Law

Finance Act 2012

United Kingdom · statute

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In force since 2026-04-01, as the publisher states.

Copy read on 2026-11-08. The page it was read from

Contains public sector information licensed under the Open Government Licence v3.0. Source: legislation.gov.uk, The National Archives.

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Contents: 274 provisions

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274 provisions

194 Remote gambling: double taxation relief

Schedule 25 contains provision for double taxation relief in respect of remote gambling.

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195 VED rates for light passenger vehicles, light goods vehicles, motorcycles etc

(1) Schedule 1 to VERA 1994 (annual rates of duty) is amended as follows. (2) In paragraph 1 (general)— (a) in sub-paragraph (2) (vehicle not covered elsewhere in Schedule otherwise than with engine cylinder capacity not exceeding 1,549cc), for “£215” substitute “ £220 ”, and (b) in sub-paragraph (2A) (vehicle not covered elsewhere in Schedule with engine cylinder capacity not exceeding 1,549cc), for “£130” substitute “ £135 ”. (3) In paragraph 1B (graduated rates of duty for light passenger vehicles)— (a) for the tables substitute— Table 1 Rates payable on first vehicle licence for vehicle CO2 emissions figure | Rate (1) | (2) | (3) | (4) Exceeding | Not exceeding | Reduced rate | Standard rate g/km | g/km | £ | £ 130 | 140 | 110 | 120 140 | 150 | 125 | 135 150 | 165 | 160 | 170 165 | 175 | 265 | 275 175 | 185 | 315 | 325 185 | 200 | 450 | 460 200 | 225 | 590 | 600 225 | 255 | 805 | 815 255 | 1020 | 1030 Table 2 Rates payable on any other vehicle licence for vehicle CO2 emissions figure | Rate (1) | (2) | (3) | (4) Exceeding | Not exceeding | Reduced rate | Standard rate g/km | g/km | £ | £ 100 | 110 | 10 | 20 110 | 120 | 20 | 30 120 | 130 | 90 | 100 130 | 140 | 110 | 120 140 | 150 | 125 | 135 150 | 165 | 160 | 170 165 | 175 | 185 | 195 175 | 185 | 205 | 215 185 | 200 | 240 | 250 200 | 225 | 260 | 270 225 | 255 | 450 | 460 255 | 465 | 475 ; (b) in the sentence immediately following the tables, for paragraphs (a) and (b) substitute— (a) in column (3), in the last two rows, “260” were substituted for “450” and “ 465 ”, and (b) in column (4), in the last two rows, “270” were substituted for “460” and “ 475 ”. (4) In paragraph 1J (VED rates for light goods vehicles)— (a) in paragraph (a), for “£210” substitute “ £215 ”, and (b) in paragraph (b), for “£130” substitute “ £135 ”. (5) In paragraph 2(1) (VED rates for motorcycles)— (a) in paragraph (b), for “£35” substitute “ £36 ”, (b) in paragraph (c), for “£53” substitute “ £55 ”, and (c) in paragraph (d), for “£74” substitute “ £76 ”. (6) The amendments made by this section have effect in relation to licences taken out on or after 1 April 2012.

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196 Changes to the categorisation of supplies

(1) Schedule 26 contains provision about the categorisation of supplies for the purposes of value added tax. (2) Schedule 27 contains provision for an anti-forestalling charge to value added tax related to changes in the descriptions of exempt or zero-rated supplies.

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197 Exempt supplies

(1) In Part 1 of Schedule 9 to VATA 1994 (index to exempt supplies of goods and services), at the appropriate place in the table insert— Supplies of services by groups involving cost sharing | Group 16 . (2) In Part 2 of that Schedule (the groups), at the end insert— GROUP 16 — SUPPLIES OF SERVICES BY GROUPS INVOLVING COST SHARING Item No 1 The supply of services by an independent group of persons where each of the following conditions is satisfied— (a) each of those persons is a person who is carrying on an activity (“the relevant activity”) which is exempt from VAT or in relation to which the person is not a taxable person within the meaning of Article 9 of Council Directive 2006/112/EC, (b) the supply of services is made for the purpose of rendering the members of the group the services directly necessary for the exercise of the relevant activity, (c) the group merely claims from its members exact reimbursement of their share of the joint expenses, and (d) the exemption of the supply is not likely to cause distortion of competition. (3) In section 31 of that Act (exempt supplies and acquisitions), after subsection (2) insert— (3) The Treasury may by regulations make an exemption of a group 16 supply of a description specified in the regulations subject to conditions. (4) Regulations under subsection (3) may— (a) make different provision for different cases, and (b) make consequential or transitional provision (including provision amending this Act). (5) In subsection (3) “group 16 supply” means a supply falling within Group 16 of Schedule 9.

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198 Supply of goods or services by public bodies

(1) VATA 1994 is amended as follows. (2) In section 41 (application to the Crown)— (a) omit subsection (2), and (b) in subsection (3)(b) for “a direction under subsection (2) above,” substitute “ section 41A, ”. (3) After that section insert— Supply of goods or services by public bodies 41A (1) This section applies where goods or services are supplied by a body mentioned in Article 13(1) of the VAT Directive (status of public bodies as taxable persons) in the course of activities or transactions in which it is engaged as a public authority. (2) If the supply is in respect of an activity listed in Annex I to the VAT Directive (activities in respect of which public bodies are to be taxable persons), it is to be treated for the purposes of this Act as a supply in the course or furtherance of a business unless it is on such a small scale as to be negligible. (3) If the supply is not in respect of such an activity, it is to be treated for the purposes of this Act as a supply in the course or furtherance of a business if (and only if) not charging VAT on the supply would lead to a significant distortion of competition. (4) In this section “the VAT Directive” means Council Directive 2006/112/EC on the common system of value added tax.

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199 Relief from VAT on low value goods: restriction relating to Channel Islands

(1) In Schedule 2 to the Value Added Tax (Imported Goods) Relief Order 1984 (S.I. 1984/746) (reliefs for goods of certain descriptions), Group 8 (articles sent for miscellaneous purposes) is amended as follows. (2) The existing Note becomes Note (1) (and accordingly “ Note ” in Group 8 becomes “ Notes ”). (3) After that Note insert— (2) Item 8 does not apply in relation to any goods sent from the Channel Islands under a distance selling arrangement. (3) For the purposes of Note (2)— “distance selling arrangement”, in relation to any goods, means any transaction, or series of transactions, under which the person to whom the goods are sent receives them from a supplier without the simultaneous physical presence of the person and the supplier at any time during the transaction or series of transactions, and “supplier” means any person who is acting in a commercial or professional capacity. (4) The amendment of that Schedule by this section is without prejudice to any power to amend that Schedule by subordinate legislation. (5) The amendments made by this section have effect in relation to goods imported on or after 1 April 2012.

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200 Group supplies using an overseas member

(1) VATA 1994 is amended as follows. (2) In section 43 (groups of companies), in subsection (2C)(c), after “above” insert “ and paragraph 8A of Schedule 6 ”. (3) In section 83 (appeals), in subsection (1)(v) for “or 2” substitute “ , 2 or 8A ”. (4) In section 97(4) (orders requiring Parliamentary approval within 28 days of being made), in paragraph (f), after “1A(7)” insert “ or 8A(7) ”. (5) Schedule 6 (valuation: special cases) is amended as follows. (6) In paragraph 1 (cases where Commissioners may direct value is open market value), in sub-paragraph (5), after “paragraph”, in the second place it occurs, insert “ 8A or ”. (7) After paragraph 8 insert— 8A (1) This paragraph applies where— (a) a supply (“the intra-group supply”) made by a member of a group (“the supplier”) to another member of the group is, by virtue of section 43(2A), excluded from the supplies disregarded under section 43(1)(a), and (b) the representative member of the group satisfies the Commissioners as to the value of each bought-in supply. (2) “Bought-in supply”, in relation to the intra-group supply, means a supply of services to the supplier to which section 43(2A)(c) to (e) refers, so far as that supply is used by the supplier for making the intra-group supply. (3) The value of the intra-group supply shall be taken to be the total of the relevant amounts in relation to the bought-in supplies. (4) The relevant amount in relation to a bought-in supply is the value of the bought-in supply, unless a direction is made under sub-paragraph (5). (5) If the value of a bought-in supply is less than its open market value, the Commissioners may direct that the relevant amount in relation to that supply is its open market value. (6) A direction under this paragraph must be given by notice in writing to the representative member, but no direction may be given more than 3 years after the time of the intra-group supply. (7) The Treasury may by order vary the provision made by this Schedule about the value of supplies of the kind mentioned in sub-paragraph (1)(a). (8) An order under sub-paragraph (7) may include incidental, supplemental, consequential or transitional provision (including provision amending section 43 or 83). (8) The amendments made by this section have effect in relation to supplies made on or after the day on which this Act is passed.

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201 Face-value vouchers

(1) In Schedule 10A to VATA 1994 (face-value vouchers), after paragraph 7 insert— Exclusion of single purpose vouchers 7A Paragraphs 2 to 4, 6 and 7 do not apply in relation to the issue, or any subsequent supply, of a face-value voucher that represents a right to receive goods or services of one type which are subject to a single rate of VAT. (2) The amendment made by subsection (1) has effect in relation to supplies of face-value vouchers issued on or after 10 May 2012. (3) Subsection (4) applies where— (a) a face-value voucher issued before 10 May 2012 is used on or after that date to obtain goods or services, (b) paragraphs 2 to 4, 6 and 7 of Schedule 10A to VATA 1994 would not have applied in relation to the issue, or any subsequent supply, of the voucher because of paragraph 7A of that Schedule if the voucher had been issued on or after 10 May 2012, and (c) VAT is not payable under the law of another member State on the supply of the voucher to the user. (4) The use of the voucher is to be treated for the purposes of VATA 1994 as a supply of the goods or services by the person from whom they are obtained to the user of the voucher.

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202 Power to require notification of arrival of means of transport in UK

In Schedule 11 to VATA 1994 (administration, collection and enforcement), in paragraph 2 (accounting for VAT and payment of VAT), after sub-paragraph (5) insert— (5A) Regulations under this paragraph may make provision— (a) for requiring the relevant person to give to the Commissioners such notification of the arrival in the United Kingdom of goods consisting of a means of transport, at such time and in such form and manner, as may be specified in the regulations or by the Commissioners in accordance with the regulations, and (b) where notification of the arrival of a means of transport acquired from another member State, or imported from a place outside the member States, is required by virtue of paragraph (a), for requiring any VAT on the acquisition or importation to be paid at such time and in such manner as may be specified in the regulations. (5B) The provision that may be made by regulations made by virtue of sub-paragraph (5A) includes— (a) provision for a notification required by virtue of that sub-paragraph to contain such particulars relating to the notified arrival of the means of transport and any VAT chargeable on its acquisition or importation as may be specified in the regulations or by the Commissioners in accordance with the regulations, (b) provision for such a notification to be given by a person who is not the relevant person and is so specified, or is of a description so specified, (c) provision for such a notification to contain a declaration, given in such form and by such person as may be so specified, as to the information contained in the notification, and (d) supplementary, incidental, consequential or transitional provision (including provision amending any provision made by or under this Act or any other enactment). (5C) Subsection (3) of section 97 (orders subject to Commons approval) applies to a statutory instrument containing any regulations made by virtue of sub-paragraph (5A) which amend an enactment as it applies to an order within subsection (4) of that section. (5D) For the purposes of sub-paragraph (5A)— “means of transport” has the same meaning as it has in this Act in the expression “new means of transport” (see section 95); “relevant person”, in relation to the arrival of a means of transport in the United Kingdom, means— where the means of transport has been acquired in the United Kingdom from another member State, the person who so acquires it, where it has been imported from a place outside the member States, the person liable to pay VAT on the importation, and in any other case— the owner of the means of transport at the time of its arrival in the United Kingdom, or where it is subject to a lease or hire agreement, the lessee or hirer of the means of transport at that time.

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203 Non-established taxable persons

Schedule 28 contains provision about non-established taxable persons.

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204 Administration of VAT

Schedule 29 contains provision about the administration of VAT.

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205 Standard rate of landfill tax

(1) In section 42(1)(a) and (2) of FA 1996 (amount of landfill tax) for “£64” substitute “ £72 ”. (2) The amendments made by this section have effect in relation to disposals made (or treated as made) on or after 1 April 2013.

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206 Landfill sites in Scotland

The following provisions are to be treated as having come into force, in so far as they extend to Scotland, on 21 March 2000— (a) paragraph 19 of Schedule 2 to the Pollution Prevention and Control Act 1999 (which inserts paragraph (ba) into section 66 of FA 1996 (landfill sites)), and (b) section 6(1) of the Pollution Prevention and Control Act 1999, so far as relating to paragraph 19 of that Schedule.

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207 Climate change levy

The following Schedules amend, or make amendments connected with, Schedule 6 to FA 2000 (climate change levy)— (a) Schedule 30 (reduced-rate supplies, rates etc); (b) Schedule 31 (climate change agreements); (c) Schedule 32 (supplies subject to the carbon price support rates and combined heat and power stations).

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208 Indexation of rate bands

(1) Section 8 of IHTA 1984 (indexation of rate bands) is amended as follows. (2) In subsection (1), for “retail prices index for the month of September in 1993 or any later year” substitute “ consumer prices index for the month of September in any year ”. (3) In subsection (2), for “retail prices index” substitute “ consumer prices index ”. (4) For subsection (3) substitute— (3) In this section, “consumer prices index” means the all items consumer prices index published by the Statistics Board. (5) The amendments made by this section have effect for the purposes of chargeable transfers made on or after 6 April 2015.

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209 Gifts to charities etc

Schedule 33 contains provision for a lower rate of inheritance tax to be charged on transfers made on death that include sufficient gifts to charities or registered clubs.

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210 Settled property: effect of certain arrangements

(1) IHTA 1984 is amended as follows. (2) In section 48 (settled property: excluded property)— (a) in subsection (1), after paragraph (c) insert or, (d) in a case where paragraphs (a), (b) and (d) of section 74A(1) are satisfied— (i) it is a reversionary interest, in the relevant settled property, to which the individual is beneficially entitled, and (ii) the individual has or is able to acquire (directly or indirectly) another interest in that relevant settled property. Terms used in paragraph (d) have the same meaning as in section 74A. , (b) in subsection (3), for “subsection (3B)” substitute “ subsections (3B) and (3D) ”, and (c) after subsection (3C) insert— (3D) Where paragraphs (a) to (d) of section 74A(1) are satisfied, subsection (3)(a) above does not apply at the time they are first satisfied or any later time to make the relevant settled property (within the meaning of section 74A) excluded property. (3) After section 74 insert— Arrangements involving acquisition of interest in settled property etc 74A (1) This section applies where— (a) one or more persons enter into arrangements, (b) in the course of the arrangements— (i) an individual (“the individual”) domiciled in the United Kingdom acquires or becomes able to acquire (directly or indirectly) an interest in property comprised in a settlement ( “ the relevant settled property ”), and (ii) consideration in money or money's worth is given by one or more of the persons mentioned in paragraph (a) (whether or not in connection with the acquisition of that interest or the individual becoming able to acquire it), (c) there is a relevant reduction in the value of the individual's estate, and (d) condition A or condition B is met. (2) Condition A is that— (a) the settlor was not domiciled in the United Kingdom at the time the settlement was made, and (b) the relevant settled property is situated outside the United Kingdom at any time during the course of the arrangements. (3) Condition B is that— (a) the settlor was not an individual or a close company at the time the settlement was made, and (b) condition A is not met. (4) Subsection (6) applies if all or a part of a relevant reduction (“amount A”) is attributable to the value of the individual's section 49(1) property being less than it would have been in the absence of the arrangements. (5) “The individual's section 49(1) property” means settled property to which the individual is treated as beneficially entitled under section 49(1) by reason of the individual being beneficially entitled to an interest in possession in the property. (6) Where this subsection applies— (a) a part of that interest in possession is deemed, for the purposes of section 52, to come to an end at the relevant time, and (b) that section applies in relation to the coming to an end of that part as if the reference in subsection (4)(a) of that section to a corresponding part of the whole value of the property in which the interest in possession subsists were a reference to amount A. (7) Subsection (8) applies to so much (if any) of a relevant reduction as is not amount A (“amount B”). (8) Tax is to be charged as if the individual had made a transfer of value at the relevant time and the value transferred by it had been equal to amount B. Section 74A: supplementary provision 74B (1) A transfer of value arising by virtue of section 74A is to be taken to be a transfer which is not a potentially exempt transfer. (2) For the purposes of section 74A— (a) when determining the value transferred by a transfer of value arising by virtue of that section, no account is to be taken of section 3(2), (b) nothing in section 10(1) applies to prevent such a transfer, and (c) nothing in sections 102 to 102C of the Finance Act 1986 applies in relation to such a transfer. (3) Where, ignoring this subsection, a transfer of value would arise by virtue of section 74A (“the current transfer”), the value transferred by a relevant related transfer is to be treated as reducing the value transferred by the current transfer. But this subsection does not apply if and to the extent that the relevant related transfer has already been applied to reduce another transfer of value arising by virtue of that section. (4) “Relevant related transfer” means— (a) where the arrangements consist of a series of operations, any transfer of value constituted by one or more of those operations which occur before or at the same time as the current transfer, other than a transfer of value arising by virtue of section 74A, and (b) where the arrangements consist of a single operation, any transfer of value which arises from that operation, other than a transfer of value arising by virtue of section 74A. (5) Section 268(3) does not apply to a transfer of value arising by virtue of section 74A. (6) Where— (a) a transfer of value has arisen by virtue of section 74A, (b) in the course of the arrangements the individual acquires an interest in possession in settled property, and (c) section 5(1B) applies to the interest in possession so that it forms part of the individual's estate, this Act has effect as if that transfer of value had never arisen. Interpretation of sections 74A and 74B 74C (1) Subsections (2) to (4) have effect for the purposes of sections 74A and 74B. (2) An individual has an interest in property comprised in a settlement if— (a) the property, or any derived property, is or will or may become payable to, or applicable for the benefit of— (i) the individual, (ii) the individual's spouse or civil partner, or (iii) a close company in relation to which the individual or the individual's spouse or civil partner is a participator or a company which is a 51% subsidiary of such a close company, in any circumstances whatsoever, or (b) a person within sub-paragraph (i), (ii) or (iii) of paragraph (a) enjoys a benefit deriving (directly or indirectly) from the property or any derived property. (3) A “relevant reduction” in the value of the individual's estate occurs— (a) if and when the value of the individual's estate first becomes less than it would have been in the absence of the arrangements, and (b) on each subsequent occasion when the value of that estate becomes less than it would have been in the absence of the arrangements and that difference in value is greater than the sum of any previous relevant reductions. (4) The amount of a relevant reduction is— (a) in the case of a reduction within subsection (3)(a), the difference between the value of the estate and its value in the absence of the arrangements, and (b) in the case of a reduction within subsection (3)(b), the amount by which the difference in value mentioned in that provision exceeds the sum of any previous relevant reductions. (5) In sections 74A and 74B and this section— “arrangements” includes any scheme, transaction or series of transactions, agreement or understanding, whether or not legally enforceable, and any associated operations; “close company” has the meaning given in section 102; “derived property”, in relation to any property, means— income from that property, property directly or indirectly representing— proceeds of that property, or proceeds of income from that property, or income from property which is derived property by virtue of paragraph (b); “operation” includes an omission; “participator” has the meaning given in section 102; “the relevant time” means— the time the relevant reduction occurs, or if later, the time section 74A first applied; “51% subsidiary” has the same meaning as in the Corporation Tax Acts (see Chapter 3 of Part 24 of the Corporation Tax Act 2010). (4) In section 201 (liability for tax: settled property), after subsection (4) insert— (4A) Where— (a) a charge to tax arises under or by virtue of section 74A, or (b) in a case where paragraphs (a) to (d) of section 74A are satisfied, a charge to tax arises under section 64 or 65 in respect of the relevant settled property (within the meaning of section 74A), subsection (1) of this section has effect as if the persons listed in that subsection included the individual mentioned in section 74A(1)(b)(i). (5) The amendments made by this section are treated as having come into force on 20 June 2012 and have effect in relation to arrangements entered into on or after that day.

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211 The bank levy

Schedule 34 contains provision about the bank levy.

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212 Prevention of avoidance: subsales etc

(1) In section 45 of FA 2003 (contract and conveyance: effect of transfer of rights), after subsection (1) insert— (1A) The reference in subsection (1)(b) to an assignment, subsale or other transaction does not include the grant or assignment of an option. (2) The amendment made by this section has effect in relation to grants or assignments of options on or after 21 March 2012.

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213 Rate in respect of residential property where consideration over £2m

(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2) The amendment made by this section has effect in relation to any land transaction of which the effective date is on or after 22 March 2012. (3) But that amendment does not have effect in relation to any transaction— (a) effected in pursuance of a contract entered into and substantially performed before 22 March 2012, or (b) effected in pursuance of a contract entered into before that date and not excluded by subsection (4). (4) A transaction effected in pursuance of a contract entered into before 22 March 2012 is excluded by this subsection if— (a) there is any variation of the contract, or assignment (or assignation) of rights under the contract, on or after 22 March 2012, (b) the transaction is effected in consequence of the exercise on or after that date of any option, right of pre-emption or similar right, or (c) on or after that date there is an assignment (or assignation), subsale or other transaction relating to the whole or part of the subject-matter of the contract as a result of which a person other than the purchaser under the contract becomes entitled to call for a conveyance.

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214 Higher rate for certain transactions

Schedule 35 contains provision about the amount of tax chargeable on certain transactions involving higher threshold interests in dwellings.

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215 Disclosure of stamp duty land tax avoidance schemes

In section 308 of FA 2004 (duties of promoter), after subsection (5) insert— (6) The Treasury may by regulations provide for this section to apply with modifications in relation to proposals or arrangements that— (a) enable, or might be expected to enable, a person to obtain an advantage in relation to stamp duty land tax, and (b) are of a description specified in the regulations.

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216 Health service bodies

(1) In Part 4 of FA 2003 (stamp duty land tax), after section 67 insert— Acquisitions by certain health service bodies 67A (1) A land transaction is exempt from charge if the purchaser is any of the following— (a) the National Health Service Commissioning Board; (b) a clinical commissioning group established under section 14D of the National Health Service Act 2006; (c) an NHS foundation trust; (d) a Local Health Board established under section 11 of the National Health Service (Wales) Act 2006; (e) a National Health Service trust established under section 18 of that Act; (f) a Health and Social Services trust established under the Health and Personal Social Services (Northern Ireland) Order 1991. (2) Any relief under this section must be claimed in a land transaction return or an amendment of such a return. (2) The following provisions are repealed— (a) section 61(3) to (3C) of the National Health Service and Community Care Act 1990 (stamp duty and stamp duty land tax reliefs for health service bodies); (b) section 58 of the National Health Service Act 2006 (which applies those stamp duty and stamp duty land tax reliefs to NHS foundation trusts); (c) paragraphs 132 and 133 of Schedule 1 to the National Health Service (Consequential Provisions) Act 2006. (3) The repeals in subsection (2), to the extent that they relate to stamp duty, have effect in relation to any instrument executed on or after the day on which this Act is passed. (4) Subject to that, the amendments made by this section have effect in relation to any land transaction of which the effective date is on or after the day on which this Act is passed. (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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217 Collective investment schemes: stamp duty and stamp duty reserve tax

(1) The Treasury may by regulations confer an exemption or other relief from stamp duty or stamp duty reserve tax for transactions relating to collective investment schemes. (2) The regulations may, in particular— (a) specify descriptions of collective investment scheme in relation to which the exemption or relief is available, and (b) specify the cases in which the exemption or relief is available. (3) Regulations under this section may make different provision for different cases or different purposes. (4) Regulations under this section— (a) may modify any enactment or instrument (whenever passed or made), and (b) may include incidental, consequential, supplementary or transitional provision. (5) Regulations under this section are to be made by statutory instrument. (6) A statutory instrument containing regulations under this section is subject to annulment in pursuance of a resolution of the House of Commons. (7) In this section— “collective investment scheme” has the meaning given by section 235 of the Financial Services and Markets Act 2000, and “modify” includes amend, repeal or revoke.

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218 Agreement between UK and Switzerland

(1) Schedule 36 contains provision giving effect to— (a) an agreement signed on 6 October 2011 between the United Kingdom and the Swiss Confederation on co-operation in the area of taxation, as amended by a protocol signed by them on 20 March 2012 and by a mutual agreement signed by them on 18 April 2012 implementing article XVIII of that protocol, and (b) the joint declaration (concerning a tax finality payment) forming an integral part of that protocol. (2) Schedule 36 comes into force on the day on which the agreement of 6 October 2011 enters into force. (3) In section 23 of the Constitutional Reform and Governance Act 2010, after subsection (2A) insert— (2B) Section 20 does not apply to any treaty referred to in section 218(1) of the Finance Act 2012.

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219 Penalties: offshore income etc

In paragraph 21A of Schedule 24 to FA 2007 (classification of territories), in sub-paragraph (4)— (a) omit “and” at the end of paragraph (b), and (b) at the end of paragraph (c) insert— (d) the existence of any other arrangements between the UK and that territory for co-operation in the area of taxation, and (e) the quality of any such other arrangements (in particular, the extent to which the co-operation provided for in them assists or is likely to assist in the protection of revenue raised from taxation in the UK).

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220 International military headquarters, EU forces, etc

Schedule 37 contains provision about the tax treatment of international military headquarters, EU forces, etc.

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221 Tax consequences of financial sector regulation

(1) The Treasury may by regulations make provision about the tax consequences in relation to securities of any regulatory requirement imposed, or which appears to the Treasury likely to be imposed, by any EU legislation (whenever adopted) or enactment on— (a) persons who are authorised persons for the purposes of the Financial Services and Markets Act 2000 (see section 31 of that Act), or (b) parent undertakings (as defined in section 420 of that Act) of such persons. (2) Regulations under this section may, in particular, make provision— (a) charging any tax or granting, withdrawing or restricting an exemption or other relief from any tax, and (b) about the treatment of arrangements the purpose, or one of the main purposes, of which is to secure a tax advantage. (3) Regulations under this section may provide that a reference in the regulations— (a) to any EU legislation or enactment, (b) to any document, or (c) to any provision of any EU legislation, enactment or document is to be construed as a reference to that legislation, enactment, document or provision as amended from time to time. (4) Regulations under this section— (a) may apply (with or without modifications) or disapply any enactment, (b) may modify, amend, repeal or revoke any enactment, (c) may make different provision for different cases or different purposes, and (d) may include incidental, consequential, supplementary or transitional provision. (4A) Where regulations under this section make provision about the tax consequences of any regulatory requirement which appears to the Treasury likely to be imposed by any EU legislation or enactment— (a) the regulations may be made (and, accordingly, may have effect) before the proposed legislation or enactment is adopted, passed or made, and (b) failure after the regulations are made to adopt, pass or make the proposed legislation or enactment does not affect the validity of the regulations. (5) Regulations under this section are to be made by statutory instrument. (6) No regulations may be made under this section unless a draft of the statutory instrument containing them has been laid before and approved by a resolution of the House of Commons. (7) In this section— “arrangements” includes any arrangements, scheme or understanding of any kind, whether or not legally enforceable and whether involving a single transaction or two or more transactions; “enactment” includes an enactment contained in subordinate legislation (within the meaning of the Interpretation Act 1978), and includes an enactment whenever passed or made; “tax” includes stamp duty; “tax advantage” means— a relief from tax (including a tax credit) or increased relief from tax, a repayment of tax or increased repayment of tax, the avoidance, reduction or delay of a charge to tax or an assessment to tax, or the avoidance of a possible assessment to tax.

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222 Removal of special provision for incapacitated persons and minors

(1) In TMA 1970 omit— (a) section 42(8) (procedure for making claims etc on behalf of incapacitated persons), (b) section 72 (trustees, guardians, etc of incapacitated persons), and (c) section 73 (further provision as to infants). (2) In Part 4 of FA 2003 (stamp duty land tax), omit section 106(1) and (2) (persons acting in a representative capacity on behalf of incapacitated persons and minors). (3) Accordingly, incapacitated persons are (and minors remain) assessable and chargeable to the taxes in question. (4) In consequence of the amendments made by subsections (1) and (2)— (a) in section 118(1) of TMA 1970, omit the definitions of “incapacitated person” and “infant”, (b) omit paragraphs 33 and 34 of Schedule 1 to the Age of Legal Capacity (Scotland) Act 1991, (c) in paragraph 5 of Schedule 2 to the Social Security Contributions and Benefits Act 1992— (i) omit paragraph (a) (and the “or” after it), and (ii) in paragraph (b), for “such” substitute “ Class 4 ”, (d) in paragraph 5 of Schedule 2 to the Social Security Contributions and Benefits (Northern Ireland) Act 1992— (i) omit paragraph (a) (and the “or” after it), and (ii) in paragraph (b), for “such” substitute “ Class 4 ”, and (e) in section 81B(4) of FA 2003, omit paragraph (b) (and the “or” before it). (5) The amendments made by subsections (1) and (4)(a) to (d) have effect for the tax year 2012-13 and subsequent tax years. (6) The amendments made by subsections (2) and (4)(e) have effect in relation to land transactions of which the effective date is on or after the day on which this Act is passed.

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223 Tax advisers: sanctionable conduct

(1) Schedule 38 contains provision about tax advisers who engage in sanctionable conduct. (2) That Schedule comes into force on such day as the Treasury may by order appoint. (3) An order under subsection (2)— (a) may make different provision for different purposes, and (b) may include transitional provision and savings. (4) The Treasury may by order make any incidental, supplemental, consequential, transitional or saving provision in consequence of Schedule 38. (5) An order under subsection (4) may— (a) make different provision for different purposes, and (b) make provision amending, repealing or revoking any provision made by or under an Act (whenever passed or made). (6) An order under this section is to be made by statutory instrument. (7) A statutory instrument containing an order under subsection (4) is subject to annulment in pursuance of a resolution of the House of Commons.

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224 Information powers

(1) Schedule 36 to FA 2008 (information and inspection powers) is amended as follows. (2) After paragraph 5 insert— Power to obtain information about persons whose identity can be ascertained 5A (1) An authorised officer of Revenue and Customs may by notice in writing require a person to provide relevant information about another person (“the taxpayer”) if conditions A to D are met. (2) Condition A is that the information is reasonably required by the officer for the purpose of checking the tax position of the taxpayer. (3) Condition B is that— (a) the taxpayer's identity is not known to the officer, but (b) the officer holds information from which the taxpayer's identity can be ascertained. (4) Condition C is that the officer has reason to believe that— (a) the person will be able to ascertain the taxpayer's identity from the information held by the officer, and (b) the person obtained relevant information about the taxpayer in the course of carrying on a business. (5) Condition D is that the taxpayer's identity cannot readily be ascertained by other means from the information held by the officer. (6) “Relevant information” means all or any of the following— (a) name, (b) last known address, and (c) date of birth (in the case of an individual). (7) This paragraph applies for the purpose of checking the tax position of a class of persons as for the purpose of checking the tax position of a single person (and references to “the taxpayer” are to be read accordingly). (3) In paragraph 6 (notices), in sub-paragraph (1), for “or 5” substitute “ , 5 or 5A ”. (4) In paragraph 31 (right to appeal against notice given under paragraph 5), after “paragraph 5” insert “ or 5A ”. (5) Accordingly, in the heading immediately before paragraph 31, at the end insert “ or 5A ”. (6) In section 18D of TMA 1970 (savings income: content of regulations under section 18B), in subsection (1), for “sections 17 and 18” substitute “ paragraph 1 of Schedule 23 to the Finance Act 2011 (data-gathering powers) ”. (7) The amendments made by subsections (1) to (5) apply for the purpose of checking the tax position of a taxpayer as regards periods or tax liabilities whenever arising (whether before, on or after the day on which this Act is passed). (8) The amendment made by subsection (6) is treated as having come into force on 1 April 2012.

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225 PAYE regulations: information

(1) Section 684 of ITEPA 2003 (PAYE regulations) is amended as follows. (2) In the list in subsection (2)— (a) after item 4 insert— 4ZA Provision— (a) for authorising or requiring a person who provides with respect to payments of or on account of PAYE income a service that is specified or of a specified description (“a relevant payment service”) to supply to Her Majesty's Revenue and Customs information about payments with respect to which the service is provided, or any information the Commissioners may request about features of the service provided or to be provided with respect to particular payments; (b) for conferring power on the Commissioners to specify by directions circumstances in which provision made by virtue of paragraph (a) or subsection (4ZB) is not to apply in relation to a payment; (c) for securing that a supply of information that is authorised by regulations under paragraph (a) is not treated as breaching any obligation of confidence owed in respect of the information by the person supplying it; (d) for prohibiting or restricting the disclosure, otherwise than to Her Majesty's Revenue and Customs, of information by a person to whom it was supplied pursuant to a requirement imposed by virtue of subsection (4ZB); (e) for requiring a person who provides, or is to provide, a relevant payment service to take steps (including any steps that may be specified, or further specified, in accordance with item 8A(b)) for facilitating the meeting by persons making payments of obligations imposed by virtue of subsection (4ZB). , and (b) after item 8 insert— 8A Provision requiring compliance with any directions the Commissioners may give— (a) about the form and manner in which any information is to be provided under the regulations; (b) specifying, or further specifying, steps for the purposes of item 4ZA(e); (c) specifying information that a person making payments of or on account of PAYE income must provide about the method by which the payments are made. (3) After subsection (3B) insert— (3C) References in items 4ZA and 8A of the above list to directions include directions making different provision for different cases. (4) After subsection (4) insert— (4ZA) Item 8A in the above list does not prejudice the power of the Commissioners under subsection (1) to make provision in PAYE regulations about the matters mentioned in that item. (4ZB) The persons to whom PAYE information regulations may require information to be supplied include, in the case of information about a payment, a person who provides, or is to provide, with respect to the payment a service such as is mentioned in item 4ZA(a) in the above list. (4ZC) In subsection (4ZB) “PAYE information regulations” means PAYE regulations that require information to be supplied for any purpose authorised by subsections (1) and (2).

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226 New tax on ownership of high-value residential properties or dwellings

The Commissioners for Her Majesty's Revenue and Customs may incur expenditure in preparing for the introduction of a new tax to be charged in respect of high-value residential properties or dwellings owned otherwise than by individuals.

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227 Repeals of miscellaneous reliefs etc

Schedule 39 contains repeals of miscellaneous reliefs etc.

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228 Interpretation

(1) In this Act— “ALDA 1979” means the Alcoholic Liquor Duties Act 1979, “BGDA 1981” means the Betting and Gaming Duties Act 1981, “CAA 2001” means the Capital Allowances Act 2001, “CEMA 1979” means the Customs and Excise Management Act 1979, “CRCA 2005” means the Commissioners for Revenue and Customs Act 2005, “CTA 2009” means the Corporation Tax Act 2009, “CTA 2010” means the Corporation Tax Act 2010, “F(No.3)A 2010” means the Finance (No. 3) Act 2010, “HODA 1979” means the Hydrocarbon Oil Duties Act 1979, “ICTA” means the Income and Corporation Taxes Act 1988, “IHTA 1984” means the Inheritance Tax Act 1984, “ITA 2007” means the Income Tax Act 2007, “ITEPA 2003” means the Income Tax (Earnings and Pensions) Act 2003, “ITTOIA 2005” means the Income Tax (Trading and Other Income) Act 2005, “OTA 1975” means the Oil Taxation Act 1975, “PRTA 1980” means the Petroleum Revenue Tax Act 1980, “TCGA 1992” means the Taxation of Chargeable Gains Act 1992, “TIOPA 2010” means the Taxation (International and Other Provisions) Act 2010, “TMA 1970” means the Taxes Management Act 1970, “TPDA 1979” means the Tobacco Products Duty Act 1979, “VATA 1994” means the Value Added Tax Act 1994, and “VERA 1994” means the Vehicle Excise and Registration Act 1994. (2) In this Act— “FA”, followed by a year, means the Finance Act of that year; “F(No.2)A”, followed by a year, means the Finance (No. 2) Act of that year.

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229 Short title

This Act may be cited as the Finance Act 2012.

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SCHEDULE 1 High income child benefit charge

Section 8 The high income child benefit charge 1 In Part 10 of ITEPA 2003 (social security benefits), after Chapter 7 insert— CHAPTER 8 High income child benefit charge High income child benefit charge 681B (1) A person (“P”) is liable to a charge to income tax for a tax year if— (a) P's adjusted net income for the year exceeds £50,000, and (b) one or both of conditions A and B are met. (2) The charge is to be known as a “high income child benefit charge”. (3) Condition A is that— (a) P is entitled to an amount in respect of child benefit for a week in the tax year, and (b) there is no other person who is a partner of P throughout the week and has an adjusted net income for the year which exceeds that of P. (4) Condition B is that— (a) a person (“Q”) other than P is entitled to an amount in respect of child benefit for a week in the tax year, (b) Q is a partner of P throughout the week, and (c) P has an adjusted net income for the year which exceeds that of Q. The amount of the charge 681C (1) The amount of the high income child benefit charge to which a person (“P”) is liable for a tax year is the appropriate percentage of the total of— (a) any amounts in relation to which condition A is met, and (b) any amounts in relation to which condition B is met. For conditions A and B, see section 681B. (2) “The appropriate percentage” is— (a) 100%, or (b) if less, the percentage determined by the formula— ANI – L X % Where— ANI is P's adjusted net income for the tax year; L is £50,000; X is £100. (3) If— (a) the total of the amounts mentioned in paragraphs (a) and (b) of subsection (1), or the amount of the charge determined under that subsection, is not a whole number of pounds, or (b) the percentage determined under subsection (2)(b) is not a whole number, it is to be rounded down to the nearest whole number. Extension of charge in cases where child not living with claimant 681D (1) This section applies where— (a) a person (“R”) is entitled to an amount in respect of child benefit for a child for a week in a tax year by virtue of section 143(1)(b) of SSCBA 1992 or section 139(1)(b) of SSCB(NI)A 1992 (persons contributing to the cost of providing for a child), (b) neither R, nor any person who is a partner of R throughout that week, is liable for a charge to income tax in respect of that amount under section 681B, and (c) there is another person (“S”) who, for the purposes of section 143(1)(a) of SSCBA 1992 or section 139(1)(a) of SSCB(NI)A 1992 (persons with whom child is living), is a person who has the child living with him or her in that week. (2) Section 681B applies as if S were entitled to the amount of child benefit mentioned in subsection (1)(a). (3) Where there is more than one person to whom subsection (1)(c) applies in relation to an amount of child benefit for a week, subsection (2) applies only to the one with the highest adjusted net income for the tax year. (4) For the purposes of subsection (1)(a), an amount of child benefit to which R is entitled for a week is to be ignored if— (a) the period (which includes that week) for which R is entitled to child benefit by virtue of section 143(1)(b) of SSCBA 1992 or section 139(1)(b) of SSCB(NI)A 1992 in respect of the same child does not exceed 52 weeks, and (b) R is entitled to child benefit in respect of the child for the week immediately before and the week immediately after that period by virtue of section 143(1)(a) of SSCBA 1992 or section 139(1)(a) of SSCB(NI)A 1992. (5) In this section “child” means— (a) a child within the meaning of section 142 of SSCBA 1992 or section 138 of SSCB(NI)A 1992, or (b) a qualifying young person within the meaning of either of those sections. Special cases 681E (1) The following amounts are to be disregarded for the purposes of this Chapter— (a) amounts to which a person is entitled but in respect of which an election under section 13A of the Social Security Administration Act 1992 or section 11A of the Social Security Administration (Northern Ireland) Act 1992 (election for payment of child benefit not to be made if high income child benefit charge would be triggered) has effect; (b) amounts to which a person is entitled by virtue of section 145A of SSCBA 1992 or section 141A of SSCB(NI)A 1992 (entitlement to child benefit after death of child or qualifying young person). (2) Subsection (3) applies if— (a) a person (“T”) is entitled to an amount in respect of child benefit for a week in a tax year or is treated as so entitled by virtue of section 681D(2), (b) two or more other persons are partners of T throughout the week, and (c) two or more of those persons would, apart from subsection (3), each be liable to a charge under section 681B(1) in relation to that amount. (3) Only one of those persons is liable, namely the person with the highest adjusted net income for the tax year. Alteration of income limit etc by Treasury order 681F (1) The Treasury may by order— (a) substitute another amount for the amount for the time being specified in section 681B(1)(a) and defined as “L” in section 681C(2), or (b) substitute another amount for the amount defined as “X” in section 681C(2). (2) An order under this section has effect for tax years beginning after the order is made. (3) A statutory instrument containing an order under this section which increases any person's liability to income tax may not be made unless a draft of it has been laid before and approved by a resolution of the House of Commons. Meaning of “partner” 681G (1) For the purposes of this Chapter a person is a “partner” of another person at any time if any of conditions A to D is met at that time. (2) Condition A is that the persons are a man and a woman who are married to each other and are neither— (a) separated under a court order, nor (b) separated in circumstances in which the separation is likely to be permanent. (3) Condition B is that the persons are a man and a woman who are not married to each other but are living together as husband and wife. (4) Condition C is that the persons are two men, or two women, who are civil partners of each other and are neither— (a) separated under a court order, nor (b) separated in circumstances in which the separation is likely to be permanent. (5) Condition D is that the persons are two men, or two women, who are not civil partners of each other but are living together as if they were civil partners. Other interpretation provisions 681H (1) This section applies for the purposes of this Chapter. (2) “Adjusted net income” of a person for a tax year means the person's adjusted net income for that tax year as determined under section 58 of ITA 2007. (3) “Week” means a period of 7 days beginning with a Monday; and a week is in a tax year if (and only if) the Monday with which it begins is in the tax year. Consequential amendments 2 In section 7 of TMA 1970 (notice of liability to income tax and capital gains tax), in subsection (3), for the words from “his total income” to the end substitute — (a) the person's total income consists of income from sources falling within subsections (4) to (7) below, (b) the person has no chargeable gains, and (c) the person is not liable to a high income child benefit charge. 3 After section 13 of the Social Security Administration Act 1992 insert— Election not to receive child benefit 13A (1) A person (“P”) who is entitled to child benefit in respect of one or more children may elect for all payments of the benefit to which P is entitled not to be made. (2) An election may be made only if P reasonably expects that, in the absence of the election, P or another person would be liable to a high income child benefit charge in respect of the payments to which the election relates made for weeks in the first tax year. (3) An election has effect in relation to payments made for weeks beginning after the election is made. (4) But where entitlement to child benefit is backdated, an election may have effect in relation to payments for weeks beginning in the period of three months ending immediately before the claim for the benefit was made. (5) An election may be revoked. (6) A revocation has effect in relation to payments made for weeks beginning after the revocation is made. (7) But if— (a) P makes an election which results in all payments, in respect of child benefit, to which P is entitled for one or more weeks in a tax year not being paid, and (b) had no election been made, neither P nor any other person would have been liable to a high income child benefit charge in relation to the payments, P may, no later than two years after the end of the tax year, revoke the election so far as it relates to the payments. (8) Subsections (2) to (7) are subject to directions under subsection (9). (9) The Commissioners for Her Majesty's Revenue and Customs may give directions as to— (a) the form of elections and revocations under this section, the manner in which they are to be made and the time at which they are to be treated as made, and (b) the circumstances in which, if child benefit is not being paid to a person at the full rate or the Commissioners are satisfied that there are doubts as to a person's entitlement to child benefit for a child, an election or revocation is not to have effect or its effect is to be postponed. (10) For the purposes of this section— “child” includes a qualifying young person; “first tax year”, in relation to an election, means the tax year in which the first week beginning after the election is made falls; “week” means a period of 7 days beginning with a Monday; and a week is in a tax year if (and only if) the Monday with which it begins is in the tax year. 4 After section 11 of the Social Security Administration (Northern Ireland) Act 1992 insert— Election not to receive child benefit 11A (1) A person (“P”) who is entitled to child benefit in respect of one or more children may elect for all payments of the benefit to which P is entitled not to be made. (2) An election may be made only if P reasonably expects that, in the absence of the election, P or another person would be liable to a high income child benefit charge in respect of the payments to which the election relates made for weeks in the first tax year. (3) An election has effect in relation to payments made for weeks beginning after the election is made. (4) But where entitlement to child benefit is backdated, an election may have effect in relation to payments for weeks beginning in the period of three months ending immediately before the claim for the benefit was made. (5) An election may be revoked. (6) A revocation has effect in relation to payments made for weeks beginning after the revocation is made. (7) But if— (a) P makes an election which results in all payments, in respect of child benefit, to which P is entitled for one or more weeks in a tax year not being paid, and (b) had no election been made, neither P nor any other person would have been liable to a high income child benefit charge in relation to the payments, P may, no later than two years after the end of the tax year, revoke the election so far as it relates to the payments. (8) Subsections (2) to (7) are subject to directions under subsection (9). (9) The Commissioners for Her Majesty's Revenue and Customs may give directions as to— (a) the form of elections and revocations under this section, the manner in which they are to be made and the time at which they are to be treated as made, and (b) the circumstances in which, if child benefit is not being paid to a person at the full rate or the Commissioners are satisfied that there are doubts as to a person's entitlement to child benefit for a child, an election or revocation is not to have effect or its effect is to be postponed. (10) For the purposes of this section— “child” includes a qualifying young person; “first tax year”, in relation to an election, means the tax year in which the first week beginning after the election is made falls; “week” means a period of 7 days beginning with a Monday; and a week is in a tax year if (and only if) the Monday with which it begins is in the tax year. 5 (1) ITEPA 2003 is amended as follows. (2) In section 1 (overview of contents of Act)— (a) in subsection (1)(c), after “see” insert “ Chapters 1 to 7 of ”, and (b) in subsection (3), after paragraph (a) insert— (aa) makes provision for the high income child benefit charge (see Chapter 8 of Part 10), . (3) In section 655 (structure of Part 10), in subsection (1), at the end insert— Chapter 8 makes provision for the high income child benefit charge. (4) In section 684 (PAYE regulations), in subsection (2), after Item 2 insert— 2ZA Provision— (a) for deductions to be made, if and to the extent that the payee does not object, with a view to securing that income tax payable for a tax year by the payee by virtue of section 681B (high income child benefit charge) is deducted from PAYE income of the payee paid during that year, (b) for repayments to be made in a tax year, if and to the extent that the payee does not object, in respect of any amounts overpaid on account of income tax under that section for that tax year, and (c) as to the circumstances and manner in which a payee may object to the making of deductions or repayments. (5) In section 685 (tax tables), in subsection (2)(b), after “2” insert “ , 2ZA ”. (6) In section 717 (orders and regulations made by Treasury or Commissioners), in subsection (4), after “companies)” insert “ or to which section 681F(3) (variation of income limit etc for high income child benefit charge: orders increasing liability to tax) applies ”. (7) In Part 2 of Schedule 1 (index of defined expressions), insert at the appropriate places— adjusted net income (in Chapter 8 of Part 10) | section 681H” “partner (in Chapter 8 of Part 10) | section 681G” “week (in Chapter 8 of Part 10) | section 681H 6 (1) ITA 2007 is amended as follows. (2) In section 1 (overview of the Income Tax Acts), in subsection (1)(a), after “social security income” insert “ and makes provision for the high income child benefit charge ”. (3) In section 30 (additional tax), in subsection (1), after “section 809ZO (tainted charity donations by trustees: charge to tax),” insert— Chapter 8 of Part 10 of ITEPA 2003 (high income child benefit charge), . Commencement 7 (1) The amendments made by this Schedule have effect for the tax year 2012-13 and subsequent tax years. (2) In relation to the tax year 2012-13, references in section 681B of ITEPA 2003 (as inserted by paragraph 1) to an amount to which a person is entitled in respect of child benefit for a week in the tax year do not include any amount to which the person is entitled in respect of child benefit for a week beginning before 7 January 2013. (3) In sub-paragraph (2), “week” means a period of 7 days beginning with a Monday.

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SCHEDULE 2 Profits arising from the exploitation of patents etc

Section 19 PART 1 Amendments of CTA 2010 1 (1) In CTA 2010, after Part 8 insert— PART 8A Profits arising from the exploitation of patents etc CHAPTER 1 Reduced corporation tax rate for profits from patents etc Election for special treatment of profits from patents etc 357A (1) A company may elect that any relevant IP profits of a trade of the company for an accounting period for which it is a qualifying company are chargeable at a lower rate of corporation tax. (2) An election under subsection (1) is to be given effect by allowing a deduction to be made in calculating for corporation tax purposes the profits of the trade for the period. (3) The amount of the deduction is— RP × ( MR – IPR MR ) where— RP is the relevant IP profits of the trade of the company, MR is the main rate of corporation tax, and IPR is the special IP rate of corporation tax. (4) The special IP rate of corporation tax is 10%. (5) Chapter 2 specifies when a company is a qualifying company. (6) Chapter 3 makes provision for determining the relevant IP profits or relevant IP losses of a trade. (7) Chapter 4 makes provision for an alternative way of determining the relevant IP profits or losses of a trade known as “streaming”. (8) Chapter 5 makes provision in relation to the relevant IP losses of a trade. (9) Chapter 6 contains anti-avoidance provisions. (10) Chapter 7 contains supplementary provision. CHAPTER 2 Qualifying companies Meaning of “qualifying company” 357B (1) A company is a qualifying company for an accounting period if— (a) condition A or B is met, and (b) in the case of a company that is a member of a group, condition C is met. (2) Condition A is that, at any time during the accounting period, the company— (a) holds any qualifying IP rights, or (b) holds an exclusive licence in respect of any qualifying IP rights. For the meaning of “exclusive licence”, see section 357BA. (3) Condition B is that— (a) the company has held a qualifying IP right or an exclusive licence in respect of such a right, (b) the company has received income in respect of an event which occurred in relation to the right or licence, or any part of which so occurred, at a time when— (i) the company was a qualifying company, and (ii) an election under section 357A had effect in relation to it, and (c) the income falls to be taxed in the accounting period. (4) A right is a qualifying IP right for the purposes of this Part if— (a) it is a right to which this Part applies (see section 357BB), and (b) the company meets the development condition in relation to the right (see section 357BC). (5) Condition C is that the company meets the active ownership condition for the accounting period (see section 357BE). Meaning of “exclusive licence” 357BA (1) In this Part “exclusive licence”, in relation to a right (“the principal right”), means a licence which— (a) is granted by the person who holds either the principal right or an exclusive licence in respect of the principal right (“the proprietor”), and (b) confers on the person holding the licence (“the licence-holder”), or on the licence-holder and persons authorised by it, the rights in respect of the principal right that are listed in subsection (2). (2) The rights are— (a) one or more rights conferred to the exclusion of all other persons (including the proprietor) in one or more countries or territories, and (b) the right— (i) to bring proceedings without the consent of the proprietor or any other person in respect of any infringement of the rights within paragraph (a), or (ii) to receive the whole or the greater part of any damages awarded in respect of any such infringement. (3) Where the licence-holder has any right within subsection (2)(b) by virtue of any enactment or rule of law, the right is to be regarded for the purposes of this section as conferred by the licence. (4) Where— (a) a company (“C”) that is a member of a group holds either a right to which this Part applies or an exclusive licence in respect of such a right, and (b) C confers on another company that is a member of the group all of the rights held by C in respect of the invention, that other company is to be treated for the purposes of this Part as holding an exclusive licence in respect of that right. (5) For the purposes of subsection (4) it does not matter if the rights conferred by C do not include the right to enforce, assign or grant a licence of any of those rights. Rights to which this Part applies 357BB (1) This Part applies to the following rights— (a) a patent granted under the Patents Act 1977, (b) a patent granted under the European Patent Convention, (c) a right of a specified description which corresponds to a right within paragraph (a) or (b) and is granted under the law of a specified EEA state, (d) a supplementary protection certificate, (e) any plant breeders' rights granted in accordance with Part 1 of the Plant Varieties Act 1997, (f) any Community plant variety rights granted under Council Regulation (EC) No 2100/94. (2) Where— (a) directions are in force under section 22 of the Patents Act 1977 (information prejudicial to national security or safety of public) with respect to an application for a patent under that Act, and (b) the person making the application has been notified under section 18(4) of that Act that the application complies with the requirements of the Act and the rules, the person is to be treated for the purposes of this Part as if the person had been granted the patent under that Act. (3) Where— (a) a person holds a marketing authorisation in respect of a product in accordance with any EU legislation, and (b) the product benefits from marketing protection (see subsection (4)) or data protection (see subsection (5)), the person is to be treated for the purposes of this Part as having been granted a right to which this Part applies in respect of the product. (4) For the purposes of this section a product benefits from marketing protection if— (a) the product benefits from marketing protection by virtue of Article 14.11 of Regulation (EC) No 726/2004 of the European Parliament and of the Council of 31 March 2004 laying down Community procedures for the authorisation and supervision of medicinal products for human use, or (b) any of the following prohibitions is in force— (i) the prohibition on placing on the market a generic of the product imposed by Article 10.1 of Directive 2001/83/EC of the European Parliament and of the Council of 6 November 2001 on the Community code relating to medicinal products for human use, (ii) the prohibition imposed by Article 8.1 of Regulation (EC) No 141/2000 of the European Parliament and of the Council of 16 December 1999 on orphan medicinal products, and (iii) the prohibition on placing on the market a generic of the product imposed by Article 13.1 of Directive 2001/82/EC of the European Parliament and of the Council of 6 November 2001 on the Community code relating to veterinary medicinal products. (5) For the purposes of this section a product benefits from data protection if— (a) the product benefits from the data exclusivity conferred by Article 10.5 of Directive 2001/83/EC of the European Parliament and of the Council, (b) the prohibition on referring to the results of tests or trials in relation to the product imposed by Article 74a of that Directive is in force, or (c) data relating to the product benefits from data protection under Article 59 of Regulation (EC) No 1107/2009 of the European Parliament and of the Council of 21 October 2009 concerning the placing of plant protection products on the market. (6) The reference to data in subsection (5)(c) does not include a study necessary for the renewal or review of a marketing authorisation granted in respect of the product in accordance with Regulation (EC) No 1107/2009. (7) In this section— “European Patent Convention” means the Convention on the Grant of European Patents, “rules” means rules made under section 123 of the Patents Act 1977, “specified” means specified in an order made by the Treasury, and “supplementary protection certificate” means a certificate issued under— Council Regulation (EC) No 469/2009 of the European Parliament and of the Council of 6 May 2009 concerning the supplementary protection certificate for medicinal products, or Regulation (EC) No 1610/96 of the European Parliament and of the Council of 23 July 1996 concerning the creation of a supplementary protection certificate for plant protection products. (8) The Treasury may by order— (a) amend this section so as to make provision about the circumstances in which a product benefits from marketing or data protection for the purposes of this section; (b) make such provision amending any reference in this section to EU legislation as appears to them appropriate in consequence of any EU legislation amending or replacing that EU legislation. (9) An order made under this section may make any incidental, supplemental, consequential, transitional or saving provision, including provision amending or modifying this Part. The development condition 357BC (1) A company meets the development condition in relation to a right if condition A, B, C or D is met. Section 357BD (meaning of “qualifying development”) applies for the purposes of this section. (2) Condition A is that— (a) the company has at any time carried out qualifying development in relation to the right, and (b) the company has not ceased to be, or become, a controlled member of a group since that time. (3) Condition B is that— (a) the company has at any time carried out qualifying development in relation to the right, (b) the company has ceased to be, or become, a controlled member of a group since that time, (c) the company has, for a period of 12 months beginning with the day on which it ceased to be, or became, a controlled member of the group, performed activities of the same description as those that constituted the qualifying development, and (d) the company remains a member of that group or (as the case may be) does not become a controlled member of any other group. (4) Condition C is that— (a) the company is a member of a group, (b) another company that is or has been a member of the group has carried out qualifying development in relation to the right, and (c) that other company was a member of the group at the time it carried out the qualifying development. (5) Condition D is that— (a) the company is a member of a group, (b) another company that is or has been a member of the group has carried out qualifying development in relation to the right, (c) that other company (“T”) or, where another member of the group begins to carry on the trade which T carried on immediately before becoming a member of the group, either or both of those companies have, while carrying on that trade as a member of the group, performed activities of the same description as those that constituted the qualifying development, and (d) those activities of those companies, taken together, have been performed for a period of 12 months beginning with the day on which T became a member of the group. (6) For the purposes of conditions A and B, a company becomes a controlled member of a group at any time if— (a) another company (“P”) either becomes the holder of a major interest in the company, or begins to control the company, at that time, and (b) immediately before that time the company was not associated with P or with any company associated with P immediately before that time. (7) For the purposes of conditions A and B, a company ceases to be a controlled member of a group at any time if— (a) every other company which immediately before that time held a major interest in, or controlled, the company ceases to do so, and (b) as a result the company ceases to be associated with any of those companies. (8) Where— (a) a company ceases to be a controlled member of a group at any time, and (b) at that time the company holds a major interest in, or controls, any other company, that other company is to be treated for the purposes of conditions A and B as also having ceased to be a controlled member of the group at that time. (9) In subsections (6) and (7) “associated” is to be read in accordance with section 357GD(3). (10) The following provisions apply for the purposes of subsections (6) to (8)— section 472 of CTA 2009 (meaning of “control”), and sections 473 and 474 of CTA 2009 (meaning of “major interest”). (11) A company that meets the development condition in relation to a right by virtue of the performance of the activities mentioned in subsection (3) or (5) for the period of 12 months so mentioned is to be regarded as meeting that condition in relation to the right during that period (as well as at any other time when the company meets the condition). Meaning of “qualifying development” 357BD (1) A company carries out “qualifying development” in relation to a right if— (a) it creates, or significantly contributes to the creation of, the invention, or (b) it performs a significant amount of activity for the purposes of developing the invention or any item or process incorporating the invention. (2) The reference in subsection (1)(b) to developing the invention includes developing ways in which the invention may be used or applied. (3) For the purposes of section 357BC it does not matter whether the qualifying development was carried out before or after— (a) the company, or (b) where the company is a member of a group, any member of the group, became the holder of the right or (as the case may be) an exclusive licence in respect of the right. The active ownership condition 357BE (1) A company meets the active ownership condition for an accounting period if all or almost all of the qualifying IP rights held by the company in that accounting period are rights in respect of which condition A or B is met. (2) Condition A is that during the accounting period the company performs a significant amount of management activity in relation to the rights. (3) In subsection (2) “management activity”, in relation to any qualifying IP rights, means formulating plans and making decisions in relation to the development or exploitation of the rights. (4) Condition B is that the company meets the development condition in relation to the rights by virtue of section 357BC(2) or (3). (5) Any reference in this section to a qualifying IP right held by the company includes a reference to a qualifying IP right in respect of which the company holds an exclusive licence. CHAPTER 3 Relevant IP profits Steps for calculating relevant IP profits of a trade Relevant IP profits 357C (1) To determine the relevant IP profits of a trade of a company for an accounting period— Step 1 Calculate the total gross income of the trade for the accounting period (see section 357CA). Step 2 Calculate the percentage (“X%”) given by the following formula— RIPI TI × 100 where— “RIPI” is so much of the total gross income of the trade for the accounting period as is relevant IP income (see sections 357CC and 357CD), and “TI” is the total gross income of the trade for the accounting period. Step 3 Calculate X% of the profits of the trade for the accounting period. If there are no such profits, calculate X% of the losses of the trade (expressed as a negative figure) for the accounting period. In calculating the profits of the trade for the purposes of this step, make any adjustments required by section 357CG (and references in this step to the profits or losses of the trade are to be read subject to any such adjustments). Step 4 Deduct from the amount given by Step 3 the routine return figure (see section 357CI). The amount given by this step is the “qualifying residual profit”. If the amount of the qualifying residual profit is not greater than nil, go to Step 7. Step 5 If the company has elected for small claims treatment, calculate the small claims amount in relation to the trade (see section 357CM). If the company has not, go to Step 6. Step 6 Deduct from the qualifying residual profit the marketing assets return figure (see section 357CN). Step 7 If the company has made an election under section 357CQ (which provides in certain circumstances for profits arising before the grant of a right to be treated as relevant IP profits), add to the amount given by Step 5 or 6 (or, if the amount of the qualifying residual profit was not greater than nil, Step 4) any amount determined in accordance with subsection (3) of that section. (2) If the amount given by subsection (1) is greater than nil, that amount is the relevant IP profits of the trade for the accounting period. (3) If the amount given by subsection (1) is less than nil, that amount is the relevant IP losses of the trade for the accounting period (see Chapter 5). Total gross income of trade Total gross income of a trade 357CA (1) For the purposes of this Part the “total gross income” of a trade of a company for an accounting period is the aggregate of the amounts falling within the Heads set out in— (a) subsection (3) (revenue), (b) subsection (5) (compensation), (c) subsection (6) (adjustments), (d) subsection (7) (proceeds from intangible fixed assets), (e) subsection (8) (profits from patent rights). (2) But the total gross income of the trade does not include any finance income (see section 357CB). (3) Head 1 is any amounts which— (a) in accordance with generally accepted accounting practice (“GAAP”) are recognised as revenue in the company's profit and loss account or income statement for the accounting period, and (b) are brought into account as credits in calculating the profits of the trade for the accounting period. (4) Where the company does not draw up accounts for an accounting period in accordance with GAAP, the reference in subsection (3)(a) to any amounts which in accordance with GAAP are recognised as revenue in the company's profit and loss account or income statement for the accounting period is to be read as a reference to any amounts which would be so recognised if the company had drawn up such accounts for that accounting period. (5) Head 2 is any amounts of damages, proceeds of insurance or other compensation (so far as not falling within Head 1) which are brought into account as credits in calculating the profits of the trade for the accounting period. (6) Head 3 is any amounts (so far as not falling within Head 1) which are brought into account as receipts under section 181 of CTA 2009 (adjustment on change of basis) in calculating the profits of the trade for the accounting period. (7) Head 4 is any amounts (so far as not falling within Head 1) which are brought into account as credits under Chapter 4 of Part 8 of CTA 2009 (realisation of intangible fixed assets) in calculating the profits of the trade for the accounting period. (8) Head 5 is any profits from the sale by the company of the whole or part of any patent rights held for the purposes of the trade which are taxed under section 912 of CTA 2009 in the accounting period. Finance income 357CB (1) For the purposes of this Part “finance income”, in relation to a trade of a company, means— (a) any credits which are treated as receipts of the trade by virtue of— (i) section 297 of CTA 2009 (credits in respect of loan relationships), or (ii) section 573 of CTA 2009 (credits in respect of derivative contracts), (b) any amount which in accordance with generally accepted accounting practice falls to be recognised as arising from a financial asset, and (c) any return, in relation to an amount, which— (i) is produced for the company by an arrangement to which it is party, and (ii) is economically equivalent to interest. (2) In subsection (1)— “economically equivalent to interest” is to be construed in accordance with section 486B(2) and (3) of CTA 2009, and “financial asset” means a financial asset as defined for the purposes of generally accepted accounting practice. (3) For the purposes of subsection (1)(c), the amount of a return is the amount which by virtue of the return would, in calculating the company'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 the company from a loan relationship. But, in calculating that profit for the purposes of this subsection, sections 486B(7) and 486C to 486E of that Act are to be ignored. Relevant IP income Relevant IP income 357CC (1) For the purposes of this Part “relevant IP income” means income falling within any of the Heads set out in— (a) subsection (2) (sales income), (b) subsection (6) (licence fees), (c) subsection (7) (proceeds of sale etc), (d) subsection (8) (damages for infringement), (e) subsection (9) (other compensation). This is subject to section 357CE (excluded income). (2) Head 1 is income arising from the sale by the company of any of the following items— (a) items in respect of which a qualifying IP right held by the company has been granted (“qualifying items”); (b) items incorporating one or more qualifying items; (c) items that are wholly or mainly designed to be incorporated into items within paragraph (a) or (b). (3) For the purposes of this Part an item and its packaging are not to be treated as a single item, unless the packaging performs a function that is essential for the use of the item for the purposes for which it is intended to be used. (4) In subsection (3) “packaging”, in relation to an item, means any form of container or other packaging used for the containment, protection, handling, delivery or presentation of the item, including by way of attaching the item to, or winding the item round, some other article. (5) In a case where a qualifying item and an item that is designed to incorporate that item (“the parent item”) are sold together as, or as part of, a single unit for a single price, the reference in subsection (2)(b) to an item incorporating a qualifying item includes a reference to the parent item. (6) Head 2 is income consisting of any licence fee or royalty which the company receives under an agreement granting another person any of the following rights only— (a) a right in respect of any qualifying IP right held by the company, (b) any other right in respect of a qualifying item or process, and (c) in the case of an agreement granting any right within paragraph (a) or (b), a right granted for the same purposes as those for which that right was granted. In this subsection “qualifying process” means a process in respect of which a qualifying IP right held by the company has been granted. (7) Head 3 is any income arising from the sale or other disposal of a qualifying IP right or an exclusive licence in respect of such a right. (8) Head 4 is any amount received by the company in respect of an infringement, or alleged infringement, of a qualifying IP right held by the company at the time of the infringement or alleged infringement. (9) Head 5 is any amount of damages, proceeds of insurance or other compensation, other than an amount in respect of an infringement or alleged infringement of a qualifying IP right, which is received by the company in respect of an event and— (a) is paid in respect of any items that fell within subsection (2) at the time of that event, or (b) represents a loss of income which would, if received by the company at the time of that event, have been relevant IP income. (10) But income is not relevant IP income by virtue of subsection (8) or (9) unless the event in respect of which the income is received, or any part of that event, occurred at a time when— (a) the company was a qualifying company, and (b) an election under section 357A had effect in relation to it. (11) In a case where the whole of that event does not occur at such a time, subsection (8) or (9) (as the case may be) applies only to so much of the amount received by the company in respect of the event as on a just and reasonable apportionment is properly attributable to such a time. (12) Any reference in this section to a qualifying IP right held by the company includes a reference to a qualifying IP right in respect of which the company holds an exclusive licence. Notional royalty 357CD (1) This section applies where— (a) a company, for the purposes of any trade of the company, holds any rights mentioned in paragraph (a), (b) or (c) of section 357BB(1) (rights to which this Part applies) or an exclusive licence in respect of any such rights, and (b) the rights are relevant qualifying IP rights. (2) For the purposes of this section a qualifying IP right is a “relevant qualifying IP right” in relation to an accounting period if— (a) the total gross income of the trade of the company for the accounting period includes any income arising from things done by the company that involve the exploitation by the company of that right, and (b) that income is not relevant IP income or excluded income. Such income is referred to in this section as “IP-derived income”. (3) The company may elect that the notional royalty in respect of the trade for the accounting period is to be treated for the purposes of this Part as if it were relevant IP income. (4) The notional royalty in respect of a trade of a company for an accounting period is the appropriate percentage of the IP-derived income for that accounting period. (5) The “appropriate percentage” is the proportion of any IP-derived income for an accounting period which the company would pay another person (“P”) for the right to exploit the relevant qualifying IP rights in that accounting period if the company were not otherwise able to exploit them. (6) For the purposes of determining the appropriate percentage under this section, assume that— (a) the company and P are dealing at arm's length, (b) the company, or the company and persons authorised by it, will have the right to exploit the relevant qualifying IP rights to the exclusion of any other person (including P), (c) the company will have the same rights in relation to the relevant qualifying IP rights as it actually has, (d) the relevant qualifying IP rights are conferred on the relevant day, (e) the appropriate percentage for the accounting period is determined at the beginning of the accounting period, (f) the appropriate percentage for the accounting period will apply for each succeeding accounting period for which the company will have the right to exploit the relevant qualifying IP rights, and (g) no income other than IP-derived income will arise from anything done by the company that involves the exploitation by the company of the relevant qualifying IP rights. (7) In subsection (6)(d) “the relevant day”, in relation to a relevant qualifying IP right or a licence in respect of such a right, means— (a) the first day of the accounting period, or (b) if later, the day on which the company first began to hold the right or licence. (8) In determining the appropriate percentage, the company must act in accordance with— (a) Article 9 of the OECD Model Tax Convention, and (b) the OECD transfer pricing guidelines. (9) In this section “excluded income” means any income falling within any of the Heads in section 357CE. Excluded income 357CE (1) For the purposes of this Part income falling within any of the Heads set out in the following subsections is not relevant IP income— (a) subsection (2) (ring fence income), (b) subsection (3) (income attributable to non-exclusive licences). (2) Head 1 is income arising from oil extraction activities or oil rights. In this subsection “oil extraction activities” and “oil rights” have the same meaning as in Part 8 (see sections 272 and 273). (3) Head 2 is income which on a just and reasonable apportionment is properly attributable to a licence (a “non-exclusive licence”) held by the company which— (a) is a licence in respect of an item or process, but (b) is not an exclusive licence in respect of a qualifying IP right. (4) In a case where— (a) a company holds an exclusive licence in respect of a qualifying IP right, and (b) the licence also confers on the company (or on the company and persons authorised by it) any right in respect of the invention otherwise than to the exclusion of all other persons, the licence is to be treated for the purposes of this Part as if it were two separate licences, one an exclusive licence that does not confer any such rights, and the other a non-exclusive licence conferring those rights. Mixed sources of income 357CF (1) This section applies to any income that— (a) is mixed income, or (b) is paid under a mixed agreement. (2) “Mixed income” means the proceeds of sale in a case where an item falling within subsection (2) of section 357CC and an item not falling within that subsection are sold together as, or as part of, a single unit for a single price. (3) A “mixed agreement” is an agreement providing for— (a) one or more of the matters in paragraphs (a) to (c) of subsection (4), and (b) one or more of the matters in paragraphs (d) to (g) of that subsection. (4) The matters are— (a) the sale of an item falling within section 357CC(2), (b) the grant of any right falling within paragraph (a), (b) or (c) of section 357CC(6), (c) a sale or disposal falling within section 357CC(7), (d) the sale of any other item, (e) the grant of any other right, (f) any other sale or disposal, (g) the provision of any services. (5) So much of the income as on a just and reasonable apportionment is properly attributable to— (a) the sale of an item falling within section 357CC(2), (b) the grant of any right falling within paragraph (a), (b) or (c) of section 357CC(6), or (c) a sale or disposal falling within section 357CC(7), is to be regarded for the purposes of this Part as relevant IP income. (6) But where the amount of income that on such an apportionment is properly attributable to any of the matters in paragraphs (d) to (g) of subsection (4) is a trivial proportion of the income to which this section applies, all of that income is to be regarded for the purposes of this Part as relevant IP income. Calculating profits of trade Adjustments in calculating profits of trade 357CG (1) This section applies for the purposes of determining the relevant IP profits of a trade of a company for an accounting period. (2) In calculating the profits of the trade for the accounting period— (a) there are to be added the amounts in subsection (3), and (b) there are to be deducted the amounts in subsection (4). (3) The amounts to be added are— (a) the amount of any debits which are treated as expenses of the trade by virtue of— (i) section 297 of CTA 2009 (debits in respect of loan relationships), or (ii) section 573 of CTA 2009 (debits in respect of derivative contracts), and (b) the amount of any additional deduction for the accounting period obtained by the company under Part 13 of CTA 2009 for expenditure on research and development in relation to the trade. (4) The amounts to be deducted are any amounts of finance income brought into account in calculating the profits of the trade for the accounting period. (For the meaning of “finance income”, see section 357CB.) (5) In a case where there is a shortfall in R&D expenditure in relation to the trade for a relevant accounting period (see section 357CH), the amount of R&D expenditure brought into account in calculating the profits of the trade for that accounting period is to be increased by the amount mentioned in section 357CH(2). (6) For the purposes of subsection (5)— “R&D expenditure” means expenditure on research and development in relation to the trade, “relevant accounting period”, in relation to a company, means— the first accounting period for which— the company is a qualifying company, and an election under section 357A has effect in relation to it, and each accounting period that begins before the end of the period of 4 years beginning with that accounting period, and “research and development” means activities, other than oil and gas exploration and appraisal, that fall to be treated as research and development in accordance with generally accepted accounting practice. Shortfall in R&D expenditure 357CH (1) There is a shortfall in R&D expenditure in relation to a trade of a company for a relevant accounting period if the actual R&D expenditure of the trade for the accounting period (as adjusted under subsections (8) to (11)) is less than 75% of the average amount of R&D expenditure. (2) The amount that is to be added to the actual R&D expenditure for the purposes of section 357CG(5) is an amount equal to the difference between— (a) 75% of the average amount of R&D expenditure, and (b) the actual R&D expenditure, as adjusted under subsections (8) to (11). (3) In this section— (a) the “actual R&D expenditure” of a trade of a company for an accounting period is the amount of R&D expenditure that (ignoring section 357CG(5)) is brought into account in calculating the profits of the trade for the accounting period, and (b) “R&D expenditure” and “relevant accounting period” have the meaning given by section 357CG(6). (4) The average amount of R&D expenditure is— E N × 365 where— E is the amount of R&D expenditure that— has been incurred by the company during the relevant period, and has been brought into account in calculating the profits of the trade for any accounting period ending before the first relevant accounting period, and N is the number of days in the relevant period. (5) The relevant period is the shorter of— (a) the period of 4 years ending immediately before the first relevant accounting period, and (b) the period beginning with the day on which the company begins to carry on the trade and ending immediately before the first relevant accounting period. (6) For a relevant accounting period of less than 12 months, the average amount of R&D expenditure is proportionately reduced. (7) Subsections (8) to (11) apply for the purposes of determining— (a) whether there is a shortfall in R&D expenditure for a relevant accounting period, and (b) if there is such a shortfall, the amount to be added by virtue of subsection (2). (8) If the amount of the actual R&D expenditure for a relevant accounting period is greater than the average amount of R&D expenditure, the difference between the two amounts is to be added to the actual R&D expenditure for the next relevant accounting period. (9) If— (a) there is not a shortfall in R&D expenditure for a relevant accounting period, but (b) in the absence of any additional amount, there would be a shortfall in R&D expenditure for that accounting period, the remaining portion of the additional amount is to be added to the actual R&D expenditure for the next relevant accounting period. (10) For the purposes of this section— “additional amount”, in relation to a relevant accounting period, means any amount added to the actual R&D expenditure for that accounting period by virtue of subsection (8), (9) or (11), and “the remaining portion” of an additional amount is so much of that amount as exceeds the difference between— the actual R&D expenditure for the relevant accounting period in the absence of the additional amount, and 75% of the average amount of R&D expenditure. (11) If— (a) there is not a shortfall in R&D expenditure for a relevant accounting period, and (b) there would not be a shortfall in R&D expenditure for that accounting period in the absence of any additional amount, the additional amount is to be added to the actual R&D expenditure for the next relevant accounting period (in addition to any additional amount so added by virtue of subsection (8)). Routine return figure Routine return figure 357CI (1) To determine the routine return figure in relation to a trade of a company for an accounting period— Step 1 Take the aggregate of any routine deductions made by the company in calculating the profits of the trade for the accounting period. For the meaning of “routine deductions”, see sections 357CJ and 357CK. Step 2 Multiply that amount by 0.1. Step 3 Calculate X% of the amount given by Step 2.“X%” is the percentage given by Step 2 in section 357C(1). (2) In a case where— (a) the company (“C”) is a member of a group, (b) another member of the group incurs expenses on behalf of C, (c) had they been incurred by C, C would have made a deduction in respect of the expenses in calculating the profits of the trade for the accounting period, and (d) the deduction would have been a routine deduction, C is to be treated for the purposes of subsection (1) as having made such a routine deduction. (3) Where expenses are incurred by any member of the group on behalf of C and any other member of the group, subsection (2) applies in relation to so much of the amount of the expenses as on a just and reasonable apportionment may properly be regarded as incurred on behalf of C. Routine deductions 357CJ (1) For the purposes of section 357CI “routine deductions” means deductions falling within any of the Heads set out in— (a) subsection (2) (capital allowances), (b) subsection (3) (costs of premises), (c) subsection (4) (personnel costs), (d) subsection (5) (plant and machinery costs), (e) subsection (6) (professional services), (f) subsection (7) (miscellaneous services). This is subject to section 357CK (deductions that are not routine deductions). (2) Head 1 is any allowances under CAA 2001. (3) Head 2 is any deductions made by the company in respect of any premises occupied by the company. (4) Head 3 is any deductions made by the company in respect of— (a) any director or employee of the company, or (b) any externally provided workers. (5) Head 4 is any deductions made by the company in respect of any plant or machinery used by the company. (6) Head 5 is any deductions made by the company in respect of any of the following services— (a) legal services, other than IP-related services; (b) financial services, including— (i) insurance services, and (ii) valuation or actuarial services; (c) services provided in connection with the administration or management of the company's directors and employees; (d) any other consultancy services. (7) Head 6 is any deductions made by the company in respect of any of the following services— (a) the supply of water, fuel or power; (b) telecommunications services; (c) computing services, including computer software; (d) postal services; (e) the transportation of any items; (f) the collection, removal and disposal of refuse. (8) In this section— “externally provided worker” has the same meaning as in Part 13 of CTA 2009 (see section 1128 of that Act), “IP-related services” means services provided in connection with— any application for a right to which this Part applies, or any proceedings relating to the enforcement of any such right, “premises” includes any land, “telecommunications service” means any service that consists in the provision of access to, and of facilities for making use of, any telecommunication system (whether or not one provided by the person providing the service), and “telecommunication system” means any system (including the apparatus comprised in it) which exists for the purpose of facilitating the transmission of communications by any means involving the use of electrical or electro-magnetic energy. (9) The Treasury may by order amend this section. Deductions that are not routine deductions 357CK (1) For the purposes of section 357CI a deduction is not a “routine deduction” if it falls within any of the Heads set out in— (a) subsection (2) (loan relationships and derivative contracts), (b) subsection (3) (R&D expenses), (c) subsection (4) (capital allowances for R&D or patents), (d) subsection (5) (R&D-related employee share acquisitions). (2) Head 1 is any debits which are treated as expenses of the trade by virtue of — (a) section 297 of CTA 2009 (debits in respect of loan relationships), or (b) section 573 of CTA 2009 (debits in respect of derivative contracts). (3) Head 2 is— (a) the amount of any expenditure on research and development in relation to the trade for which an additional deduction for the accounting period is obtained by the company under Part 13 of CTA 2009, and (b) the amount of that additional deduction. (4) Head 3 is any allowances under— (a) Part 6 of CAA 2001 (research and development allowances), or (b) Part 8 of CAA 2001 (patent allowances). (5) Head 4 is the appropriate proportion of any deductions allowed under Part 12 of CTA 2009 (relief for employee share acquisitions) in a case where— (a) shares are acquired by an employee or another person because of the employee's employment by the company, and (b) the employee is wholly or partly engaged directly and actively in relevant research and development (within the meaning of section 1042 of CTA 2009). (6) In subsection (5) “the appropriate proportion”, in relation to a deduction allowed in respect of an employee, is the proportion of the staffing costs in respect of the employee which are attributable to relevant research and development for the purposes of Part 13 of CTA 2009 (see section 1124 of that Act). “Staffing costs” has the same meaning as in that Part (see section 1123 of that Act). (7) Subsections (5) and (6) of section 1124 of CTA 2009 apply for the purposes of subsection (5)(b) as they apply for the purposes of that section. (8) The Treasury may by order amend this section. Election for small claims treatment Companies eligible to elect for small claims treatment 357CL (1) A company may elect for small claims treatment for an accounting period if condition A or B is met in relation to the accounting period. (2) Condition A is that the aggregate of the amounts of qualifying residual profit of each trade of the company for the accounting period does not exceed £1,000,000. (3) Condition B is that— (a) the aggregate of the amounts of qualifying residual profit of each trade of the company for the accounting period does not exceed the relevant maximum, and (b) the company did not take Step 6 in section 357C(1) or 357DA(1) for the purpose of calculating the relevant IP profits of any trade of the company for any previous accounting period beginning within the relevant 4-year period. (4) In subsection (3)(b) “the relevant 4-year period” means the period of 4 years ending immediately before the accounting period mentioned in subsection (3)(a). (5) If the company has no associated company in the accounting period, the relevant maximum is £3,000,000. (6) If the company has one or more associated companies in the accounting period, the relevant maximum is— £ 3,000,000 1 + N where N is the number of those associated companies in relation to which an election under section 357A has effect for the accounting period. (7) For an accounting period of less than 12 months, the relevant maximum is proportionately reduced. (8) Any amount of qualifying residual profit of a trade of the company that is not greater than nil is to be disregarded for the purposes of this section. (9) Sections 25 to 30 (definition of “associated companies”) have effect for the purposes of this section. Small claims amount 357CM (1) This section applies where a company elects for small claims treatment for an accounting period. (2) The small claims amount in relation to each trade of the company for the accounting period is— (a) if the amount in subsection (3) is lower than the small claims threshold, 75% of the qualifying residual profit of the trade for the accounting period; (b) in any other case, the amount given by— SCT T where— SCT is the small claims threshold, and T is the number of trades of the company. (3) The amount referred to in subsection (2)(a) is— 0.75 × Q R P where QRP is the aggregate of the amounts of qualifying residual profit of each trade of the company for the accounting period (but see subsection (4)). (4) Any amount of qualifying residual profit of a trade of the company that is not greater than nil is to be disregarded for the purposes of subsection (3). (5) If the company has no associated company in the accounting period, the small claims threshold is £1,000,000. (6) If the company has one or more associated companies in the accounting period, the small claims threshold is— £ 1,000,000 1 + N where N is the number of those associated companies in relation to which an election under section 357A has effect for the accounting period. (7) For an accounting period of less than 12 months, the small claims threshold is proportionately reduced. (8) Sections 25 to 30 (definition of “associated companies”) have effect for the purposes of this section. Marketing assets return figure Marketing assets return figure 357CN (1) The marketing assets return figure in relation to a trade of a company for an accounting period is— NMR − AMR where— NMR is the notional marketing royalty in respect of the trade for the accounting period (see section 357CO), and AMR is the actual marketing royalty in respect of the trade for the accounting period (see section 357CP). (2) Where— (a) AMR is greater than NMR, or (b) the difference between NMR and AMR is less than 10% of the qualifying residual profit of the trade for the accounting period, the marketing assets return figure is nil. Notional marketing royalty 357CO (1) The notional marketing royalty in respect of a trade of a company for an accounting period is the appropriate percentage of the relevant IP income for that accounting period. In this section “relevant IP income”, in relation to a trade of a company for an accounting period, means so much of the total gross income of the trade for the accounting period as is relevant IP income. (2) The “appropriate percentage” is the proportion of any relevant IP income for an accounting period which the company would pay another person (“P”) for the right to exploit the relevant marketing assets in that accounting period if the company were not otherwise able to exploit them. (3) For the purposes of this section a marketing asset is a “relevant marketing asset” in relation to an accounting period if the relevant IP income of the trade of the company for the accounting period includes any income arising from things done by the company that involve the exploitation by the company of that marketing asset. (4) For the purposes of determining the appropriate percentage under this section, assume that— (a) the company and P are dealing at arm's length, (b) the company, or the company and persons authorised by it, will have the right to exploit the relevant marketing assets to the exclusion of any other person (including P), (c) the company will have the same rights in relation to the relevant marketing assets as it actually has, (d) the right to exploit the relevant marketing assets is conferred on the relevant day, (e) the appropriate percentage for the accounting period is determined at the beginning of the accounting period, (f) the appropriate percentage for the accounting period will apply for each succeeding accounting period for which the company will have the right to exploit the relevant marketing assets, and (g) no income other than relevant IP income will arise from anything done by the company that involves the exploitation by the company of the relevant marketing assets. (5) In subsection (4)(d) “the relevant day”, in relation to a relevant marketing asset, means— (a) the first day of the accounting period, or (b) if later, the day on which the company first acquired the relevant marketing asset or the right to exploit the asset. (6) In determining the appropriate percentage, the company must act in accordance with— (a) Article 9 of the OECD Model Tax Convention, and (b) the OECD transfer pricing guidelines. (7) In this section “marketing asset” means any of the following (whether or not capable of being transferred or assigned)— (a) anything in respect of which proceedings for passing off could be brought, including a registered trade mark (within the meaning of the Trade Marks Act 1994), (b) anything that corresponds to a marketing asset within paragraph (a) and is recognised under the law of a country or territory outside the United Kingdom, (c) any signs or indications (so far as not falling within paragraph (a) or (b)) which may serve, in trade, to designate the geographical origin of goods or services, and (d) any information which relates to customers or potential customers of the company, or any other member of a group of which the company is a member, and is intended to be used for marketing purposes. Actual marketing royalty 357CP (1) The actual marketing royalty in respect of a trade of a company for an accounting period is X% of the aggregate of any sums which— (a) were paid by the company for the purposes of acquiring any relevant marketing assets, or the right to exploit any such assets, and (b) were brought into account as debits in calculating the profits of the trade for the accounting period. (2) In this section— “relevant marketing assets” has the same meaning as in section 357CO, and “X%” is the percentage given by Step 2 in section 357C(1). Profits arising before grant of right Profits arising before grant of right 357CQ (1) This section applies where a company— (a) holds a right mentioned in paragraph (a), (b) or (c) of section 357BB(1) (rights to which this Part applies) or an exclusive licence in respect of such a right, or (b) would hold such a right or licence but for the fact that the company disposed of any rights in the invention or (as the case may be) the licence before the right was granted. (2) The company may elect that, for the purposes of determining the relevant IP profits of a trade of the company for the accounting period in which the right is granted, there is to be added the amount determined in accordance with subsection (3) (the “ additional amount ”). (3) The additional amount is the difference between— (a) the aggregate of the relevant IP profits of the trade for each relevant accounting period, and (b) the aggregate of what the relevant IP profits of the trade for each relevant accounting period would have been if the right had been granted on the relevant day. (4) For the purposes of determining the additional amount, the amount of any relevant IP profits to which section 357A does not apply by virtue of Chapter 5 (relevant IP losses) is to be disregarded. (5) In this section “relevant accounting period” means— (a) the accounting period of the company in which the right is granted, and (b) any earlier accounting period of the company which meets the conditions in subsection (6). (6) The conditions mentioned in subsection (5)(b) are— (a) that it is an accounting period for which an election made by the company under section 357A has effect, (b) that it is an accounting period for which the company is a qualifying company, and (c) that it ends on or after the relevant day. (7) In this section “the relevant day” is the later of— (a) the first day of the period of 6 years ending with the day on which the right is granted, or (b) the day on which— (i) the application for the grant of the right was filed, or (ii) in the case of a company that holds an exclusive licence in respect of the right, the licence was granted. (8) Where the company would be a qualifying company for an accounting period but for the fact that the right had not been granted at any time during that accounting period, the company is to be treated for the purposes of this section as if it were a qualifying company for that accounting period. (9) Where the company would be a qualifying company for the accounting period in which the right was granted but for the fact that the company disposed of the rights or licence mentioned in subsection (1)(b) before the right was granted, the company is to be treated for the purposes of section 357A as if it were a qualifying company for that accounting period. CHAPTER 4 Streaming Alternative method of calculating relevant IP profits: “streaming” 357D (1) A company may elect to apply section 357DA (instead of section 357C) for the purposes of determining the relevant IP profits of any trade of the company for an accounting period. (2) An election made under subsection (1) is known as a “streaming election”. (3) A streaming election has effect— (a) for the accounting period for which it is made, and (b) for each subsequent accounting period. This is subject to section 357DB. (4) If any of the mandatory streaming conditions in section 357DC is met in relation to a trade of a company for an accounting period, the company must apply section 357DA (instead of section 357C) for the purposes of determining the relevant IP profits of the trade for that accounting period. Relevant IP profits 357DA (1) To determine the relevant IP profits of a trade of a company for an accounting period in accordance with this section— Step 1 Take any amounts which are brought into account as credits in calculating the profits of the trade for the accounting period, other than any amounts of finance income (see section 357CB), and divide them into two “streams”, amounts of relevant IP income (see sections 357CC and 357CD) and amounts that are not amounts of relevant IP income. The stream consisting of relevant IP income is “the relevant IP income stream”. Step 2 Take any amounts which are brought into account as debits in calculating the profits of the trade for the accounting period, other than any amounts referred to in section 357CG(3), and allocate them on a just and reasonable basis between the two streams. (See also section 357CG(5).) Step 3 Deduct from the relevant IP income stream the amounts allocated to that stream under Step 2. Step 4 Deduct from the amount given by Step 3 the routine return figure (see subsection (4)). The amount given by this step is the “qualifying residual profit”. If the amount of the qualifying residual profit is not greater than nil, go to Step 7. Step 5 If the company has elected for small claims treatment, calculate the small claims amount in relation to the trade (see section 357CM). If the company has not, go to Step 6. Step 6 Deduct from the qualifying residual profit the marketing assets return figure (see section 357CN and subsection (6)). Step 7 If the company has made an election under section 357CQ (which provides in certain circumstances for profits arising before the grant of a right to be treated as relevant IP profits), add to the amount given by Step 5 or 6 (or, if the amount of the qualifying residual profit was not greater than nil, Step 4) any amount determined in accordance with subsection (3) of that section. (2) If the amount given by subsection (1) is greater than nil, that amount is the relevant IP profits of the trade for the accounting period. (3) If the amount given by subsection (1) is less than nil, that amount is the relevant IP losses of the trade for the accounting period (see Chapter 5). (4) The routine return figure, in relation to a trade of a company for an accounting period, is 10% of the aggregate of any routine deductions which— (a) have been made by the company in calculating the profits of the trade for the accounting period, and (b) have been allocated to the relevant IP income stream under Step 2. In this subsection “routine deductions” is to be read in accordance with sections 357CJ and 357CK. (5) Subsections (2) and (3) of section 357CI have effect for the purposes of subsection (4) of this section as they have effect for the purposes of that section. (6) For the purposes of determining the marketing assets return figure in Step 6, section 357CP (actual marketing royalty) has effect as if the reference to X% of the aggregate of any sums falling within subsection (1) of that section were a reference to the aggregate of any such sums which have been allocated to the relevant IP income stream under Step 2. Method of allocation 357DB (1) In this section “method of allocation” means the method of allocating, for the purposes of Step 2 in section 357DA(1), the amounts mentioned in that step. (2) A company that applies section 357DA for the purposes of determining the relevant IP profits of a trade of the company for an accounting period must use the same method of allocation in relation to the trade for that accounting period as it used in the last accounting period of the company for which it applied that section for the purposes of determining the relevant IP profits of the trade. (3) But subsection (2) does not apply if there is a change of circumstances relating to the trade which makes the use of that method of allocation in relation to the trade for the accounting period inappropriate. (4) In such a case, the company may— (a) use a different method of allocation in relation to the trade for the accounting period (and subsection (2) applies accordingly for subsequent accounting periods), or (b) elect not to apply section 357DA for the purposes of determining the relevant IP profits of the trade for the accounting period. (5) Subsection (4)(b) does not prevent the company making a fresh streaming election in relation to the trade for any subsequent accounting period. The mandatory streaming conditions 357DC (1) Mandatory streaming condition A is met in relation to a trade of a company for an accounting period if— (a) any amount brought into account as a credit in calculating the profits of the trade for the accounting period is not fully recognised as revenue for the accounting period, and (b) the amount, or the aggregate of any such amounts, is substantial. (2) An amount is a “substantial” amount for the purposes of this section if it is greater than— (a) £2,000,000, or (b) 20% of the total gross income of the trade for the accounting period, whichever is the lower. (3) But an amount is not a substantial amount for the purposes of this section if it does not exceed £50,000. (4) The reference in subsection (1)(a) to an amount brought into account as a credit includes a reference to any amount brought into account by virtue of section 147 of TIOPA 2010 (basic transfer-pricing rule). (5) Mandatory streaming condition B is met in relation to a trade of a company for an accounting period if the total gross income of the trade for the accounting period includes— (a) relevant IP income, and (b) a substantial amount of licensing income that is not relevant IP income. (6) In subsection (5) “licensing income” means income consisting of any licence fee, royalty or other payment which the company has received under an agreement granting another person any right in respect of any intellectual property held by the company. “Intellectual property” has the meaning given by section 712(3) of CTA 2009. (7) Mandatory streaming condition C is met in relation to a trade of a company for an accounting period if the total gross income of the trade for the accounting period includes— (a) income that is not relevant IP income, and (b) a substantial amount of relevant Head 2 income. (8) Income is “relevant Head 2 income” for the purposes of subsection (7) if— (a) it is relevant IP income received under an agreement falling within subsection (6) of section 357CC, and (b) every qualifying IP right— (i) in respect of which a right within paragraph (a) of that subsection is granted by the agreement, or (ii) which is granted in respect of an invention in respect of which a right within paragraph (b) of that subsection is granted by the agreement, is a right in respect of which the company holds an exclusive licence. (9) In a case where— (a) relevant IP income is received under an agreement falling within section 357CC(6), but (b) the condition in paragraph (b) of subsection (8) above is not met, so much of the relevant IP income as on a just and reasonable apportionment is attributable to any qualifying IP right falling within that paragraph is relevant Head 2 income for the purposes of subsection (7). CHAPTER 5 Relevant IP losses Company with relevant IP losses: set-off amount 357E Where a company would be entitled to make a deduction under section 357A(2) in calculating the profits of a trade of the company for an accounting period but for the fact that there are relevant IP losses of the trade for the accounting period, there is a “set-off amount” in relation to the trade of the company for the accounting period which is equal to the amount of the relevant IP losses. Effect of set-off amount on company with more than one trade 357EA (1) This section applies where— (a) there is a set-off amount in relation to a trade of a company for an accounting period, and (b) the company carries on any other trade. (2) The set-off amount is to be reduced (but not to below nil) by any relevant IP profits of that other trade for the accounting period. (3) Section 357A does not apply in relation to so much of the amount of relevant IP profits of that other trade for the accounting period as is equal to the amount by which the set-off amount is reduced under subsection (2). Allocation of set-off amount within a group 357EB (1) This section applies where— (a) there is a set-off amount in relation to a trade of a company for an accounting period, (b) the company is a member of a group, and (c) the set-off amount has not been reduced to nil by the operation of section 357EA(2). (2) The set-off amount (or so much of it as remains after the operation of section 357EA(2)) is to be reduced (but not to below nil) by any relevant IP profits of a trade of a relevant group member for the relevant accounting period. (3) For the purposes of this section— (a) “relevant group member” means another member of the group that has made an election under section 357A and is a qualifying company for the relevant accounting period, and (b) “relevant accounting period”, in relation to a company, means the accounting period of the company in or at the end of which the accounting period mentioned in subsection (1)(a) ends. (4) Section 357A does not apply in relation to so much of the amount of relevant IP profits of the trade of the relevant group member for the relevant accounting period as is equal to the amount by which the set-off amount (or so much of it as remains after the operation of section 357EA(2)) is reduced under subsection (2). (5) Where there is more than one relevant group member, the relevant group members may jointly determine the order in which subsection (2) is to apply to them. (6) If no determination is made under subsection (5), subsection (2) is to apply first to the trade that has the greatest amount of relevant IP profits of any trade of any of the relevant group members for a relevant accounting period, then to the trade that has the second greatest amount of relevant IP profits of any of those trades for such a period, and so on. Carry-forward of set-off amount 357EC (1) This section applies where— (a) there is a set-off amount in relation to a trade of a company for an accounting period, and (b) the set-off amount has not been reduced to nil by the operation of section 357EA(2) or 357EB(2). (2) The set-off amount (or so much of it as remains after the operation of section 357EA(2) or 357EB(2)) is to be reduced (but not to below nil) by the amount of any relevant IP profits of the trade of the company for the current accounting period. The “current accounting period” is the accounting period immediately following the accounting period mentioned in subsection (1)(a). (3) Section 357A does not apply in relation to so much of the amount of relevant IP profits of the trade of the company for the current accounting period as is equal to the amount by which the set-off amount (or so much of it as remains after the operation of section 357EA(2) or 357EB(2)) is reduced under subsection (2). (4) If any portion of the set-off amount remains after the operation of subsection (2), that portion (“the remaining portion”) is to be treated as the set-off amount in relation to the trade of the company for the current accounting period (and the provisions of this Chapter apply accordingly). (5) If there are relevant IP losses of the trade of the company for the current accounting period, the set-off amount in relation to the trade of the company for that accounting period is the aggregate of the remaining portion and an amount equal to the amount of those relevant IP losses (and the provisions of this Chapter apply accordingly). Company ceasing to carry on trade, etc 357ED (1) This section applies where— (a) there is a set-off amount in relation to a trade of a company for an accounting period, and (b) at any time in the accounting period immediately following that accounting period, the company meets any of the conditions in subsection (2). (2) The conditions are— (a) that the company ceases to carry on the trade, (b) that the company ceases to be within the charge to corporation tax in respect of the trade, or (c) that any election made by the company under section 357A ceases to have effect. (3) Sections 357EA to 357EC continue to have effect in relation to the set-off amount subject to the following provisions of this section. (4) Section 357EB has effect as if— (a) the reference in subsection (1)(b) to the company being a member of a group were a reference to the company having been a member of the group at the time referred to in subsection (1)(b) of this section, (b) for subsection (2) there were substituted— (2) The set-off amount (or so much of it as remains after the operation of section 357EA(2)) is to become, or be added to, the set-off amount in relation to a trade of a relevant group member for the relevant accounting period. , (c) subsection (4) were omitted, (d) for the words after “determine” in subsection (5) there were substituted “ the relevant group member to which subsection (2) is to apply ”, and (e) for subsection (6) there were substituted— (6) If no determination is made under subsection (5), subsection (2) is to apply to the trade that has the greatest amount of relevant IP profits of any trade of any of the relevant group members for a relevant accounting period. (7) If there is no relevant group member with any relevant IP profits of a trade for the relevant accounting period, subsection (2) is to apply to the trade that has the greatest set-off amount in relation to any trade of any of the relevant group members for a relevant accounting period. (5) Sections 357EA to 357EC cease to have effect in relation to the set-off amount in relation to the trade of the company for an accounting period if— (a) the company is not carrying on any other trade in that accounting period, and (b) in the case of a company that was a member of a group at the time referred to in subsection (1)(b) of this section, none of the members of the group is a relevant group member (within the meaning of section 357EB). (6) In such a case, the set-off amount (so far as remaining after the operation of those sections) is to be reduced to nil. Transfer of a trade between group members 357EE (1) This section applies where— (a) there is a set-off amount in relation to a trade of a company for an accounting period, (b) the company is a member of a group, (c) the company ceases to carry on the trade, and (d) another company (“the transferee”) that is a member of the group begins to carry on that trade. (2) For the purposes of this Chapter an amount equal to the set-off amount is to become, or be added to, the set-off amount in relation to the trade of the transferee for the accounting period in which the transferee begins to carry on the trade. Payments between group members in consequence of section 357EB 357EF (1) This section applies if— (a) there is a set-off amount in relation to a trade of a company for an accounting period, (b) subsection (2) of section 357EB has effect in relation to a relevant group member for the relevant accounting period (within the meaning of that section), (c) the company and the relevant group member have an agreement between them in relation to the relevant IP losses of the company, and (d) as a result of the agreement the company makes a payment to the relevant group member that does not exceed the reduction in the relevant IP profits of the relevant group member arising under section 357EB(4). (2) The payment— (a) is not to be taken into account in determining the profits or losses of either company for corporation tax purposes, and (b) is not for any purposes of the Corporation Tax Acts to be regarded as a distribution. (3) In a case where section 357ED applies (company ceasing to carry on trade, etc), the reference in subsection (1)(d) to the reduction in the relevant IP profits of the relevant group member is to be read as a reference to the amount that becomes, or is added to, the set-off amount in relation to a trade of the relevant group member for the relevant accounting period under section 357EB(2). CHAPTER 6 Anti-avoidance Licences conferring exclusive rights Licences conferring exclusive rights 357F A licence that confers any right in respect of a qualifying IP right to the exclusion of all other persons is not to be regarded as an exclusive licence if the main purpose, or one of the main purposes, of conferring the right is to secure that the licence is an exclusive licence for the purposes of this Part. Incorporation of qualifying items Incorporation of qualifying items 357FA (1) Income arising from the sale of any item that incorporates a qualifying item is not relevant IP income if the main purpose, or one of the main purposes, of incorporating the qualifying item is to secure that income arising from any such sale is relevant IP income. (2) “Qualifying item” has the same meaning as in section 357CC(2). Tax advantage schemes Tax advantage schemes 357FB (1) This section applies where— (a) a company is entitled to make a deduction under section 357A(2) in calculating the profits of a trade of the company for an accounting period, (b) the company is or has at any time been a party to a scheme, and (c) the main purpose, or one of the main purposes, of the company or, where the company is a member of a group, any member of the group in being a party to the scheme is (or was) to obtain the chance of securing a relevant tax advantage. (2) There is a “relevant tax advantage” for the purposes of this section if— (a) (apart from this section) there would be an increase in the amount of any deduction made under section 357A(2) in calculating the profits of a trade of the company or (as the case may be) any other member of the group for any accounting period, and (b) the increase would arise from— (i) the avoidance of the operation of any provision of this Part, (ii) artificially inflating the amount of relevant IP income brought into account in calculating those profits (see subsection (3)), or (iii) a mismatch between relevant IP income and expenditure (see subsection (4)). (3) The reference in subsection (2)(b) to artificially inflating the amount of relevant IP income brought into account in calculating the profits mentioned in subsection (2)(a) is a reference to doing any of the following— (a) bringing into account in calculating those profits an amount of relevant IP income that wholly or substantially corresponds to an increase in the amounts brought into account as debits in calculating those profits; (b) bringing into account in calculating those profits an additional amount of relevant IP income that wholly or substantially corresponds to a decrease in the amount of income that is not relevant IP income which is brought into account in calculating those profits. (4) For the purposes of this section there is a mismatch between relevant IP income and expenditure if— (a) any relevant IP income brought into account in calculating the profits mentioned in subsection (2)(a) is attributable to any qualifying IP right or an exclusive licence in respect of any such right, and (b) any expenditure incurred in relation to that right is brought into account in calculating the profits of a trade of the company or (as the case may be) any other member of the group for an accounting period for which an election under section 357A did not have effect. (5) The amount of the deduction which may be made by the company for the accounting period mentioned in subsection (1)(a) is the amount that would secure that no relevant tax advantage arises (and may be nil). (6) In this section “scheme” includes any scheme, arrangements or understanding of any kind whatever, whether or not legally enforceable, involving a single transaction or two or more transactions. CHAPTER 7 Supplementary Elections under section 357A Making of election under section 357A 357G (1) An election made by a company under section 357A is made by giving notice to an officer of Revenue and Customs. (2) The notice must specify the first accounting period of the company for which the election is to have effect. (3) The notice must be given on or before the last day on which an amendment of the company's tax return for that accounting period could be made under paragraph 15 of Schedule 18 to FA 1998. (4) The election has effect in relation to each trade carried on by the company. (5) Subject to section 357GA, the election has effect for the accounting period specified in the notice and all subsequent accounting periods of the company. Revocation of election made under section 357A 357GA (1) A company may revoke an election made by it under section 357A by giving notice to an officer of Revenue and Customs. (2) The notice must specify the first accounting period of the company for which the revocation is to have effect. (3) The notice must be given on or before the last day on which an amendment of the company's tax return for that accounting period could be made under paragraph 15 of Schedule 18 to FA 1998. (4) The revocation has effect in relation to the accounting period specified in the notice and all subsequent accounting periods of the company. (5) An election made under section 357A by a company that has given notice under this section does not have effect in relation to any accounting period of the company that begins before the end of the period of 5 years beginning with the day after the last day of the accounting period specified in the notice. Partnerships Application of this Part in relation to partnerships 357GB (1) This section applies if a firm (within the meaning of CTA 2009) carries on a trade and any partner in the firm is a company within the charge to corporation tax. Such a partner is referred to in this section as a “corporate partner”. (2) Subject to the following provisions of this section, this Part applies in relation to the firm as it applies in relation to a company. (3) Any election under this Part— (a) may be made or revoked not by the firm but instead by any one or more of the corporate partners (whether jointly or otherwise), and (b) has effect in relation to each corporate partner making or revoking it as if made or revoked by the firm. (4) Accordingly, any reference in section 357G(3) or 357GA(3) (time limit for making or revoking elections under section 357A) to the company making or revoking the election is to be read as a reference to the corporate partner so doing. (5) Section 1261 of CTA 2009 (accounting periods of firms) applies for the purposes of this Part as it applies for the purposes of Part 17 of that Act. (6) Section 357B (meaning of “qualifying company”) has effect as if in subsection (1) the words “in the case of a company that is a member of a group” were omitted. (7) For the purposes of this Part the firm meets the development condition in relation to a right to which this Part applies if— (a) the firm has at any time carried out qualifying development in relation to the right, or (b) there is a relevant corporate partner in the firm who meets the development condition in relation to the right. (8) A “relevant corporate partner” is a corporate partner who is entitled to a share of at least 40% of the profits or losses of the firm for any accounting period of the firm. (9) Section 357BD applies for the purposes of subsection (7)(a) of this section as it applies for the purposes of section 357BC. (10) Section 357BE (active ownership condition) has effect as if the reference in subsection (4) to section 357BC(2) or (3) included a reference to subsection (7)(a) of this section. (11) Sections 357CL and 357CM (election for small claims treatment) have effect as if— (a) any reference to a company having one or more associated companies were a reference to any corporate partner in relation to which an election under section 357CL has effect having one or more associated companies, and (b) any reference to a company having no associated company were a reference to each such corporate partner having no associated company. (12) Subsection (13) applies where a corporate partner is a party to an arrangement at any time during an accounting period of the firm which produces for the corporate partner a return within section 357CB(1)(c). (13) For the accounting period of the firm the corporate partner's share of a profit or loss of a trade carried on by the firm is determined for corporation tax purposes as if no election under section 357A had effect in relation to the trade. Cost-sharing arrangements Application of this Part in relation to cost-sharing arrangements 357GC (1) This section applies where a company is a party to an arrangement under which— (a) one of the parties to the arrangement holds a qualifying IP right or an exclusive licence in respect of such a right, (b) each of the parties to the arrangement is required to contribute to the cost of, or perform activities for the purpose of, creating or developing the invention or any item or process incorporating the invention, (c) under the arrangement each of those parties— (i) is entitled to a share of any income attributable to the right or licence, or (ii) has one or more rights in respect of the invention, and (d) the amount of any income received by each of those parties is proportionate to its participation in the arrangement as described in paragraph (b). (2) The company is to be treated for the purposes of this Part as if it held the qualifying IP right or (as the case may be) the exclusive licence in respect of the qualifying IP right. (3) But this section does not apply where the arrangement produces for the company a return within section 357CB(1)(c). (4) The reference in subsection (1)(b) to developing the invention includes developing ways in which the invention may be used or applied. Interpretation Meaning of “group” 357GD (1) For the purposes of this Part a company (“company A”) is a member of a group at any time if any other company is at that time associated with company A. (2) The group consists of company A and each company in relation to which the condition in subsection (1) is met. (3) For the purposes of this section a company (“company B”) is associated with company A at a time (“the relevant time”) if any of the following five conditions is met. (4) The first condition is that the financial results of company A and company B, for a period that includes the relevant time, meet the consolidation condition. (5) The second condition is that there is a connection between company A and company B for the accounting period of company A in which the relevant time falls. (6) The third condition is that, at the relevant time, company A has a major interest in company B or company B has a major interest in company A. (7) The fourth condition is that— (a) the financial results of company A and a third company, for a period that includes the relevant time, meet the consolidation condition, and (b) at the relevant time the third company has a major interest in company B. (8) The fifth condition is that— (a) there is a connection between company A and a third company for the accounting period of company A in which the relevant time falls, and (b) at the relevant time the third company has a major interest in company B. (9) In this section, the financial results of any two companies for any period meet “the consolidation condition” if— (a) they are required to be fully comprised in group accounts, (b) they would be required to be fully comprised in such accounts but for the application of an exemption, or (c) they are in fact fully comprised in such accounts. (10) In subsection (9) “group accounts” means accounts prepared under— (a) section 399 of the Companies Act 2006, or (b) any corresponding provision of the law of a country or territory outside the United Kingdom. (11) The following provisions apply for the purposes of this section— sections 466 to 471 of CTA 2009 (companies connected for accounting period), and sections 473 and 474 of CTA 2009 (meaning of “major interest”). Other interpretation 357GE (1) In this Part— “invention”, in relation to a right to which this Part applies, means the item or process in respect of which the right is granted, “item” includes any substance, “the OECD Model Tax Convention” means— the version of the Model Tax Convention on Income and on Capital published in July 2010 by the Organisation for Economic Co-operation and Development (“the OECD”), or such other document approved and published by the OECD in place of that (or a later) version or in place of that Convention as is designated for the time being by order made by the Treasury, “the OECD transfer pricing guidelines” means— the version of the Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations published in July 2010 by the OECD, or such other document approved and published by the OECD in place of that (or a later) version or in place of those Guidelines as is designated for the time being by order made by the Treasury, including, in either case, such material published by the OECD as part of (or by way of update or supplement to) the version or other document concerned as may be so designated, and “qualifying residual profit” of a trade, in relation to any accounting period, is the amount obtained by the application of Steps 1 to 4 in section 357C or (as the case may be) section 357DA in relation to the trade for the accounting period. (2) Any reference in this Part to calculating the profits of a trade of a company for an accounting period is a reference to calculating those profits for corporation tax purposes (and any reference to the profits or losses of a trade of a company for an accounting period is to be read accordingly). (2) In Schedule 4 to CTA 2010 (index of defined expressions), at the appropriate place insert— exclusive licence (in Part 8A) | section 357BA ; finance income (in Part 8A) | section 357CB ; group (in Part 8A) | section 357GD ; invention (in Part 8A) | section 357GE ; item (in Part 8A) | section 357GE ; the OECD Model Tax Convention (in Part 8A) | section 357GE ; the OECD transfer pricing guidelines (in Part 8A) | section 357GE ; qualifying company (in Part 8A) | section 357B ; qualifying IP right (in Part 8A) | section 357B(4) ; qualifying residual profit of a trade (in Part 8A) | section 357GE ; relevant IP income (in Part 8A) | section 357CC ; total gross income of a trade (in Part 8A) | section 357CA . PART 2 Amendments of TIOPA 2010 2 In Part 4 of TIOPA 2010 (transfer pricing), Chapter 3 (exemptions from basic rule) is amended as follows. 3 In section 166 (exemption for small and medium-sized enterprises), in subsection (2)(a), for “section 167” substitute “ sections 167 and 167A ”. 4 After section 167 insert— Small enterprises: exception from exemption: transfer pricing notice 167A (1) Section 166(1) does not apply in relation to any provision made or imposed if— (a) the potentially advantaged person is a small enterprise for the chargeable period, (b) the person meets the condition in subsection (2), and (c) the Commissioners for Her Majesty's Revenue and Customs give that person a notice requiring the person to calculate the profits and losses of that chargeable period in accordance with section 147(3) or (5) in the case of that provision. (2) A person meets the condition referred to in subsection (1)(b) if— (a) provision has been made or imposed as between the person and any other person by means of a transaction or series of transactions, (b) the basic pre-condition in section 147 is met in respect of the provision, and (c) the transaction, or one or more of the series of transactions, is taken into account in calculating, for the purposes of Part 8A of CTA 2010 (profits arising from the exploitation of patents etc), the relevant IP profits of a trade of a person who is or was a party to the transaction or transactions. (3) A notice under subsection (1) is referred to in this Chapter as a transfer pricing notice. 5 In section 170 (appeals against transfer pricing notices), in subsection (1), for the words from “on the ground that” to the end substitute on one of the following grounds— (a) that the condition in section 167A(1)(b) is not met, or (b) that the condition in section 168(1)(a) is not met. 6 In section 171 (tax returns where transfer pricing notice given), in subsection (3)(a), before “medium-sized” insert “ small or ”. PART 3 Commencement and transitional provision Application 7 (1) The amendments made by this Schedule have effect in relation to accounting periods beginning on or after 1 April 2013 for which an election under section 357A of CTA 2010 has effect. (2) Sub-paragraph (3) applies where a company has an accounting period beginning before 1 April 2013 and ending on or after that date (“the straddling period”). (3) For the purposes of Part 8A of CTA 2010— (a) so much of the straddling period as falls before 1 April 2013, and so much of that period as falls on or after that date, are treated as separate accounting periods, and (b) any amounts brought into account for the purposes of calculating for corporation tax purposes the profits of any trade of the company for the straddling period are apportioned to the two separate accounting periods on such basis as is just and reasonable. Special treatment of profits from patents etc to be phased in 8 (1) In each of the financial years in the Table below, the reference to RP in the formula in section 357A(3) of CTA 2010 is to be read as a reference to the percentage of RP given for that year— Financial year | Percentage of RP 2013 | 60% 2014 | 70% 2015 | 80% 2016 | 90% (2) Sub-paragraph (3) applies where there is a set-off amount in relation to any trade of a company for an accounting period falling wholly or partly within a financial year mentioned in the Table in sub-paragraph (1) (“the relevant year”) and— (a) section 357EB of CTA 2010 (allocation of set-off amount within group) applies in relation to the set-off amount (or so much of it as remains after the operation of section 357EA(2) of that Act) for a relevant accounting period falling wholly or partly within the financial year following the relevant year, or (b) section 357EC of that Act (carry-forward of set-off amount) applies in relation to the set-off amount (or so much of it as remains after the operation of section 357EA(2) or 357EB(2) of that Act). (3) For the purposes of section 357EB or (as the case may be) 357EC of CTA 2010 there is to be deducted from the relevant amount an amount equal to the appropriate fraction of that amount. “The relevant amount” is the amount in relation to which that section applies as mentioned in sub-paragraph (2). (4) The appropriate fraction is— 10 % P where P is— the percentage given as the percentage of RP by that Table for the financial year following the relevant year, or where the relevant year is the financial year 2016, 100%. (5) If a company's accounting period falls within more than one financial year— (a) the amount of any relevant IP profits of a trade of the company for the accounting period, and (b) where sub-paragraph (3) applies, the relevant amount (within the meaning of that sub-paragraph), must for the purposes of this paragraph be apportioned between the financial years in which the accounting period falls on such basis as is just and reasonable. (6) In this paragraph— “relevant accounting period” has the meaning given by section 357EB(3) of CTA 2010, “relevant IP profits”, in relation to a trade of a company for an accounting period, has the same meaning in this paragraph as in Part 8A of that Act, and “set-off amount”, in relation to a trade of a company for an accounting period, is to be read in accordance with Chapter 5 of that Act.

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SCHEDULE 3 Relief for expenditure on R&D

Section 20 Introductory 1 Part 13 of CTA 2009 (additional relief for expenditure on research and development) is amended as follows. Amount of relief for expenditure on R&D by small or medium-sized enterprises (“SMEs”) 2 (1) Chapter 2 (relief for SMEs: cost of R&D incurred by SME) is amended as follows. (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5) In section 1058 (amount of tax credit), in subsection (1)(a), for “12.5%” substitute “ 11% ”. Removal of R&D threshold 3 (1) Chapter 2 (relief for SMEs: cost of R&D incurred by SME) is amended as follows. (2) In section 1043 (overview of Chapter), in subsection (3), omit paragraph (e) (but not the “and” after it). (3) In section 1044 (additional deduction in calculating profits of trade), omit subsection (3). (4) In section 1045 (alternative treatment for pre-trading expenditure: deemed trading loss)— (a) in subsection (1), omit “, B”, and (b) omit subsection (3). (5) Omit section 1050 (R&D threshold). 4 (1) Chapter 3 (relief for SMEs: R&D sub-contracted to SME) is amended as follows. (2) In section 1063 (additional deduction in calculating profits of trade)— (a) in subsection (1), omit “, B”, and (b) omit subsection (3). (3) Omit section 1064 (R&D threshold). 5 (1) Chapter 4 (relief for SMEs: subsidised and capped expenditure on R&D) is amended as follows. (2) In section 1068 (additional deduction in calculating profits of trade)— (a) in subsection (1), omit “, B”, and (b) omit subsection (3). (3) Omit section 1069 (R&D threshold). 6 (1) Chapter 5 (relief for large companies) is amended as follows. (2) In section 1074 (additional deduction in calculating profits of trade)— (a) in subsection (1), omit “, B”, and (b) omit subsection (3). (3) Omit section 1075 (R&D threshold). 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 In consequence of the amendments made by paragraphs 3 to 7, in Schedule 4 to CTA 2009 omit each of the entries for “R&D threshold”. Company not a going concern when in administration or liquidation 9 Chapter 2 (relief for SMEs: cost of R&D incurred by SME) is amended as follows. 10 (1) Section 1046 (relief only available where company is going concern) is amended as follows. (2) At the end of subsection (2) insert— This is subject to subsection (2A). (3) After subsection (2) insert— (2A) A company is not a going concern at any time if it is in administration or liquidation at that time. (2B) For the purposes of this section a company is in administration if— (a) it is in administration under Part 2 of the Insolvency Act 1986 or Part 3 of the Insolvency (Northern Ireland) Order 1989 (S.I. 1989/2405 (N.I. 19)), or (b) a corresponding situation under the law of a country or territory outside the United Kingdom exists in relation to the company. (2C) For the purposes of this section a company is in liquidation if— (a) it is in liquidation within the meaning of section 247 of that Act or Article 6 of that Order, or (b) a corresponding situation under the law of a country or territory outside the United Kingdom exists in relation to the company. 11 (1) Section 1057 (tax credit only available where company is going concern) is amended as follows. (2) At the end of subsection (4) insert— This is subject to subsection (4A). (3) After subsection (4) insert— (4A) A company is not a going concern at any time if it is in administration or liquidation at that time. (4B) For the purposes of this section a company is in administration if— (a) it is in administration under Part 2 of the Insolvency Act 1986 or Part 3 of the Insolvency (Northern Ireland) Order 1989 (S.I. 1989/2405 (N.I. 19)), or (b) a corresponding situation under the law of a country or territory outside the United Kingdom exists in relation to the company. (4C) For the purposes of this section a company is in liquidation if— (a) it is in liquidation within the meaning of section 247 of that Act or Article 6 of that Order, or (b) a corresponding situation under the law of a country or territory outside the United Kingdom exists in relation to the company. Removal of limit on amount of tax credit based on PAYE and NIC liabilities 15 (1) Chapter 2 (relief for SMEs: cost of R&D incurred by SME) is amended as follows. (2) In section 1058 (amount of tax credit), in subsection (1), omit paragraph (b) (and the “or” before it). (3) Omit section 1059 (total amount of company's PAYE and NIC liabilities). Abolition of vaccine research relief for SMEs 16 (1) Section 1039 (overview of Part 13) is amended as follows. (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3) In subsection (7)— (a) for “Chapters 2 and 7 also provide” substitute “ Chapter 2 also provides ”, and (b) in paragraph (a), omit “or 7”. 17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 In section 1046 (relief only available where company is going concern), in subsection (2)(b), omit “or Chapter 7”. 19 In section 1057 (tax credit only available where company is going concern), in subsection (4)(b), omit “or Chapter 7”. 31 (1) Chapter 8 (cap on aid for R&D) is amended as follows. (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3) In section 1115 (“the tax credits”), in subsection (1), omit “or 7”. 32 In consequence of the amendments made by paragraphs 16 to 31— (a) in Schedule 4 to CTA 2009 (index of defined expressions), omit the entry for “Chapter 7 surrenderable loss”, (b) in Schedule 1 to CTA 2010, omit paragraphs 672 to 674, and (c) in section 43 of FA 2011, omit subsections (7) to (11). Qualifying expenditure on externally provided workers 33 Chapter 9 (supplementary) is amended as follows. 34 (1) Section 1128 (“externally provided worker”) is amended as follows. (2) In subsection (7), for “the staff provider” substitute “ a person other than the company (the “staff controller”) ”. (3) After subsection (8) insert— (9) In sections 1129 to 1131 references to “staff controller” are to be read in accordance with subsection (7). 35 (1) Section 1129 (connected persons) is amended as follows. (2) In subsection (1), for paragraphs (b) and (c) substitute— (b) the company, the staff provider and (if different) the staff controller (or staff controllers) are all connected, and (c) in accordance with generally accepted accounting practice— (i) the whole of the staff provision payment has been brought into account in determining the staff provider's profit or loss for a relevant period, and (ii) all of the relevant expenditure of each staff controller has been brought into account in determining the staff controller's profit or loss for a relevant period. (3) In subsection (2)(b), for “the staff provider's relevant expenditure” substitute “ the aggregate of the relevant expenditure of each staff controller ”. (4) In subsection (3)— (a) for “of the staff provider” substitute “ , in relation to a staff controller, ”, and (b) in paragraph (a), for “staff provider” substitute “ staff controller ”. (5) In subsection (4)— (a) after “ “Relevant period”” insert “ , in relation to a person, ”, and (b) in paragraph (a), for “staff provider” substitute “ person ”. (6) In subsection (5)— (a) for “the staff provider's expenditure” substitute “ the expenditure of a staff controller ”, and (b) for “the staff provider” substitute “ a staff controller ”. (7) In subsection (7), for “staff provider” substitute “ a staff controller ”. 36 (1) Section 1130 (election for connected persons treatment) is amended as follows. (2) For subsection (1) substitute— (1) If— (a) a company makes a staff provision payment, and (b) the company, the staff provider and (if different) the staff controller (or staff controllers) are not all connected, they may jointly elect that section 1129 is to apply to them as if they were all connected. (3) In subsection (2), for “must be made” substitute “ has effect ”. 37 In section 1131 (qualifying expenditure on externally provided workers: other cases), in subsection (1), for paragraph (b) (but not the “and” following it) substitute— (b) the company, the staff provider and (if different) the staff controller (or staff controllers) are not all connected, . Application 38 The amendments made by paragraphs 2 and 16 to 37 have effect in relation to expenditure incurred on or after 1 April 2012. 39 The amendments made by paragraphs 3 to 8 and 15 have effect in relation to accounting periods ending on or after 1 April 2012. 40 The amendments made by paragraphs 9 to 14 have effect in relation to claims or elections made on or after 1 April 2012.

Propose a change

SCHEDULE 4 Real estate investment trusts

Section 21 Introduction 1 Part 12 of CTA 2010 (real estate investment trusts) is amended as follows. Being a UK REIT: conditions for company - close companies 2 (1) Section 525 (becoming a UK REIT: supplementary provision) is amended as follows. (2) In subsection (1)(c) for “the conditions” substitute “ conditions A, B, C, E and F ”. (3) In subsection (4)(a) omit “D,”. (4) Omit subsections (5) to (8). 3 In section 527 (being a UK REIT in relation to an accounting period) after subsection (4) insert— (5) Subsections (2)(a) and (3)(a) are also subject to subsections (6) to (8). (6) If the accounting period ends during the first 3-year period, condition D in section 528 does not have to be met. (7) If the accounting period begins, but does not end, during the first 3- year period, condition D in section 528 only has to be met throughout the part of the accounting period falling after the end of the first 3- year period. (8) In subsections (6) and (7) “the first 3-year period” means the period of 3 years beginning with the date specified in the notice given under section 523 or 524. 4 (1) Section 528 (conditions for company) is amended as follows. (2) In subsection (4)(b) for the words from “a limited partnership” to the end substitute “ an institutional investor ”. (3) After subsection (4) insert— (4A) Institutional investor” means any of the following persons— (a) the trustee or manager of— (i) an authorised unit trust scheme (as defined in section 237(3) of FISMA 2000), or (ii) a unit trust scheme (as defined in section 237(1) of FISMA 2000) which is authorised under the law of a territory outside the United Kingdom in a way which makes it, under that law, the equivalent of an authorised unit trust scheme (as defined in section 237(3) of that Act); (b) a company— (i) which is an open-ended investment company (as defined in section 236(1) of FISMA 2000) incorporated by virtue of regulations under section 262 of that Act, or (ii) which is incorporated under the law of a territory outside the United Kingdom and is, under that law, the equivalent of an open-ended investment company (as defined in section 236(1) of FISMA 2000); (c) a person acting on behalf of a limited partnership which is a collective investment scheme (as defined in section 235 of FISMA 2000); (d) the trustee or manager of a pension scheme (as defined in section 150(1) of FA 2004); (e) a person acting in the course of a long-term insurance business (that is, the activity of effecting or carrying out contracts of long-term insurance within the meaning of the Financial Services and Markets (Regulated Activities) Order 2001 (S.I. 2001/544)) who— (i) is authorised under FISMA 2000 to carry on such business, or (ii) has an equivalent authorisation under the law of a territory outside the United Kingdom to carry on such business; (f) a charity; (g) a person registered under any of the following provisions (which provide for registers of social landlords)— (i) in England, section 111 of the Housing and Regeneration Act 2008; (ii) in Scotland, section 20 of the Housing (Scotland) Act 2010 (asp 17); (iii) in Wales, section 1 of the Housing Act 1996; (iv) in Northern Ireland, Article 14 of the Housing (Northern Ireland) Order 1992 (S.I. 1992/1725 (N.I. 15)); (h) a person who cannot be liable for corporation tax or income tax (as relevant) on the ground of sovereign immunity. (4B) The Treasury may by regulations amend the definition of “institutional investor” by inserting, omitting or amending a description of person in subsection (4A). 5 In section 558 (demergers: disposal of asset) in subsections (3) and (6) for “C to F” substitute “ C, E and F ”. 6 In section 559 (demergers: company leaving group UK REIT) in subsections (6) and (9) for “C to F” substitute “ C, E and F ”. 7 In section 561 (notice of breach of relevant Chapter 2 condition) after subsection (4) insert— (5) The following subsections apply in relation to condition D in section 528. (6) In accordance with section 527(6) and (7), a notification does not have to be given under subsection (1) or (2) if condition D ceases to be met during the first 3-year period. (7) If condition D is not met at the start of the first day after the end of the first 3-year period, for the purposes of subsections (1) to (4) condition D is treated as having ceased to be met at the start of that day. (8) In subsections (6) and (7) “the first 3-year period” has the meaning given by section 527(8). 8 (1) Section 562 (breach of conditions C and D in section 528) is amended as follows. (2) In the heading for “conditions C and D” substitute “ condition C ”. (3) In subsection (1) for the words from “or D” to “conditions)” substitute “ in section 528 ”. (4) In subsection (2)— (a) for “both conditions C and D are” substitute “ condition C is ”, and (b) for “breaches are” substitute “ breach is ”. (5) Omit subsections (3) and (4). (6) In subsection (5)— (a) in paragraph (a) for “either condition C or D” substitute “ condition C ”, and (b) in paragraph (b) omit “or (3)”. 9 After section 562 insert— Breach of condition D in section 528 (conditions for company) 562A (1) This section makes provision about cases relating to breaches of condition D in section 528 in relation to— (a) the principal company of a group UK REIT, or (b) a company UK REIT. (2) In accordance with section 527(6) and (7), a breach of condition D during the first 3-year period is to be ignored. (3) If condition D is not met at the start of the first day after the end of the first 3-year period, the group or company (as the case may be) is to be treated as having ceased to be a UK REIT at the end of the first 3-year period. (4) If condition D is not met at any time after the start of the day mentioned in subsection (3), the group or company (as the case may be) is to be treated as having ceased to be a UK REIT at— (a) the end of the accounting period preceding the accounting period in which the breach began, or (b) if later, the end of the first 3-year period. (5) Neither subsection (3) nor subsection (4) applies if condition D is not met as a result of— (a) the principal company of a group UK REIT becoming a member of another group UK REIT, or (b) a company UK REIT becoming a member of a group UK REIT, and, accordingly, the breach is to be ignored. (6) Subsection (4) does not apply if— (a) condition D is not met as a result of anything done (or not done) by a person other than the company in question, and (b) the company remedies the breach not later than the end of the accounting period after that in which the breach began, and, accordingly, the breach is to be ignored. (7) But if, in a case within subsection (6), the breach of condition D is not remedied by the time mentioned in that subsection, the group or company (as the case may be) is treated as having ceased to be a UK REIT at the end of the accounting period in which the breach began. (8) In this section “the first 3-year period” has the meaning given by section 527(8). 10 (1) Section 572 (termination by notice given by HMRC) is amended as follows. (2) In subsection (2) after “573,” insert “ 573A, ”. (3) After subsection (5) insert— (5A) Subsection (4)(a) has effect subject to section 573A(8). 11 After section 573 insert— Notice under section 572: condition D in section 528 not met 573A (1) An officer of Revenue and Customs may give a notice under section 572(1) if— (a) at any time during the first 3-year period, condition D in section 528 is not met, and (b) as at that time, subsection (2) has applied to a member of the group or the company (as the case may be) for a period exceeding 3 years or for a number of periods which in total exceed 3 years. (2) This subsection applies to a company at any time when— (a) the company is, or is a member of, a UK REIT, (b) condition D in section 528 is not met in relation to the UK REIT, and (c) the first 3-year period in relation to the UK REIT has not ended. (3) Neither subsection (1)(a) nor subsection (2)(b) covers cases in which condition D in section 528 is not met as a result of— (a) the principal company of a group UK REIT becoming a member of another group UK REIT, or (b) a company UK REIT becoming a member of a group UK REIT. (4) Subsection (5) applies if— (a) a company ceases to carry on a business (“the transferred business”) which it carried on at a time (“the relevant time”) when subsection (2) applied to the company, and (b) another company (“company X”) begins to carry on the transferred business. In paragraph (a) the reference to a business includes a part of a business. (5) Subsection (2) is to be taken to have applied at the relevant time to the following companies— (a) company X, and (b) if company X subsequently ceases to carry on the transferred business (or any part of it), any other companies which from time to time carry on the transferred business (or any part of it). (6) In this section “the first 3-year period” has the meaning given by section 527(8). (7) If a notice is given under section 572(1) in a case within this section, subsection (8) applies instead of section 572(4)(a). (8) The group or company (as the case may be) is to be taken to have ceased to be a UK REIT on— (a) the first day of accounting period 1, or (b) such later day as may be specified by the officer of Revenue and Customs in the notice. 12 (1) Section 577 (multiple breaches of conditions in Chapter 2) is amended as follows. (2) In subsection (5)(a) for “section 562(2) and (3)” substitute “ section 562A(6) ”. (3) In subsection (7)— (a) in paragraph (b) omit “or D” and “or (5) to (7)”, and (b) in paragraph (c) for “C to F” substitute “ C, E and F ”. (4) After subsection (7) insert— (8) In accordance with section 527(6) and (7), a breach of condition D in section 528 during the first 3-year period (as defined in section 527(8)) is also to be ignored for the purposes of this section. 13 (1) The amendments made by paragraph 2 have effect in relation to notices given under section 523 or 524 specifying a date which is on or after the day on which this Act is passed. (2) The amendments made by paragraphs 3 to 12 have effect in relation to— (a) groups of companies in respect of which notices are given under section 523 specifying a date which is on or after the day on which this Act is passed, and (b) companies which give notices under section 524 specifying a date which is on or after the day on which this Act is passed. (3) The amendments made by paragraph 4 also have effect in relation to— (a) groups of companies in respect of which notices are given under section 523 specifying a date which is before the day on which this Act is passed, and (b) companies which give notices under section 524 specifying a date which is before the day on which this Act is passed, for accounting periods beginning on or after the day on which this Act is passed (including, in relation to a breach beginning in an accounting period beginning before that day, for the purpose of determining under section 562(3) whether the breach is remedied in an accounting period beginning on or after that day). Being a UK REIT: conditions for company - trading of shares on recognised stock exchange 14 In section 527 (being a UK REIT in relation to an accounting period) in subsections (2) and (3) after paragraph (a) insert— (aa) the condition in section 528A (further condition relating to shares) must be met in relation to the period, . 15 In section 528 (conditions for company) in subsection (3) for “listed” substitute “ admitted to trading ”. 16 After section 528 insert— Further condition relating to shares 528A (1) In the case of a group UK REIT, the condition in this section is met in relation to an accounting period if— (a) throughout the accounting period, the shares forming the principal company's ordinary share capital meet the requirement of section 1137(2)(b) (definition of “listed” in relation to shares), or (b) during the accounting period, shares forming part of the principal company's ordinary share capital are traded on a recognised stock exchange. (2) In the case of a company UK REIT, the condition in this section is met in relation to an accounting period if— (a) throughout the accounting period, the shares forming the company's ordinary share capital meet the requirement of section 1137(2)(b) (definition of “listed” in relation to shares), or (b) during the accounting period, shares forming part of the company's ordinary share capital are traded on a recognised stock exchange. (3) This section is subject to section 528B. Relaxation of section 528A condition for accounting periods 1 to 3 528B (1) This section relaxes the requirements of section 528A in relation to accounting period 1, accounting period 2 and accounting period 3. (2) In the case of a group UK REIT, the condition in section 528A is met in relation to accounting period 1, accounting period 2 and accounting period 3 if— (a) at the end of the relevant period, the shares forming the principal company's ordinary share capital meet the requirement of section 1137(2)(b) (definition of “listed” in relation to shares), or (b) during the relevant period, shares forming part of the principal company's ordinary share capital are traded on a recognised stock exchange. (3) In the case of a company UK REIT, the condition in section 528A is met in relation to accounting period 1, accounting period 2 and accounting period 3 if— (a) at the end of the relevant period, the shares forming the company's ordinary share capital meet the requirement of section 1137(2)(b) (definition of “listed” in relation to shares), or (b) during the relevant period, shares forming part of the company's ordinary share capital are traded on a recognised stock exchange. (4) In this section— “accounting period 2” means the accounting period following accounting period 1, “accounting period 3” means the accounting period following accounting period 2, and “the relevant period” means the period consisting of accounting period 1, accounting period 2 and accounting period 3. 17 In section 561 (notice of breach of relevant Chapter 2 condition) in subsection (3) before “conditions A and B in section 529” insert— the condition in section 528A (further condition relating to shares), . 18 Before section 563 insert— Breach of further condition relating to shares 562B (1) Subsection (2) applies if the condition in section 528A (further condition relating to shares) is not met in relation to an accounting period. (2) The group or company (as the case may be) is to be treated as having ceased to be a UK REIT at the end of the previous accounting period. (3) But subsection (2) does not apply if the condition is not met as a result of— (a) the principal company of a group UK REIT becoming a member of another group UK REIT, or (b) a company UK REIT becoming a member of a group UK REIT, and, accordingly, the breach is to be ignored. (4) This section is subject to section 562C. Breach of further condition relating to shares in accounting periods 1, 2 and 3 562C (1) Subsection (2) applies if the condition in section 528A, as relaxed by section 528B, is not met in relation to accounting period 1, accounting period 2 and accounting period 3. (2) The group or company (as the case may be) is to be treated as having ceased to be a UK REIT at the end of accounting period 2. (3) But subsection (2) does not apply if the condition, as relaxed, is not met as a result of— (a) the principal company of a group UK REIT becoming a member of another group UK REIT, or (b) a company UK REIT becoming a member of a group UK REIT, and, accordingly, the breach is to be ignored. (4) In this section “accounting period 2” and “accounting period 3” have the same meaning as in section 528B. 19 (1) Section 572 (termination by notice given by HMRC) is amended as follows. (2) In subsection (2) before “574” insert “ 573B, ”. (3) Before subsection (6) insert— (5B) Subsection (4)(a) has effect subject to section 573B(9). 20 Before section 574 insert— Notice under section 572: further condition relating to shares not met 573B (1) In the case of a group UK REIT, an officer of Revenue and Customs may give a notice under section 572(1) if— (a) the condition in section 528A (further condition relating to shares) would not be met in relation to an accounting period (“the relevant accounting period”) but for section 528B, and (b) subsection (2) applies to a company which is a member of the group at any time during the relevant accounting period. (2) This subsection applies to a company if it has benefited from the relaxation of the condition in section 528A in relation to 3 or more accounting periods (apart from the relevant accounting period). (3) In the case of a company UK REIT, an officer of Revenue and Customs may give a notice under section 572(1) if— (a) the condition in section 528A (further condition relating to shares) would not be met in relation to an accounting period (“the relevant accounting period”) but for section 528B, and (b) the company has benefited from the relaxation of the condition in section 528A in relation to 3 or more accounting periods (apart from the relevant accounting period). (4) For the purposes of this section a company benefits from the relaxation of the condition in section 528A if— (a) it is a member of a group UK REIT at any time during an accounting period in relation to which the condition in section 528A would not be met but for section 528B, or (b) at any time it is a company UK REIT and the condition in section 528A would not be met in relation to an accounting period but for section 528B, and the accounting period “in relation to” which the company benefits from the relaxation of the condition in section 528A is the accounting period mentioned in paragraph (a) or (b) (as the case may be). (5) None of subsections (1)(a), (3)(a), (4)(a) and (4)(b) covers cases in which the condition in section 528A would not be met as a result of— (a) the principal company of a group UK REIT becoming a member of another group UK REIT, or (b) a company UK REIT becoming a member of a group UK REIT. (6) Subsection (7) applies if— (a) a company ceases to carry on a business (“the transferred business”) which it carried on at any time during an accounting period in relation to which the company benefits from the relaxation of the condition in section 528A, and (b) another company (“company X”) begins to carry on the transferred business. In paragraph (a) the reference to a business includes a part of a business. (7) The following companies are to be taken to benefit from the relaxation of the condition in section 528A in relation to the accounting period in question— (a) company X, and (b) if company X subsequently ceases to carry on the transferred business (or any part of it), any other companies which from time to time carry on the transferred business (or any part of it). (8) If a notice is given under section 572(1) in a case within this section, subsection (9) applies instead of section 572(4)(a). (9) The group or company (as the case may be) is to be taken to have ceased to be a UK REIT on— (a) the first day of accounting period 1, or (b) such later day as may be specified by the officer of Revenue and Customs in the notice. 21 (1) Subject to what follows, the amendments made by paragraphs 14 to 20 have effect for accounting periods beginning on or after the day on which this Act is passed. (2) Sections 528B, 562C and 573B have no effect in relation to— (a) groups of companies in respect of which notices are given under section 523 specifying a date which is before the day on which this Act is passed, or (b) companies which give notices under section 524 specifying a date which is before the day on which this Act is passed. Being a UK REIT: condition as to distribution of profits 22 In section 530 (condition as to distribution of profits) in subsection (6D) for “three” substitute “ 6 ”. 23 After section 530 insert— Condition as to distribution of profits: increase in profits after delivery of tax return 530A (1) Section 530(1) applies subject to subsection (2) below in relation to an accounting period if— (a) the principal company of the group delivered with its tax return for the period the financial statement under section 532(2)(b) showing the amount of the UK profits of the group arising in the period, and (b) as at the relevant date, those profits have been increased from the amount originally shown in the statement. (2) Any distribution of those profits made by the principal company before the end of the relevant period is to be treated as having been made within the deadline set by section 530(1)(c). (3) But the total amount of profits that may be treated as having been distributed within that deadline by virtue of subsection (2) is limited to 90% of the amount of the increase in profits. (4) In subsections (1) and (2) (and this subsection)— “the relevant date” means the date on which the principal company's tax return can no longer be amended, “the relevant period” means the period of 3 months beginning with the relevant date, and “UK profits” has the meaning given by section 530(2). (5) Section 530(4) applies subject to subsection (6) below in relation to an accounting period if— (a) the company delivered its tax return for the period showing the amount of the profits of its property rental business arising in the period as calculated in accordance with section 599, and (b) as at the relevant date, those profits have been increased from the amount originally shown in the return. (6) Any distribution of those profits made before the end of the relevant period is to be treated as having been made within the deadline set by section 530(4)(b). (7) But the total amount of profits that may be treated as having been distributed within that deadline by virtue of subsection (6) is limited to 90% of the amount of the increase in profits. (8) In subsections (5) and (6) (and this subsection)— “the relevant date” means the date on which the company's tax return can no longer be amended, and “the relevant period” means the period of 3 months beginning with the relevant date. (9) In this section “distribution” is to be read in accordance with section 530(6A) and (6B). 24 In section 564 (breach of condition as to distribution of profits) omit subsections (5) to (8). 25 (1) Section 565 (which defines the amount to be charged to corporation tax where there is a breach of the condition in section 530) is amended as follows. (2) In subsections (2) and (3), in the definition of “D”— (a) for “on or before” substitute “ within ”, (b) in paragraph (a) for “filing date referred to in” substitute “ deadline set by ”, and (c) in paragraph (b) for “date specified” substitute “ deadline set ”. (3) After subsection (3) insert— (4) The definition of “D” in subsections (2) and (3) needs to be read with section 530A (so far as applicable). 26 (1) The amendment made by paragraph 22 has effect in relation to distributions made on or after the day on which this Act is passed. (2) The amendments made by paragraphs 23 to 25 have effect for accounting periods beginning on or after the day on which this Act is passed. Being a UK REIT: conditions as to balance of business 27 (1) Section 531 (conditions as to balance of business) is amended as follows. (2) For subsection (5) substitute— (5) Condition B is that at the beginning of the accounting period the sum of— (a) the value of the assets relating to property rental business, and (b) the value of the assets relating to residual business so far as consisting of cash, is at least 75% of the total value of assets held by the group or company (as the case may be). (3) In subsection (6)(b) after “business” insert “ (and the amount of the group's cash is to be determined accordingly) ”. (4) After subsection (7) insert— (8) In this section “cash” means— (a) money held on deposit (whether or not in sterling), (b) stocks or bonds of any description included in Part 1 of Schedule 11 to FA 1942 (gilts), or (c) money held in any other way, or any investment of any other form, specified in regulations made by the Commissioners for Her Majesty's Revenue and Customs. 28 In section 547 (funds awaiting reinvestment) omit subsection (3). 29 (1) Section 566 (breach of condition B in section 531 in accounting period 1) is amended as follows. (2) In subsection (2) omit the words from “but an amount of income” to the end. (3) Omit subsections (3) to (6). 30 Omit section 567 (breach of condition B in section 531 in accounting period 1: meaning of “the notional amount”). 31 In section 568 (breach of balance of business conditions after accounting period 1) in subsection (2)(b) for “value of the assets involved in property rental business of the UK REIT in question” substitute “ sum of the values mentioned in section 531(5)(a) and (b) ”. 32 (1) The amendments made by paragraphs 27, 28 and 31 have effect for accounting periods beginning on or after the day on which this Act is passed. (2) The amendments made by paragraphs 29 and 30 have effect in relation to a breach of condition B in section 531 if accounting period 1 begins on or after the day on which this Act is passed. Abolition of entry charge 33 (1) Omit sections 538 to 540 (entry charge). (2) Sub-paragraph (1) does not affect the application of section 540 in relation to a company if the date of entry is before the day on which this Act is passed. 34 (1) In section 545 (cancellation of tax advantage) in subsection (5) omit the words from “(and includes,” to “538)”. (2) Sub-paragraph (1) does not affect the powers of an officer of Revenue and Customs under section 545 in cases in which a company which is, or is a member of, a UK REIT tries before the day on which this Act is passed to obtain a tax advantage. 35 (1) In section 556 (disposal of assets) omit subsection (4). (2) Sub-paragraph (1) does not affect the application of subsection (4) in relation to a company if entry is before the day on which this Act is passed. 36 (1) In section 558 (demergers: disposal of asset) in subsection (4) omit “and section 538 (entry charge)”. (2) Sub-paragraph (1) has no effect in relation to cases in which the date specified in the notice under section 523(1) is before the day on which this Act is passed. 37 In section 559 (demergers: company leaving group UK REIT) in subsection (8) omit “section 538 (entry charge),”. 38 In section 583 (overview of Chapter 10 relating to joint ventures) omit subsection (4)(b). 39 Omit sections 595 to 597 (additional entry charges in cases involving joint ventures) and the italic heading before section 595. Financing cost ratio 40 (1) Section 543 (financing cost ratio) is amended as follows. (2) In subsection (1) after “period” insert “ (unless it is nil or a negative amount) ”. (3) For subsection (3) substitute— (3) The excess is charged to corporation tax in relation to the accounting period under the charge to corporation tax on income. (3A) “The excess” means— (a) the amount equal to— (i) PFC, minus (ii) the property financing costs which would cause the calculation in subsection (2) to equal 1.25 for the accounting period, or (b) if less, the amount equal to 20% of PP. 41 (1) Section 544 (meaning of “property financing costs” etc) is amended as follows. (2) In subsection (5) for “include” and paragraphs (a) to (e) substitute are— (a) interest payable on borrowing, (b) amortisation of discounts relating to borrowing, (c) amortisation of premiums relating to borrowing, (d) the financing expense implicit in payments made under finance leases, and (e) alternative finance return (as defined in sections 511 to 513 of CTA 2009). (3) After subsection (5) insert— (6) The Treasury may by regulations amend the list of matters in subsection (5) by inserting, omitting or amending a description of a matter. 42 The amendments made by paragraphs 40 and 41 have effect for accounting periods beginning on or after the day on which this Act is passed. Disposal of assets 43 (1) Section 556 (disposal of assets) is amended as follows. (2) In subsection (1)— (a) omit the “and” after paragraph (a), and (b) after paragraph (b) insert , and (c) if the company is a member of a UK REIT, the disposal is not to another member of the UK REIT. (3) In subsection (3)— (a) omit the “and” after paragraph (b), and (b) after paragraph (c) insert , and (d) if the company is a member of a UK REIT, the disposal is not to another member of the UK REIT. 44 The amendments made by paragraph 43 have effect in relation to disposals occurring on or after the day on which this Act is passed.

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