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Finance (No. 3) BillPage 210

to cause it to be reduced by only any such amount as it is just and
reasonable to regard as referable to tainted relevant transactions.

(3) In subsection (2) “tainted relevant transactions” means relevant
transactions which achieve a reduction in United Kingdom tax, other
5than any in relation to which the condition in section 18H(2)(b) is
met.

Companies with total opening negative amount

18J Companies with total opening negative amount

(1) The following sections make provision about a company in relation
10to which an election under section 18A has effect if there is a total
opening negative amount in the case of the company at the
beginning of the company’s first relevant accounting period.

(2) To determine for the purposes of this Chapter whether there is a total
opening negative amount at the beginning of the company’s first
15relevant accounting period, take the following steps.

Step 1

Take the adjusted foreign permanent establishments amount in
relation to the earliest affected prior accounting period in relation to
which that amount is negative.

20Step 2

Add to the amount arrived at under step 1 the adjusted foreign
permanent establishments amount in relation to the next affected
prior accounting period (but not so as to cause the result to exceed
nil).

25Step 3

Add to the amount arrived at under step 2 the adjusted foreign
permanent establishments amount in relation to each remaining
affected prior accounting period, starting with the earliest (but not so
as to cause the result to exceed nil).

30If after the application of the preceding steps there is a negative
amount for the last affected prior accounting period there is a total
opening negative amount at the beginning of the company’s first
relevant accounting period of an amount equal to that negative
amount.

(3) 35In subsection (2) “affected prior accounting period” means—

(a) the accounting period of the company in which the election
under section 18A is made, and

(b) any earlier accounting period of the company ending less
than 6 years before the end of that accounting period.

(4) 40For the purposes of subsection (2) the “adjusted” foreign permanent
establishments amount is what the foreign permanent
establishments amount would be if it were determined without
reference to gains or losses which are chargeable gains or allowable
losses for the purposes of corporation tax.

18K 45Total opening negative amount: “matching”

(1) At the end of each relevant accounting period of the company
(starting with the first) the total opening negative amount is to be

Finance (No. 3) BillPage 211

reduced (or further reduced) by the amount of any aggregate
relevant profits amount of the company for the accounting period
(but not to below nil).

(2) In any relevant accounting period of the company for which there is
5a reduction under subsection (1), section 18A(1) does not apply in
relation to the aggregate relevant profits amount of the company for
the accounting period.

(3) But in the case of the last relevant accounting period of the company
for which there is a reduction under subsection (1), section 18A(1) is
10disapplied by subsection (2) only in relation to so much of the
aggregate relevant profits amount of the company for the accounting
period as is equal to the total opening negative amount of the
company at the beginning of the accounting period.

(4) The company may, in its company tax return for that relevant
15accounting period, specify to which part of the aggregate relevant
profits amount of the company for the accounting period section
18A(1) is to apply by virtue of subsection (3).

(5) In this Chapter “aggregate relevant profits amount”, in relation to an
accounting period, means the aggregate of the relevant profits
20amount in the case of each relevant foreign territory in relation to
which there is a relevant profits amount for the accounting period.

(6) This section is subject to section 18L.

18L Streaming

(1) If a streaming election has effect in relation to the company sections
2518M and 18N apply (instead of section 18K).

(2) For the purposes of this section “streaming election” means an
election, made at the same time as the company’s election under
section 18A, which—

(a) states that sections 18M and 18N are to have effect in relation
30to the company (instead of section 18K), and

(b) specifies which of the territories that are relevant foreign
territories in relation to the company are to be streamed
territories for the purposes of the operation of sections 18M
and 18N in relation to the company.

(3) 35Subject to subsection (4), a streaming election is irrevocable.

(4) A streaming election can be revoked at any time before the first
relevant accounting period of the company.

(5) A streaming election does not have effect unless the company, in the
company tax return for the first relevant accounting period of the
40company, specifies how much of the amount eligible to be streamed
to each streamed territory is to constitute for the purposes of sections
18M and 18N the streamed opening negative amount at the
beginning of that relevant accounting period.

(6) For the purposes of subsection (5) the amount eligible to be streamed
45to a territory by the company is the amount that would be the total
opening negative amount of the company at the beginning of the first
relevant accounting period of the company if at all material times the

Finance (No. 3) BillPage 212

territory were the only relevant foreign territory in relation to the
company.

18M Streamed opening negative amounts: “matching”

(1) At the end of each relevant accounting period of the company
5(starting with the first) the streamed opening negative amount in
relation to a territory is to be reduced (or further reduced) by the
amount of any relevant profits amount of the company for the
territory for the accounting period (but not to below nil).

(2) In any relevant accounting period of the company for which there is
10a reduction under subsection (1) in relation to a territory, section
18A(1) does not apply in relation to the relevant profits amount of
the company for the territory for the accounting period.

(3) But in the case of the last relevant accounting period of the company
for which there is a reduction under subsection (1) in relation to a
15territory, section 18A(1) is disapplied by subsection (2) only in
relation to so much of the relevant profits amount of the company for
the territory for the accounting period as is equal to the streamed
opening negative amount in relation to the territory at the beginning
of the accounting period.

(4) 20The company may, in its company tax return for that relevant
accounting period, specify to which part of the relevant profits
amount of the company for the territory for the accounting period
section 18A(1) is to apply by virtue of subsection (3).

18N Residual opening negative amount: “matching”

(1) 25At the end of each relevant accounting period of the company
(starting with the first) the residual opening negative amount is to be
reduced (or further reduced) by the amount of any residual
aggregate relevant profits amount of the company for the accounting
period (but not to below nil).

(2) 30For the purposes of this section the “residual opening negative
amount”, at the beginning of the company’s first relevant accounting
period, is—

(a) the total opening negative amount of the company at that
time, less

(b) 35the aggregate of the streamed opening negative amounts of
the company at that time.

(3) For the purposes of this section the “residual aggregate relevant
profits amount”, in relation to an accounting period, means the
amount (if any) by which—

(a) 40the aggregate relevant profits amount of the company for the
accounting period, exceeds

(b) the aggregate of so much of any relevant profits amounts of
the company for the accounting period as has effect to bring
about a reduction under section 18M(1) for the accounting
45period.

(4) In any relevant accounting period of the company for which there is
a reduction under subsection (1), section 18A(1) does not apply in

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relation to the residual aggregate relevant profits amount of the
company for the accounting period.

(5) But in the case of the last relevant accounting period of the company
for which there is a reduction under subsection (1), section 18A(1) is
5disapplied by subsection (4) only in relation to so much of the
residual aggregate relevant profits amount of the company for the
accounting period as is equal to the residual opening negative
amount of the company at the beginning of the accounting period.

(6) The company may, in its company tax return for that relevant
10accounting period, specify to which of the amounts forming part of
the residual aggregate relevant profits amount of the company for
the accounting period section 18A(1) is to apply by virtue of
subsection (4).

18O Transfers of foreign permanent establishment business

(1) 15This section applies if—

(a) business carried on by a company (“the transferor”) through
a permanent establishment in a territory outside the United
Kingdom is transferred to a connected company that is (or
later becomes) a UK resident company (“the transferee”), and

(b) 20there is a transferred total opening negative amount in
relation to the business transferred.

(2) In a case where the transferor had not made an election under section
18A before the transfer took place, or such an election had not had
effect before that time, the “transferred total opening negative
25amount” is the amount that would have been the total opening
negative amount in the case of the transferor at the beginning of the
transferor’s first relevant accounting period if—

(a) the only business carried on by the transferor was the
business transferred,

(b) 30the transfer had not taken place,

(c) the transferor’s first relevant accounting period had begun
on the day after the transfer day, and

(d) any reference in section 18J(3) to the accounting period in
which the election is made were a reference to the period
35beginning with the accounting period in which the transfer
took place and ending with the transfer day.

(3) In a case where an election made by the transferor under section 18A
had effect before the transfer took place, the “transferred total
opening negative amount” is—

(a) 40the amount that would have been the total opening negative
amount in the case of the transferor on the transfer day if the
accounting period in which the transfer took place had ended
on that day (the “remaining total opening negative amount”),
less

(b) 45the amount that would have been the remaining total
opening negative amount if the transferor had never carried
on the business transferred.

But the transferred total opening negative amount cannot be below
nil.

Finance (No. 3) BillPage 214

(4) In a case where—

(a) an election made by the transferee under section 18A first has
effect after the transfer takes place, and

(b) the accounting period of the transferee in which the transfer
5took place is an affected prior accounting period for the
purposes of section 18J(2),

there is to be added to the adjusted foreign permanent
establishments amount in relation to that accounting period a
negative amount equal to so much (if any) of the transferred total
10opening negative amount as is attributable to profits or losses arising
after the beginning of the earliest affected prior accounting period of
the transferee.

(5) In a case where an election made by the transferee under section 18A
had effect before the transfer took place, sections 18K to 18N have
15effect in relation to the transferee and the transferred total opening
negative amount as if—

(a) any reference to the total opening negative amount were a
reference to the transferred total opening negative amount,

(b) any reference to the first relevant accounting period were a
20reference to the period beginning with the day after the
transfer day and ending immediately before the start of the
next accounting period of the transferee, and

(c) the requirement in section 18L(2) that a streaming election be
made at the same time as the company’s election under
25section 18A did not apply.

(6) Where for the purposes of this section it is necessary to apportion the
profits and losses for any accounting period to different parts of that
period, that apportionment is to be made on a just and reasonable
basis.

(7) 30Any amount included in a transferred total opening negative
amount is to be disregarded in the application of sections 18J to 18N
in the case of the transferor after the transfer day.

(8) In this section “the transfer day” means the day on which the transfer
of the business takes place.

35Special cases

18P Exclusions

(1) If a company is a small company at any time during a relevant
accounting period, there is for that relevant accounting period no
relevant profits amount or relevant losses amount for the purposes
40of this Chapter in relation to any relevant foreign territory that is not
a full treaty territory.

(2) If a company is a close company at any time during a relevant
accounting period, so much of the profits of the company for the
relevant accounting period as derives from gains which are
45chargeable gains for the purposes of corporation tax is not to be
regarded as forming part of a relevant profits amount or relevant
losses amount of the company for the purposes of this Chapter.

Finance (No. 3) BillPage 215

18Q Insurance companies

(1) So much of the profits or losses of a company as consists of profits or
losses arising from basic life assurance and general annuity business
(as defined in section 431(2) of ICTA) is not to be regarded as forming
5part of a relevant profits amount or relevant losses amount of the
company for the purposes of this Chapter.

(2) In determining what part of any items brought into account as
mentioned in section 83(2)(a), (b), (c) or (d) of FA 1989 (receipts to be
taken into account) as profits attributable to a permanent
10establishment in a territory outside the United Kingdom through
which the company carries on business are referable to life assurance
business or gross roll-up business, section 432E of ICTA
(apportionment: participating funds) has effect as if—

(a) references in that section to the surplus of the relevant
15business were to the surplus of the business carried on
through the permanent establishment, and

(b) subsections (3) to (4A) of that section and section 432F of that
Act were omitted.

(3) No amount which, by virtue of any enactment, is to be regarded as
20being brought into account by a company as an increase in the value
of non-linked assets is to be regarded for the purposes of this Chapter
as being attributable to a permanent establishment in a territory
outside the United Kingdom through which the company carries on
business.

(4) 25Any election under section 107(4) of FA 2000 (general insurance:
adjustment for technical provision) is to be ignored for the purposes
of this Chapter.

Interpretation

18R Meaning of “full treaty territory”

(1) 30For the purposes of this Chapter a territory is a “full treaty territory”
if—

(a) double taxation arrangements have been made in relation to
the territory, and

(b) the arrangements contain a relevant non-discrimination
35provision.

(2) “Relevant non-discrimination provision” means a provision to the
effect that the taxation on a permanent establishment of an enterprise
of a state which is party to the arrangements (a “contracting state”) is
not to be less favourably levied in any other contracting state than
40the taxation levied on enterprises of that other contracting state
carrying on the same activities.

18S Other interpretation

In this Chapter—

5 10In section 775(4) (intangible fixed assets: cases where transfers within group
provisions do not apply), omit the “or” at the end of paragraph (a) and insert
at the end “, or

(c) an election under section 18A has effect in relation to the
transferor and the asset has at any time been held by the
15transferor wholly or partly for the purposes of a permanent
establishment in a territory outside the United Kingdom
through which the transferor carries on business.

6 In section 803(b) (assets held for non-taxable activities excluded from Part
10), insert at the end “, otherwise than as a result of Chapter 3A of Part 2.”

7 20In section 845(4) (exceptions to rule that transfer between company and
related party treated as being at market value)—

(a) omit the “and” at the end of paragraph (c), and

(b) after that paragraph insert—

(ca) section 848A (assets held for purposes of exempt
25foreign permanent establishments), and.

8 After section 848 insert—

848A Assets held for purposes of exempt foreign permanent establishments

(1) This section applies if—

(a) subsection (1) of section 775 (transfers within a group) would
30apply in relation to the transfer but for paragraph (c) of
subsection (4) of that section, and

(b) the asset has not at all times when the election under section
18A had effect been held by the transferor wholly for the
purposes of a permanent establishment such as is mentioned
35in that paragraph.

(2) The transfer is treated for the purposes of this Part as being at the
following value—


WDV + FPEA

where—

  • 40WDV is the tax written-down value of the asset, and

  • FPEA is the amount which, for the purposes of Chapter 3A of
    Part 2, would in the case of the transferor be the foreign
    permanent establishments amount attributable to the
    transfer for the accounting period in which it took place if the
    45transfer were at market value.

9 In section 1007(2)(b) (relief if employee etc acquires shares), insert at the end
“or would be but for section 18A.”

Finance (No. 3) BillPage 217

10 In section 1015(2)(b) (relief if employee etc obtains share option), insert at the
end “or would be but for section 18A.”

11 In Schedule 4 to that Act (index of defined expressions), insert at the
appropriate places—

adjusted (in relation to a relevant profits
amount) (in Chapter 3A of Part 2)
5section 18G(3)”
“aggregate relevant profits amount (in
Chapter 3A of Part 2)
section 18K(5)”
“company tax return (in Chapter 3A of Part
2)
section 18S”
10
“double taxation arrangements (in Chapter
3A of Part 2)
section 18S”
“foreign permanent establishments amount
(in Chapter 3A of Part 2)
section 18A(4)”
“full treaty territory (in Chapter 3A of Part 2) 15section 18R”
“the OECD model (in Chapter 3A of Part 2) section 18S”
“relevant accounting period (in Chapter 3A
of Part 2)
section 18A(3)”
“relevant foreign territory (in Chapter 3A of
Part 2)
section 18A(5)”
20
“relevant losses amount (in Chapter 3A of
Part 2)
section 18A(7)”
“relevant profits amount (in Chapter 3A of
Part 2)
section 18A(6)”
“small company (in Chapter 3A of Part 2) 25section 18S”
“total opening negative amount” (in Chapter
3A of Part 2)
section 18J(2)

Part 2 Amendments of other Acts

30ICTA

12 In paragraph 4(1) of Schedule 24 to ICTA (assumptions for calculating
chargeable profits etc of foreign companies: election or claim to give
maximum relief assumed to be made), insert at the end “, except that the
company shall be assumed not to have made an election under section 18A
35of CTA 2009.”

Finance (No. 3) BillPage 218

TCGA 1992

13 In TCGA 1992, after section 276 insert—

276A No gain/no loss: foreign permanent establishment exemption

(1) On a no gain/no loss disposal by a company in relation to which an
5election under section 18A of CTA 2009 (exemption for profits or
losses of foreign permanent establishments) has effect, the amount of
the consideration which would secure that neither a gain nor a loss
would accrue to the company on the disposal is to be arrived at after
taking account of the operation of the provisions of Chapter 3A of
10Part 2 of that Act (with the result that that amount includes the
amount which for the purposes of that Chapter would in the case of
the company be the foreign permanent establishments amount
attributable to the disposal for the accounting period in which it was
made if the disposal were not a no gain/no loss disposal).

(2) 15For the purposes of this section a no gain/no loss disposal is one on
which by virtue of section 152 or any of the no gain/no loss
provisions neither a gain nor a loss accrues to the company making
the disposal.

CAA 2001

14 20CAA 2001 is amended as follows.

15 In section 15 (plant and machinery allowances: qualifying activities), after
subsection (2) insert—

(2A) A business carried on through one or more permanent
establishments outside the United Kingdom by a company in
25relation to which an election under section 18A of CTA 2009 has
effect—

(a) is an activity separate from any other activity of the company,
and

(b) is to be regarded as an activity all the profits and gains from
30which are not, or (if there were any) would not be, chargeable
to tax.

16 In the Table in section 61 (disposal events and disposal values), after item 6
insert—

6A. Disposal event to which
section 62A applies.
The relevant transition value
35(see section 62A).

and in column 1 of item 7, for “6” substitute “6A”.

17 After section 62 insert—

62A Cases in which disposal value is transition value

(1) Subject as follows, this section applies where an election under
40section 18A of CTA 2009 has effect in relation to a company and the
operation of section 15(2A) brings about a disposal event consisting

Finance (No. 3) BillPage 219

of plant or machinery beginning to be used for purposes other than
those of a qualifying activity.

(2) Where this section applies to a disposal event, the disposal value is
the transition value.

(3) 5The transition value is such amount as gives rise to neither a
balancing allowance nor a balancing charge.

(4) This section does not apply if—

(a) the qualifying expenditure in respect of the plant or
machinery, or of the group of assets of which it forms part at
10any time during a relevant accounting period, exceeds £5
million, and

(b) the company has used the plant or machinery otherwise than
for the purposes of a permanent establishment in a territory
outside the United Kingdom at any time during a relevant
15preceding accounting period.

(5) For the purposes of subsection (4)(a) plant or machinery used
together constitutes a group of assets.

(6) In subsection (4) “relevant preceding accounting period” means the
accounting period in which the election under section 18A is made
20or an earlier accounting period ending less than 6 years before the
end of that accounting period.

ITA 2007

18 ITA 2007 is amended as follows.

19 In section 879(1) (interest paid on advances from banks), insert at the end “or
25is a bank that would be within the charge to corporation tax as respects the
interest apart from section 18A of CTA 2009.”

20 (1) Section 918 (manufactured dividends on UK shares: REITs) is amended as
follows.

(2) After subsection (3) insert—

(3A) 30But subsection (3) does not apply if—

(a) the manufactured dividend is paid by a UK resident
company in the course of a trade carried on through a
permanent establishment in a territory outside the United
Kingdom, and

(b) 35section 18A of CTA 2009 has effect in relation to the company
for the accounting period in which it is paid.

(3) In subsection (4), for paragraphs (a) and (b) substitute—

(a) is non-UK resident and pays the manufactured dividend
otherwise than in the course of a trade carried on through a
40branch or agency in the United Kingdom, or

(b) is a UK resident company and pays the manufactured
dividend in the course of a trade carried on through a
permanent establishment in a territory outside the United
Kingdom and section 18A of CTA 2009 has effect in relation

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