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Finance (No. 4) Bill


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

429

 

371BE   

Companies which are managers of offshore funds etc

(1)   

A company (“C”) is not a chargeable company for the purposes of

step 4 in section 371BC(1) if—

(a)   

the CFC is an offshore fund (as defined in section 355),

(b)   

the genuine diversity of ownership condition set out in

5

regulation 75 of the Offshore Funds (Tax) Regulations 2009

(S.I. 2009/3001) is met in relation to the fund,

(c)   

C meets the fund management condition, and

(d)   

apart from this section, a sum of no more than £500,000

would be charged on C as a chargeable company at step 5 in

10

section 371BC(1).

(2)   

In applying regulation 75 of the 2009 Regulations for the purposes of

subsection (1)(b), the reference in paragraph (1) to the period of

account is to be read as a reference to the accounting period.

(3)   

C meets the fund management condition if at all times during the

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accounting period when C has relevant interests in the offshore

fund—

(a)   

the assets of the offshore fund are managed by C or a person

connected with C,

(b)   

C or the person connected with C receives out of those assets

20

fees for managing those assets, and

(c)   

C holds its relevant interests only or mainly for the purpose

of attracting participants (as defined in section 362) to the

fund who are not connected with C.

(4)   

If the accounting period is less than 12 months, the amount specified

25

in subsection (1)(d) is to be reduced proportionately.

371BF   

Companies which are participants in offshore funds

(1)   

A company (“C”) is not a chargeable company for the purposes of

step 4 in section 371BC(1) if—

(a)   

the CFC is an offshore fund (as defined in section 355),

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(b)   

at the relevant time and at all subsequent relevant times, C

reasonably believes that the requirement of section 371BD(1)

will not be met in relation to it, and

(c)   

the meeting of that requirement in relation to C is in no way

attributable to any step—

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(i)   

which was taken by C or any person connected or

associated with C, and

(ii)   

which, at the time it was taken, could reasonably have

been expected to cause that requirement to be met.

(2)   

“The relevant time” means—

40

(a)   

the beginning of the accounting period, or

(b)   

if C has no relevant interests in the offshore fund at the

beginning of the accounting period, the time when C first has

a relevant interest during the accounting period.

(3)   

“Subsequent relevant time” means any time during the accounting

45

period at which there is an increase or some other change in the

relevant interests in the offshore fund which C has.

 
 

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

430

 

371BG   

Companies holding shares as trading assets etc

(1)   

A company (“C”) is not a chargeable company for the purposes of

step 4 in section 371BC(1) if—

(a)   

C has its relevant interests in the CFC by virtue only of its

holding, directly or indirectly, shares in the CFC,

5

(b)   

any increase in the value of the shares held by C which occurs

during the accounting period is (or would be) income, or

brought into account in determining any income, of C for

corporation tax purposes, and

(c)   

any dividend or other distribution received by C from the

10

CFC during the accounting period is (or would be) income, or

brought into account in determining any income, of C for

corporation tax purposes.

(2)   

Subsection (3) applies if—

(a)   

C has relevant interests in the CFC by virtue of section

15

371OB(3) or (4),

(b)   

the CFC is an offshore fund (as defined in section 355) which

does not meet the qualifying investments test in section 493

of CTA 2009, and

(c)   

in consequence of the offshore fund not meeting that test, the

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requirements of subsection (1)(b) and (c) are not met.

(3)   

The requirements of subsection (1)(b) and (c) are to be taken to be

met.

371BH   

Companies carrying on BLAGAB

(1)   

Step 5 in section 371BC(1) is to be taken in relation to a chargeable

25

company (“CC”) on the basis set out in subsection (2) if—

(a)   

CC carries on basic life assurance and general annuity

business during the relevant corporation tax accounting

period,

(b)   

the assets which represent CC’s relevant interests in the CFC

30

are (to any extent) assets held by CC for the purposes of CC’s

long-term business, and

(c)   

the I - E rules apply to CC for the relevant corporation tax

accounting period.

(2)   

That basis is—

35

(a)   

in paragraph (a), the reference to the appropriate rate is to be

read as a reference to—

(i)   

the policyholders’ rate of tax under section 102 of FA

2012 applicable to the I - E profit of CC for the relevant

corporation tax accounting period, or

40

(ii)   

if there is more than one such rate, the average rate

over the whole of the relevant corporation tax

accounting period,

(b)   

paragraph (a) is to apply only in relation to the policyholders’

share of the BLAGAB component of the CFC’s chargeable

45

profits (“the apportioned profit”) apportioned to CC at step 3

in section 371BC(1), and

(c)   

for the purposes of paragraph (b), the CFC’s creditable tax

apportioned to CC is to be reduced so as to be equal to the

 
 

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

431

 

proportion which the policyholders’ share of the BLAGAB

component of the apportioned profit bears to the whole of the

apportioned profit.

(3)   

Take the following steps to determine the “BLAGAB component” of

the apportioned profit.

5

   

Step 1

   

Assume that the apportioned profit is income falling within section

74(1)(j) of FA 2012 paid to CC at the end of the CFC’s accounting

period.

   

Step 2

10

   

Calculate how much of that income would be referable, in

accordance with Chapter 4 of Part 2 of FA 2012, to CC’s basic life

assurance and general annuity business.

   

That amount is the “BLAGAB component” of the apportioned profit.

(4)   

The “policyholders’ share” of the BLAGAB component of the

15

apportioned profit is equal to the policyholders’ share of the I - E

profit for the relevant corporation tax accounting period as

determined in accordance with the rules contained in Chapter 5 of

Part 2 of FA 2012.

Chapter 3

20

The CFC charge gateway: determining which (if any) of Chapters 4 to 8 applies

371CA   

Does Chapter 4 apply?

(1)   

Chapter 4 (profits attributable to UK activities) applies for a CFC’s

accounting period unless condition A, B, C or D is met.

(2)   

Condition A is that, at no time during the accounting period, does

25

the CFC hold assets or bear risks under an arrangement to which

both subsections (3) and (4) apply.

(3)   

This subsection applies to an arrangement if—

(a)   

the main purpose, or one of the main purposes, of the

arrangement is to reduce or eliminate any liability of any

30

person to tax or duty imposed under the law of the United

Kingdom, and

(b)   

in consequence of the arrangement, at any time the CFC

expects its business to be more profitable than it would

otherwise be (other than negligibly so).

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(4)   

This subsection applies to an arrangement if—

(a)   

there is an expectation that, as a consequence of the

arrangement, one or more persons will have liabilities to tax

or duty imposed under the law of any territory reduced or

eliminated, and

40

(b)   

it is reasonable to suppose that, but for that expectation, the

arrangement would not have been made.

(5)   

Condition B is that, at no time during the accounting period, does the

CFC have any UK managed assets or bear any UK managed risks

(see subsection (9)).

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

432

 

(6)   

Condition C is that, at all times during the accounting period, the

CFC has itself the capability to ensure that the CFC’s business would

be commercially effective were—

(a)   

the UK managed assets of the CFC, and

(b)   

the UK managed risks borne by the CFC,

5

   

to stop being UK managed.

(7)   

In subsection (6) the reference to the capability of the CFC includes

(in particular) its capability to select persons not connected with it to

provide it with goods or services and to manage the transactions it

has with persons not connected with it.

10

(8)   

In determining if the requirements of subsection (6) are met at any

time (“the relevant time”) during the accounting period, assume—

(a)   

that the CFC would continue to carry on the same business as

it is actually carrying on at the relevant time, and

(b)   

that no relevant UK activities (see subsection (10)) by which

15

any asset or risk was UK managed would be replaced—

(i)   

by activities carried on by any person connected with

the CFC at any time, or

(ii)   

in any other way which relies to any extent upon the

CFC receiving (directly or indirectly) resources or

20

other assistance from a person connected with it at

any time.

(9)   

An asset or risk is “UK managed” if—

(a)   

the acquisition, creation, development or exploitation of the

asset, or

25

(b)   

the taking on, or bearing, of the risk,

   

is managed or controlled to any significant extent by way of relevant

UK activities.

(10)   

“Relevant UK activities” means activities carried on in the United

Kingdom—

30

(a)   

by the CFC, otherwise than through a UK permanent

establishment, or

(b)   

by companies connected with the CFC under arrangements

which would not, it is reasonable to suppose, be entered into

by companies not connected with each other.

35

(11)   

Condition D is that the CFC’s assumed total profits consist only of

one or both of the following—

(a)   

non-trading finance profits;

(b)   

property business profits.

371CB   

Does Chapter 5 apply?

40

(1)   

Subject to sections 371CC and 371CD, Chapter 5 (non-trading finance

profits) applies for a CFC’s accounting period if (and only if) the CFC

has non-trading finance profits.

(2)   

In this section and Chapter 5 references to the CFC’s non-trading

finance profits are to those profits excluding any profits falling

45

within subsection (3) or (4) or Chapter 8 (solo consolidation).

 
 

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

433

 

(3)   

Profits fall within this subsection so far as they arise from the

investment of funds held by the CFC for the purposes of a trade—

(a)   

which is carried on by the CFC, and

(b)   

no trading profits of which pass through the CFC charge

gateway for the accounting period.

5

(4)   

Profits fall within this subsection so far as they arise from the

investment of funds held by the CFC for the purposes of a UK

property business or overseas property business carried on by the

CFC.

(5)   

Neither subsection (3) nor subsection (4) applies in relation to

10

funds—

(a)   

held only or mainly because of a prohibition or restriction on

the CFC paying dividends or making other distributions

imposed under the law of the territory in which the CFC is

incorporated or formed,

15

(b)   

held with a view to paying dividends or making other

distributions at a time after the end of the relevant 12 month

period,

(c)   

held with a view to acquiring shares in any company or

making any capital contribution to a person,

20

(d)   

held with a view to acquiring, developing or otherwise

investing in land at a time after the end of the relevant 12

month period,

(e)   

held only or mainly for contingencies, or

(f)   

held only or mainly for the purpose of reducing or

25

eliminating a liability of any person to tax or duty imposed

under the law of any territory.

(6)   

Subsection (5)(a) does not cover a prohibition or restriction which

ceases to have effect before the end of the relevant 12 month period.

(7)   

“The relevant 12 month period” means the period of 12 months after

30

the end of the accounting period.

(8)   

In the case of a chargeable company which makes a claim under

Chapter 9, in this section and Chapter 5 references to the CFC’s non-

trading finance profits are to those profits excluding also the CFC’s

qualifying loan relationship profits (as defined in Chapter 9).

35

371CC   

Incidental non-trading finance profits: the 5% rule

(1)   

This section applies in relation to a CFC’s accounting period if one or

both of the following requirements is met—

(a)   

the CFC has trading profits or property business profits (or

both);

40

(b)   

the CFC has exempt distribution income and, at all times

during the accounting period, a substantial part of its

business is the holding of shares or securities in companies

which are its 51% subsidiaries.

(2)   

Chapter 5 does not apply for the accounting period if the CFC’s non-

45

trading finance profits are no more than 5% of the relevant amount.

(3)   

“The relevant amount” is—

 
 

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

434

 

(a)   

if the requirement of subsection (1)(a) is met, the total of the

CFC’s trading profits and property business profits

determined before deduction of interest or any tax or duty

imposed under the law of any territory,

(b)   

if the requirement of subsection (1)(b) is met, the total of the

5

CFC’s exempt distribution income, or

(c)   

if both those requirements are met, the sum of the totals given

by paragraphs (a) and (b).

(4)   

Subsection (5) applies for the purposes of subsection (2) if—

(a)   

the requirement of subsection (1)(b) is met (whether or not

10

the requirement of subsection (1)(a) is also met),

(b)   

at any time during the accounting period, a 51% subsidiary of

the CFC (“the CFC subsidiary”) is also a CFC, and

(c)   

the CFC subsidiary has relevant non-trading finance profits

as determined in accordance with subsection (6) or (7).

15

(5)   

The CFC subsidiary’s relevant non-trading finance profits are to be

added to the CFC’s non-trading finance profits.

(6)   

If—

(a)   

the CFC subsidiary has an accounting period (“the relevant

period”) which is the same as the CFC’s accounting period or

20

otherwise falls wholly within the CFC’s accounting period,

and

(b)   

by virtue of this section or section 371CD, Chapter 5 does not

apply (in the case of the CFC subsidiary) for the relevant

period,

25

   

the CFC subsidiary’s “relevant non-trading finance profits” are its

non-trading finance profits for the relevant period.

(7)   

If—

(a)   

the CFC subsidiary has an accounting period (“the relevant

period”) which otherwise overlaps with the CFC’s

30

accounting period, and

(b)   

by virtue of this section or section 371CD, Chapter 5 does not

apply (in the case of the CFC subsidiary) for the relevant

period,

   

the CFC subsidiary’s “relevant non-trading finance profits” are a just

35

and reasonable proportion of its non-trading finance profits for the

relevant period.

(8)   

In this section references to the CFC’s trading profits are to those

profits excluding any of them which pass through the CFC charge

gateway for the accounting period.

40

(9)   

“Exempt distribution income” means any dividends or other

distributions which are not brought into account in determining the

CFC’s assumed total profits on the basis that they would be exempt

for the purposes of Part 9A of CTA 2009 (company distributions).

(10)   

This section needs to be read with section 371CD.

45

371CD   

Incidental non-trading finance profits: the further 5% rule

(1)   

This section applies in relation to a CFC’s accounting period if—

 
 

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

435

 

(a)   

the requirements of section 371CC(1)(a) and (b) are both met,

but

(b)   

the CFC’s non-trading finance profits (as added to under

section 371CC(5) if applicable) are more than 5% of the

relevant amount for the purposes of section 371CC(2).

5

(2)   

Chapter 5 does not apply for the accounting period if the CFC’s

adjusted non-trading finance profits are no more than 5% of the total

of the CFC’s exempt distribution income (as defined in section

371CC(9)).

(3)   

The CFC’s “adjusted non-trading finance profits” are its non-trading

10

finance profits excluding any profits falling within section 371CB(3)

or (4).

(4)   

Subsection (5) applies if any CFC subsidiary’s relevant non-trading

finance profits are added under section 371CC(5) to the CFC’s non-

trading finance profits for the purposes of section 371CC(2).

15

(5)   

The CFC subsidiary’s relevant non-trading finance profits are also to

be added to the CFC’s adjusted non-trading finance profits for the

purposes of subsection (2) above.

371CE   

Does Chapter 6 apply?

(1)   

Subject to what follows, Chapter 6 (trading finance profits) applies

20

for a CFC’s accounting period if (and only if)—

(a)   

the CFC has trading finance profits, and

(b)   

at any time during the accounting period, the CFC has funds

or other assets which derive (directly or indirectly) from UK

connected capital contributions.

25

(2)   

The CFC’s trading finance profits are to be treated for the purposes

of this Part as if they were non-trading finance profits (and,

accordingly, Chapter 6 cannot apply for the accounting period) if—

(a)   

the CFC is a group treasury company in the accounting

period, and

30

(b)   

a notice is given to an officer of Revenue and Customs

requesting that the CFC’s trading finance profits be treated as

if they were non-trading finance profits.

(3)   

Section 316(5) to (11) (group treasury companies) applies for the

purpose of determining if a CFC is a “group treasury company” as if

35

references to the relevant period were to the accounting period.

(4)   

A notice under subsection (2)(b)—

(a)   

may be given only by a company or companies determined

under subsection (5) or (6), and

(b)   

must be given—

40

(i)   

within 20 months after the end of the accounting

period, or

(ii)   

within such longer period as an officer of Revenue

and Customs may allow.

(5)   

A company may give a notice if—

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