Finance (No. 4) Bill

Session 2010 - 12
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Other Bills before Parliament

Finance (No. 4) Bill

Finance (No. 4) Bill
Schedule 12 — Foreign income and gains
Part 2 — Remittance for investment purposes
295

809VB
Failure to invest within 45 days
(1)
This section applies to any portion of the income or gains to which
section 809VA(2) does not apply because the investment was not
made within the period mentioned in section 809VA(5) (“the 45-day
period”).
5
(2)
That portion is to be treated as not remitted to the United Kingdom
to the extent that the remaining money or other property is taken
offshore within the 45-day period.
(3)
Where some but not all of the remaining money or other property is
taken offshore within the 45-day period, the part of the income or
10
gains to which subsection (2) applies is to be determined on a just
and reasonable basis.
(4)
If any remaining money or other property is taken offshore within
the 45-day period, nothing in subsection (2) prevents anything
subsequently done in relation to it (or anything deriving from it)
15
from counting as a remittance of the underlying income or gains to
the United Kingdom at the time when the thing is subsequently
done.
(5)
A reference to the “remaining” money or other property is to so
much of the money or other property brought to or received in the
20
United Kingdom as is not used within the 45-day period to make the
investment (which may in some cases be all of it).
809VC
Qualifying investments
(1)
For the purposes of section 809VA, a person makes an investment
if—
25
(a)
shares in a company are issued to the person, or
(b)
the person makes a loan (secured or unsecured) to a
company.
(2)
The company is referred to as “the target company”.
(3)
The shares or the person’s rights under the loan (or both) forming the
30
subject of the investment are referred to as “the holding”.
(4)
The investment counts as a “qualifying investment” if conditions A
and B are met when the investment is made.
(5)
Conditions A and B are defined in sections 809VD and 809VF.
(6)
A reference in this section to “shares” includes any securities.
35
(7)
If a loan agreement authorises a company to draw down amounts of
a loan over a period of time—
(a)
entry into the agreement does not count for the purposes of
this section as the making of a loan, but
(b)
a separate loan is to be treated as made each time an amount
40
is drawn down under the agreement.
(8)
Accordingly—
(a)
a separate investment is treated as made each time an amount
is drawn down under the agreement, and

Finance (No. 4) Bill
Schedule 12 — Foreign income and gains
Part 2 — Remittance for investment purposes
296

(b)
the reference in subsection (3) to the person’s rights under the
loan applies only to so much of the person’s rights as relate
to the drawdown of that particular amount.
809VD
Condition A
(1)
Condition A is that the target company is—
5
(a)
an eligible trading company,
(b)
an eligible stakeholder company, or
(c)
an eligible holding company.
(2)
A company is an “eligible trading company” if—
(a)
it is a private limited company,
10
(b)
it carries on one or more commercial trades or is preparing to
do so within the next 2 years, and
(c)
carrying on commercial trades is all or substantially all of
what it does (or of what it is reasonably expected to do once
it begins trading).
15
(3)
A company is an “eligible stakeholder company” if—
(a)
it is a private limited company,
(b)
it exists wholly for the purpose of making investments in
eligible trading companies (ignoring any minor or incidental
purposes), and
20
(c)
it holds one or more such investments or is preparing to do
so within the next 2 years.
(4)
The reference in subsection (3) to making investments is to be read in
accordance with section 809VC.
(5)
A company is an “eligible holding company” if—
25
(a)
it is a member of an eligible trading group or of an eligible
group that is reasonably expected to become an eligible
trading group within the next 2 years,
(b)
an eligible trading company in the group is a 51% subsidiary
of it, and
30
(c)
if the ordinary share capital that it owns in the eligible
trading company is owned indirectly, each intermediary in
the series is also a member of the group.
(6)
“Group” means a parent company and its 51% subsidiaries.
(7)
“Parent company” means a company that—
35
(a)
has one or more 51% subsidiaries, but
(b)
is not itself a 51% subsidiary of any company.
(8)
A group is an “eligible group” if the parent company and each of its
51% subsidiaries are private limited companies.
(9)
A group is an “eligible trading group” if—
40
(a)
it is an eligible group, and
(b)
carrying on commercial trades is all or substantially all of
what the group does (taking the activities of its members as a
whole).

Finance (No. 4) Bill
Schedule 12 — Foreign income and gains
Part 2 — Remittance for investment purposes
297

(10)
The reference in subsection (5) to owning ordinary share capital
indirectly is to be read in accordance with section 1155 of CTA 2010.
(11)
A company is a “private limited company” if—
(a)
it is a body corporate whose liability is limited,
(b)
it is not a limited liability partnership, and
5
(c)
none of its shares are listed on a recognised stock exchange.
809VE
Commercial trades
(1)
Section 809VD is to be read in accordance with this section.
(2)
A reference to a “trade” also includes—
(a)
anything that is treated for corporation tax purposes as if it
10
were a trade, and
(b)
a business carried on for generating income from land (as
defined in section 207 of CTA 2009).
(3)
A trade is a “commercial trade” if it is conducted on a commercial
basis and with a view to the realisation of profits.
15
(4)
The carrying on of activities of research and development from
which it is intended that a commercial trade will be derived, or will
benefit, is to be treated as the carrying on of a commercial trade.
(5)
But preparing to carry on activities within subsection (4) is not to be
treated as the carrying on of a commercial trade.
20
809VF
Condition B
(1)
Condition B is that no relevant person has (directly or indirectly)
obtained or become entitled to obtain any related benefit, and no
relevant person expects to obtain any such benefit.
(2)
A “benefit”—
25
(a)
includes the provision of anything that would not be
provided to the relevant person in the ordinary course of
business, or would be provided but on less favourable terms,
but
(b)
does not include the provision of anything provided to the
30
relevant person in the ordinary course of business and on
arm’s length terms.
(3)
A benefit is “related” if—
(a)
it is directly or indirectly attributable to the making of the
investment (whether it is obtained before or after the
35
investment is made), or
(b)
it is reasonable to assume that the benefit would not be
available in the absence of the investment.
(4)
For the purposes of subsection (2)—
(a)
a reference to the provision of anything is to the provision of
40
anything in money or money’s worth, including property,
capital, goods or services of any kind, and
(b)
“provision” includes any arrangement that allows a person to
enjoy or benefit from the thing in question (whether
temporarily or permanently).
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Finance (No. 4) Bill
Schedule 12 — Foreign income and gains
Part 2 — Remittance for investment purposes
298

809VG
Income or gains treated as remitted following certain events
(1)
Subsection (2) applies if—
(a)
income or chargeable gains are treated under section
809VA(2) as not remitted to the United Kingdom as a result
of a qualifying investment,
5
(b)
a potentially chargeable event occurs after the investment is
made, and
(c)
the appropriate mitigation steps are not taken within the
grace period allowed for each step.
(2)
The affected income or gains are to be treated as having been
10
remitted to the United Kingdom immediately after the end of the
relevant grace period.
(3)
Where the step required by section 809VI(2)(a) is not taken within the
grace period allowed for that step, “the relevant grace period” is the
grace period allowed for that step.
15
(4)
Otherwise, “the relevant grace period” is the grace period allowed
for the step required by section 809VI(1) or (2)(b).
(5)
“The affected income or gains” means such portion of the income or
gains mentioned in subsection (1)(a) as reflects the portion of the
investment affected by the potentially chargeable event.
20
(6)
The portion of the investment affected is—
(a)
if the potentially chargeable event is a disposal of a part of the
holding (or a part of the remaining holding), a portion equal
to the portion of the holding (or remaining holding) being
disposed of, and
25
(b)
otherwise, the whole of the investment.
(7)
Sections 809VN (order of disposals etc) and 809VO (investments
made from mixed funds) make further provision for the purposes of
this section.
(8)
If a qualifying investment is made using the money or other property
30
mentioned in section 809VA(3) together with other funds—
(a)
that investment is to be treated as two separate investments,
one made using the money or other property mentioned in
section 809VA(3) and one made using the other funds, and
(b)
references in the business investment provisions to “the
35
investment” and “the holding” relate only to the investment
made using the money or other property mentioned in
section 809VA(3).
(9)
If the potentially chargeable event mentioned in subsection (1)(b) is
not the first such event to affect the investment, the income or gains
40
mentioned in subsection (1)(a) do not include, as respects that
investment—
(a)
any part already treated under subsection (2) as remitted to
the United Kingdom as a result of an earlier event,
(b)
any part contained in amounts already taken offshore or re-
45
invested by way of appropriate mitigation steps following an
earlier event, or

Finance (No. 4) Bill
Schedule 12 — Foreign income and gains
Part 2 — Remittance for investment purposes
299

(c)
any part contained in amounts already used to make a tax
deposit without which an amount mentioned in paragraph
(b) would not have been enough to satisfy section 809VI(1) or
(2)(b) (see section 809VK).
809VH
Meaning of “potentially chargeable event”
5
(1)
For the purposes of section 809VG, a “potentially chargeable event”
occurs if—
(a)
the target company is for the first time neither an eligible
trading company nor an eligible stakeholder company nor an
eligible holding company,
10
(b)
the relevant person who made the investment (“P”) disposes
of all or part of the holding,
(c)
the extraction of value rule is breached, or
(d)
the 2-year start-up rule is breached.
(2)
The extraction of value rule is breached if—
15
(a)
value (in money or money’s worth) is received by or for the
benefit of P or another relevant person,
(b)
the value is received—
(i)
from an involved company, or
(ii)
from anyone else but in circumstances that are
20
directly or indirectly attributable to the investment or
to any other investment made by a relevant person in
an involved company, and
(c)
the value is received other than by virtue of a disposal that is
itself a potentially chargeable event.
25
(3)
But the extraction of value rule is not breached merely because a
relevant person receives value that—
(a)
is treated for income tax or corporation tax purposes as the
receipt of income or would be so treated if that person were
liable to such tax, and
30
(b)
is paid or provided to the person in the ordinary course of
business and on arm’s length terms.
(4)
Each of the following is an “involved company”—
(a)
the target company,
(b)
if the target company is an eligible stakeholder company, any
35
eligible trading company in which it has made or intends to
make an investment,
(c)
if the target company is an eligible holding company, any
eligible trading company that is a 51% subsidiary of it, and
(d)
any company that is connected with a company within
40
paragraph (a), (b) or (c).
(5)
The 2-year start-up rule is breached if—
(a)
immediately after the end of the period of 2 years beginning
with the day on which the investment was made, the target
company is non-operational, or
45
(b)
at any time after the end of that period, the target company
becomes non-operational.
(6)
The target company is “non-operational” at any time when—

Finance (No. 4) Bill
Schedule 12 — Foreign income and gains
Part 2 — Remittance for investment purposes
300

(a)
it is an eligible trading company but is not trading,
(b)
it is an eligible stakeholder company but—
(i)
it holds no investments in eligible trading companies,
or
(ii)
none of the eligible trading companies in which it
5
holds investments is trading, or
(c)
it is an eligible holding company but—
(i)
the group of which it is a member is not an eligible
trading group, or
(ii)
none of its 51% subsidiaries in the eligible trading
10
group of which it is a member is an eligible trading
company that is trading.
(7)
In subsection (6), “trading” means carrying on one or more
commercial trades (including the carrying on of any activities treated
under section 809VE(4) as the carrying on of a commercial trade).
15
(8)
If consideration for a disposal of all or part of the holding is or is to
be paid in instalments, the disposal is to be treated for the purposes
of this section as if it were separate disposals, one for each instalment
(and each giving rise to a separate potentially chargeable event).
(9)
An event listed in subsection (1) does not count as a potentially
20
chargeable event if it is due to an insolvency step taken for genuine
commercial reasons (but this does not prevent the extraction of any
value in connection with the insolvency step from counting as a
potentially chargeable event).
(10)
For the purposes of subsection (9), an insolvency step is taken if—
25
(a)
the target company enters into administration or receivership
or is wound up or dissolved,
(b)
the target company is an eligible stakeholder company and
any eligible trading company in which it holds an investment
enters into administration or receivership or is wound up or
30
dissolved,
(c)
the target company is an eligible holding company and any
eligible trading company in the group that is a 51%
subsidiary of it enters into administration or receivership or
is wound up or dissolved, or
35
(d)
a similar step is taken in relation to a company mentioned in
paragraph (a), (b) or (c) under the law of a country or territory
outside the United Kingdom.
809VI
The appropriate mitigation steps
(1)
If the potentially chargeable event is a disposal of all or part of the
40
holding, the appropriate mitigation steps are regarded as taken if the
whole of the disposal proceeds have been taken offshore or re-
invested.
(2)
For any other case, the appropriate mitigation steps are regarded as
taken if—
45
(a)
P has disposed of the entire holding (or so much of it as P
retains when the potentially chargeable event occurs), and

Finance (No. 4) Bill
Schedule 12 — Foreign income and gains
Part 2 — Remittance for investment purposes
301

(b)
the whole of the disposal proceeds have been taken offshore
or re-invested.
(3)
But if the disposal proceeds exceed X, subsections (1) and (2)(b)
apply only to so much of the proceeds as is equal to X.
(4)
“X” is—
5
(a)
the sum originally invested, less
(b)
so much of that sum as has, on previous occasions involving
the same investment—
(i)
been taken into account in determining the affected
income or gains under section 809VG(2),
10
(ii)
been taken offshore or re-invested in order to avoid
the application of that section, or
(iii)
been used to make a tax deposit without which the
amount actually taken offshore or re-invested would
not have been enough to satisfy subsection (1) or
15
(2)(b) (see section 809VK).
(5)
“The sum originally invested” means the amount of the money, or
the market value of the other property, used to make the investment.
(6)
Market value is to be assessed for these purposes as at the date of the
relevant event (see section 809VA).
20
(7)
Proceeds are “re-invested” if a relevant person uses them to make
another qualifying investment (or the proceeds are themselves a
qualifying investment) whether in the same or a different company.
(8)
In cases where a breach of the extraction of value rule occurs in
connection with the winding-up or dissolution of the target
25
company—
(a)
subsection (2)(a) does not apply,
(b)
the reference in subsection (2)(b) to the disposal proceeds is
to the value received, and
(c)
references in this section and in succeeding provisions of the
30
business investment provisions to the disposal proceeds are
to be read as references to the value received.
809VJ
The grace period allowed for the appropriate mitigation steps
(1)
The grace period allowed for the step mentioned in section
809VI(2)(a) is the period of 90 days beginning—
35
(a)
if the potentially chargeable event is a breach of the extraction
of value rule, with the day on which the value is received, and
(b)
otherwise, with the day on which a relevant person first
became aware or ought reasonably to have become aware of
the potentially chargeable event.
40
(2)
The grace period allowed for the step mentioned in section 809VI(1)
and (2)(b) is the period of 45 days beginning with the day on which
the disposal proceeds first became available for use by or for the
benefit of P or any other relevant person.
(3)
An officer of Revenue and Customs may agree in a particular case to
45
extend the grace period allowed for an appropriate mitigation step
in exceptional circumstances.