Finance (No. 4) Bill

Session 2010 - 12
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Finance (No. 4) Bill

Finance (No. 4) Bill
Schedule 19 — Part 3: transitional provision
424

Schedule 19
Section 177

Part 3: transitional provision
Approvals given for purposes of section 461 or 461C of ICTA
1
Anything which, as a result of section 461(11) or 461A(4) of ICTA, is treated
as having been done by HMRC Commissioners on a particular date under a
5
provision of ICTA repealed by this Act is to continue to be treated as having
been done by them on that date under the provision of this Part
corresponding to that repealed provision, despite the fact that neither
section 461(11) nor section 461A(4) of ICTA is rewritten in this Act.
General transitional provision in relation to provisions re-enacted in Part 3 of this Act
10
2     (1)
This paragraph applies where any provision of this Part of this Act re-enacts
(with or without modification) an enactment repealed by this Part of this
Act.
      (2)
The repeal and re-enactment does not affect the continuity of the law.
      (3)
Any subordinate legislation or other thing which—
15
(a)
has been made or done, or has effect as if made or done, under or for
the purposes of the repealed provision, and
(b)
is in force or effective in relation to accounting periods of friendly
societies ending on 31 December 2012,

has effect in relation to subsequent accounting periods of friendly societies
20
as if made or done under or for the purposes of the corresponding provision
of this Part of this Act.
      (4)
Any reference (express or implied) in any enactment, instrument or
document to a provision of this Part of this Act is to be read as including, in
relation to times, circumstances or purposes in relation to which the
25
corresponding repealed provision had effect, a reference to that
corresponding provision.

This sub-paragraph applies only so far as the context permits.
      (5)
Any reference (express or implied) in any enactment, instrument or
document to a repealed provision is to be read, in relation to times,
30
circumstances or purposes in relation to which the corresponding provision
of this Part of this Act has effect, as a reference or (as the context may require)
as including a reference to that corresponding provision.

This sub-paragraph applies only so far as the context permits.
      (6)
This paragraph is subject to any specific transitional, transitory or saving
35
provision made by or under this Schedule.
      (7)
The generality of this paragraph is not to be affected by specific transitional,
transitory or saving provision made by or under this Schedule.
      (8)
This paragraph has effect instead of section 17(2) of the Interpretation Act
1978.
40

Finance (No. 4) Bill
Schedule 20 — Controlled foreign companies and foreign permanent establishments
Part 1 — Controlled foreign companies
425

Schedule 20
Section 180

Controlled foreign companies and foreign permanent establishments
Part 1
Controlled foreign companies
1
After Part 9 of TIOPA 2010 insert—
5
“Part 9A
Controlled foreign companies
Chapter 1
Overview
371AA
Overview of Part
10
(1)
A charge (“the CFC charge”) is charged under this Part on UK
resident companies which have certain interests in CFCs.
(2)
The CFC charge is charged by reference to the chargeable profits of
CFCs.
(3)
A “CFC” is a non-UK resident company which is controlled by a UK
15
resident person or persons (but see subsection (6)).
(4)
Chapter 2 sets out the basic details of the CFC charge, including—
(a)
the CFC charge gateway (through which profits of a CFC
must pass in order to be chargeable profits), and
(b)
the steps to be taken for charging the CFC charge.
20
(5)
Chapter 2 is supplemented by Chapters 3 to 17; in particular—
(a)
Chapter 3 sets out how to determine which (if any) of
Chapters 4 to 8 apply in relation to the profits of a CFC,
(b)
so far as applicable, Chapters 4 to 8 set out how to determine
which profits (if any) of a CFC pass through the CFC charge
25
gateway, with—
(i)
Chapter 4 dealing with profits attributable to UK
activities,
(ii)
Chapter 5 dealing with non-trading finance profits,
(iii)
Chapter 6 dealing with trading finance profits,
30
(iv)
Chapter 7 dealing with profits derived from captive
insurance business, and
(v)
Chapter 8 dealing with cases involving solo
consolidation,
(c)
Chapter 9 sets out exemptions for profits from qualifying
35
loan relationships,
(d)
Chapters 10 to 14 set out full exemptions from the CFC
charge,
(e)
Chapter 15 sets out how to determine the persons whose
interests in a CFC are relevant to the charging of the CFC
40
charge,

Finance (No. 4) Bill
Schedule 20 — Controlled foreign companies and foreign permanent establishments
Part 1 — Controlled foreign companies
426

(f)
Chapter 16 sets out how to determine the creditable tax of
CFCs (for which credit is given against chargeable profits),
and
(g)
Chapter 17 sets out how to apportion a CFC’s chargeable
profits and creditable tax among the persons who have
5
relevant interests in the CFC.
(6)
Chapter 18 explains the concept of “control” and also sets out certain
cases in which a non-UK resident company is to be taken to be a CFC
even though it is not controlled by a UK resident person or persons.
(7)
Chapter 19 explains the concepts of “assumed taxable total profits”,
10
“assumed total profits” and “the corporation tax assumptions” which
are referred to in this Part.
(8)
Chapter 20 contains rules for determining the territory in which a
CFC is resident for the purposes of this Part.
(9)
Chapter 21 contains provision about the management of the CFC
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charge, including the collection of sums charged.
(10)
Chapter 22 contains supplementary provision, including definitions
of terms used in this Part.
(11)
Nothing in this Part affects—
(a)
the liability to corporation tax of a non-UK resident company
20
in accordance with section 5(2) and (3) of CTA 2009 (non-UK
resident companies within the charge to corporation tax), or
(b)
the determination of such a company’s chargeable profits for
corporation tax purposes in accordance with Chapter 4 of
Part 2 of CTA 2009.
25
(12)
This Part is part of the Corporation Tax Acts.
Chapter 2
The CFC charge
371BA
Introduction to the CFC charge
(1)
The CFC charge is charged in relation to accounting periods of CFCs
30
in accordance with section 371BC.
(2)
Section 371BC applies in relation to a CFC’s accounting period if
(and only if)—
(a)
the CFC has chargeable profits for the accounting period, and
(b)
none of the exemptions set out in Chapters 10 to 14 applies for
35
the accounting period.
(3)
A CFC’s chargeable profits for an accounting period are its assumed
taxable total profits for the accounting period determined on the
basis—
(a)
that the CFC’s assumed total profits for the accounting
40
period are limited to only so much of those profits as pass
through the CFC charge gateway, and
(b)
that amounts are to be relieved against the assumed total
profits at step 2 in section 4(2) of CTA 2010 only so far as it is

Finance (No. 4) Bill
Schedule 20 — Controlled foreign companies and foreign permanent establishments
Part 1 — Controlled foreign companies
427

just and reasonable for them to be so relieved having regard
to paragraph (a).
(4)
“The CFC charge gateway” is explained in section 371BB.
(5)
Subsection (3) is subject to section 371SB(7) and (8) (which relates to
settlement income included in a CFC’s chargeable profits).
5
371BB
The CFC charge gateway
(1)
Take the following steps to determine the extent to which a CFC’s
assumed total profits for an accounting period pass through the CFC
charge gateway.

Step 1
10

In accordance with Chapter 3, determine which (if any) of Chapters
4 to 8 apply for the accounting period.

If none of those Chapters applies, none of the CFC’s assumed total
profits pass through the CFC charge gateway and step 2 is not to be
taken.
15

Step 2

Determine the extent to which the CFC’s assumed total profits fall
within any of the Chapters which applies for the accounting period.

The CFC’s assumed total profits pass through the CFC charge
gateway so far as they fall within any of those Chapters.
20
(2)
Subsection (1) is subject to—
(a)
Chapter 9 (exemptions for profits from qualifying loan
relationships), and
(b)
section 371JE (which provides for adjustments of profits
which would otherwise pass through the CFC charge
25
gateway linked to the exemption set out in Chapter 10).
371BC
Charging the CFC charge
(1)
Take the following steps if, as provided for by section 371BA(2), this
section applies in relation to a CFC’s accounting period.

Step 1
30

In accordance with Chapter 15, determine the persons (“the relevant
persons”) who have relevant interests in the CFC at any time during
the accounting period.

If none of the relevant persons is a company which meets the UK
residence condition (see subsection (2)), the CFC charge is not
35
charged in relation to the accounting period and no further steps are
to be taken.

Step 2

In accordance with Chapter 16, determine the CFC’s creditable tax
for the accounting period.
40

Step 3

In accordance with Chapter 17, apportion the CFC’s chargeable
profits and creditable tax among the relevant persons.

Step 4

Finance (No. 4) Bill
Schedule 20 — Controlled foreign companies and foreign permanent establishments
Part 1 — Controlled foreign companies
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Take each relevant person which is a company meeting the UK
residence condition and, in accordance with section 371BD,
determine if the company is a chargeable company.

If there are no chargeable companies, the CFC charge is not charged
in relation to the accounting period and step 5 is not to be taken.
5

Step 5

The CFC charge is charged on each chargeable company as follows.

A sum equal to—
(a)
corporation tax at the appropriate rate on P% of the CFC’s
chargeable profits, less
10
(b)
Q% of the CFC’s creditable tax,

is charged on the chargeable company as if it were an amount of
corporation tax charged on the company for the relevant corporation
tax accounting period.

This step is subject to section 371BH.
15
(2)
A company meets the UK residence condition if it is UK resident at a
time during the accounting period when it has a relevant interest in
the CFC.
(3)
For the purpose of taking step 5 in subsection (1) in relation to a
chargeable company (“CC”)—
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“the appropriate rate”, subject to section 371BH, means—
(a)
the rate of corporation tax applicable to CC’s profits
of the relevant corporation tax accounting period on
which corporation tax is chargeable (see section 4(1)
and (2) of CTA 2010), or
25
(b)
if there is more than one such rate, the average rate
over the whole of the relevant corporation tax
accounting period,
“P%” means the percentage of the CFC’s chargeable profits
apportioned to CC,
30
“Q%” means the percentage of the CFC’s creditable tax
apportioned to CC, and
“the relevant corporation tax accounting period” means CC’s
accounting period for corporation tax purposes during which
the CFC’s accounting period ends.
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371BD
Chargeable companies
(1)
A company (“C”) which meets the UK residence condition is a
chargeable company for the purposes of step 4 in section 371BC(1) if
the total of the following percentages is at least 25%—
(a)
the percentage of the CFC’s chargeable profits apportioned
40
to C at step 3 in section 371BC(1), and
(b)
the percentages (if any) of those profits which are
apportioned at that step to relevant persons who, at any time
during the accounting period, are connected or associated
with C.
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(2)
Subsection (1) is subject to sections 371BE to 371BG.