary.
Offshore funds with interests in dealing and management companies
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Disregard of certain investments forming less than 5 per cent. of a fund
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Power of Board to disregard certain breaches of conditions
14 If, in the case of any account period of an offshore fund ending after the passing of the Finance (No. 2) Act 1987 (23rd July 1987), it appears to the Board that there has been a failure to comply with the condition in section 760(3)(a) (as modified, where appropriate, by the preceding provisions of this Part of this Schedule) but the Board are satisfied—
(a) that the failure occurred inadvertently; and
(b) that the failure was remedied without unreasonable delay,
the Board may disregard the failure in determining whether to certify the fund as a distributing fund in respect of that account period.
PART III CERTIFICATION PROCEDURE
Application for certification
15 (1) The Board shall, in such manner as they think appropriate, certify an offshore fund as a distributing fund in respect of an account period if—
(a) an application in respect of that period is made under this paragraph; and
(b) the application is accompanied by the accounts of the fund for, or for a period which includes, the account period to which the application relates; and
(c) there is furnished to the Board such information as they may reasonably require for the purpose of determining whether the fund should be so certified; and
(d) they are satisfied that nothing in section 760(2) or (3) prevents the fund being so certified.
(2) An application under this paragraph shall be made to the Board by the fund or by a trustee or officer thereof on behalf of the fund and may be so made—
(a) before the expiry of the period of six months beginning at the end of the account period to which the application relates; or
(b) at such later time as the Board may in any particular case allow.
(3) In any case where, on an application under this paragraph, the Board determine that the offshore fund concerned should not be certified as a distributing fund in respect of the account period to which the application relates, they shall give notice of that fact to the fund.
(4) If at any time it appears to the Board that the accounts accompanying an application under this paragraph in respect of any account period of an offshore fund or any information furnished to the Board in connection with such an application is or are not such as to make full and accurate disclosure of all facts and considerations relevant to the application, they shall give notice to the fund accordingly, specifying the period concerned.
(5) Where a notice is given by the Board under sub-paragraph (4) above, any certification by them in respect of the account period in question shall be void.
Appeals
16 (1) An appeal . . . —
(a) against such a determination as is referred to in paragraph 15(3) above, or
(b) against a notification under paragraph 15(4) above,
may be made by the offshore fund or . . . on behalf of the fund, and shall be so made by notice specifying the grounds of appeal and given to the Board within 90 days of the date of the notice under paragraph 15(3) or (4), as the case may be.
(2) The jurisdiction of the tribunal on an appeal under this paragraph shall include jurisdiction to review any decision of the Board which is relevant to a ground of the appeal.
PART IV SUPPLEMENTARY
Assessment: effect of non-certification
17 No appeal may be brought against an assessment to tax on the ground that an offshore fund should have been certified as a distributing fund in respect of an account period of the fund.
18 (1) Without prejudice to paragraph 17 above, in any case where no application has been made under paragraph 15 above in respect of an account period of an offshore fund, any person who is assessed to tax for which he would not be liable if the offshore fund were certified as a distributing fund in respect of that period may by notice in writing require the Board to take action under this paragraph with a view to determining whether the fund should be so certified.
(2) Subject to sub-paragraphs (3) and (5) below, if the Board receive a notice under sub-paragraph (1) above, they shall by notice invite the offshore fund concerned to make an application under paragraph 15 above in respect of the period in question.
(3) Where sub-paragraph (2) above applies, the Board shall not be required to give notice under that sub-paragraph before the expiry of the account period to which the notice is to relate nor if an application under paragraph 15 above has already been made; but where notice is given under that sub-paragraph, an application under paragraph 15 above shall not be out of time under paragraph 15(2)(a) above if it is made within 90 days of the date of that notice.
(4) If an offshore fund to which notice is given under sub-paragraph (2) above does not, within the time allowed by sub-paragraph (3) above or, as the case may be, paragraph 15(2)(a) above, make an application under paragraph 15 above in respect of the account period in question, the Board shall proceed to determine the question of certification in respect of that period as if such an application had been made.
(5) Where the Board receive more than one notice under sub-paragraph (1) above with respect to the same account period of the same offshore fund, their obligations under sub-paragraphs (2) and (4) above shall be taken to be fulfilled with respect to each of those notices if they are fulfilled with respect to any one of them.
(6) Notwithstanding anything in sub-paragraph (5) above, for the purpose of a determination under sub-paragraph (4) above with respect to an account period of an offshore fund, the Board shall have regard to accounts and other information furnished by all persons who have given notice under sub-paragraph (1) above with respect to that account period; and paragraph 15 above shall apply as if accounts and information so furnished had been furnished in compliance with sub-paragraph (1) of that paragraph.
(7) Without prejudice to sub-paragraph (5) above, in any case where—
(a) at a time after the Board have made a determination under sub-paragraph (4) above that an offshore fund should not be certified as a distributing fund in respect of an account period, notice is given under sub-paragraph (1) above with respect to that period; and
(b) the person giving that notice furnishes the Board with accounts or information which had not been furnished to the Board at the time of the earlier determination;
the Board shall reconsider their previous determination in the light of the new accounts or information and, if they consider it appropriate, may determine to certify the fund accordingly.
(8) Where any person has given notice to the Board under sub-paragraph (1) above with respect to an account period of an offshore fund and no application has been made under paragraph 15 above with respect to that period—
(a) the Board shall notify that person of their determination with respect to certification under sub-paragraph (4) above; and
(b) paragraph 16 above shall not apply in relation to that determination.
Postponement of tax pending determination of question as to certification
19 (1) This paragraph applies where—
(a) an application has been made under paragraph 15 above with respect to an account period of an offshore fund and that application has not been finally determined; or
(b) paragraph (a) above does not apply but notice has been given under paragraph 18(1) above in respect of an account period of an offshore fund and the Board have not yet given notice of their decision as to certification under paragraph 18(4) above.
(1A) Any person who has been assessed to tax and considers that, if the offshore fund were to be certified as a distributing fund in respect of the accounting period in question, he would be overcharged to tax by the assessment may—
(a) first apply in writing to HMRC within 30 days of the date of the issue of the notice of assessment for a determination by them of the amount of tax the payment of which should be postponed pending the determination of the question whether the fund should be so certified;
(b) where such a determination is not agreed, refer the application for postponement to the tribunal within 30 days from the date of the document notifying HMRC's decision on the amount to be postponed.
(2) An application under sub-paragraph (1A) above shall state the amount in which the applicant believes that he is over-charged to tax and his grounds for that belief.
(3) Subsections (3A) onwards of section 55 of the Management Act (recovery of tax not postponed) shall apply with any necessary modifications in relation to an application under sub-paragraph (1) above as if it were an application under subsection (3) of that section and as if the determination of the question as to certification (whether by the Board or on appeal) were the determination of an appeal.
Information as to decisions on certification etc.
20 No obligation as to secrecy imposed by statute or otherwise shall preclude the Board or an inspector from disclosing to any person appearing to have an interest in the matter—
(a) any determination of the Board or (on appeal) the tribunal whether an offshore fund should or should not be certified as a distributing fund in respect of any account period; or
(b) the content and effect of any notice given by the Board under paragraph 15(4) above.
Application of this Schedule in relation to umbrella funds and funds comprising more than one class of interest
21 (1) The Treasury may make provision by regulations as to the application of the provisions of this Schedule in relation to—
(a) a part of an umbrella fund which is treated as an offshore fund under section 756B, or
(b) a class of interest in an offshore fund which is treated as an offshore fund under section 756C.
(2) Regulations under this paragraph may—
(a) make different provision for different cases, and
(b) include such supplementary, incidental, consequential or transitional provisions (including provisions modifying the effect of other enactments) as appear to the Treasury to be necessary or expedient.
PART I DISPOSALS OF INTERESTS IN NON-QUALIFYING FUNDS
Interpretation
1 In this Part of this Schedule “material disposal” means a disposal to which this Chapter applies, otherwise than by virtue of section 758.
Calculation of unindexed gain
2 (1) Where there is a material disposal, there shall first be determined for the purposes of this Part of this Schedule the amount (if any) which, in accordance with the provisions of this paragraph, is the unindexed gain accruing to the person making the disposal.
(2) Subject to section 757(3) to (6) and paragraph 3 below, the unindexed gain accruing on a material disposal is the amount which would be the gain on that disposal for the purposes of the 1992 Act if it were computed—
(a) without regard to any charge to income tax or corporation tax by virtue of section 761; and
(b) without regard to any indexation allowance on the disposal under the 1992 Act.
3 (1) If the amount of any chargeable gain or allowable loss which (apart from section 763) would accrue on the material disposal would fall to be determined in a way which, in whole or in part, would take account of the indexation allowance on an earlier disposal to which section 56(2) of the 1992 Act (disposals on a no gain/no loss basis) applies, the unindexed gain on the material disposal shall be computed as if—
(a) no indexation allowance had been available on any such earlier disposal; and
(b) subject to that, neither a gain nor a loss had accrued to the person making such an earlier disposal.
(2) If the material disposal forms part of a transfer to which section 162 of the 1992 Act (roll-over relief on transfer of business) applies, the unindexed gain accruing on the disposal shall be computed without regard to any deduction which falls to be made under that section in computing a chargeable gain.
(3) If the material disposal is made otherwise than under a bargain at arm’s length and a claim for relief is made in respect of that disposal under section 165 or 260 of the 1992 Act (relief for gifts) the claim shall not affect the computation of the unindexed gain accruing on the disposal.
(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) Notwithstanding section 16 of the 1992 Act (losses determined in like manner as gains) if, apart from this sub-paragraph, the effect of any computation under the preceding provisions of this Part of this Schedule would be to produce a loss, the unindexed gain on the material disposal shall be treated as nil; and accordingly for the purposes of this Part of this Schedule no loss shall be treated as accruing on a material disposal.
(6) Section 431 has effect in relation to sub-paragraph (4) above as if it were included in Chapter I of Part XII.
Gains since 1st January 1984
4 (1) This paragraph applies where—
(a) the interest in the offshore fund which is disposed of by the person making a material disposal was acquired by him before 1st January 1984; or
(b) he is treated by virtue of any provision of sub-paragraphs (3) and (4) below as having acquired the interest before that date.
(2) Where this paragraph applies, there shall be determined for the purposes of this Part of this Schedule the amount which would have been the gain on the material disposal—
(a) on the assumption that, on 1st January 1984, the interest was disposed of and immediately reacquired for a consideration equal to its market value at that time; and
(b) subject to that, on the basis that the gain is computed in like manner as, under paragraphs 2 and 3 above, the unindexed gain on the material disposal is determined;
and that amount is in paragraph 5 below referred to as the “post-1983 gain” on the material disposal.
(3) Where the person making the material disposal acquired the interest disposed of—
(a) on or after 1st January 1984, and
(b) in such circumstances that, by virtue of any enactment other than section 56, 57, 131 or 145 of the 1992 Act (indexation provisions), he and the person from whom he acquired it (“the previous owner”) fell to be treated for the purposes of the 1992 Act as if his acquisition were for a consideration of such an amount as would secure that, on the disposal under which he acquired it, neither a gain nor a loss accrued to the previous owner,
the previous owner’s acquisition of the interest shall be treated as his acquisition of it.
(4) If the previous owner acquired the interest disposed of on or after 1st January 1984 and in circumstances similar to those referred to in sub-paragraph (3) above, his predecessor’s acquisition of the interest shall be treated for the purposes of this paragraph as the previous owner’s acquisition, and so on back through previous acquisitions in similar circumstances until the first such acquisition before 1st January 1984 or, as the case may be, until an acquisition on a material disposal on or after that date.
The offshore income gain
5 (1) Subject to sub-paragraph (2) below, a material disposal gives rise to an offshore income gain of an amount equal to the unindexed gain on that disposal.
(2) In any case where—
(a) paragraph 4 above applies, and
(b) the post-1983 gain on the material disposal is less than the unindexed gain on the disposal,
the offshore income gain to which the disposal gives rise is an amount equal to the post-1983 gain.
PART II DISPOSALS INVOLVING AN EQUALISATION ELEMENT
6 (1) Subject to paragraph 7 below, a disposal to which this Chapter applies by virtue of section 758(3) gives rise to an offshore income gain of an amount equal to the equalisation element relevant to the asset disposed of.
(2) Subject to sub-paragraphs (4) to (6) below, the equalisation element relevant to the asset disposed of by a disposal falling within sub-paragraph (1) above is the amount which would be credited to the equalisation account of the offshore fund concerned in respect of accrued income if, on the date of the disposal, the asset which is disposed of were acquired by another person by way of initial purchase.
(3) In the following provisions of this Part of this Schedule, a disposal falling within sub-paragraph (1) above is referred to as a “disposal involving an equalisation element”.
(4) Where the asset disposed of by a disposal involving an equalisation element was acquired by the person making the disposal after the beginning of the period by reference to which the accrued income referred to in sub-paragraph (2) above is calculated, the amount which, apart from this sub-paragraph, would be the equalisation element relevant to that asset shall be reduced by the following amount, that is to say—
(a) if that acquisition took place on or after 1st January 1984, the amount which, on that acquisition, was credited to the equalisation account of the offshore fund concerned in respect of accrued income or, as the case may be, would have been so credited if that acquisition had been an acquisition by way of initial purchase; and
(b) in any other case, the amount which would have been credited to that account in respect of accrued income if that acquisition had been an acquisition by way of initial purchase taking place on 1st January 1984.
(5) In any case where—
(a) the asset disposed of by a disposal involving an equalisation element was acquired by the person making the disposal at or before the beginning of the period by reference to which the accrued income referred to in sub-paragraph (2) above is calculated, and
(b) that period began before 1st January 1984 and ends after that date,
the amount which, apart from this sub-paragraph, would be the equalisation element relevant to that asset shall be reduced by the amount which would have been credited to the equalisation account of the offshore fund concerned in respect of accrued income if the acquisition referred to in paragraph (a) above had been an acquisition by way of initial purchase taking place on 1st January 1984.
(6) Where there is a disposal involving an equalisation element, then, to the extent that any amount which was or would be credited to the equalisation account of the offshore fund in respect of accrued income, as mentioned in any of sub-paragraphs (2) to (5) above, represents profits from dealing in commodities, within the meaning of paragraph 4 of Schedule 27, one half of that accrued income shall be left out of account in determining under those sub-paragraphs the equalisation element relevant to the asset disposed of by that disposal.
7 (1) For the purposes of this Part of this Schedule, there shall be determined, in accordance with paragraph 8 below, the Part I gain (if any) on any disposal involving an equalisation element.
(2) Notwithstanding anything in paragraph 6 above—
(a) if there is no Part I gain on a disposal involving an equalisation element, that disposal shall not give rise to an offshore income gain; and
(b) if, apart from this paragraph, the offshore income gain on a disposal involving an equalisation element would exceed the Part I gain on that disposal, the offshore income gain to which that disposal gives rise shall be reduced to an amount equal to that Part I gain.
8 (1) On a disposal involving an equalisation element, the Part I gain is the amount (if any) which, by virtue of Part I of this Schedule (as modified by sub-paragraphs (2) to (5) below), would be the offshore income gain on that disposal if it were a material disposal within the meaning of that Part.
(2) For the purposes only of the application of Part I of this Schedule to determine the Part I gain (if any) on a disposal involving an equalisation element, subsections (5) and (6) of section 758 shall have effect as if, in subsection (5), the words “by virtue of subsection (3) above” were omitted.
(3) If a disposal involving an equalisation element is one which, by virtue of any enactment other than section 56, 57, 131 or 145 of the 1992 Act, is treated for the purposes of the 1992 Act as one on which neither a gain nor a loss accrues to the person making the disposal, then, for the purpose only of determining the Part I gain (if any) on the disposal, that enactment shall be deemed not to apply to it (but without prejudice to the application of that enactment to any earlier disposal).
(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Part 3 Supplementary
Application of this Schedule in relation to umbrella funds and funds comprising more than one class of interest
9 (1) The Treasury may make provision by regulations as to the application of the provisions of this Schedule in relation to—
(a) a part of an umbrella fund which is treated as an offshore fund under section 756B, or
(b) a class of interest in an offshore fund which is treated as an offshore fund under section 756C.
(2) Regulations under this paragraph may—
(a) make different provision for different cases, and
(b) include such supplementary, incidental, consequential or transitional provisions (including provisions modifying the effect of other enactments) as appear to the Treasury to be necessary or expedient.
Schedule 28A Change in ownership of company with investment business: deductions
Part I Significant increase in company capital
General
1 The provisions referred to in section 768B(2) for determining whether there is a significant increase in the amount of a company’s capital after a change in the ownership of the company are as follows.
The basic rule
2 There is a significant increase in the amount of a company’s capital if amount B—
(a) exceeds amount A by at least £1 million; or
(b) is at least twice amount A.
Amount A
3 (1) Amount A is the lower of—
(a) the amount of the company’s capital immediately before the change in the ownership; and
(b) the highest 60 day minimum amount for the pre-change year, found in accordance with sub-paragraphs (2) to (6) below.
(2) Find the daily amounts of the company’s capital over the pre-change year.
(3) Take the highest of the daily amounts.
(4) Find out whether there was in the pre-change year a period of 60 days or more in which there was no daily amount lower than the amount taken.
(5) If there was, the amount taken is the highest 60 day minimum amount for the pre-change year.
(6) If there was not, take the next highest of the daily amounts and repeat the process in sub-paragraph (4) above; and so on, until the highest 60 day minimum amount for the pre-change year is found.
(7) In this Part of this Schedule “the pre-change year” means the period of one year ending immediately before the change in the ownership of the company in question.
Amount B
4 (1) Amount B is the highest 60 day minimum amount for the post-change period (finding that amount for that period in the same way as the highest 60 day minimum amount for the pre-change year is found).
(2) In this paragraph “the post-change period” means the period of three years beginning with the change in the ownership of the company in question.
Capital and amounts of capital
5 (1) The capital of a company consists of the aggregate of—
(a) the amount of the paid up share capital of the company;
(b) the amount outstanding of any debts incurred by the company which are of a description mentioned in any of paragraphs (a) to (c) of section 417(7); and
(c) the amount outstanding of any redeemable loan capital issued by the company.
(2) For the purposes of sub-paragraph (1) above—
(a) the amount of the paid up share capital includes any amount in the share premium account of the company (construing “share premium account” in the same way as in section 610 of the Companies Act 2006); and
(b) the amount outstanding of any debts includes any interest due on the debts.
(3) Amounts of capital shall be expressed in sterling and rounded up to the nearest pound.
Part II Amounts in issue for purposes of section 768B
6 The amounts in issue referred to in section 768B(4)(c) are—
(a) the amount of any expenses of management referable to the accounting period (within the meaning of Chapter 2 of Part 16 of CTA 2009) being divided, except any such expenses as would (apart from section 768B) be deductible in computing profits otherwise than under section 1219 of CTA 2009 (expenses of management of a company's investment business);
(b) the amount of any charges which are paid in that accounting period wholly and exclusively for the purposes of the company’s business;
(c) the amount of any excess carried forward under section 1223 of CTA 2009 (expenses of management carried forward) to the accounting period being divided;
(d) the amount of any allowances falling to be made for that accounting period by virtue of section 253 of the Capital Allowances Act which would (apart from section 768B) be added to the expenses of management for that accounting period by virtue of section 1233 of CTA 2009 (excess capital allowances);
(da) the amount (if any) of the adjusted non-trading profits or non-trading deficit of the company for that accounting period (other than one within sub-paragraph (dc) below) ;
(db) the amount of any non-trading debit (other than one within sub-paragraph . . . (dd) below) that falls to be brought into account for that accounting period for the purposes of Part 5 of CTA 2009 (loan relationships) in respect of any debtor relationship of the company;
(dc) the amount of any non-trading deficit carried forward to that accounting period undersection 457(1) of CTA 2009 (carried forward deficit not set off against profits);
(dd) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(de) the amount of any non-trading credits or debits in respect of intangible fixed assets that fall to be brought into account for that period under section 751 of CTA 2009;
(df) the amount of any non-trading loss on intangible fixed assets carried forward to that accounting period under section 753(3) of CTA 2009;
(e) any other amounts by reference to which the profits or losses of that accounting period would (apart from section 768B) be calculated.
6A For the purposes of paragraph 6(da) above, the amount for any accounting period of the adjusted non-trading profits or non-trading deficit of a company is the amount which, as the case may be, would be—
(a) the amount of the profits arising from the company's loan relationships chargeable under section 299 of CTA 2009 (charge to tax on non-trading profits), or
(b) the amount of the company’s non-trading deficit on those relationships for that period,
if, in computing that amount, amounts for that period falling within paragraph 6(db) or (dc) above were disregarded.
Part III Apportionment for purposes of section 768B
7 (1) Subject to paragraph 8 below, the apportionment required by section 768B(4)(c) shall be made—
(a) in the case of the sums mentioned in paragraph 6(a) above, by apportioning to each accounting period the amounts that would fall to be brought into account in that period as such sums, if it were a period of account for which accounts were drawn up in accordance with generally accepted accounting practice;
(aa) in the case of the charges mentioned in paragraph 6(b) above, by reference to the time when the charge is due to be paid;
(b) in the case of the excess mentioned in paragraph 6(c) above, or in the case of the non-trading deficit mentioned in paragraph 6(dc) above, by apportioning the whole amount of the excess or, as the case may be, of the deficit to the first part of the accounting period being divided;
(c) in the case of the amounts mentioned in paragraph 6(d) , (da) and (e) above, by reference to the respective lengths of the parts of the accounting period being divided;
(d) in the case of any such debit as—
(i) is mentioned in paragraph 6(db) above,
(ii) falls to be brought into account for the purposes of Part 5 of CTA 2009 in accordance with an amortised cost basis of accounting, . . .
(iii) so falls to be brought into account otherwise than on the assumption, specified in section 373 of to that Act, that the interest to which it relates does not accrue until it is paid , and
(iv) so falls to be brought into account without any adjustment under sections 406 to 412 of that Act (debit relating to amount of discount referable to the relevant accounting period to be brought into account instead for the accounting period in which the security is redeemed),
by reference to the time of accrual of the amount to which the debit relates;
(e) in the case of any such debit as—
(i) is mentioned in paragraph 6(db) above,
(ii) falls to be brought into account for the purposes of Part 5 of CTA 2009 in accordance with an amortised cost basis of accounting, . . . and
(iii) so falls to be brought into account—
— on the assumption mentioned in paragraph (d)(iii) above, or
— with such an adjustment as is mentioned in paragraph (d)(iv) above,
by apportioning the whole amount of the debit to the first part of the accounting period being divided;
(f) in the case of any such debit as is mentioned in paragraph 6(dd) above, by apportioning the whole amount of the debit to the first part of the accounting period being divided.
(g) in the case of any such credit or debit as is mentioned in paragraph 6(de), by apportioning to each accounting period the credits or debits that would fall to be brought into account in that period if it were a period of account for which accounts were drawn up in accordance with generally accepted accounting practice;
(h) in the case of any such loss as is mentioned in paragraph 6(df) above, by apportioning the whole amount of the loss to the first part of the accounting period being divided.
(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8 If it appears that any method of apportionment given by paragraph 7 above would work unreasonably or unjustly for any case for which it is given, such other method shall be used for that case as appears just and reasonable.
Part IV Excess overdue interest
Part IV Disallowed debits and non-trading deficits
9 (1) This paragraph has effect in a case to which section 768B applies for determining the debits to be brought into account for the purposes of Part 5 of CTA 2009 (loan relationships) for—
(a) the accounting period beginning immediately after the change in the ownership of the company; and
(b) any subsequent accounting period.
(2) The debits so brought into account shall not include the debits falling within paragraph 11 below to the extent (if at all) that the aggregate of—
(a) the amount of those debits, and
(b) the amount of any debits falling within that paragraph which have been brought into account for the purposes of that Part for any previous accounting period ending after the change in the ownership,
exceeds the profits for the accounting period ending with the change in the ownership.
(3) The reference in sub-paragraph (2) above to the profits is a reference to profits after making all deductions and giving all reliefs that for the purposes of corporation tax are made or given against the profits, including deductions and reliefs which under any provision are treated as reducing them for those purposes.
9A (1) This paragraph has effect in any case to which section 768B applies where the non-trading deficit mentioned in paragraph 6(dc) above is apportioned by paragraph 7(b) above to the first part of the accounting period being divided.
(2) In any such case, none of that non-trading deficit shall be carried forward to—
(a) the accounting period beginning immediately after the change in the ownership of the company, or
(b) any subsequent accounting period.
10 (1) This paragraph has effect in a case to which section 768C applies for determining the debits to be brought into account for the purposes of Part 5 of CTA 2009 (loan relationships) for—
(a) the accounting period beginning immediately after the change in the ownership of the relevant company; and
(b) any subsequent accounting period.
(2) The debits so brought into account for any such accounting period shall not include the debits falling within paragraph 11 below to the extent (if at all) that the amount of those debits exceeds the modified total profits for the accounting period.
(3) The reference in sub-paragraph (2) above to the modified total profits for an accounting period is a reference to the total profits for that period—
(a) reduced, if that period is the period in which the relevant gain accrues, by an amount equal to the amount of the total profits for that period which represents the relevant gain; and
(b) after making all deductions and giving all reliefs that for the purposes of corporation tax are made or given against the profits, including deductions and reliefs which under any provision are treated as reducing them for those purposes, other than any reduction by virtue of section 461 of CTA 2009.
(4) Where by virtue of sub-paragraph (2) above a debit is to any extent not brought into account for an accounting period, that debit may (to that extent) be brought into account for the next accounting period, but this is subject to the application of sub-paragraphs (1) to (3) above to that next accounting period.
10A (1) This paragraph has effect in any case to which section 768C applies where the non-trading deficit mentioned in paragraph 13(1)(ec) below is apportioned by paragraph 16(1)(b) below to the first part of the accounting period being divided.
(2) In any such case, none of that non-trading deficit shall be carried forward to—
(a) the accounting period beginning immediately after the change in the ownership of the company, or
(b) any subsequent accounting period.
11 (1) A debit falls within this paragraph if it is a non-trading debit which—
(a) falls to be brought into account for the purposes of Part 5 of CTA 2009 in accordance with an amortised cost basis of accounting;
(b) so falls to be brought into account—
(i) with an adjustment under sections 406 to 412 of that Act (debit relating to amount of discount referable to the relevant accounting period to be brought into account instead for the accounting period in which the security is redeemed); or
(ii) on the assumption, specified in section 373(1) of that Act, that the interest to which it relates does not accrue until it is paid; and
(c) apart from sections 373 and 406 to 412 of that Act, would have fallen to be brought into account for those purposes for an accounting period ending before or with the change in the ownership of the company or, as the case may be, the relevant company.
(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) The debits that fall within this paragraph also include any non-trading debit which—
(a) is not such a debit as is mentioned in sub-paragraph (1) . . . above;
(b) is a debit in respect of a debtor relationship of the company or, as the case may be, the relevant company;
(c) falls to be brought into account for the purposes of Part 5 of CTA 2009 in accordance with an amortised cost basis of accounting; and
(d) relates to an amount that accrued before the change in the ownership of that company.
(4) In this paragraph “post-change accounting period” means the accounting period beginning immediately after the change in the ownership of the company or, as the case may be, the relevant company.
12 Expressions used both in this Part of this Schedule and in Part 5 of CTA 2009 have the same meanings in this Part of this Schedule as in that Chapter.
Part V Amounts in issue for purposes of section 768C
13 (1) The amounts in issue referred to in section 768C(3)(c) are—
(a) the amount which would in accordance with the relevant provisions of the 1992 Act (and apart from section 768C) be included in respect of chargeable gains in the total profits for the accounting period being divided;
(b) the amount of any expenses of management referable to the accounting period (within the meaning of section 75) being divided except any such expenses as would (apart from section 768C) be deductible in computing total profits otherwise than under section 75;
(c) the amount of any charges which are paid in that accounting period wholly and exclusively for the purposes of the company’s business;
(d) the amount of any excess carried forward under section 75(9) to the accounting period being divided;
(e) the amount of any allowances falling to be made for that accounting period by virtue of section 253 of the Capital Allowances Act which would (apart from section 768C) be added to the expenses of management for that accounting period by virtue of section 75(7);
(ea) the amount (if any) of the adjusted non-trading profits or non-trading deficit of the company for that accounting period (other than one within paragraph (ec) below);
(eb) the amount of any non-trading debit (other than one within paragraph . . . (ed) below) that falls to be brought into account for that accounting period for the purposes of Part 5 of CTA 2009 (loan relationships) in respect of any debtor relationship of the company;
(ec) the amount of any non-trading deficit carried forward to that accounting period undersection 457(1) of CTA 2009 (carried forward deficit not set off against profits);
(ed) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(ee) the amount of any non-trading credits or debits in respect of intangible fixed assets that fall to be brought into account for that period under section 751 of CTA 2009;
(ef) the amount of any non-trading loss on intangible fixed assets carried forward to that accounting period under section 753(3) of CTA 2009; and
(f) any other amounts by reference to which the profits or losses of the accounting period being divided would (apart from section 768C) be calculated.
(2) In sub-paragraph (1)(a) above “the relevant provisions of the 1992 Act” means section 8(1) of and Schedule 7A to that Act.
13A Paragraph 6A above shall apply for the purposes of paragraph 13(1)(ea) above as it applies for the purposes of paragraph 6(da) above.
Part VI Apportionment for purposes of section 768C
14 The apportionment required by section 768C(3)(c) shall be made as follows.
15 In the case of the amount mentioned in paragraph 13(1)(a) above—
(a) if it does not exceed the amount of the relevant gain, the whole of it shall be apportioned to the second part of the accounting period being divided;
(b) if it exceeds the amount of the relevant gain, the excess shall be apportioned to the first part of the accounting period being divided and the relevant gain shall be apportioned to the second part.
16 (1) Subject to paragraph 17 below, the apportionment shall be made—
(a) in the case of the sums mentioned in paragraph 13(1)(b) above, by apportioning to each accounting period the amounts that would fall to be brought into account in that period as such sums, if it were a period of account for which accounts were drawn up in accordance with generally accepted accounting practice;
(aa) in the case of the charges mentioned in paragraph 13(1)(c) above, by reference to the time when the charge is due to be paid;
(b) in the case of the excess mentioned in paragraph 13(1)(d) above, or in the case of the non-trading deficit mentioned in paragraph 13(1)(ec) above, by apportioning the whole amount of the excess or, as the case may be, of the deficit to the first part of the accounting period being divided;
(c) in the case of the amounts mentioned in paragraph 13(1)(e) , (ea) and (f) above, by reference to the respective lengths of the parts of the accounting period being divided;
(d) in the case of any such debit as—
(i) is mentioned in paragraph 13(1)(eb) above,
(ii) falls to be brought into account for the purposes of Part 5 of CTA 2009 in accordance with an amortised cost basis of accounting, . . .
(iii) so falls to be brought into account otherwise than on the assumption, specified in section 373(1) of that Act, that the interest to which it relates does not accrue until it is paid , and
(iv) so falls to be brought into account without any adjustment under sections 406 to 412 of that Act (debit relating to amount of discount referable to the relevant accounting period to be brought into account instead for the accounting period in which the security is redeemed),
by reference to the time of accrual of the amount to which the debit relates;
(e) in the case of any such debit as—
(i) is mentioned in paragraph 13(1)(eb) above,
(ii) falls to be brought into account for the purposes of Part 5 of CTA 2009 in accordance with an amortised cost basis of accounting, . . . and
(iii) so falls to brought into account—
— on the assumption mentioned in paragraph (d)(iii) above, or
— with such an adjustment as is mentioned in paragraph (d)(iv) above,
by apportioning the whole amount of the debit to the first part of the accounting period being divided;
(f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(g) in the case of any such credit or debit as is mentioned in paragraph 13(ee), by apportioning to each accounting period the credits or debits that would fall to be brought into account in that period if it were a period of account for which accounts were drawn up in accordance with generally accepted accounting practice;
(h) in the case of any such loss as is mentioned in paragraph 13(ef), by apportioning the whole amount of the loss to the first part of the accounting period being divided.
(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17 If it appears that any method of apportionment given by paragraph 16 above would work unreasonably or unjustly for any case for which it is given, such other method shall be used for that case as appears just and reasonable.
Basic rule on transfer pricing etc.
1 (1) This Schedule applies where—
(a) provision (“the actual provision") has been made or imposed as between any two persons (“the affected persons") by means of a transaction or series of transactions, and
(b) at the time of the making or imposition of the actual provision—
(i) one of the affected persons was directly or indirectly participating in the management, control or capital of the other; or
(ii) the same person or persons was or were directly or indirectly participating in the management, control or capital of each of the affected persons.
(2) Subject to paragraphs 5A, 5B,10 and 13 below and sections 447(5) and (6) and 694(8) and (9) of CTA 2009, if the actual provision—
(a) differs from the provision (“the arm"s length provision’) which would have been made as between independent enterprises, and
(b) confers a potential advantage in relation to United Kingdom taxation on one of the affected persons, or (whether or not the same advantage) on each of them,
the profits and losses of the potentially advantaged person or, as the case may be, of each of the potentially advantaged persons shall be computed for tax purposes as if the arm’s length provision had been made or imposed instead of the actual provision.
(3) For the purposes of this Schedule the cases in which provision made or imposed as between any two persons is to be taken to differ from the provision that would have been made as between independent enterprises shall include the case in which provision is made or imposed as between any two persons but no provision would have been made as between independent enterprises; and references in this Schedule to the arm’s length provision shall be construed accordingly.
Provision in relation to securities: determination of arm’s length provision
1A (1) This paragraph applies where—
(a) both of the affected persons are companies, and
(b) the actual provision is provision in relation to a security issued by one of those companies (“the issuing company”).
(2) Paragraph 1(2)(a) above shall be construed as requiring account to be taken of all factors, including—
(a) the question whether the loan would have been made at all in the absence of the special relationship (see sub-paragraph (6) below),
(b) the amount which the loan would have been in the absence of the special relationship, and
(c) the rate of interest and other terms which would have been agreed in the absence of the special relationship,
but this is subject to the following provisions of this paragraph.
(3) In a case where—
(a) a company makes a loan to another company with which it has a special relationship, and
(b) it is not part of the first company’s business to make loans generally,
the fact that it is not part of the first company’s business to make loans generally shall be disregarded in construing sub-paragraph (2) above.
(4) Paragraph 1(2)(a) above shall be construed as requiring no account to be taken, in the determination of any of the matters mentioned in sub-paragraph (5) below, of (or of any inference capable of being drawn from) any guarantee provided by a company with which the issuing company has a participatory relationship (see sub-paragraphs (7) and (8) below).
(5) The matters are—
(a) the appropriate level or extent of the issuing company’s overall indebtedness;
(b) whether it might be expected that the issuing company and a particular person would have become parties to a transaction involving the issue of a security by the issuing company or the making of a loan, or a loan of a particular amount, to the issuing company;
(c) the rate of interest and other terms that might be expected to be applicable in any particular case to such a transaction.
(6) In this paragraph “special relationship” means any relationship by virtue of which the condition in paragraph 1(1)(b) above is satisfied in the case of the affected persons.
(7) In this paragraph any reference to a guarantee includes a reference to a surety and to any other relationship, arrangements, connection or understanding (whether formal or informal) such that the person making the loan to the issuing company has a reasonable expectation that in the event of a default by the issuing company he will be paid by, or out of the assets of, one or more companies.
(8) For the purposes of this paragraph, the cases where one company has a “participatory relationship”with another are those where—
(a) one of them is directly or indirectly participating in the management, control or capital of the other; or
(b) the same person or persons is or are directly or indirectly participating in the management, control or capital of each of them.
(9) In this paragraph “security” includes securities not creating or evidencing a charge on assets.
(10) For the purposes of this paragraph—
(a) interest payable by a company on money advanced without the issue of a security for the advance, or
(b) other consideration given by a company for the use of money so advanced,
shall be treated as if payable or given in respect of a security issued for the advance by the company, and references in this paragraph to a security shall be construed accordingly.
Guarantees etc
1B (1) This paragraph applies where the actual provision is made or imposed by means of a series of transactions which include—
(a) the issuing of a security by a company which is one of the affected persons (“the issuing company”), and
(b) the provision of a guarantee by a company which is the other of those persons.
(2) Paragraph 1(2)(a) above shall be construed as requiring account to be taken of all factors, including—
(a) the question whether the guarantee would have been provided at all in the absence of the special relationship,
(b) the amount that would have been guaranteed in the absence of the special relationship, and
(c) the consideration for the guarantee and other terms which would have been agreed in the absence of the special relationship,
but this is subject to the following provisions of this paragraph.
(3) In a case where—
(a) a company provides a guarantee in respect of another company with which it has a special relationship, and
(b) it is not part of the first company’s business to provide guarantees generally,
the fact that it is not part of the first company’s business to provide guarantees generally shall be disregarded in construing sub-paragraph (2) above.
(4) Paragraph 1(2)(a) above shall be construed as requiring no account to be taken, in the determination of any of the matters mentioned in sub-paragraph (5) below, of (or of any inference capable of being drawn from) any guarantee provided by a company with which the issuing company has a participatory relationship.
(5) The matters are—
(a) the appropriate level or extent of the issuing company’s overall indebtedness;
(b) whether it might be expected that the issuing company and a particular person would have become parties to a transaction involving the issue of a security by the issuing company or the making of a loan, or a loan of a particular amount, to the issuing company;
(c) the rate of interest and other terms that might be expected to be applicable in any particular case to such a transaction.
(6) The following provisions of paragraph 1A above also apply for the purposes of this paragraph—
(a) sub-paragraph (6) (meaning of special relationship);
(b) sub-paragraph (7) (construction of references to a guarantee);
(c) sub-paragraph (8) (meaning of participatory relationship);
(d) sub-paragraph (9) (meaning of security);
(e) sub-paragraph (10) (extended meaning of security).
Principles for construing rules in accordance with OECD principles
2 (1) This Schedule shall be construed (subject to paragraphs 9 to 11 below and sections 447(5) and (6) and 694(8) and (9) of CTA 2009) in such manner as best secures consistency between—
(a) the effect given to paragraph 1 above; and
(b) the effect which, in accordance with the transfer pricing guidelines, is to be given, in cases where double taxation arrangements incorporate the whole or any part of the OECD model, to so much of the arrangements as does so.
(2) In this paragraph “the OECD model” means—
(a) the rules which, at the passing of this Act, were contained in Article 9 of the Model Tax Convention on Income and on Capital published by the Organisation for Economic Co-operation and Development; or
(b) any rules in the same or equivalent terms.
(3) In this paragraph “the transfer pricing guidelines” means—
(a) all the documents published by the Organisation for Economic Co-operation and Development, at any time before 1st May 1998, as part of their Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations; and
(b) such documents published by that Organisation on or after that date as may for the purposes of this Schedule be designated, by an order made by the Treasury, as comprised in the transfer pricing guidelines.
Meaning of “transaction" and “series of transactions"
3 (1) In this Schedule “transaction” includes arrangements, understandings and mutual practices (whether or not they are, or are intended to be, legally enforceable).
(2) References in this Schedule to a series of transactions include references to a number of transactions each entered into (whether or not one after the other) in pursuance of, or in relation to, the same arrangement.
(3) A series of transactions shall not be prevented by reason only of one or more of the matters mentioned in sub-paragraph (4) below from being regarded for the purposes of this Schedule as a series of transactions by means of which provision has been made or imposed as between any two persons.
(4) Those matters are—
(a) that there is no transaction in the series to which both those persons are parties;
(b) that the parties to any arrangement in pursuance of which the transactions in the series are entered into do not include one or both of those persons; and
(c) that there is one or more transactions in the series to which neither of those persons is a party.
(5) In this paragraph, “arrangement” means any scheme or arrangement of any kind (whether or not it is, or is intended to be, legally enforceable).
Participation in the management, control or capital of a person
4 (1) For the purposes of this Schedule a person is directly participating in the management, control or capital of another person at a particular time if, and only if, that other person is at that time—
(a) a body corporate or a partnership; and
(b) controlled by the first person.
(2) For the purposes of this Schedule a person (“the potential participant”) is indirectly participating in the management, control or capital of another person at a particular time if, and (subject to paragraphs 4A and 6(4C) below) only if—
(a) he would be taken to be directly so participating at that time if the rights and powers attributed to him included all the rights and powers mentioned in sub-paragraph (3) below that are not already attributed to him for the purposes of sub-paragraph (1) above; or
(b) he is, at that time, one of a number of major participants in that other person’s enterprise.
(3) The rights and powers referred to in sub-paragraph (2)(a) above are—
(a) rights and powers which the potential participant is entitled to acquire at a future date or which he will, at a future date, become entitled to acquire;
(b) rights and powers of persons other than the potential participant to the extent that they are rights or powers falling within sub-paragraph (4) below;
(c) rights and powers of any person with whom the potential participant is connected; and
(d) rights and powers which for the purposes of sub-paragraph (2)(a) above would be attributed to a person with whom the potential participant is connected if that connected person were himself the potential participant.
(4) Rights and powers fall within this sub-paragraph to the extent that they—
(a) are required, or may be required, to be exercised in any one or more of the following ways, that is to say—
(i) on behalf of the potential participant;
(ii) under the direction of the potential participant; or
(iii) for the benefit of the potential participant;
and
(b) are not confined, in a case where a loan has been made by one person to another, to rights and powers conferred in relation to property of the borrower by the terms of any security relating to the loan.
(5) In sub-paragraphs (3)(b) to (d) and (4) above, the references to a person’s rights and powers include references to any rights or powers which he either—
(a) is entitled to acquire at a future date, or
(b) will, at a future date, become entitled to acquire.
(6) In paragraph (d) of sub-paragraph (3) above, the reference to rights and powers which would be attributed to a connected person if he were the potential participant includes a reference to rights and powers which, by applying that paragraph wherever one person is connected with another, would be so attributed to him through a number of persons each of whom is connected with at least one of the others.
(7) For the purposes of this paragraph a person (“the potential major participant”) is a major participant in another person’s enterprise at a particular time if at that time—
(a) that other person (“the subordinate”) is a body corporate or partnership; and
(b) the 40 per cent. test is satisfied in the case of each of two persons who, taken together, control the subordinate and of whom one is the potential major participant.
(8) For the purposes of this paragraph the 40 per cent. test is satisfied in the case of each of two persons wherever each of them has interests, rights and powers representing at least 40 per cent. of the holdings, rights and powers in respect of which the pair of them fall to be taken as controlling the subordinate.
(9) For the purposes of this paragraph—
(a) the question whether a person is controlled by any two or more persons taken together, and
(b) any question whether the 40 per cent. test is satisfied in the case of a person who is one of two persons,
shall be determined after attributing to each of the persons all the rights and powers attributed to a potential participant for the purposes of sub-paragraph (2)(a) above.
(10) References in this paragraph—
(a) to rights and powers of a person, or
(b) to rights and powers which a person is or will become entitled to acquire,
include references to rights or powers which are exercisable by that person, or (when acquired by that person) will be exercisable, only jointly with one or more other persons.
(11) For the purposes of this paragraph two persons are connected with each other if—
(a) one of them is an individual and the other is his spouse or civil partner, a relative of his or of his spouse or civil partner, or the spouse or civil partner of such a relative; or
(b) one of them is a trustee of a settlement and the other is—
(i) a person who in relation to that settlement is a settlor; or
(ii) a person who is connected with a person falling within sub-paragraph (i) above.
(12) In sub-paragraph (11) above—
“relative” means brother, sister, ancestor or lineal descendant; and
“settlement” and “settlor” have the same meanings as in section 620 of ITTOIA 2005.
Persons acting together in relation to financing arrangements
4A (1) A person (“P”) shall be treated for the purposes of paragraph 1(1)(b)(i) above (but subject to sub-paragraph (7) below) as indirectly participating in the management, control or capital of another (“A”) at the time of the making or imposition of the actual provision if—
(a) the actual provision relates, to any extent, to financing arrangements for A;
(b) A is a body corporate or partnership;
(c) P and other persons acted together in relation to the financing arrangements; and
(d) P would be taken to have control of A if, at any relevant time, there were attributed to P the rights and powers of each of the other persons mentioned in paragraph (c) above.
(2) A person (“Q”) shall be treated for the purposes of paragraph 1(1)(b)(ii) above (but subject to sub-paragraph (7) below) as indirectly participating in the management, control or capital of each of the affected persons at the time of the making or imposition of the actual provision if—
(a) the actual provision relates, to any extent, to financing arrangements for one of the affected persons (“B”);
(b) B is a body corporate or partnership;
(c) Q and other persons acted together in relation to the financing arrangements; and
(d) Q would be taken to have control of both B and the other affected person if, at any relevant time, there were attributed to Q the rights and powers of each of the other persons mentioned in paragraph (c) above.
(3) It is immaterial for the purposes of sub-paragraph (1)(c) or (2)(c) above whether P or Q and the other persons acting together in relation to the financing arrangements did so at the time of the making or imposition of the actual provision or at some earlier time.
(4) In sub-paragraph (1)(d) or (2)(d) “relevant time” means—
(a) a time when P or Q and the other persons were acting together in relation to the financing arrangements; or
(b) a time in the period of six months beginning with the day on which they ceased so to act.
(5) In determining for the purposes of sub-paragraph (1)(d) or (2)(d) whether P or Q would be taken to have control of another person, the rights and powers of any person (and not just P or Q) shall be taken to include those that would be attributed to that person in determining under paragraph 4 above whether he is indirectly participating in the management, control or capital of the other person.
(6) In this paragraph “financing arrangements” means arrangements made for providing or guaranteeing, or otherwise in connection with, any debt, capital or other form of finance.
(7) Where the condition in paragraph 1(1)(b) above would not be satisfied but for this paragraph, paragraph 1(2) above applies only to the extent that the actual provision relates to the financing arrangements in question.
Financing arrangements: anticipatory provision
4B (1) To the extent that it applies to provision relating to financing arrangements, this Schedule has effect as if in paragraph 1(1)(b) above the words “or within the period of six months beginning with the day on which the actual provision was made or imposed” were inserted immediately before sub-paragraph (i).
(2) In this paragraph “financing arrangements” has the same meaning as in paragraph 4A above.
Advantage in relation to United Kingdom taxation
5 (1) For the purposes of this Schedule . . . the actual provision confers a potential advantage on a person in relation to United Kingdom taxation wherever, disregarding this Schedule, the effect of making or imposing the actual provision, instead of the arm’s length provision, would be one or both of the following, that is to say—
(a) that a smaller amount (which may be nil) would be taken for tax purposes to be the amount of that person’s profits for any chargeable period; or
(b) that a larger amount (or, if there would not otherwise have been losses, any amount of more than nil) would be taken for tax purposes to be the amount for any chargeable period of any losses of that person.
(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(7) In determining for the purposes of sub-paragraph (1) above the amount that would be taken for tax purposes to be the amount of the profits or losses for a year of assessment in the case of a person who is not resident in the United Kingdom, there shall be left out of account any income of that person which is—
(a) disregarded income within the meaning given by section 813 of ITA 2007 (limits on liability to income tax of non-UK residents), or
(b) disregarded company income within the meaning given by section 816 of that Act.
(8) For the purposes of sub-paragraph (1) section 209(2)(d) (excessive interest etc treated as distribution) is to be disregarded.
(9) For the purposes of sub-paragraph (1), Schedule 15 to FA 2009 (tax treatment of financing costs and income) is to be disregarded.
Exemption for dormant companies
5A (1) Paragraph 1(2) above does not apply in computing for any chargeable period the profits and losses of a potentially advantaged person if that person is a company which satisfies the condition in sub-paragraph (2) below.
(2) The condition is that—
(a) the company was dormant throughout the pre-qualifying period, and
(b) apart from paragraph 1 above, the company has continued to be dormant at all times since the end of the pre-qualifying period.
(3) In sub-paragraph (2) above “the pre-qualifying period” means—
(a) if there is an accounting period of the company that ends on 31st March 2004, that accounting period, or
(b) if there is no such accounting period, the period of 3 months ending with that date.
(4) In this paragraph “dormant” has the same meaning as in section 1169 of the Companies Act 2006.
Exemption for small or medium-sized enterprises
5B (1) Paragraph 1(2) above does not apply in computing for any chargeable period the profits and losses of a potentially advantaged person if that person is a small or medium-sized enterprise for that chargeable period (see paragraph 5D below).
(2) Exceptions to sub-paragraph (1) above are provided—
(a) in the case of a small enterprise, by sub-paragraphs (3) and (4) below, and
(b) in the case of a medium-sized enterprise, by sub-paragraphs (3) and (4) and paragraph 5C below.
(3) The first exception is where the small or medium-sized enterprise elects for sub-paragraph (1) above not to apply in relation to the chargeable period.
Any such election is irrevocable.
(4) The second exception is where, at the time when the actual provision is or was made or imposed,—
(a) the other affected person, or
(b) a party to a relevant transaction (see sub-paragraph (5) below),
is a resident (see sub-paragraph (6) below) of a non-qualifying territory (whether or not that person is also a resident of a qualifying territory).
(5) For the purposes of sub-paragraph (4) above, a “party to a relevant transaction” is a person who, in a case where the actual provision is or was imposed by means of a series of transactions, is or was a party to one or more of those transactions.
(6) In this paragraph “resident”, in relation to a territory,—
(a) means a person who, under the laws of that territory, is liable to tax there by reason of his domicile, residence or place of management, but
(b) does not include a person who is liable to tax in that territory in respect only of income from sources in that territory or capital situated there.
(7) The definitions of “qualifying territory” and “non-qualifying territory” are in paragraph 5E below.
Additional provisions for medium-sized enterprises
5C (1) Paragraph 5B(1) above does not apply as respects any provision made or imposed if—
(a) the potentially advantaged person in question is a medium-sized enterprise for the chargeable period in question, and
(b) the Board gives that person a notice under this sub-paragraph (a “transfer pricing notice”) requiring him to compute the profits and losses of that chargeable period in accordance with paragraph 1(2) above in the case of that provision.
(2) A transfer pricing notice may be given in respect of —
(a) any provision specified, or of a description specified, in the notice, or
(b) every provision in relation to which the assumption in paragraph 1(2) above would fall to be made apart from paragraph 5B(1) above.
(3) A transfer pricing notice may be given only after a notice of enquiry has been given to the potentially advantaged person in respect of his tax return for the chargeable period.
(4) A transfer pricing notice must identify the officer of the Board to whom any notice of appeal under this paragraph is to be given.
(5) A person to whom a transfer pricing notice is given may appeal against the decision to give the notice, but only on the grounds that the condition in sub-paragraph (1)(a) above is not satisfied.
(6) Any such appeal must be brought by giving written notice of appeal to the officer of the Board identified for the purpose in the transfer pricing notice in accordance with sub-paragraph (4) above.
(7) The notice of appeal must be given before the end of the period of 30 days beginning with the day on which the transfer pricing notice is given.
(8) A person to whom a transfer pricing notice is given may amend his tax return for the purpose of complying with the notice at any time before the end of the period of 90 days beginning with—
(a) the day on which the notice is given, or
(b) if he appeals against the notice, the day on which the appeal is finally determined or abandoned.
(9) Where a transfer pricing notice is given in the case of any tax return, no closure notice may be given in relation to that tax return until—
(a) the end of the period of 90 days specified in sub-paragraph (8) above, or
(b) the earlier amendment of the tax return for the purpose of complying with the notice.
(10) So far as relating to any provision made or imposed by or in relation to a person—
(a) who is a medium-sized enterprise for a chargeable period,
(b) who does not make an election under paragraph 5B(3) above for that period, and
(c) who is not excepted from paragraph 5B(1) above by virtue of paragraph 5B(4) above in relation to that provision for that period,
the tax return required to be made for that period is a return that disregards paragraph 1(2) above.
(11) Sub-paragraph (10) above does not prevent a tax return for a period becoming incorrect if, in the case of any provision made or imposed,—
(a) a transfer pricing notice is given which has effect in relation to that provision for that period,
(b) the return is not amended in accordance with sub-paragraph (8) above for the purpose of complying with the notice, and
(c) the return ought to have been so amended.
(12) In this paragraph—
“closure notice” means a notice under—
section 28A or 28B of the Management Act, or
paragraph 32 of Schedule 18 to the Finance Act 1998;
“company tax return” means the return required to be delivered pursuant to a notice under paragraph 3 of Schedule 18 to the Finance Act 1998, as read with paragraph 4 of that Schedule;
“notice of enquiry” means a notice under—
section 9A or 12AC of the Management Act, or
paragraph 24 of Schedule 18 to the Finance Act 1998;
“tax return” means—
a return under section 8, 8A or 12AA of the Management Act, or
a company tax return.
Meaning of “small enterprise” and “medium-sized enterprise”
5D (1) In this Schedule—
(a) “small enterprise” means a small enterprise as defined in the Annex to the Commission Recommendation,
(b) “medium-sized enterprise” means an enterprise which—
(i) falls within the category of micro, small and medium-sized enterprises as defined in that Annex, and
(ii) is not a small enterprise as defined in that Annex,
but for these purposes that Annex has effect with the modifications set out in sub-paragraphs (3) to (6) of this paragraph.
(2) In this paragraph—
“the Annex” means the Annex to the Commission Recommendation;
“the Commission Recommendation” means Commission Recommendation 2003/361/EC of 6th May 2003 (concerning the definition of micro, small and medium-sized enterprises).
(3) Where any enterprise is in liquidation or administration, the rights of the liquidator or administrator (in that capacity) shall be left out of account when applying Article 3(3)(b) of the Annex in determining for the purposes of this Schedule whether—
(a) that enterprise, or
(b) any other enterprise (including that of the liquidator or administrator),
is a small or medium-sized enterprise.
(4) Article 3 of the Annex shall have effect with the omission of paragraph 5 (declaration in good faith where control cannot be determined etc).
(5) The first sentence of Article 4(1) of the Annex shall have effect as if the data to apply to—
(a) the headcount of staff, and
(b) the financial amounts,
were the data relating to the chargeable period in paragraph 5B(1) above (instead of the period described in that sentence) and calculated on an annual basis.
(6) Article 4 of the Annex shall have effect with the omission of the following provisions—
(a) the second sentence of paragraph 1 (data to be taken into account from date of closure of accounts);
(b) paragraph 2 (no change of status unless ceilings exceeded for two consecutive periods);
(c) paragraph 3 (bona fide estimate in case of newly established enterprise).
Meaning of “qualifying territory” and “non-qualifying territory”
5E (1) In this Schedule—
“non-qualifying territory” means any territory which is not a qualifying territory;
“qualifying territory” means—
the United Kingdom, or
any territory as respects which Condition 1 or Condition 2 below is satisfied.
(2) Condition 1 is that—
(a) arrangements to which section 788 applies (double taxation relief by agreement with other territories) have been made in relation to the territory;
(b) those arrangements contain a non-discrimination provision (see sub-paragraphs (4) and (5) below); and
(c) the territory is not designated as a non-qualifying territory for the purposes of this sub-paragraph in regulations made by the Treasury.
(3) Condition 2 is that—
(a) arrangements to which section 788 applies have been made in relation to the territory; and
(b) the territory is designated as a qualifying territory for the purposes of this sub-paragraph in regulations made by the Treasury.
(4) For the purposes of this paragraph a “non-discrimination provision”, in relation to any arrangement to which section 788 applies, is a provision to the effect that nationals of a state which is a party to those arrangements (a “contracting state”) are not to be subject in any other contracting state to—
(a) any taxation, or
(b) any requirement connected with taxation,
which is other or more burdensome than the taxation and connected requirements to which nationals of that other state in the same circumstances (in particular with respect to residence) are or may be subjected.
(5) In this paragraph, “national”, in relation to a contracting state, includes—
(a) any individual possessing the nationality or citizenship of the contracting state,
(b) any legal person, partnership or association deriving its status as such from the laws in force in that contracting state.
(6) A statutory instrument containing regulations under this paragraph shall not be made unless a draft of the instrument has been laid before, and approved by a resolution of, the House of Commons.
Elimination of double counting
6 (1) This paragraph applies where—
(a) only one of the affected persons (“the advantaged person”) is a person on whom a potential advantage in relation to United Kingdom taxation is conferred by the actual provision; and
(b) the other affected person (“the disadvantaged person”) is within the charge to income tax or corporation tax in respect of profits arising from the relevant activities.
(2) Subject to sub-paragraphs (3) to (6) and paragraphs6C, 6D, 7 and 8 below, on the making of a claim by the disadvantaged person for the purposes of this paragraph—
(a) the profits and losses of the disadvantaged person shall be computed for tax purposes as if the arm’s length provision had been made or imposed instead of the actual provision; and
(b) notwithstanding any limit in the Tax Acts on the time within which any adjustment may be made, all such adjustments shall be made in his case as may be required to give effect to the assumption that the arm’s length provision was made or imposed instead of the actual provision.
(3) A claim made by the disadvantaged person for the purposes of this paragraph—
(a) shall not be made unless a computation has been made in the case of the advantaged person on the basis that the arm’s length provision was made or imposed instead of the actual provision; and
(b) must be consistent with the computation made on that basis in the case of the advantaged person.
(4) For the purposes of sub-paragraph (3) above a computation shall be taken to have been made in the case of the advantaged person on the basis that the arm’s length provision was made or imposed instead of the actual provision if, and only if—
(a) the computations made for the purposes of any return by the advantaged person have been made on that basis by virtue of this Schedule; or
(b) a relevant notice given to the advantaged person takes account of a determination in pursuance of this Schedule of an amount falling to be brought into account for tax purposes on that basis.
(4A) A claim by the disadvantaged person for the purposes of this paragraph shall not be made where—
(a) the condition in paragraph 1(1)(b) above would not be satisfied but for paragraph 4A above;
(b) the actual provision is provision in relation to a security issued by one of the affected persons (“the issuer”);
(c) a guarantee is provided in relation to the security by a person with whom the issuer has a participatory relationship.
In this sub-paragraph “security” and “guarantee” have the same meaning as in paragraph 1A above.
(4B) For the purposes of sub-paragraph (4A) above, the cases where one person has a “participatory relationship” with another are those where—
(a) one of them is directly or indirectly participating in the management, control or capital of the other; or
(b) the same person or persons is or are directly or indirectly participating in the management, control or capital of each of them.
(4C) Paragraph 4A above applies for the purposes of sub-paragraph (4B) above as it applies for the purposes of paragraph 1(1)(b) above.
(5) Subject to section 111(3)(b) of the Finance Act 1998 (which provides for the extension of the period for making a claim), a claim for the purposes of this paragraph shall not be made except within one of the following periods—
(a) in a case where a return has been made by the advantaged person on the basis mentioned in sub-paragraph (3)(a) above, the period of two years beginning with the day of the making of the return; and
(b) in any case where a relevant notice taking account of such a determination as is mentioned in sub-paragraph (4)(b) above has been given to the advantaged person, the period of two years beginning with the day on which that notice was given.
(6) Subject to section 111(3)(b) of the Finance Act 1998, where—
(a) a claim for the purposes of this paragraph is made by the disadvantaged person in relation to a return made on the basis mentioned in sub-paragraph (3)(a) above, and
(b) a relevant notice taking account of such a determination as is mentioned in sub-paragraph (4)(b) above is subsequently given to the advantaged person,
the disadvantaged person shall be entitled, within the period mentioned in sub-paragraph (5)(b) above, to make any such amendment of the claim as may be appropriate in consequence of the determination contained in that notice.
(7) In this paragraph—
“relevant notice” means—
a closure notice under section 28A(1) or 28B(1) of the Management Act in relation to an enquiry into a return under section 8 or 8A of that Act or into a partnership return;
a closure notice under paragraph 32 of Schedule 18 to the Finance Act 1998 in relation to an enquiry into a company tax return;
a notice of an assessment under section 29 of the Management Act;
a notice of any discovery assessment or discovery determination under paragraph 41 of Schedule 18 to the Finance Act 1998 (including any notice of an assessment by virtue of paragraph 52 of that Schedule);
a notice under section 30B(1) of the Management Act amending a partnership return;
“return” means any return required to be made under the Management Act or Schedule 18 to the Finance Act 1998 for income tax or corporation tax purposes or any voluntary amendment of such a return; and
“voluntary amendment”, in relation to a return, means —
an amendment under section 9ZA or 12ABA of the Management Act (amendment of personal, trustee or partnership return by taxpayer), or
an amendment under Schedule 18 to the Finance Act 1998 other than one made in response to the giving of a relevant notice.
Application of paragraph 6 in relation to transfers of trading stock etc
6A (1) Paragraph 6(2)(a) above does not affect the credits to be brought into account by the disadvantaged person in respect of—
(a) closing trading stock, or
(b) closing work in progress in a trade,
for accounting periods ending on or after the last day of the relevant accounting period of the advantaged person.
(2) For the purposes of sub-paragraph (1) above, the relevant accounting period of the advantaged person is the accounting period in which the actual provision was made or imposed.
(3) For the purposes of this paragraph “trading stock”, in relation to any trade, has the meaning given by section 174 of ITTOIA 2005 or section 163 of CTA 2009.
Compensating adjustment where advantaged person is a controlled foreign company
6B (1) This paragraph applies in any case where—
(a) the actual provision is provision made or imposed in relation to a controlled foreign company,
(b) in determining for the purposes of Chapter 4 of Part 17 the amount of that company’s chargeable profits for an accounting period, its profits and losses fall to be computed in accordance with paragraph 1(2) above in the case of that provision,
(c) the whole of those chargeable profits fall to be apportioned under section 747(3) to one or more companies resident in the United Kingdom, and
(d) tax is chargeable by virtue of section 747(4) in respect of the whole of those chargeable profits, as so apportioned to those companies.
(2) Where this paragraph applies, paragraph 6 above shall have effect as if the controlled foreign company were a person on whom a potential advantage in relation to United Kingdom taxation were conferred by the actual provision.
(3) In the application of paragraph 6 above by virtue of this paragraph—
(a) references to the advantaged person in sub-paragraphs (4)(a) and (b), (5)(a) and (b) and (6)(b) of that paragraph include a reference to any of the companies mentioned in sub-paragraph (1)(c) above, and
(b) references to corporation tax include a reference to tax chargeable by virtue of section 747(4).
(4) In this paragraph—
“controlled foreign company” has the same meaning as in Chapter 4 of Part 17;
“accounting period”, in relation to a controlled foreign company, has the same meaning as in Chapter 4 of Part 17.
Claims under paragraph 6 where paragraph 1A applies
6C (1) Where paragraph 1A above applies in relation to any provision, this paragraph has effect in relation to that provision.
(2) A claim under paragraph 6(2) above may be made in accordance with this paragraph.
For the purposes of this Schedule a “paragraph 6C claim” is a claim under paragraph 6(2) above made in accordance with this paragraph.
(3) A paragraph 6C claim may be made by—
(a) the disadvantaged person, or
(b) the advantaged person,
but any such claim made by the advantaged person shall be taken to be made on behalf of the disadvantaged person.
(4) A paragraph 6C claim may be made before or after a computation falling within paragraph 6(3)(a) above has been made.
(5) A paragraph 6C claim must be made either—
(a) at any time before the end of the period mentioned in paragraph 6(5)(a) above, or
(b) within the period mentioned in paragraph 6(5)(b) above,
but this is subject to section 111(3)(b) of the Finance Act 1998 (extension of period for making a claim).
(6) A paragraph 6C claim is not a claim within paragraph 57 or 58 of Schedule 18 to the Finance Act 1998 (company tax returns, assessments and related matters).
Accordingly, paragraph 59 of that Schedule (application of Schedule 1A to the Management Act) has effect in relation to a paragraph 6C claim.
(7) Where—
(a) a paragraph 6C claim is made before a computation falling within paragraph 6(3)(a) above has been made,
(b) such a computation is subsequently made, and
(c) the claim is not consistent with the computation,
the affected persons shall be treated as if (instead of the claim actually made) a claim had been made that was consistent with the computation.
(8) All such adjustments shall be made (whether by discharge or repayment of tax, the making of assessments or otherwise) as are required to give effect to sub-paragraph (7) above.
(9) Sub-paragraph (8) above has effect notwithstanding any limit on the time within which any adjustment may be made.
(10) Where—
(a) a paragraph 6C claim is made,
(b) a return is subsequently made by the advantaged person on the basis mentioned in paragraph 6(3)(a) above, and
(c) a relevant notice (within the meaning of paragraph 6 above) taking account of such a determination as is mentioned in paragraph 6(4)(b) above is subsequently given to the advantaged person,
sub-paragraph (11) below applies.
(11) Where this sub-paragraph applies, any such amendment of the paragraph 6C claim as may be appropriate in consequence of the determination contained in the relevant notice may be made by—
(a) the disadvantaged person, or
(b) the advantaged person,
but any such amendment made by the advantaged person shall be taken to be made on behalf of the disadvantaged person.
(12) Any such amendment must be made within the period mentioned in paragraph 6(5)(b) above.
But that is subject to section 111(3)(b) of the Finance Act 1998 (extension of period for making amendment).
Compensating adjustment for guarantor company etc where paragraph 1B applies
6D (1) This paragraph applies in any case where—
(a) a company (“the issuing company”) has liabilities under a security issued by the company,
(b) those liabilities are to any extent the subject of a guarantee provided by a company (“the guarantor company”), and
(c) in computing the profits and losses of the issuing company for tax purposes, the amounts to be deducted in respect of interest or other amounts payable under the security fall to be reduced (whether or not to nil) under paragraph 1(2) above by virtue of paragraph 1B above.
(2) On the making of a claim in any such case, the guarantor company shall, to the extent of that reduction, be treated for all purposes of the Taxes Acts as if it (and not the issuing company)—
(a) had issued the security,
(b) owed the liabilities under it, and
(c) had paid any interest or other amounts paid under it by the issuing company,
and in computing the profits and losses of the guarantor company for those purposes amounts shall be brought into account accordingly.
This sub-paragraph is subject to the following provisions of this paragraph.
(3) Where the issuing company’s liabilities under the security are the subject of two or more guarantees (whether or not provided by the same person) TD must not exceed TR, where—
TD is the total of the amounts brought into account by the guarantor companies by virtue of sub-paragraph (2) above, and
TR is the total amount of the reductions that fall within sub-paragraph (1)(c) above.
(4) In this paragraph “the loan provision” means the actual provision made or imposed between—
(a) the issuing company, and
(b) another company (“the lending company”),
which is provision in relation to the security.
(5) Where—
(a) the guarantor company makes a claim under sub-paragraph (2) above, and
(b) the lending company makes a claim under paragraph 6 above in respect of the loan provision,
sub-paragraphs (6) and (7) below apply.
(6) In determining, in a case where this sub-paragraph applies, the arm’s length provision for the purposes of paragraph 6(2)(a) above in relation to the lending company’s claim, additional amounts shall be brought into account as credits corresponding to the debits that fall to be brought into account by virtue of sub-paragraph (2) above in relation to the guarantor company.
(7) If, in a case where this sub-paragraph applies,—
(a) the lending company makes its claim under paragraph 6 above before the guarantor company makes its claim under sub-paragraph (2) above, and
(b) the computation on which the lending company’s claim is based does not comply with sub-paragraph (6) above,
the guarantor company’s claim shall be disallowed.
(8) A claim under sub-paragraph (2) above may be made by—
(a) the guarantor company,
(b) where there are two or more guarantor companies, those companies acting together, or
(c) the issuing company,
but any claim made by the issuing company shall be taken to be made on behalf of the guarantor company or companies.
(9) Sub-paragraphs (3) to (6) of paragraph 6 above (claims and time limits) shall apply in relation to a claim under sub-paragraph (2) above made by or on behalf of any person or persons as they apply in relation to a claim under that paragraph made by the disadvantaged person, but taking references in those sub-paragraphs—
(a) to the advantaged person, as references to the issuing company, and
(b) to the disadvantaged person, as references to the guarantor company or companies.
(10) The following provisions of paragraph 1A above also apply for the purposes of this paragraph—
(a) sub-paragraph (7) (construction of references to a guarantee);
(b) sub-paragraph (9) (meaning of security);
(c) sub-paragraph (10) (extended meaning of security).
(11) In this paragraph “the Taxes Acts” has the meaning given in section 118(1) of the Management Act.
Certain interest not to be regarded as chargeable
6E Where—
(a) interest is paid by any person under the actual provision,
(b) paragraph 1(2) above applies in relation to the actual provision,
(c) the amount of interest that would have been payable under the arm’s length provision is less than the amount of interest paid under the actual provision (or there would not have been any interest payable),
(d) the person receiving the interest makes a claim under paragraph 6 above or a paragraph 6C claim,
the interest paid under the actual provision, to the extent that it exceeds the amount of interest that would have been payable under the arm’s length provision, shall not be regarded as chargeable under . . . Chapter 2 of Part 4 of ITTOIA 2005or required to be brought into account under Part 5 of CTA 2009 as a non-trading creditand shall not be subject to the provisions of Part 15 of ITA 2007 (deduction of income tax at source).
Adjustment of disadvantaged person’s double taxation relief
7 (1) Subject to sub-paragraph (4) below, where—
(a) a claim is made for the purposes of paragraph 6 above, and
(b) the disadvantaged person is entitled, on that claim, to make a computation, or to have an adjustment made in his case, on the basis that the arm’s length provision was made or imposed instead of the actual provision,
the assumptions specified in sub-paragraph (2) below shall apply, in the disadvantaged person’s case, as respects any credit for foreign tax which the disadvantaged person has been or may be given in pursuance of any double taxation arrangements or under section 790(1).
(2) Those assumptions are—
(a) that the foreign tax paid or payable by the disadvantaged person does not include any amount of foreign tax which would not be or have become payable were it to be assumed for the purposes of that tax that the arm’s length provision had been made or imposed instead of the actual provision; and
(b) that the amount of the relevant profits of the disadvantaged person in respect of which he is given credit for foreign tax does not include the amount (if any) by which his relevant profits are treated as reduced in accordance with paragraph 6 above.
(3) Sub-paragraph (4) below applies if—
(a) a claim is made for the purposes of paragraph 6 above;
(b) the disadvantaged person is entitled, on that claim, to make a computation, or to have an adjustment made in his case, on the basis that the arm’s length provision was made or imposed instead of the actual provision;
(c) the application of that basis in the computation of the disadvantaged person’s profits or losses for any chargeable period involves a reduction in the amount of any income; and
(d) that income is also income that falls to be treated as reduced in accordance with section 811(1).
(4) Where this sub-paragraph applies—
(a) the reduction mentioned in sub-paragraph (3)(c) above shall be treated as made before any reduction under section 811(1); and
(b) tax paid, in the place in which any income arises, on so much of that income as is represented by the amount of the reduction mentioned in sub-paragraph (3)(c) above shall be disregarded for the purposes of section 811(1).
(5) Where, in a case in which a claim has been made for the purposes of paragraph 6 above, any adjustment is required to be made for the purpose of giving effect to any of the preceding provisions of this paragraph—
(a) it may be made in any case by setting the amount of the adjustment against any relief or repayment to which the disadvantaged person is entitled in pursuance of that claim; and
(b) nothing in the Tax Acts limiting the time within which any assessment is to be or may be made or amended shall prevent that adjustment from being so made.
(6) References in this paragraph to relevant profits of the disadvantaged person are references to profits arising to the disadvantaged person from the carrying on of the relevant activities.
Balancing payments between affected persons: no charge to, or relief from, tax
7A (1) This paragraph applies where—
(a) the circumstances are as described in paragraph 6(1) above,
(b) one or more payments (the “balancing payments”) are made to the advantaged person by the disadvantaged person, and
(c) the sole or main reason for making those payments is that paragraph 1(2) above applies.
(2) To the extent that the balancing payments do not in the aggregate exceed the amount of the available compensating adjustment, those payments—
(a) shall not be taken into account in computing profits or losses of either of the affected persons for the purposes of income tax or corporation tax, and
(b) shall not for any of the purposes of the Corporation Tax Acts be regarded as distributions . . . .
(3) In this paragraph “the available compensating adjustment” means the difference between PL1 and PL2 where—
PL1 is the profits and losses of the disadvantaged person computed for tax purposes on the basis of the actual provision, and
PL2 is the profits and losses of the disadvantaged person as they fall (or would fall) to be computed for tax purposes on a claim under paragraph 6 above,
for this purpose taking PL1 or PL2 as a positive amount if it is an amount of profits and as a negative amount if it is an amount of losses.
Securities: election to discharge tax liability instead of making balancing payments
7B (1) This paragraph applies in any case where—
(a) both of the affected persons are companies,
(b) the circumstances are as described in paragraph 6(1) above, and
(c) the actual provision is provision in relation to a security (the “relevant security”).
(2) The disadvantaged person may make an election under this paragraph in respect of the relevant security if the condition in sub-paragraph (3) below is satisfied.
(3) The condition is that—
(a) the actual provision forms part of a capital market arrangement,
(b) the capital market arrangement involves the issue of a capital market investment,
(c) the securities that represent the capital market investment are issued wholly or mainly to independent persons (see sub-paragraph (9) below), and
(d) the total value of the capital market investments made under the capital market arrangement is at least £50 million.
(4) An election under this paragraph in respect of the relevant security is an election for the disadvantaged person—
(a) to make no balancing payment within paragraph 7A above to the advantaged person in respect of the application of paragraph 1(2) above in relation to the relevant security in a chargeable period by virtue of paragraph 1A above, but
(b) instead, to undertake sole responsibility for discharging the advantaged person’s liability to tax for that period so far as resulting from the application of paragraph 1(2) above in relation to the relevant security by virtue of paragraph 1A above.
(5) Where an election under this paragraph has effect in relation to an accounting period of the advantaged person, the tax mentioned in sub-paragraph (4)(b) above—
(a) shall be recoverable from the disadvantaged person as if it were an amount of corporation tax due and owing from that person, and
(b) shall not be recoverable from the advantaged person.
(6) Any election under this paragraph in respect of the relevant security—
(a) must be made by being included (whether by amendment or otherwise) in the disadvantaged person’s company tax return for the chargeable period in which the relevant security is issued,
(b) has effect in relation to each of the affected persons for the chargeable period in which the relevant security is issued and all subsequent chargeable periods, and
(c) is irrevocable.
For the purposes of this sub-paragraph a security issued in a chargeable period beginning before 1st April 2004 shall be treated as if it had been issued in the chargeable period beginning on that date.
(7) An election under this paragraph by a person is of no effect if the Board give that person a notice under this sub-paragraph refusing to accept the election.
(8) A notice under sub-paragraph (7) above may be given only after a notice of enquiry in respect of the company tax return containing the election has been given to the disadvantaged person.
(9) In this paragraph—
“capital market arrangement” has the same meaning as in section 72B(1) of the Insolvency Act 1986 (see paragraph 1 of Schedule 2A to that Act);
“capital market investment” has the same meaning as in section 72B(1) of the Insolvency Act 1986 (see paragraphs 2 and 3 of Schedule 2A to that Act);
“company tax return” means the return required to be delivered pursuant to a notice under paragraph 3 of Schedule 18 to the Finance Act 1998, as read with paragraph 4 of that Schedule;
“independent person” means a person—
who is not the disadvantaged person, and
who does not have a participatory relationship with either of the affected persons.
(10) The following provisions of paragraph 1A above also apply for the purposes of this paragraph—
(a) sub-paragraph (8) (meaning of participatory relationship);
(b) sub-paragraph (9) (meaning of security);
(c) sub-paragraph (10) (extended meaning of security).
Balancing payments by guarantor to issuer: no charge to, or relief from, tax
7C (1) This paragraph applies in any case where—
(a) the circumstances are as described in paragraph 6D(1) above,
(b) one or more payments (the “balancing payments”) are made by the guarantor company to the issuing company, and
(c) the sole or main reasons for making those payments are that paragraph 1(2) above applies by virtue of paragraph 1B above or that paragraph 6D above applies.
(2) To the extent that the balancing payments made by all the guarantor companies do not in the aggregate exceed the amount TR in paragraph 6D(3) above (total reductions within paragraph 6D(1)(c) above), those payments—
(a) shall not be taken into account in computing for the purposes of corporation tax the profits or losses of the guarantor company or companies or the issuing company, and
(b) shall not for any purpose of the Corporation Tax Acts be regarded as distributions . . . .
Guarantees: election to discharge tax liability instead of making balancing payments
7D (1) This paragraph applies where the following conditions are satisfied—
(a) both of the affected persons are companies,
(b) the circumstances are as described in paragraph 6(1) above,
(c) the actual provision falls within paragraph 1B(1) above.
(2) Sub-paragraphs (2) to (8) of paragraph 7B above apply in a case where this paragraph applies as they apply in a case where that paragraph applies, but with the modifications in sub-paragraphs (3) and (4) below.
(3) The relevant security is the security in paragraph 1B(1)(a) above.
(4) In sub-paragraph (4) (nature of the election)—
(a) for “paragraph 7A above” substitute paragraph 7C below;
(b) for “paragraph 1A”, in both places, substitute paragraph 1B.
Foreign exchange gains and losses and financial instruments
8 (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Special rules for sales etc. of oil
9 (1) Subject to paragraph 10 below, this paragraph applies to provision made or imposed by or in relation to the terms of a sale of oil if—
(a) the oil sold is oil which has been, or is to be, extracted under rights exercisable by a company (“the producer") which (although it may be the seller) is not the buyer; and
(b) at the time of the sale not less than 20 per cent. of the producer’s ordinary share capital is owned directly or indirectly by one or more of the following, that is to say, the buyer and the companies (if any) that are linked to the buyer.
(2) Where this paragraph applies to provision made or imposed by or in relation to the terms of a sale of oil, this Schedule shall have effect as respects that provision as if the buyer, the seller and (if it is not the seller) the producer were all controlled by the same person at the time of the making or imposition of that provision.
(3) For the purposes of this paragraph two companies are linked if—
(a) one is under the control of the other; or
(b) both are under the control of the same person or persons.
(4) For the purposes of this paragraph—
(a) any question whether ordinary share capital is owned directly or indirectly by a company shall be determined as for section 838;
(b) rights to extract oil shall be taken to be exercisable by a company even if they are exercisable by that company only jointly with one or more other companies; and
(c) a sale of oil shall be deemed to take place at the time of the completion of the sale or when possession of the oil passes, whichever is the earlier.
(5) In this paragraph “oil” includes any mineral oil or relative hydrocarbon, as well as natural gas.
Transactions and deemed transactions involving oil
10 This Schedule does not apply in relation to provision made or imposed by means of any transaction or deemed transaction in the case of which the price or consideration is determined in accordance with any of subsections (1) to (4) of section 493 (transactions and deemed transactions involving oil treated as made at market value).
Special provision for companies carrying on ring fence trades
11 (1) This paragraph applies where any person (“the taxpayer") carries on as, or as part of, a trade any activities (“the ring fence trade") which, in accordance with section 492(1) above or section 16(1) of ITTOIA 2005 either—
(a) fall to be treated for any tax purposes as a separate trade, distinct from all other activities carried on by him as part of the trade; or
(b) would so fall if the taxpayer did carry on any other activities as part of that trade.
(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) Subject to paragraph 10 above and sub-paragraph (4) below, this Schedule shall have effect as respects any provision made or imposed by the taxpayer as between the ring fence trade and any other activities carried on by him as if—
(a) that trade and those activities were carried on by two different persons;
(b) that provision were made or imposed as between those two persons by means of a transaction;
(c) a potential advantage in relation to United Kingdom taxation were conferred by that provision on each of those two persons; and
(d) those two persons were both controlled by the same person at the time of the making or imposition of that provision; . . .
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) This Schedule shall apply in accordance with this paragraph in relation to any provision mentioned in sub-paragraph . . . (3) above only where the effect of its application in relation to that provision is either—
(a) that a larger amount (including, if there would not otherwise have been profits, an amount of more than nil) is taken for tax purposes to be the amount of the profits of the ring fence trade for any chargeable period; or
(b) that a smaller amount (including nil) is taken for tax purposes to be the amount for any chargeable period of any losses of that trade.
Appeals
12 (1) Sub-paragraph (4) applies in so far as—
(a) the question in dispute on any appeal falling within sub-paragraph (2) below is or involves a determination of whether this Schedule has effect, and
(b) the question relates to any provision made or imposed as between any two persons each of whom is within the charge to income tax or corporation tax in respect of profits arising from the relevant activities.
(2) The appeals falling within this sub-paragraph are—
(a) any appeal under section 31 of, or Schedule 1A to, the Management Act;
(b) any appeal under paragraph 34(3) of Schedule 18 to the Finance Act 1998 against an amendment of a company’s return; and
(c) any appeal under paragraph 48 of that Schedule against a discovery assessment or a discovery determination.
(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) Where this sub-paragraph applies—
(a) each of the persons as between whom the actual provision was made or imposed shall be entitled to be a party in any proceedings;
(b) the tribunal shall determine that question separately from any other questions in those proceedings; and
(c) the tribunal's determination on that question shall have effect as if made in an appeal to which each of those persons was a party.
(5) In this paragraph—
“discovery assessment” means a discovery assessment under paragraph 41 of Schedule 18 to the Finance Act 1998 (including one by virtue of paragraph 52 of that Schedule); and
“discovery determination” means a discovery determination under paragraph 41 of that Schedule.
Saving for the provisions relating to capital allowances and capital gains
13 (1) Nothing in this Schedule shall be construed as affecting—
(a) the computation of the amount of any capital allowance or balancing charge made under the Capital Allowances Act; or
(b) the computation in accordance with the 1992 Act of the amount of any chargeable gain or allowable loss;
and nothing in this Schedule shall require the profits or losses of any person to be computed for tax purposes as if, in his case, instead of income or losses falling to be brought into account in connection with the taxation of income, there were gains or losses falling to be brought into account in accordance with the 1992 Act.
(2) Nothing in sub-paragraph (1) above applies to paragraph 6 above.
General interpretation etc.
14 (1) In this Schedule—
“the actual provision” and “the affected persons” shall be construed in accordance with paragraph 1(1) above;
“the arm”s length provision’ shall be construed in accordance with paragraph 1(2) and (3) above;
“double taxation arrangements” means arrangements having effect by virtue of section 788;
“foreign tax” means any tax under the law of a territory outside the United Kingdom or any amount which falls for the purposes of any double taxation arrangements to be treated as if it were such tax;
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
“losses” includes amounts which are not losses but in respect of which relief may be given in accordance with any of the following enactments—
section 1223 of CTA 2009 (excess of management expenses);
section 468L(5) (allowance for interest distributions of a unit trust);
Part X (loss relief and group relief);
sections 387 to 391 or Chapter 16 of Part 5 of CTA 2009 (deficits on loan relationships);
“medium-sized enterprise” shall be construed in accordance with paragraph 5D above;
“non-qualifying territory” has the meaning given by paragraph 5E above;
“paragraph 6C claim” has the meaning given by paragraph 6C(2) above;
“profits” includes income;
“qualifying territory” has the meaning given by paragraph 5E above;
“the relevant activities”, in relation to a person who is one of the persons as between whom any provision is made or imposed, means such of his activities as—
comprise the activities in the course of which, or with respect to which, that provision is made or imposed; and
are not activities carried on either separately from those activities or for the purposes of a different part of that person’s business;
“small enterprise” shall be construed in accordance with paragraph 5D above;
“transaction” and “series of transactions” shall be construed in accordance with paragraph 3 above.
(2) Without prejudice to paragraphs 9(2) and 11(3) above, references in this Schedule to a person controlling a body corporate or a partnership shall be construed in accordance with section 840.
(3) In determining for the purposes of this Schedule whether a person has an entitlement, in pursuance of any double taxation arrangements or under section 790(1), to be given credit for foreign tax, any requirement that a claim is made before such a credit is given shall be disregarded.
(4) Any adjustments required to be made by virtue of this Schedule may be made by way of discharge or repayment of tax, by the modification of any assessment or otherwise.
(5) This Schedule shall have effect as if—
(a) a unit trust scheme were a company that is a body corporate;
(b) the rights of the unit holders under such a scheme were shares in the company that the scheme is deemed to be;
(c) rights and powers of a person in the capacity of a person entitled to act for the purposes of the scheme were rights and powers of the scheme; and
(d) provision made or imposed as between any person in such a capacity and another person were made or imposed as between the scheme and that other person.
SCHEDULE 28AB Section 804ZA: prescribed schemes and arrangements
Introductory
1 (1) A scheme or arrangement, other than a scheme or arrangement falling within sub-paragraph (3), is a prescribed scheme or arrangement if one or more of paragraphs 2 to 6 apply to it.
(2) A scheme or arrangement falling within sub-paragraph (3) is a prescribed scheme or arrangement if one or more of paragraphs 2 to 6 would, on the assumption in sub-paragraph (4), apply to it.
(3) A scheme or arrangement falls within this sub-paragraph if its main purpose, or one of its main purposes, is to cause an amount of underlying tax allowable in respect of a dividend paid by a body corporate resident in a territory outside the United Kingdom to be taken into account in the case of a person.
(4) The assumption is that the body corporate is resident in the United Kingdom.
(5) Nothing in sub-paragraph (4) requires it to be assumed that there is any change in the place or places at which the body corporate carries on its activities.
Attribution of foreign tax
2 This paragraph applies to a scheme or arrangement if the scheme or arrangement enables a person who is party to, or concerned in, the scheme or arrangement to pay, in respect of a source of income or chargeable gain, an amount of foreign tax all or part of which is properly attributable to another source of income or chargeable gain (or to more than one such other source).
Effect of paying foreign tax
3 (1) This paragraph applies to a scheme or arrangement if, under the scheme or arrangement, sub-paragraph (2) is satisfied in relation to a person who has claimed, or is in a position to claim, for a chargeable period an allowance under any arrangements by way of credit for foreign tax (“the claimant”).
(2) This sub-paragraph is satisfied if—
(a) an amount of foreign tax is paid or payable by the claimant, and
(b) at the time when the claimant entered into the scheme or arrangement, it could reasonably be expected that the effect on the foreign tax total of that amount being so paid or payable would be to increase it by less than the amount allowable to the claimant as a credit in respect of the payment of that amount of foreign tax.
(3) The foreign tax total is the amount found by—
(a) aggregating the amounts of foreign tax paid or payable in respect of the transaction or transactions forming part of the scheme or arrangement by persons party to, or concerned in, the scheme or arrangement, and
(b) taking into account any reliefs, deductions, reductions or allowances against or in respect of any tax that arise to the persons party to, or concerned in, the scheme or arrangement (including any reliefs, deductions, reductions or allowances arising to any one or more of those persons as a consequence of that amount of foreign tax being paid or payable by the claimant).
Effect of claim, election or other arrangement
4 (1) This paragraph applies to a scheme or arrangement if under the scheme or arrangement—
(a) a step is taken by a person who is party to, or concerned in, the scheme or arrangement, or
(b) a step that could have been taken by such a person is not taken,
and that action or that failure to act has the effect of increasing a claim made by a person who is party to, or concerned in, the scheme or arrangement for an allowance by way of credit in accordance with this Part or of giving rise to such a claim.
(2) The steps mentioned in sub-paragraph (1) are steps that may be made—
(a) under the law of any territory, or
(b) under arrangements made in relation to any territory.
(3) The steps mentioned in sub-paragraph (1) include—
(a) claiming, or otherwise securing the benefit of, reliefs, deductions, reductions or allowances;
(b) making elections for tax purposes.
Effect attributable to scheme or arrangement
5 (1) This paragraph applies to a scheme or arrangement if, under the scheme or arrangement, sub-paragraph (2) is satisfied in relation to a person who has claimed, or is in a position to claim, for a chargeable period an allowance under any arrangements by way of credit for foreign tax.
(2) This sub-paragraph is satisfied if amount A is less than amount B.
(3) Amount A is the amount of United Kingdom taxes payable by the person in respect of income and chargeable gains arising in the chargeable period.
(4) Amount B is the amount of United Kingdom taxes that would be payable by the person in respect of income and chargeable gains arising in the chargeable period if, in determining that amount, the transactions forming part of the scheme or arrangement were disregarded.
Tax deductible payments
6 (1) This paragraph applies to a scheme or arrangement if the scheme or arrangement includes—
(a) the making by a person (“A”) of a relevant payment or payments, and
(b) the giving, in respect of that payment or payments, of consideration that satisfies the requirements of sub-paragraph (3).
(2) A payment made by A is a relevant payment if all or part of it may be brought into account in computing A's income for the purposes of United Kingdom taxes.
(3) Consideration given in respect of a payment or payments made by A satisfies the requirements of this sub-paragraph if—
(a) all or part of it consists of a payment or payments made to A or a person connected with A, and
(b) tax is chargeable in respect of the payment or payments under the law of a territory outside the United Kingdom.
(4) In this paragraph references to a payment include references to a transfer of money's worth.
(5) Section 839 applies for the purposes of this paragraph.
SCHEDULE 28B Venture Capital Trusts: Meaning of “qualifying holdings”
Introductory
1 (1) This Schedule applies, where any shares in or securities of any company (“the relevant company”) are at any time held by another company (“the trust company”), for determining whether and to what extent those shares or securities (“the relevant holding”) are, for the purposes of section 842AA, to be regarded as at that time comprised in the trust company’s qualifying holdings.
(2) The relevant holding shall be regarded as comprised in the trust company’s qualifying holdings at any time if—
(a) all the requirements of the following provisions of this Schedule are satisfied at that time in relation to the relevant company and the relevant holding; and
(b) the relevant holding consists of shares or securities which were first issued by the relevant company to the trust company and have been held by the trust company ever since.
(3) Subject to paragraph 6(3) below, where the requirements of paragraph 6 or 7 below would be satisfied as to only part of the money raised by the issue of the relevant holding and that holding is not otherwise capable of being treated as comprising separate holdings, this Schedule shall have effect in relation to that holding as if it were two holdings consisting of—
(a) a holding from which that part of the money was raised; and
(b) a holding from which the remainder was raised;
and section 842AA shall have effect as if the value of the holding were to be apportioned accordingly between the two holdings which are deemed to exist in pursuance of this sub-paragraph.
Requirement that company must be unquoted company
2 (1) The requirement of this paragraph is that the relevant company (whether or not it is resident in the United Kingdom) must be an unquoted company.
(2) In this paragraph “unquoted company” means a company none of whose shares, stocks, debentures or other securities is marketed to the general public.
(3) For the purposes of this paragraph shares, stocks, debentures or other securities are marketed to the general public if they are—
(a) listed on a recognised stock exchange,
(b) listed on a designated exchange in a country outside the United Kingdom, or
(c) dealt in on the Unlisted Securities Market or dealt in outside the United Kingdom by such means as may be designated.
(4) In sub-paragraph (3) above “designated” means designated by an order made by the Board for the purposes of that sub-paragraph; and an order made for the purposes of paragraph (b) of that sub-paragraph may designate an exchange by name, or by reference to any class or description of exchanges, including a class or description framed by reference to any authority or approval given in a country outside the United Kingdom.
(5) Section 828(1) does not apply to an order made for the purposes of sub-paragraph (3) above.
(6) Where a company any shares in or securities of which are included in the qualifying holdings of the trust company ceases at any time while the trust company is approved as a venture capital trust to be an unquoted company, the requirements of this paragraph shall be deemed, in relation to shares or securities acquired by the trust company before that time, to continue to be satisfied for a period of five years after that time.
Requirements as to company’s business
3 (1) The requirements of this paragraph are as follows.
(2) The relevant company must be one of the following, that is to say—
(a) a company which exists wholly for the purpose of carrying on one or more qualifying trades or which so exists apart from purposes capable of having no significant effect (other than in relation to incidental matters) on the extent of the company’s activities; or
(aa) the parent company of a trading group.
(3) Subject to sub-paragraph (4) below, when the relevant holding was issued and at all times since, a qualifying company (whether or not the same such company at every such time) must have been either—
(a) carrying on a qualifying trade wholly or mainly in the United Kingdom; or
(b) preparing to carry on a qualifying trade which at the time when the relevant holding was issued was intended to be carried on wholly or mainly in the United Kingdom by a qualifying company,
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4) The requirements of sub-paragraph (3) above shall not be capable of being satisfied by virtue of paragraph (b) of that sub-paragraph at any time after the end of the period of two years beginning with the issue of the relevant holding unless—
(a) the intended trade was begun to be carried on by a qualifying company before the end of that period, and
(b) at all times since the end of that period, a qualifying company (whether or not the same such company at every such time) has been carrying on a qualifying trade wholly or mainly in the United Kingdom.
(5) The requirements of that sub-paragraph shall also be incapable of being so satisfied at any time after the abandonment, within the period mentioned in sub-paragraph (4) above, of the intention in question.
(5A) In sub-paragraphs (3) and (4) above, “qualifying company” means the relevant company or any relevant qualifying subsidiary of that company.
(5B) In determining for the purposes of sub-paragraph (4)(a) above when the intended trade was begun to be carried on by a qualifying company which is a relevant qualifying subsidiary of the relevant company there shall be disregarded any carrying on of the trade by it before it became such a subsidiary of the relevant company.
(6) For the purposes of this paragraph a company is the parent company of a trading group if—
(a) it has one or more subsidiaries;
(b) each of its subsidiaries is a qualifying subsidiary of the company; and
(c) the requirements of sub-paragraph (7) below are fulfilled by what would be the business of the company and its qualifying subsidiaries if all the activities, taken together, of the company and its qualifying subsidiaries were regarded as one business.
(7) A business fulfils the requirements of this sub-paragraph if neither the business nor a substantial part of it consists in, or in either of, the following, that is to say—
(a) activities falling within paragraph 4(2)(a) to (f) below but not within sub-paragraph (8) below; and
(b) activities carried on otherwise than in the course of a trade.
(8) The activities falling within this sub-paragraph are—
(a) the receiving of royalties or licence fees in circumstances where the requirement mentioned in paragraph 4(5) below is satisfied in relation to the company receiving them;
(b) the letting of ships, other than offshore installations or pleasure craft, on charter in circumstances where the requirements mentioned in paragraphs (a) to (d) of paragraph 4(7) below are satisfied in relation to the company so letting them.
(9) Activities of a company or of any of its qualifying subsidiaries shall be disregarded for the purposes of sub-paragraphs (6) to (8) above to the extent that they consist in—
(a) the holding of shares in or securities of, or the making of loans to, one or more of the company’s qualifying subsidiaries; or
(b) the holding and managing of property used by the company or any of its qualifying subsidiaries for the purposes of—
(i) research and development from which it is intended that a qualifying trade to be carried on by the company or any of its qualifying subsidiaries will be derived; or
(ii) one or more qualifying trades so carried on.
(10) Activities of a qualifying subsidiary of a company shall also be disregarded for the purposes of sub-paragraphs (6) to (8) above to the extent that they consist in—
(a) the making of loans to the company; or
(b) in the case of a mainly trading subsidiary, activities carried on in pursuance of its insignificant purposes (within the meaning given by sub-paragraph (11) below).
(11) In sub-paragraph (10) above “mainly trading subsidiary” means a qualifying subsidiary which, apart from purposes (“its insignificant purposes”) which are capable of having no significant effect (other than in relation to incidental matters) on the extent of its activities, exists wholly for the purpose of carrying on one or more qualifying trades.
Meaning of “qualifying trade”
4 (1) For the purposes of this Schedule—
(a) a trade is a qualifying trade if it is a trade complying with this paragraph; and
(b) the carrying on of any activities of research and development from which it is intended that there will be derived a trade that—
(i) will comply with this paragraph, and
(ii) will be carried on wholly or mainly in the United Kingdom,
shall be treated as the carrying on of a qualifying trade.
(2) Subject to sub-paragraphs (3) to (9) below, a trade complies with this paragraph if neither that trade nor a substantial part of it consists in one or more of the following activities, that is to say—
(a) dealing in land, in commodities or futures or in shares, securities or other financial instruments;
(b) dealing in goods otherwise than in the course of an ordinary trade of wholesale or retail distribution;
(c) banking, insurance, money-lending, debt-factoring, hire-purchase financing or other financial activities;
(d) leasing (including letting ships on charter or other assets on hire) or receiving royalties or licence fees;
(e) providing legal or accountancy services;
(ea) property development;
(eb) farming or market gardening;
(ec) holding, managing or occupying woodlands, any other forestry activities or timber production;
(ed) operating or managing hotels or comparable establishments, or managing property used as an hotel or comparable establishment;
(ee) operating or managing nursing homes or residential care homes, or managing property used as a nursing home or residential care home;
(f) providing services or facilities for any such trade carried on by another person (not being a company of which the company providing the services or facilities is a subsidiary) as—
(i) consists, to a substantial extent, in activities within any of paragraphs (a) to (ee) above; and
(ii) is a trade in which a controlling interest is held by a person who also has a controlling interest in the trade carried on by the company providing the services or facilities.
(3) For the purposes of sub-paragraph (2)(b) above—
(a) a trade of wholesale distribution is one in which the goods are offered for sale and sold to persons for resale by them, or for processing and resale by them, to members of the general public for their use or consumption;
(b) a trade of retail distribution is one in which the goods are offered for sale and sold to members of the general public for their use or consumption; and
(c) a trade is not an ordinary trade of wholesale or retail distribution if—
(i) it consists, to a substantial extent, in dealing in goods of a kind which are collected or held as an investment, or in that activity and any other activity of a kind falling within sub-paragraph (2)(a) to (f) above, taken together; and
(ii) a substantial proportion of those goods are held by the company for a period which is significantly longer than the period for which a vendor would reasonably be expected to hold them while endeavouring to dispose of them at their market value.
(3A) For the purposes of this Schedule the activities of a person shall not be taken to fall within paragraph (ed) or (ee) of sub-paragraph (2) above except where that person has an estate or interest in, or is in occupation of, the hotels or comparable establishments or, as the case may be, the nursing homes or residential care homes.
(4) In determining for the purposes of this paragraph whether a trade carried on by any person is an ordinary trade of wholesale or retail distribution, regard shall be had to the extent to which it has the following features, that is to say—
(a) the goods are bought by that person in quantities larger than those in which he sells them;
(b) the goods are bought and sold by that person in different markets;
(c) that person employs staff and incurs expenses in the trade in addition to the cost of the goods and, in the case of a trade carried on by a company, to any remuneration paid to any person connected with it;
(d) there are purchases or sales from or to persons who are connected with that person;
(e) purchases are matched with forward sales or vice versa;
(f) the goods are held by that person for longer than is normal for goods of the kind in question;
(g) the trade is carried on otherwise than at a place or places commonly used for wholesale or retail trade;
(h) that person does not take physical possession of the goods;
and for the purposes of this sub-paragraph the features specified in paragraphs (a) to (c) above shall be regarded as indications that the trade is such an ordinary trade and those in paragraphs (d) to (h) above shall be regarded as indications of the contrary.
(5) A trade shall not be treated as failing to comply with this paragraph by reason only that it consists to a substantial extent in the receiving of royalties or licence fees if the royalties and licence fees (or all but for a part that is not a substantial part in terms of value) are attributable to the exploitation of relevant intangible assets.
(6) For this purpose an intangible asset is a “relevant intangible asset” if the whole or greater part (in terms of value) of it has been created—
(a) by the company carrying on the trade, or
(b) by a company which at all times during which it created the intangible asset was—
(i) the parent company of the company carrying on the trade, or
(ii) a qualifying subsidiary of that parent company.
(6A) In the case of a relevant asset that is intellectual property, references in sub-paragraph (6) above to the creation of the asset by a company are to its creation in circumstances in which the right to exploit it vests in the company (whether alone or jointly with others).
(6B) For the purposes of sub-paragraphs (5) to (6A) above “intangible asset” means any asset which falls to be treated as an intangible asset in accordance with generally accepted accounting practice.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6C) For the purposes of sub-paragraph (6) above
(a) “parent company” means a company that—
(i) has one or more 51% subsidiaries, but
(ii) is not itself a 51% subsidiary of another company; and
(b) paragraph 10 below (meaning of “qualifying subsidiary”) shall apply as if the references in that paragraph to the relevant company were references to the parent company referred to in sub-paragraph (6)(b) above.
(6D) For the purposes of sub-paragraph (6A) above “intellectual property” means—
(a) any patent, trade mark, registered design, copyright, design right, performer’s right or plant breeder’s right; and
(b) any rights under the law of a country or territory outside the United Kingdom which correspond or are similar to those falling within paragraph (a) above.
(7) A trade shall not be treated as failing to comply with this paragraph by reason only of its consisting in letting ships, other than offshore installations or pleasure craft, on charter if—
(a) every ship let on charter by the company carrying on the trade is beneficially owned by the company;
(b) every ship beneficially owned by the company is registered in the United Kingdom;
(c) the company is solely responsible for arranging the marketing of the services of its ships; and
(d) the conditions mentioned in sub-paragraph (8) below are satisfied in relation to every letting of a ship on charter by the company;
but where any of the requirements mentioned in paragraphs (a) to (d) above are not satisfied in relation to any lettings, the trade shall not thereby be treated as failing to comply with this paragraph if those lettings and any other activity of a kind falling within sub-paragraph (2)(a) to (f) above do not, when taken together, amount to a substantial part of the trade.
(8) The conditions are that—
(a) the letting is for a period not exceeding 12 months and no provision is made at any time (whether in the charterparty or otherwise) for extending it beyond that period otherwise than at the option of the charterer;
(b) during the period of the letting there is no provision in force (whether by virtue of being contained in the charterparty or otherwise) for the grant of a new letting to end, otherwise than at the option of the charterer, more than 12 months after that provision is made;
(c) the letting is by way of a bargain made at arm’s length between the company and a person who is not connected with it;
(d) under the terms of the charter the company is responsible as principal—
(i) for taking, throughout the period of the charter, management decisions in relation to the ship, other than those of a kind generally regarded by persons engaged in trade of the kind in question as matters of husbandry; and
(ii) for defraying all expenses in connection with the ship throughout that period, or substantially all such expenses, other than those directly incidental to a particular voyage or to the employment of the ship during that period;
and
(e) no arrangements exist by virtue of which a person other than the company may be appointed to be responsible for the matters mentioned in paragraph (d) above on behalf of the company;
but this sub-paragraph shall have effect, in relation to any letting between one company and another where one of those companies is the relevant company and the other is a qualifying subsidiary of that company, or where both companies are qualifying subsidiaries of the relevant company, as if paragraph (c) were omitted.
(9) A trade shall not comply with this paragraph unless it is conducted on a commercial basis and with a view to the realisation of profits.
Provisions supplemental to paragraph 4
5 (1) In paragraph 4 above—
“film” means an original master negative of a film, an original master film disc or an original master film tape;
“nursing home” means any establishment which exists wholly or mainly for the provision of nursing care for persons suffering from sickness, injury or infirmity or for women who are pregnant or have given birth to children;
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
“pleasure craft” means any ship of a kind primarily used for sport or recreation;
“property development” means the development of land—
by a company which has, or at any time has had, an interest in the land, and
with the sole or main object of realising a gain from the disposal of an interest in the land when it is developed;
“research and development” has the meaning given by section 837A;
“residential care home” means any establishment which exists wholly or mainly for the provision of residential accommodation, together with board and personal care, for persons in need of personal care by reason of old age, mental or physical disabilities, past or present dependence on alcohol or drugs or any past illnesses or past or present mental disorders; and
“sound recording”, in relation to a film, means its sound track, original master audio disc or original master audio tape.
(2) For the purposes of paragraph 4 above, in the case of a trade carried on by a company, a person has a controlling interest in that trade if—
(a) he controls the company;
(b) the company is a close company and he or an associate of his, being a director of the company, either—
(i) is the beneficial owner of more than 30 per cent. of the ordinary share capital of the company, or
(ii) is able, directly or through the medium of other companies or by any other indirect means, to control more than 30 per cent. of that share capital;
or
(c) not less than half of the trade could, in accordance with section 344(2), be regarded as belonging to him for the purposes of section 343;
and, in any other case, a person has a controlling interest in a trade if he is entitled to not less than half of the assets used for, or of the income arising from, the trade.
(3) For the purposes of sub-paragraph (2) above there shall be attributed to any person any rights or powers of any other person who is an associate of his.
(4) References in paragraph 4 above or this paragraph to a trade, except the references in paragraph 4(2)(f) to the trade for which services or facilities are provided, shall be construed without reference to so much of the definition of trade in section 832(1) as relates to adventures or concerns in the nature of trade; and those references in paragraph 4(2)(f) above to a trade shall have effect, in relation to cases in which what is carried on is carried on by a person other than a company, as including references to any business, profession or vocation.
(5) In this paragraph—
“associate” has the meaning given in subsections (3) and (4) of section 417, except that in those subsections, as applied for the purposes of this paragraph, “relative” shall not include a brother or sister; and
“director” shall be construed in accordance with subsection (5) of that section;
“interest in land” means (subject to sub-paragraph (6) below)—
any estate, interest or right in or over land, including any right affecting the use or disposition of land; or
any right to obtain such an estate, interest or right from another which is conditional on the other’s ability to grant the estate, interest or right.
(6) References in paragraph 4 above, in relation to an hotel, to a comparable establishment are references to a guest house, hostel or other establishment the main purpose of maintaining which is the provision of facilities for overnight accommodation (whether with or without catering services).
(7) References in this paragraph to an interest in land do not include references to—
(a) the interest of a creditor (other than a creditor in respect of a rentcharge) whose debt is secured by way of mortgage, an agreement for a mortgage or a charge of any kind over land; or
(b) in the case of land in Scotland, the interest of a creditor in a charge or security of any kind over land.
Meaning of “relevant qualifying subsidiary”
5A (1) For the purposes of this Schedule, a company (“the subsidiary”) is a relevant qualifying subsidiary of the relevant company at any time when it falls within sub-paragraph (2) below.
(2) The subsidiary falls within this sub-paragraph if—
(a) the relevant company possesses not less than 90 per cent. of the issued share capital of, and not less than 90 per cent. of the voting power in, the subsidiary;
(b) the relevant company would—
(i) in the event of a winding up of the subsidiary, or
(ii) in any other circumstances,
be beneficially entitled to receive not less than 90 per cent. of the assets of the subsidiary which would then be available for distribution to the equity holders of the subsidiary;
(c) the relevant company is beneficially entitled to not less than 90 per cent. of any profits of the subsidiary which are available for distribution to the equity holders of the subsidiary;
(d) no person other than the relevant company has control of the subsidiary within the meaning of section 840; and
(e) no arrangements are in existence by virtue of which any of the conditions in paragraphs (a) to (d) above would cease to be met.
(3) Sub-paragraphs (4) to (4C) and (5) of paragraph 10 below apply in relation to sub-paragraph (2) of this paragraph as they apply in relation to sub-paragraph (3) of that paragraph, but with the following modification.
(4) That modification is that sub-paragraph (5) of that paragraph is to be read as if the words “or (as the case may be) by another subsidiary of that company” were omitted.
(5) For the purposes of this paragraph—
(a) the persons who are equity holders of the subsidiary, and
(b) the percentage of the assets of the subsidiary to which an equity holder would be entitled,
shall be determined in accordance with paragraphs 1 and 3 of Schedule 18.
(6) But in making that determination—
(a) references in paragraph 3 of that Schedule to the first company are to be read as references to an equity holder, and
(b) references in that paragraph to a winding up are to be read as including references to any other circumstances in which assets of the subsidiary are available for distribution to its equity holders.
Requirements as to the money raised by the investment in question
6 (1) The requirements of this paragraph are that either—
(a) at least 80% of the money raised by the issue of the relevant holding must—
(i) have been employed wholly for the purposes of the trade by reference to which the requirements of paragraph 3(3) above are satisfied; or
(ii) be money which is intended to be employed wholly for the purposes of that trade; or
(b) all of the money so raised must have been employed as mentioned in paragraph (a)(i) above.
(2) For the purposes of this Schedule—
(a) the requirements of sub-paragraph (1) above shall not be capable of being satisfied by virtue of paragraph (a)(ii) of that sub-paragraph at any time after 12 months have expired from the trading time, and
(b) the requirements of that sub-paragraph shall not be capable of being satisfied by virtue of paragraph (a)(i) of that sub-paragraph at any time after 24 months have expired from the trading time.
(2AA) In sub-paragraph (2) above, “the trading time” means whichever is applicable of the following—
(a) in a case where the requirements of sub-paragraph (3) of paragraph 3 above were satisfied in relation to the time when the relevant holding was issued by virtue of paragraph (a) of that sub-paragraph, that time; and
(b) in a case where they were satisfied in relation to that time by virtue of paragraph (b) of that sub-paragraph, the time when the condition in paragraph 3(4)(a) above was satisfied.
(2AB) The requirements of this paragraph are not satisfied if either of the following, namely—
(a) the trade by reference to which the requirements of paragraph 3(3) above are satisfied, and
(b) any preparations for that trade falling within paragraph 3(3)(b) above,
are carried on, at any time after the issue of the relevant holding, by a person other than the relevant company or a relevant qualifying subsidiary of that company.
(2AC) Sub-paragraph (2AD) below applies where preparations mentioned in sub-paragraph (2AB)(b) above are carried on by the relevant company or a relevant qualifying subsidiary of that company at any time after the issue of the relevant holding.
(2AD) Where this sub-paragraph applies, the requirements of this paragraph are not to be regarded, by virtue of sub-paragraph (2AB) above, as failing to be satisfied by reason only of the carrying on of the trade mentioned in sub-paragraph (2AB)(a) above by a person other than—
(a) the relevant company, or
(b) a qualifying subsidiary of that company,
at any time after the issue of the relevant holding but before the relevant company or any relevant qualifying subsidiary of that company carries on that trade.
(2AE) The requirements of this paragraph are not to be regarded, by virtue of sub-paragraph (2AB) above, as failing to be satisfied by reason only of the carrying on of the trade mentioned in sub-paragraph (2AB)(a) above—
(a) by the partners in a partnership of which the relevant company, or a relevant qualifying subsidiary of that company, is a member, or
(b) by the parties to a joint venture to which the relevant company, or a relevant qualifying subsidiary of that company, is a party.
(2AF) The requirements of this paragraph are not to be regarded, by virtue of sub-paragraph (2AB) above, as failing to be satisfied if—
(a) by reason only of anything done as a consequence of the relevant company or any other company being in administration or receivership, or
(b) by reason only of the relevant company or any other company being wound up or dissolved without winding up,
the trade mentioned in sub-paragraph (2AB)(a) above ceases to be carried on by the relevant company or a relevant qualifying subsidiary of that company and is subsequently carried on by a person who has not been connected, at any time after the date which is one year before the issue of the relevant holding, with the relevant company.
(2AG) Sub-paragraph (2AF) above applies only if (as the case may be)—
(a) the entry into administration or receivership and everything done as a consequence of the company concerned being in administration or receivership, or
(b) the winding up or dissolution,
is for bona fide commercial reasons and is not part of a scheme or arrangement the main purpose of which or one of the main purposes of which is the avoidance of tax.
(2AH) Sub-paragraph (2) of paragraph 11A below applies for the purposes of sub-paragraphs (2AF) and (2AG) above as it applies for the purpose of that paragraph.
(3) For the purposes of this paragraph money shall not be treated as employed otherwise than wholly for the purposes of a trade if the only amount employed for other purposes is an amount which is not a significant amount; and nothing in paragraph 1(3) above shall require any money whose use is disregarded by virtue of this sub-paragraph to be treated as raised by a different holding.
(4) References in this paragraph to employing money for the purposes of a trade shall include references to employing it for the purpose of preparing for the carrying on of the trade.
(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Requirement imposing a maximum on qualifying investments in the relevant company
7 (1) The requirement of this paragraph is that the relevant holding did not, when it was issued, represent an investment in excess of the maximum qualifying investment for the relevant period.
(2) Subject to sub-paragraph (4) below, the maximum qualifying investment for any period is exceeded to the extent that the aggregate amount of money raised in that period by the issue to the trust company during that period of shares in or securities of the relevant company exceeds £1 million.
(3) Any question for the purposes of this paragraph as to whether any shares in or securities of the relevant company which are for the time being held by the trust company represent an investment in excess of the maximum qualifying investment for any period shall be determined on the assumption, in relation to disposals by the trust company, that, as between shares or securities of the same description, those representing the whole or any part of the excess are disposed of before those which do not.
(4) Where—
(a) at the time of the issue of the relevant holding the relevant company or any of its qualifying subsidiaries was a member of a partnership or a party to a joint venture,
(b) the trade by virtue of which the requirements of paragraph 3(3) above are satisfied was at that time being carried on, or to be carried on, by those partners in partnership or by the parties to the joint venture as such, and
(c) the other partners or parties to the joint venture include at least one other company,
this paragraph shall have effect in relation to the relevant company as if the sum of money for the time being specified in sub-paragraph (2) above were to be divided by the number of companies (including the relevant company) which, at the time when the relevant holding was issued, were members of the partnership or, as the case may be, parties to the joint venture.
(5) For the purposes of this paragraph the relevant period is the period beginning with whichever is the earlier of—
(a) the time six months before the issue of the relevant holding; and
(b) the beginning of the year of assessment in which the issue of that holding took place.
Requirement as to the assets of the relevant company
8 (1) The requirement of this paragraph is that the value of the relevant assets—
(a) did not exceed £7 million immediately before the issue of the relevant holding; and
(b) did not exceed £8 million immediately afterwards.
(2) Subject to sub-paragraph (3) below, the reference in sub-paragraph (1) above to the value of the relevant assets is a reference—
(a) in relation to a time when the relevant company did not have any qualifying subsidiaries, to the value of the gross assets of that company at that time; and
(b) in relation to any other time, to the aggregate value at that time of the gross assets of all the companies in the relevant company’s group.
(3) For the purposes of this paragraph assets of any member of the relevant company’s group that consist in rights against, or in shares in or securities of, another member of the group shall be disregarded.
(4) In this paragraph references, in relation to any time, to the relevant company’s group are references to the relevant company and its qualifying subsidiaries at that time.
Requirements as to the subsidiaries etc. of the relevant company
9 (1) The requirements of this paragraph are that . . . the relevant company must not be—
(a) a company which controls (whether on its own or together with any person connected with it) any company that is not a qualifying subsidiary of the relevant company; or
(b) a company which is under the control of another company (or of another company and a person connected with the other company);
and arrangements must not be in existence by virtue of which the relevant company could fall within paragraph (a) or (b) above.
(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Meaning of “qualifying subsidiary”
10 (1) Subject to the following provisions of this paragraph, a company is a qualifying subsidiary of the relevant company for the purposes of this Schedule if—
(a) the company in question (“the subsidiary”), and
(b) where the relevant company has more than one subsidiary, every other subsidiary of the relevant company,
is a company falling within sub-paragraph (3) below.
(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(3) The subsidiary falls within this sub-paragraph if—
(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(ca) the subsidiary is a 51 per cent. subsidiary of the relevant company;
(d) no person other than the relevant company or another of its subsidiaries has control of the subsidiary within the meaning of section 840; and
(e) no arrangements are in existence by virtue of which either of the conditions in paragraphs (ca) and (d) above would cease to be met.
(4) The subsidiary shall not be regarded, at a time when it or any other company is being wound up, as having ceased on that account to be a company falling within sub-paragraph (3) above if . . . —
(a) . . . it would fall within that sub-paragraph apart from the winding up; and
(b) . . . the winding up is for bona fide commercial reasons and is not part of a scheme or arrangement the main purpose of which, or one of the main purposes of which, is the avoidance of tax.
(4A) Sub-paragraph (4B) below applies at a time when the subsidiary or any other company is in administration or receivership.
(4B) The subsidiary shall not be regarded, by reason only of anything done as a consequence of the company concerned being in administration or receivership, as having ceased to be a company falling within sub-paragraph (3) above if—
(a) the entry into administration or receivership, and
(b) everything done as a consequence of the company concerned being in administration or receivership,
is for bona fide commercial reasons and is not part of a scheme or arrangement the main purpose of which or one of the main purposes of which is the avoidance of tax.
(4C) Sub-paragraph (2) of paragraph 11A below applies for the purposes of sub-paragraphs (4A) and (4B) above as it applies for the purpose of that paragraph.
(5) The subsidiary shall not be regarded, at any time when arrangements are in existence for the disposal by the relevant company, or (as the case may be) by another subsidiary of that company, of all its interest in the subsidiary in question, as having ceased on that account to be a company falling within sub-paragraph (3) above if . . . the disposal is to be for bona fide commercial reasons and is not to be part of a scheme or arrangement the main purpose of which, or one of the main purposes of which, is the avoidance of tax.
(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Requirement as to property managing subsidiaries
10ZA (1) The requirement of this paragraph is that the relevant company must not have a property managing subsidiary which is not a relevant qualifying subsidiary of the relevant company.
(2) “Property managing subsidiary” means a qualifying subsidiary of the relevant company whose business consists wholly or mainly in the holding or managing of land or any property deriving its value from land.
(3) In sub-paragraph (2) above, “land” and “property deriving its value from land” have the same meaning as in section 776.
Requirement that securities should not relate to a guaranteed loan
10A (1) The requirement of this paragraph is that there are no securities relating to a guaranteed loan in the relevant holding.
(2) For the purposes of this paragraph a security relates to a guaranteed loan if (and only if) there are arrangements for the trust company to be or become entitled, in the event of a failure by any person to comply with—
(a) the terms of the loan to which the security relates, or
(b) the terms of the security,
to receive anything (whether directly or indirectly) from a third party.
(3) For the purposes of sub-paragraph (2) above it shall be immaterial whether the arrangements apply in all cases of a failure to comply or only in certain such cases.
(4) For the purposes of this paragraph “third party” means any person except—
(a) the relevant company; and
(b) if the relevant company is the parent company of a trading group for the purposes of paragraph 3 above, the subsidiaries of the relevant company.
Requirement that a proportion of the holding in each company must be eligible shares
10B (1) The requirement of this paragraph is that eligible shares represent at least 10 per cent. by value of the totality of the shares in or securities of the relevant company (including the relevant holding) which are held by the trust company.
(2) For the purposes of this paragraph the value at any time of any shares in or securities of a company shall be taken (subject to sub-paragraph (4) below) to be their value immediately after—
(a) any relevant event occurring at that time; or
(b) where no relevant event occurs at that time, the last relevant event to occur before that time.
(3) In sub-paragraph (2) above “relevant event”, in relation to any shares in or securities of the relevant company, means—
(a) the acquisition by the trust company of those shares or securities;
(b) the acquisition by the trust company of any other shares in or securities of the relevant company which—
(i) are of the same description as those shares or securities, and
(ii) are acquired otherwise than by virtue of being allotted to the trust company without that company’s becoming liable to give any consideration;
or
(c) the making of any such payment in discharge, in whole or in part, of any obligation attached to any shares in or securities of the relevant company held by the trust company as (by discharging that obligation) increases the value of any such shares or securities.
(4) If at any time the value of any shares or securities held by the trust company is less than the amount of the consideration given by the trust company for those shares or securities, it shall be assumed for the purposes of this paragraph that the value of those shares or securities at that time is equal to the amount of that consideration.
(5) In this paragraph “eligible shares” has the same meaning as in section 842AA.
Acquisitions for restructuring purposes
10C (1) This paragraph applies where—
(a) arrangements are made for a company (“the new company”) to acquire all the shares (“old shares”) in another company (“the old company”);
(b) the acquisition provided for by the arrangements falls within sub-paragraph (2) below; and
(c) the Board have, before any exchange of shares takes place under the arrangements, given an approval notification.
(2) An acquisition of shares falls within this sub-paragraph if—
(a) the consideration for the old shares consists wholly of the issue of shares (“new shares”) in the new company;
(b) new shares are issued in consideration of old shares only at times when there are no issued shares in the new company other than subscriber shares and new shares previously issued in consideration of old shares;
(c) the consideration for new shares of each description consists wholly of old shares of the corresponding description; and
(d) new shares of each description are issued to the holders of old shares of the corresponding description in respect of, and in proportion to, their holdings.
(3) For the purposes of sub-paragraph (1)(c) above an approval notification is one which, on an application by either the old company or the new company, is given to the applicant company and states that the Board are satisfied that the exchange of shares under the arrangements—
(a) will be effected for bona fide commercial reasons; and
(b) will not form part of any such scheme or arrangements as are mentioned in section 137(1) of the 1992 Act.
(4) If the requirements of paragraph 3 above were satisfied in relation to the old company and any old shares immediately before the beginning of the period for giving effect to the arrangements, then (to the extent that it would not otherwise be the case) those requirements shall be deemed to be satisfied in relation to the new company and the matching new shares at all times which—
(a) fall in that period; and
(b) do not fall after a time when (apart from the arrangements) those requirements would have ceased by virtue of—
(i) sub-paragraph (4) or (5) of that paragraph, or
(ii) any cessation of a trade by any company,
to be satisfied in relation to the old company and the matching old shares.
(5) For the purposes of paragraph 3 above the period of two years mentioned in sub-paragraph (4) of that paragraph shall be deemed, in the case of any new shares, to expire at the same time as it would have expired (or by virtue of this sub-paragraph would have been deemed to expire) in the case of the matching old shares.
(6) Subject to sub-paragraph (7) below, where—
(a) there is an exchange under the arrangements of any new shares for any old shares, and
(b) those old shares are shares in relation to which the requirements of paragraphs 6 and 8 above were (or were deemed to be) satisfied to any extent immediately before the exchange,
those requirements shall be deemed, at all times after that time, to be satisfied to the same extent in relation to the matching new shares.
(7) Where there is a time following any exchange under the arrangements of any new shares for any old shares when (apart from the arrangements) the requirements of paragraph 6 above would have ceased under—
(a) sub-paragraph (2) of that paragraph, or
(b) this sub-paragraph,
to be satisfied in relation to those old shares, those requirements shall cease at that time to be satisfied in relation to the matching new shares.
(8) For the purposes of paragraph 7 above any new shares acquired under the arrangements shall be deemed to represent an investment which—
(a) raised the same amount of money as was raised (or, by virtue of this sub-paragraph, is deemed to have been raised) by the issue of the matching old shares, and
(b) raised that amount by an issue of shares in the new company made at the time when the issue of the matching old shares took place (or, as the case may be, is deemed to have taken place).
(9) In determining whether the requirements of paragraph 9 above are satisfied in relation to the old company or the new company at a time in the period for giving effect to the arrangements, both—
(a) the arrangements themselves, and
(b) any exchange of new shares for old shares that has already taken place under the arrangements,
shall be disregarded.
(10) For the purposes of paragraph 10B above the value of the new shares, both immediately after the time of their acquisition and immediately after the time of any subsequent relevant event occurring by virtue of the arrangements, shall be taken to be the same as the value, when last valued in accordance with that paragraph, of the old shares for which they are exchanged.
(11) Nothing in this paragraph shall deem any of the requirements of this Schedule to be satisfied in relation to any new shares unless the matching old shares were first issued to the trust company and have been held by that company from the time when they were issued until they are acquired by the new company.
(12) References in this paragraph to the period for giving effect to the arrangements are references to the period which—
(a) begins with the time when those arrangements first came into existence; and
(b) ends with the time when the new company completes its acquisition under the arrangements of all the old shares.
(13) If, at any time after the arrangements first came into existence and before the new company has acquired all the old shares, the arrangements—
(a) cease to be arrangements for the acquisition of all the old shares by the new company, or
(b) cease to be arrangements for an acquisition falling within sub-paragraph (2) above,
this paragraph shall not deem any requirement of this Schedule to be satisfied, and sub-paragraph (10) above shall not apply, in the case of any new shares at any time after the arrangements have so ceased.
(14) Subject to sub-paragraph (15) below, references in this paragraph, except in the expression “subscriber shares”, to shares in a company include references to any securities of that company.
(15) For the purposes of this paragraph, a relevant security of the old company shall not be treated as a security of that company if—
(a) the arrangements do not provide for the acquisition of the security by the new company; or
(b) such treatment prevents sub-paragraph (1)(b) above from being satisfied in connection with the arrangements.
(16) In sub-paragraph (15) above “relevant security” means an instrument which is a security for the purposes of this Schedule by reason only of section 842AA(12).
(17) For the purposes of this paragraph—
(a) old shares and new shares are of a corresponding description if, were they shares in the same company, they would be of the same description; and
(b) old shares and new shares are matching shares in relation to each other if the old shares are the shares for which those new shares are exchanged under the arrangements.
Conversion of convertible shares and securities
10D (1) This paragraph applies where—
(a) shares have been issued to the trust company by virtue of the exercise by that company of any right of conversion attached to other shares, or securities, held by that company (“the convertibles”);
(b) the shares so issued are in the same company as the convertibles to which the right was attached;
(c) the convertibles to which the right was attached were first issued to the trust company and were held by that company from the time they were issued until converted; and
(d) the right was attached to the convertibles when they were first so issued and was not varied before it was exercised.
(2) Sub-paragraphs (5) to (8) of paragraph 10C above shall apply in relation to the exchange of convertibles for shares by virtue of the exercise of the right of conversion as if—
(a) that exchange were an exchange under any such arrangements as are mentioned in that paragraph of new shares for old shares; and
(b) the references in those sub-paragraphs and sub-paragraph (17)(b) of that paragraph to the arrangements were references to the provision conferring the right of conversion.
(3) For the purposes of paragraph 10B above the value of the new shares immediately after the time of their acquisition by the trust company shall be taken to be the same as the value, when last valued in accordance with that paragraph, of the convertibles for which they are exchanged.
Winding up of the relevant company
11 None of the requirements of this Schedule shall be regarded, at a time when the relevant company is being wound up, as being, on that account, a requirement that is not satisfied in relation to that company if . . . —
(a) . . . the requirements of this Schedule would be satisfied in relation to that company apart from the winding up; and
(b) . . . the winding up is for bona fide commercial reasons and is not part of a scheme or arrangement the main purpose of which, or one of the main purposes of which, is the avoidance of tax.
Company in administration or receivership
11A (1) A company which is in administration or receivership shall not be regarded as ceasing to comply with paragraph 3(2) or (3) by reason only of anything done as a consequence of its being in administration or receivership.
(2) For this purpose—
(a) a company is “in administration” if it is in administration within the meaning of Schedule B1 to the Insolvency Act 1986, or there is in force in relation to it—
(i) an administration order under Part III of the Insolvency (Northern Ireland) Order 1989, or
(ii) any corresponding order under the law of a country or territory outside the United Kingdom; and
(b) a company is “in receivership" if there is in force in relation to it—
(i) an order for the appointment of an administrative receiver, a receiver and manager or a receiver under Chapter I or II of Part III of the Insolvency Act 1986 or Part IV of the Insolvency (Northern Ireland) Order 1989, or
(ii) any corresponding order under the law of a country or territory outside the United Kingdom.
(3) This paragraph applies only if—
(a) the entry into administration or receivership, and
(b) everything done as a consequence of the company being in administration or receivership,
is for bona fide commercial reasons and is not part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax.
Company reorganisations etc. involving exchange of shares
11B (1) The Treasury may by regulations make provision for cases where—
(a) a holding of shares or securities that meets the requirements of this Schedule is exchanged for other shares or securities,
(b) the exchange is made for bona fide commercial reasons and does not form part of a scheme or arrangements of which the main purpose, or one of the main purposes, is the avoidance of tax, and
(c) the new shares or securities do not meet some or all of the requirements of this Schedule,
providing that the new shares or securities shall be treated as meeting those requirements.
(2) The references in sub-paragraph (1) to an exchange of shares or securities include any form of company reorganisation or other arrangement which involves a holder of shares or securities in a company receiving other shares or securities—
(a) whether the original shares or securities are transferred, cancelled or retained, and
(b) whether the new shares or securities are in the same or another company.
(3) The regulations shall specify—
(a) the cases in which, and conditions subject to which, they apply,
(b) which requirements of this Schedule are to be treated as met, and
(c) the period for which those requirements are to be treated as met.
(4) The regulations may contain such administrative provisions (including provision for advance clearances) as appear to the Treasury to be necessary or expedient.
(5) The regulations may authorise the Board to give notice to any person requiring him to provide such information, specified in the notice, as they may reasonably require in order to determine whether any conditions imposed by the regulations are met.
(6) Regulations under this paragraph—
(a) may make different provision for different cases,
(b) may include such supplementary, incidental and transitional provisions as appear to the Treasury to be appropriate, and
(c) may include provision having retrospective effect.
Power to amend Schedule
12 The Treasury may by order amend this Schedule for any or all of the following purposes, that is to say—
(a) to make such modifications of paragraphs 3 to 5 above as they may consider expedient;
(b) to substitute different sums for the sums of money for the time being specified in paragraphs 7(2) and 8(1) above.
General interpretation
13 (1) Subject to paragraph 10C(15) above, in this Schedule—
“debenture” has the meaning given by section 744 of the Companies Act 1985; and
“securities” has the same meaning as in section 842AA;
and references in this Schedule to the issue of any securities, in relation to any security consisting in a liability in respect of an unsecured loan, shall have effect as references to the making of the loan.
(2) For the purposes of paragraphs 5(2) and 9 above, the question whether a person controls a company shall be determined in accordance with subsections (2) to (6) of section 416 with the modification given by sub-paragraph (3) below.
(3) The modification is that, in determining whether a person controls a company, there shall be disregarded—
(a) his or any other person’s possession of, or entitlement to acquire, relevant fixed-rate preference shares of the company; and
(b) his or any other person’s possession of, or entitlement to acquire, rights as a loan creditor of the company.
(4) Section 839 shall apply for the purposes of this Schedule, but as if the reference in subsection (8) to section 416 were a reference to subsections (2) to (6) of section 416 with the modification given by sub-paragraph (3) above.
(5) For the purposes of sub-paragraph (3) above—
(a) relevant fixed-rate preference shares are fixed-rate preference shares that do not for the time being carry voting rights; . . .
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(6) In this paragraph “fixed-rate preference shares” means shares which—
(a) were issued wholly for new consideration;
(b) do not carry any right either to conversion into shares or securities of any other description or to the acquisition of any additional shares or securities; and
(c) do not carry any right to dividends other than dividends which—
(i) are of a fixed amount or at a fixed rate per cent. of the nominal value of the shares, and
(ii) together with any sum paid on redemption, represent no more than a reasonable commercial return on the consideration for which the shares were issued;
and in paragraph (a) above “new consideration” has the meaning given by section 254.
s.844
THE CAPITAL ALLOWANCES ACTS
1 and 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
TAXES MANAGEMENT ACT 1970 c.9
3 The Taxes Management Act 1970 shall have effect subject to the amendments made by paragraphs 4 to 10 below.
4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7 (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(2) In subsection (2) and (3) of that section for the words “this section” there shall be substituted the words “ subsection (1) above ”.
(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8 (1) In subsection (1) of section 55 (recovery of tax not postponed) the following paragraph shall be substituted for paragraph (g)—[for text see Taxes Management Act 1970 (c. 9), s. 55(1)(g) ].
(2) The following subsection shall be inserted in that section after subsection (6)—[for text see Taxes Management Act 1970 (c. 9), s. 55(6A)].
9 The following Table shall be substituted for the Table in section 98—[for text see Taxes Management Act 1970 (c. 9), s. 98].
10 (1) The Taxes Management Act 1970, as amended by the Finance (No.2) Act 1987, shall have effect, after the day appointed under section 95 of the 1987 Act for the purposes of the provision in question, subject to the following amendments.
(2) In section 11(8) for “286” there shall be substituted “ 419 ”.
(3) In section 30(2A) . . . for “87 of the Finance (No.2) Act 1987” there shall be substituted “ 826 of the principal Act ”.
(4) In section 87A—
(a) in subsection (1) for “243(4)” there shall be substituted “ 10 ”;
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(c) in subsection (4), in paragraph (a) for “85 of the Finance Act 1972” there shall be substituted “ 239 of the principal Act ”, and in paragraph (b) for “85” there shall be substituted “ 239 ”; and
(d) in subsection (5) for the words from “subsection” to “1972” there shall be substituted “ section 252(5) of the principal Act ”.
(5) In section 89 for “87 of the Finance (No.2) Act 1987” there shall be substituted “ 826 of the principal Act ”.
(6) In section 91(2A) for “90 of the Finance (No.2) Act 1987” there shall be substituted “ 10 of the principal Act ”.
(7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(8) In section 109—
(a) in subsection (3) for “286” and “(4)” there shall be substituted “ 419 ” and “ (3) ”;
(b) in subsection (3A) for “(5)” and “286” (twice) there shall be substituted “ (4) ” and “ 419 ”.
THE FRIENDLY SOCIETIES ACT (NORTHERN IRELAND) 1970 c.31 (N.I.)
11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
THE FINANCE ACT 1973 c.51
12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
FRIENDLY SOCIETIES ACT 1974 c.46
13 In section 7 of the Friendly Societies Act 1974 at the end of subsection (3) there shall be added the following—
but nothing in this subsection shall apply with respect to—
(a) policies issued in respect of insurances made on or after 19th March 1985; or
(b) policies issued in respect of insurances made before that date which are varied on or after that date.
THE SOCIAL SECURITY ACTS
14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CAPITAL GAINS TAX ACT 1979 c.14
15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
23 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
25 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
26 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
27 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
28 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ADMINISTRATION OF JUSTICE ACT 1985 c.61
30 In paragraph 36(3) of Schedule 2 to the Administration of Justice Act 1985 for all the words preceding “any reference” there shall be substituted the words “ (3) In sections 745(3) and 778(3) of, and paragraph 14(5) of Schedule 15 to, the Income and Corporation Taxes Act 1988 ”.
LAW REFORM (MISCELLANEOUS PROVISIONS) (SCOTLAND) ACT 1985 c.73
31 In Schedule 1 to the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985 for the heading preceding paragraph 41 there shall be substituted the following—
Income and Corporation Taxes Act 1988;
and in paragragh 41 for “30(5)” there shall be substituted the words “ (3) and 778(3) of, and paragraph 14(5) of Schedule 15 to, the Income and Corporation Taxes Act 1988 ”.
TRANSLATION OF REFERENCES TO ENACTMENTS REPEALED AND RE-ENACTED
32 In the enactments specified in Column 1 of the following Table for the words set out or referred to in Column 2 there shall be substituted the words set out in the corresponding entry in Column 3.
Enactment amended | Words to be omitted | Words to be substituted
In the Provisional Collection of Taxes Act 1968 c. 2
Section 1(1A)(a) | 343 of the Income and Corporation Taxes Act 1970 | 476 of the Income and Corporation Taxes Act 1988
1(1A)(b) | 27 of the Finance Act 1984 | 479 of that Act
5(1)(c) | from “243(6)” to “1972” | 8(5) of the Income and Corporation Taxes Act 1988
5(2) | from “the said” to “1972” | sections 8(5) and 822 of the 1988 Act (over-deductions from preference dividends before passing of annual Act)
In the Capital Allowances Act 1968 c.3
. . . | . . . | . . .
In the Finance Act 1969 c. 32
Section 58(1)(a) | 204 of the Income and Corporation Taxes Act 1970 | 203 of the Income and Corporation Taxes Act 1988
In the Taxes Management Act 1970 c. 9
Section 6(1)(c) | 463 | 706
. . . | . . . | . . .
. . . | . . . | . . .
. . . | . . . | . . .
11(6) | 85(4) of the Finance Act 1972 | 239(4) of the principal Act
. . . | . . . | . . .
15(7)(a) | from “section 196” to “1977” | sections 141, 142, 143, 145 or 154 to 165 of the principal Act
15(11)(b) | Part II of the Finance Act 1976 | Part V of the principal Act
80 to 82 | 34 to 36
. . . | . . . | . . .
. . . | . . . | . . .
. . . | . . . | . . .
30 | 47 or 48 (twice) | 824 or 825 of the principal Act or section 47
31 | all of subsection (3) | (3) The appeal shall be to the Special Commissioners if the assessment is made—
(a) by the Board; or
(b) under section 350, 426, 445, 740, 743(1) or 747(4)(a) of the principal Act; or
(c) under section 38 of the Finance Act 1973 or section 830 of the principal Act and is not an assessment to tax under Schedule E;
or if the appeal involves any question as to the application of Part XV or XVI of the principal Act.
35(2)(b) | 187 | 148
42(3)(a) | 27 | 278
42(3)(c) | section 218 | subsection (5) of section 614
42(3)(c) | that section | section 615(3) of that Act
47B | Schedule 5 to the Finance Act 1983 | Chapter III of Part VII of the principal Act
47B | paragraph 5A(5) of that Schedule | section 294(5) of that Act
55(1)(b) | 204 | 203
55(1)(c) | Schedule 20 to the Finance Act 1972 | Schedule 16 to the principal Act
55(1)(e) | Schedule 14 to the Finance Act 1972 | Schedule 13 to the principal Act
. . . | . . . | . . .
. . . | . . . | . . .
. . . | . . . | . . .
63(3) (as substituted by Schedule 4 to the Debtors (Scotland) Act 1987 c.18) | 204 | 203
71(1) | Part XI | sections 6 to 12 and Parts VIII and XI
78(1) | 89 | 43
. . . | . . . | . . .
78(5) | 533 | 839
86(2)(b) | 204 | 203
86(2)(d) | 14 to the Finance Act 1972 | 13 to the principal Act
86(4) | 5 (three times) | 3
86(4) | 4(3) | 5(4)
86(4) | 14 to the Finance Act 1972 | 13 to the principal Act
86(4) | 243(4) | 10(1)
86(4) | 344 | 478
87 | 14 (four times) | 13
87 | 20 (four times) | 16
87 | the Finance Act 1972 | the principal Act
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91(3)(c) | 204 | 203
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93(3) | 204 | 203
94(2) | 240(5) or 246(3) | 7(2) or 11(3)
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109(4) | 286(5) | 419(4)
109(1)-(3),(5) | section 286 | sections 419 and 420
118(1) | 526(5) | 832(1)
118(1) | 354 | 468
118(1) | 1970 | 1988
Schedule 2, para.2(2), in column 1 of the Table | II of Part I | I of Part VII
65(4) | 351(5)
3 | 2
para.2(2), in column 2 of the Table | 158(1) | 121(1), (2)
315(3) | 441(3)
331 | 459
332 | 460
338 | 467
339 | 484
384 | 527
389 | 534
391 | 536
392 | 538
3, para.3,5 | 204 (three times) | 203
para.5B | 65 of the Finance Act 1976 | 159 of the principal Act
para.8 | section 286 | sections 419 and 420
para.8 | 15 of Schedule 16 to the Finance Act 1972 | 13 of Schedule 19 to the principal Act
last para. | from “11” to “to the principal Act” | 102, 113(5), 263(5) and (6), 343(10) and 783(9) of the principal Act, to paragraph 22 of Schedule 7 to the Income and Corporation Taxes Act 1970
. . .
. . .
In the Friendly Societies Act (Northern Ireland) 1970 c. 31 (N.I.)
Section 1(5) | (2) and (3) respectively of section 337 of the Income and Corporation Taxes Act 1970 | (1) and (2) respectively of section 466 of the Income and Corporation Taxes Act 1988
82(4) | 226(13) of the Income and Corporation Taxes Act 1970 | 620(9) of the Income and Corporation Taxes Act 1988
In the Finance Act 1971 c. 68
Section 21 | the whole of subsection (6) | (6) Part II of Schedule 3 to this Act shall have effect.
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69(2) | 1970 | 1988
Schedule 3, para.8(1), (5) | the Taxes Act | the Income and Corporation Taxes Act 1970
para.8(3) | the words from “sub-paragraphs” to “this Schedule)” | section 598(2) to (4) of the Taxes Act
para.8(4) | 1970 | 1970 or Chapter I of Part XIV of the Taxes Act
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In the Finance Act 1972 c. 41
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134(2) | 1970 | 1988
In the Finance Act 1973 c. 51
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38(2)(d) | 237(5) of the Taxes Act | 254(1) of the Taxes Act 1988
38(3) | from beginning to “such rights” | Any gains accruing on the disposal of exploration or exploitation rights
38(3B) | 533 of the Taxes Act | 839 of the Taxes Act 1988
38(5) | the Taxes Act | the Taxes Act 1970
59 | all of subsection (2) | (2) In this Act—
(a) “the Taxes Act 1970” means the Income and Corporation Taxes Act 1970; and
(b) “the Taxes Act 1988” means the Income and Corporation Taxes Act 1988.
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In the Friendly Societies Act 1974 c. 46
Section 7(5) | (2) and (3) respectively of section 337 of the Income and Corporation Taxes Act 1970 | (1) and (2) respectively of section 466 of the Income and Corporation Taxes Act 1988
93(4) | 226(13) of the Income and Corporation Taxes Act 1970 | 620(9) of the Income and Corporation Taxes Act 1988
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In the Finance Act 1976 c. 40
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131(2) | from beginning to “such a security” | A security issued by the Inter-American Development Bank
In the Finance Act 1978 c. 42
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In the European Parliament (Pay and Pensions) Act 1979 c. 50
Section 8(1) | subsections (1A) and (1B) of section 229 of the Income and Corporation Taxes Act 1970 | section 629(2) and (3) of the Income and Corporation Taxes Act 1988
In the Finance Act 1980 c.48
Section
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118 | the whole of subsection (3) | (3) The trustees of the National Heritage Memorial Fund shall be treated for the purposes of section 49(2) of the Finance Act 1974 and section 99 above as a body of persons established for charitable purposes only.
122(2) | 1970 | 1970 and “the Taxes Act 1988” means the Income and Corporation Taxes Act 1988
Schedule
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In the Finance Act 1981 c. 35
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139(2) | 1970 | 1988
In the Housing (Northern Ireland) Order 1981 (S.I. No.156 N.I.3)
Article 146(3) | 341 (three times) | 488
146(3) | 1970 (three times) | 1988
In the Iron and Steel Act 1982 c. 25
Section 13(3) | 252(3) of the Income and Corporation Taxes Act 1970 | 343(3) of the Income and Corporation Taxes Act 1988
13(4) | 265(1) of the Income and Corporation Taxes Act 1970 | 345(1) of the Income and Corporation Taxes Act 1988
In the Finance Act 1982 c. 39
Section 27 | this Act (three times) | this Act or the Taxes Act 1988
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88(9)(a) | Chapter IV of Part II of the Finance Act 1985 | section 710 of the Taxes Act 1988
88(9)(b) | section 36 of the Finance Act 1984 | Schedule 4 to that Act
88(9)(c) | VII of Part II of that Act | V of Part XVII of the Taxes Act 1988
147(1) | 532(1)(b) of the Taxes Act | 838 of the Taxes Act 1988
147(2), (3) | the Taxes Act | the Taxes Act 1970
157 | the whole of subsection (2) | (2) In this Act—
(a) “the Taxes Act 1970” means the Income and Corporation Taxes Act 1970; and
(b) “the Taxes Act 1988” means the Income and Corporation Taxes Act 1988.
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13, para.3(3)(a) | 463 of the Taxes Act | 706 of the Taxes Act 1988
21, para.3(2)
In the Finance Act 1983 c. 28
Section 46(3) | Commission | Historic Buildings and Monuments Commission
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(ab) deep discount securities (within the meaning of Schedule 4 to the Income and Corporation Taxes Act 1988); nor
In the Telecommunications Act 1984 c. 12
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72(3)(b) | paragraph (a) of the proviso to section 21(3) of the Finance Act 1970 | section 592(5) of the Income and Corporation Taxes Act 1988
72(3) | II of Part II of the said Act of 1970 | I of Part XIV of that Act
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In the Finance Act 1984 c. 43
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128 | 1970 | 1970; and “the Taxes Act 1988” means the Income and Corporation Taxes Act 1988
Schedule 14, para.1(1) | VII of Part II of this Act | V of Part XVII of the Taxes Act 1988
para.7(6)(b) | 45 of the Finance Act 1981 | 740 of the Taxes Act 1988
para.8(6) | 45 of the Finance Act 1981 | 740 of the Taxes Act 1988
para.12(7) | 45 of the Finance Act 1981 | 740 of the Taxes Act 1988
para.15(2) | (5) of section 481 of the Taxes Act | (6) of section 745 of the Taxes Act 1988
In the Inheritance Tax Act 1984 c. 51
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In the Finance Act 1985 c. 54
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98(2) | 1970 | 1988
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In the Companies Act 1985 c. 6
Section 209(3)(b) | 444 of the Income and Corporation Taxes Act 1970 | 670 of the Income and Corporation Taxes Act 1988
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In the Trustee Savings Bank Act 1985 c. 58
Schedule 2 para.4(2) | Taxes Act (twice) | the Income and Corporation Taxes Act 1970
6(1) | 137 | 100
(4) | 177 | 393
(8) | 29 of the Finance Act 1973 | 410(1) to (6) of the Taxes Act
7(2) | 26 of the Finance Act 1982 | 369 of the Taxes Act
9(1) | 1970 | 1988
In the Bankruptcy (Scotland) Act 1985 c. 66
Schedule 3 Part I para.1(1) | 204 of the Income and Corporation Taxes Act 1970 | 203 of the Income and Corporation Taxes Act 1988
para.1(2) | 69 of the Finance (No.2) Act 1975 | 559 of the Income and Corporation Taxes Act 1988
In the Housing Associations Act 1985 c. 69
Section 62(2) | 341 | 488
62(2) | 1970 | 1988
In the Airports Act 1986 c. 31
Section 77(2) | 1970 Act | Income and Corporation Taxes Act 1970
77(4) | 48(10) of the Finance Act 1981 | 400(9) of the 1988 Act
77(5) | 261(2) of the 1970 Act | 408(2) of the 1988 Act
77(5) | 262(1) of the 1970 Act | 409(1) of that Act
77(5) | 262(2) | 409(2)
77(6) | 1970 (twice) | 1988
77(6) | 258 to 264 | Chapter IV of Part X
In the Finance Act 1986 c. 41
Section 24(4) | Finance Act 1978 | Taxes Act 1988
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114(2) | 1970 | 1970 and “the Taxes Act 1988” means the Income and Corporation Taxes Act 1988.
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In the Gas Act 1986 c. 44
Section 63(9) | 533 of the Income and Corporation Tax Act 1970 | 839 of the Income and Corporation Taxes Act 1988
In the Insolvency Act 1986 c. 45
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In the Building Societies Act 1986 c. 53
Schedule 8, para.7 | Schedule 8 to the Finance Act 1986 | section 333 of the Income and Corporation Taxes Act 1988
In the Financial Services Act 1986 c. 60
Schedule 15, para.14(5) | 332 | 460(1) or 461(1)
para.14(5) | 1970 | 1988
In the Companies (Northern Ireland) Order 1986 (S.I.No.1032 N.I.6)
Article 217(3)(b) | 444of the Income and Corporation Taxes Act 1970 | 670of the Income and Corporation Taxes Act 1988
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In the Finance Act 1987 c. 16
Section
72 | 1970 | 1988
In the Debtors (Scotland) Act 1987 c. 18
Section 53(6) | 65(1A) | 351(2)
53(6) | 1970 | 1988
63(9) | 65(1A) | 351(2)
63(9) | 1970 | 1988
In the Abolition of Domestic Rates Etc. (Scotland) Act 1987 c. 47
Section 3(5) | the whole of paragraph (b) | (b) “retail prices index” has the meaning given by section 833 of the Income and Corporation Taxes Act 1988
In the Finance (No.2) Act 1987 c. 51
Section 84(1) | 247 of the Taxes Act | 12 of the Income and Corporation Taxes Act 1988
Section 844.
Corporation tax payment dates
1 (1) In this paragraph, an “old company” means a company to which section 244 of the 1970 Act applied in respect of the last accounting period ending before 17th March 1987.
(2) In relation to an old company —
(a) “the company's section 244 interval” means the interval after the end of an accounting period of the company which, in accordance with section 244 of the 1970 Act, was the period within which corporation tax assessed for that period was required to be paid; and
(b) “the period of reduction” means the number of whole days which are comprised in a period equal to one-third of the difference between nine months and the company⿿s section 244 interval.
(3) Subject to sub-paragraph (6) below, with respect to the first accounting period of an old company beginning on or after 17th March 1987, section 243(4) of the 1970 Act and section 10(1) of this Act (time for payment of corporation tax) shall have effect as if for the reference to nine months there were substituted a reference to a period which is equal to the company⿿s section 244 interval less the period of reduction.
(4) Subject to sub-paragraph (6) below, with respect to any accounting period of an old company which begins —
(a) after the accounting period referred to in sub-paragraph (3) above, but
(b) before the second anniversary of the beginning of that period,
section 10(1) of this Act shall have effect as if for the reference to nine months there were substituted a reference to a period equal to the previous payment interval less the period of reduction.
(5) In relation to any accounting period of an old company falling within sub-paragraph (4) above, “the previous payment interval”means the interval after the end of the immediately preceding accounting period within which corporation tax for that preceding period is required to be paid by virtue of section 243(4) of the 1970 Act or section 10(1) of this Act, as modified by this paragraph.
(6) If the accounting period referred to in sub-paragraph (3) above or any accounting period falling within sub-paragraph (4) above is less than 12 months, the sub-paragraph in question shall have effect in relation to that accounting period as if for the reference in that sub-paragraph to the period of reduction there were substituted a reference to the number of whole days comprised in a period which bears to the period of reduction the same proportion as that accounting period bears to 12 months.
(7) With respect to any accounting period of an old company which falls within sub-paragraph (3) or (4) above, section 86(4) of the Management Act (interest on overdue tax) shall have effect as if, in paragraph 5(a) of the Table (the reckonable date in relation to corporation tax), the reference to the nine months mentioned in section 243(4) of the 1970 Act or section 10(1) of this Act were a reference to the period which, under sub-paragraphs (3) to (6) above, is substituted for those nine months.
(8) In section 88(5)(e) of the Management Act (the date when corporation tax ought to have been paid) for the words from “where section 244(1)” to “the interval” there shall be substituted “ in the case of an accounting period in respect of which section 10(1) of the principal Act applies as modified by sub-paragraph 1(3) or (4) of Schedule 30 to that Act, at the end of the period which, under that sub-paragraph, is substituted for the period of nine months ”.
(9) With respect to any accounting period of an old company which falls within sub-paragraph (3) or (4) above, section 825 shall have effect as if, in subsection (8) in paragraph (a) of the definition of “the material date”, the reference to the nine months mentioned in section 10(1) were a reference to the period which, under sub-paragraphs (1) to (8) above is substituted for those nine months.
Duration of leases
2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repeal of section 136 of the Income Tax Act 1952: allowance of annual value of land as a business expense
5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss relief etc.
6 (1) The substitution of this Act for the corresponding enactments repealed by this Act shall not alter the effect of any provision enacted before this Act (whether or not there is a corresponding provision in this Act) so far as it determines whether and to what extent —
(a) losses or expenditure incurred in, or other amounts referable to, a chargeable period earlier than those to which this Act applies may be taken into account for any tax purposes in a chargeable period to which this Act applies; or
(b) losses or expenditure incurred in, or other amounts referable to, a chargeable period to which this Act applies may be taken into account for any tax purposes in a chargeable period earlier than those to which this Act applies.
(2) Without prejudice to sub-paragraph (1) above, the repeals made by this Act shall not affect the following enactments (which are not re-enacted) —
(a) section 27(4) of the Finance Act 1952 (restrictions on removal of six year time limit on carry forward of trading losses);
(b) section 29(3) of the Finance Act 1953 (Isles of Scilly);
(c) section 17 of, and Schedule 3 to, the Finance Act 1954 (company reconstructions before corporation tax) so far as in force by virtue of the saving in Part IV of Schedule 22 to the Finance Act 1965, and section 80(8) of the Finance Act 1965 (which amends Schedule 3 to the Finance Act 1954);
(d) section 82(4) of the Finance Act 1965 (losses allowable against chargeable gains);
(e) section 85 of the Finance Act 1965 (carry forward of surplus of franked investment income: dividends paid out of pre-1966-67 profits) and the enactments amending that section;
(f) paragraph 25 of Schedule 15 to the Finance Act 1965 (continuity of elections for purposes of corporation tax);
(g) paragraph 7 of Schedule 16 to the Finance Act 1965 (overseas trade corporations);
in so far as those enactments may be relevant to tax for any chargeable period to which this Act applies.
7 (1) This paragraph shall apply with respect to claims for group relief in respect of any amount which is attributable —
(a) to writing-down allowances, within the meaning of Chapter II of Part I of the 1968 Act, or, as the case may require, Chapter I of Part III of the Finance Act 1971, in respect of expenditure incurred by the surrendering company on the provision of machinery or plant; or
(b) to initial allowances under section 56 of the 1968 Act (expenditure in connection with mines etc.) in respect of expenditure incurred by the surrendering company and falling within section 52(1) of that Act of 1971 (works in a development area or in Northern Ireland); or
(c) to allowances under section 91 of the 1968 Act in respect of expenditure incurred by the surrendering company on scientific research;
where the expenditure is incurred under a contract entered into by the surrendering company before 6th March 1973.
(2) Notwithstanding anything in section 410(1) to (6) or 413(7) to (10) or in Schedule 18 but subject to sub-paragraph (5) below, group relief may be claimed in respect of any such amount as is referred to in sub-paragraph (1) above if —
(a) immediately before 6th March 1973 —
(i) the surrendering company and the company claiming relief were members of a group of companies, and
(ii) throughout the period beginning on that date and ending at the end of the accounting period in respect of which the claim is made, there is no reduction in the rights of the parent company with respect to the matters specified in section 413(7)(a) and (b); or
(b) immediately before 6th March 1973 the company claiming relief was a member of a consortium and, throughout the period beginning on that date and ending at the end of the accounting period in respect of which the claim is made, there is
(i) no variation in the percentage of the ordinary share capital of the company owned by the consortium which is beneficially owned by that member, and
(ii) no reduction in the rights of that member (in respect of the company owned by the consortium) with respect to the matters specified in section 413(7)(a) and (b);
and in either case no such arrangements as are specified in section 410(1) or (2) have come into existence after 5th March 1973 with respect to any of the companies concerned and no variation is made in any such arrangements which are in existence on that date with respect to any of those companies.
(3) For the purposes of sub-paragraph (2)(a) above, “the parent company” means the company of which another member of the group referred to in that sub-paragraph was, immediately before 6th March 1973, a 75 per cent subsidiary, and the rights of the parent company referred to in that paragraph are —
(a) if the parent company is either the surrendering company or the company claiming relief, its rights in the other company; and
(b) in any other case, its rights in both the surrendering company and the company claiming relief.
(4) For the purposes of this paragraph an amount which the claimant company claims by way of group relief shall be treated as attributable to an allowance falling within any of paragraphs (a) to (c) of sub-paragraph (1) above to the extent that that amount would not have been available for surrender by the surrendering company if no such allowance had been available to the surrendering company in respect of the expenditure concerned.
(5) Sub-paragraph (2) above shall not apply if, during the period referred to in that sub-paragraph —
(a) there is a major change in the nature or conduct of a trade or business carried on by the relevant company; or
(b) the relevant company sets up and commences a trade or business , or begins to carry on a trade, which it did not carry on immediately before 6th March 1973.
(6) In sub-paragraph (5) above —“a major change in the nature or conduct of a trade or business” has the same meaning as in section 245(1); and “the relevant company” means, if the machinery or plant to which the allowance relates was brought into use on or before 6th March 1978, the company claiming group relief and in any other case either that company or the company which if sub-paragraph (5) did not apply would be the surrendering company.
(7) This paragraph shall be construed as if it were contained in Chapter IV of Part X.
Capital allowances
8 Without prejudice to paragraphs 6 and 7 above, where a person is, immediately before the commencement of this Act, entitled to a capital allowance by virtue of any enactment repealed by this Act, he shall not cease to be so entitled by reason only of that repeal, notwithstanding that the enactment in question is not re-enacted by this Act; and accordingly the provisions of this Act shall apply, with any necessary modifications, so far as may be necessary to give effect to any such entitlement.
Social security benefits
9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Children's settlements: irrevocable dispositions made before 22nd April 1936
10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pre-1959 settlements
11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General powers of amendment in Acts relating to overseas countries
13 Where under any Act passed before this Act and relating to a country or territory outside the United Kingdom there is a power to affect Acts passed or in force before a particular time, or instruments made or having effect under such Acts, and the power would but for the passing of this Act have included power to change the law which is reproduced in, or is made or has effect under, this Act, then that power shall include power to make such provision as will secure the like change in the law reproduced in, or made or having effect under, this Act notwithstanding that it is not an Act passed or in force before that time.
Double taxation agreements
14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities
15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Building societies
16 Any enactment relating to building societies contained in this Act which re-enacts an enactment which was an existing enactment for the purposes of section 121 of the Building Societies Act 1986 shall continue to be an existing enactment for those purposes.
Pension business
17 Any reference to pension business in any enactment (other than an enactment repealed by this Act) which immediately before the commencement of this Act was such a reference by virtue of paragraph 11(3) of Part III of Schedule 5 to the Finance Act 1970 shall not be affected by the repeal by this Act of that paragraph and accordingly the business in question shall continue to be known as pension business.
Stock relief
18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
18A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Schedule E emoluments
19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unitary states
20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Continuity and construction of references to old and new law
21 (1) The continuity of the operation of the Tax Acts and of the law relating to chargeable gains shall not be affected by the substitution of this Act for the enactments repealed by this Act and earlier enactments repealed by and corresponding to any of those enactments (“the repealed enactments”).
(2) Any reference, whether express or implied, in any enactment, instrument or document (including this Act and any Act amended by this Act) to, or to things done or falling to be done under or for the purposes of, any provision of this Act shall, if and so far as the nature of the reference permits, be construed as including, in relation to the times, years or periods, circumstances or purposes in relation to which the corresponding provision in the repealed enactments has or had effect, a reference to, or as the case may be to things done or falling to be done under or for the purposes of, that corresponding provision.
(3) Any reference, whether express or implied, in any enactment, instrument or document (including the repealed enactments and enactments, instruments and documents passed or made after the passing of this Act) to, or to things done or falling to be done under or for the purposes of, any of the repealed enactments shall, if and so far as the nature of the reference permits, be construed as including, in relation to the times, years or periods, circumstances or purposes in relation to which the corresponding provision in this Act has effect, a reference to, or as the case may be to things done or falling to be done under or for the purposes of, that corresponding provision.
(4) Any reference to Case VIII of Schedule D, whether a specific reference or one imported by more general words, in any enactment, instrument or document shall, in relation to the chargeable periods to which section 843(1) applies, be construed as a reference to Schedule A, and for the purposes of sub-paragraph (2) above, Schedule A in this Act shall be treated as corresponding to Case VIII of Schedule D in the repealed enactments, and any provision of this Act or of any Act passed after 12th March 1970 and before this Act referring to Schedule A shall be construed accordingly.