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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

436

 

(a)   

the company would be a chargeable company were section

371BC (charging the CFC charge) to apply in relation to the

accounting period, and

(b)   

the percentage of the CFC’s chargeable profits which would

be apportioned to the company at step 3 in section 371BC(1)

5

would represent more than half of X%.

(6)   

Two or more companies may together give a notice if—

(a)   

the companies would all be chargeable companies were

section 371BC (charging the CFC charge) to apply in relation

to the accounting period, and

10

(b)   

the percentage of the CFC’s chargeable profits which would

be apportioned to the companies, taken together, at step 3 in

section 371BC(1) would represent more than half of X%.

(7)   

In subsections (5) and (6) “X%” means the total percentage of the

CFC’s chargeable profits which would be apportioned to chargeable

15

companies at step 3 in section 371BC(1) were section 371BC

(charging the CFC charge) to apply in relation to the accounting

period.

371CF   

Does Chapter 7 apply?

(1)   

Chapter 7 (captive insurance business) applies for a CFC’s

20

accounting period if (and only if)—

(a)   

at any time during the accounting period, the main part of the

CFC’s business is insurance business, and

(b)   

the CFC’s assumed total profits include amounts falling

within subsection (2).

25

(2)   

An amount falls within this subsection if it derives (directly or

indirectly) from—

(a)   

a contract of insurance which is entered into with—

(i)   

a UK resident company connected with the CFC, or

(ii)   

a non-UK resident company connected with the CFC

30

acting through a UK permanent establishment, or

(b)   

a contract of insurance which—

(i)   

is entered into with a UK resident person, and

(ii)   

is linked (directly or indirectly) to the provision of

goods or services to the UK resident person

35

(excluding services provided as part of insurance

business).

371CG   

Does Chapter 8 apply?

(1)   

Chapter 8 (solo consolidation) applies for a CFC’s accounting period

if (and only if) condition A or B is met.

40

(2)   

Condition A is that, at any time during the accounting period—

(a)   

the CFC is a subsidiary undertaking which is the subject of a

solo consolidation waiver under section BIPRU 2.1 of the FSA

Handbook, and

(b)   

the CFC’s parent undertaking in relation to that waiver is a

45

UK resident company.

(3)   

Condition B is that, at any time during the accounting period—

 
 

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

437

 

(a)   

the CFC is controlled (either alone or with other persons) by

a UK resident bank which holds shares in the CFC,

(b)   

the UK resident bank must meet requirements of the FSA

Handbook in relation to its capital,

(c)   

any fall in the value of the shares held in the CFC would be

5

(wholly or mainly) ignored for the purpose of determining if

the UK resident bank meets those requirements of the FSA

Handbook, and

(d)   

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

resident bank in holding the shares in the CFC is to obtain a

10

tax advantage for itself or any company connected with it.

(4)   

In this section—

“the FSA Handbook” means the Handbook of Rules and

Guidance made by the Financial Services Authority (as that

Handbook has effect from time to time), and

15

“UK resident bank” means a UK resident person carrying on

banking business.

(5)   

The Treasury may by regulations amend this Chapter or Chapter 8

as they consider appropriate to take account of—

(a)   

any changes to the FSA Handbook, or

20

(b)   

any relevant document published by the Financial Services

Authority from time to time.

(6)   

“Relevant document” means—

(a)   

a document which replaces the FSA Handbook, or

(b)   

a document which changes or replaces a document falling

25

within paragraph (a) or a document which is a relevant

document by virtue of this paragraph.

Chapter 4

The CFC charge gateway: profits attributable to UK activities

371DA   

Introduction to Chapter

30

(1)   

Take the steps set out in section 371DB(1) to determine the CFC’s

profits falling within this Chapter for the purposes of step 2 in

section 371BB(1) (the CFC charge gateway).

(2)   

In this Chapter references to the CFC’s assumed total profits are to

those profits excluding its non-trading finance profits and property

35

business profits (if any).

(3)   

For the purposes of this Chapter—

(a)   

“the OECD Report” means the Report on the Attribution of

Profits to Permanent Establishments of the Organisation for

Economic Co-operation and Development (“OECD”) dated

40

22 July 2010,

(b)   

terms used which are also used in the OECD Report have the

same meaning as they have in the OECD Report,

(c)   

“the CFC group” means the CFC taken together with the

companies with which it is connected as those companies

45

may change from time to time,

 
 

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

438

 

(d)   

“the provisional Chapter 4 profits” has the meaning given at

step 7 in section 371DB(1),

(e)   

“the relevant assets and risks” has the meaning given at step

1 in section 371DB(1), subject to any exclusions at step 2 or 6,

(f)   

“SPF” means a significant people function or a key

5

entrepreneurial risk-taking function,

(g)   

an SPF is a “UK SPF” so far as the SPF is carried out in the

United Kingdom—

(i)   

by the CFC, otherwise than through a UK permanent

establishment, or

10

(ii)   

by a company connected with the CFC, and

(h)   

an SPF is a “non-UK SPF” so far as it is not a UK SPF.

(4)   

The Treasury may by regulations amend this Chapter as they

consider appropriate to take account of any relevant document

published by OECD from time to time.

15

(5)   

“Relevant document” means—

(a)   

a document which replaces, updates or supplements the

report mentioned in subsection (3)(a), or

(b)   

a document which replaces, updates or supplements a

document falling within paragraph (a) or a document which

20

is a relevant document by virtue of this paragraph.

371DB   

The steps

(1)   

Here are the steps referred to in section 371DA(1).

   

The steps are to be taken in accordance with the principles set out in

the OECD Report (so far as relevant).

25

   

Step 1

   

Identify the assets which the CFC has or has had, and the risks which

the CFC bears or has borne, and from which amounts included in the

CFC’s assumed total profits have arisen.

   

The identified assets and risks are called “the relevant assets and

30

risks”.

   

Step 2

   

Exclude from the relevant assets and risks any asset or risk to which

subsection (2) applies (subject to subsections (3) and (4)).

   

Step 3

35

   

Identify the SPFs carried out by the CFC group which are relevant

to—

(a)   

the economic ownership of the assets included in the relevant

assets and risks, or

(b)   

the assumption and management of the risks included in the

40

relevant assets and risks.

   

For this purpose, assume that the CFC group is a single company.

   

Step 4

   

Determine the extent to which the SPFs identified at step 3 are UK

SPFs and the extent to which they are non-UK SPFs.

45

   

If none of the SPFs is a UK SPF to any extent, then no profits fall

within this Chapter and no further steps are to be taken.

 
 

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

439

 

   

Step 5

   

Assume that the UK SPFs determined at step 4 are carried out by a

permanent establishment which the CFC has in the United Kingdom

and, accordingly, determine the extent to which the assets and risks

included in the relevant assets and risks would be attributed to the

5

permanent establishment.

   

For this purpose, assume that the non-UK SPFs determined at step 4

are all carried out by the CFC itself (if that is not otherwise the case).

   

Step 6

   

Exclude from the relevant assets and risks any asset or risk, or any

10

assets or risks taken together, to which section 371DC applies.

   

Step 7

   

Re-determine the CFC’s assumed total profits on the basis that the

CFC—

(a)   

does not hold, or has not held, the assets included in the

15

relevant assets and risks, and

(b)   

does not bear, or has not borne, the risks included in the

relevant assets and risks,

   

so far as they would be attributed to the permanent establishment

mentioned at step 5.

20

   

“The provisional Chapter 4 profits” are the CFC’s assumed total

profits so far as they are left out of the re-determined profits.

   

Step 8

   

Exclude from the provisional Chapter 4 profits any amounts which

are required to be excluded by section 371DD, 371DE or 371DF.

25

   

The remaining profits (if any) fall within this Chapter.

(2)   

This subsection applies to an asset or risk if the CFC’s assumed total

profits are only negligibly higher than what they would be if the

CFC—

(a)   

did not hold, or had not held, the asset to any extent at all, or

30

(b)   

did not bear, or had not borne, the risk to any extent at all.

(3)   

The total number of assets and risks which may be excluded at step

2 in subsection (1) is limited as follows.

(4)   

As well as applying to each asset and risk separately, subsection (2)

must also apply to all the assets and risks included in the total

35

number taken together.

371DC   

Exclusion: UK activities a minority of total activities

(1)   

For the purposes of step 6 in section 371DB(1), this section applies to

an asset or risk included in the relevant assets and risks if amount A

is no more than 50% of amount B.

40

(2)   

Amount A is the total of—

(a)   

the gross amounts (that is, the amounts before deduction of

expenses or transfers to or from reserves) of the CFC’s

income which would not have become receivable during the

accounting period had the CFC—

45

(i)   

not held the asset, or

(ii)   

not borne the risk,

 
 

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

440

 

   

so far as it would be attributed to the permanent

establishment mentioned at step 5 in section 371DB(1), and

(b)   

the additional expenses which the CFC would have incurred

during the accounting period had the CFC—

(i)   

not held the asset, or

5

(ii)   

not borne the risk,

   

so far as it would be so attributed.

(3)   

Amount B is the total of—

(a)   

the gross amounts (that is, the amounts before deduction of

expenses or transfers to or from reserves) of the CFC’s

10

income which would not have become receivable during the

accounting period had the CFC—

(i)   

not held the asset to any extent at all, or

(ii)   

not borne the risk to any extent at all, and

(b)   

the additional expenses which the CFC would have incurred

15

during the accounting period had the CFC—

(i)   

not held the asset to any extent at all, or

(ii)   

not borne the risk to any extent at all.

(4)   

Subsection (5) applies if it is not reasonably practicable to separate a

number of assets or risks included in the relevant assets and risks for

20

the purpose of determining amounts A and B in relation to each of

those assets or risks separately.

(5)   

In subsections (1) to (3) references to an asset or risk are to be read as

references to those assets or risks taken together.

371DD   

Exclusion: economic value

25

(1)   

Subsection (2) applies if—

(a)   

an asset or risk is included in the relevant assets and risks,

(b)   

the SPFs which are relevant to the economic ownership of the

asset, or the assumption and management of the risk, are

wholly or partly UK SPFs as determined at step 4 in section

30

371DB(1), and

(c)   

as a result of that determination, an amount is included in the

provisional Chapter 4 profits.

(2)   

The amount is to be excluded from the provisional Chapter 4 profits

if—

35

(a)   

the net economic value to the CFC group which results from

the holding of the asset, or the bearing of the risk, exceeds

what that value would have been had the asset been held, or

the risk been borne, solely by UK resident companies

connected with the CFC, and

40

(b)   

the relevant non-tax value is a substantial proportion of the

excess value mentioned in paragraph (a).

(3)   

“Net economic value” does not include any value which derives

(directly or indirectly) from the reduction or elimination of any

liability of any person to tax or duty imposed under the law of any

45

territory outside the United Kingdom.

 
 

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

441

 

(4)   

“The relevant non-tax value” is the excess value mentioned in

subsection (2)(a) so far as it does not derive (directly or indirectly)

from the reduction or elimination of any liability of any person to tax

or duty imposed under the law of the United Kingdom.

(5)   

Subsection (6) applies if—

5

(a)   

there are SPFs which are relevant to the economic ownership

of a number of assets, or the assumption and management of

a number of risks, included in the relevant assets and risks,

and

(b)   

it is not reasonably practicable to separate those assets or

10

risks for the purpose of determining the extent to which the

SPFs are relevant to the economic ownership of each of those

assets, or the assumption and management of each of those

risks, separately.

(6)   

In subsections (1) and (2) references to an asset or risk are to be read

15

as references to those assets or risks taken together.

371DE   

Exclusion: independent companies’ arrangements

(1)   

Subsection (2) applies if—

(a)   

an asset or risk is included in the relevant assets and risks,

(b)   

the SPFs which are relevant to the economic ownership of the

20

asset, or the assumption and management of the risk, are

wholly or partly UK SPFs as determined at step 4 in section

371DB(1),

(c)   

as a result of that determination, an amount is included in the

provisional Chapter 4 profits, and

25

(d)   

the UK SPFs are carried out by companies connected with the

CFC under arrangements made between the CFC and those

companies.

(2)   

The amount is to be excluded from the provisional Chapter 4 profits

if it is reasonable to suppose that, were the SPFs which are UK SPFs

30

not to be carried out by companies connected with the CFC, the CFC

would enter into arrangements with companies not connected with

the CFC which—

(a)   

would be structured in the same way as the arrangements

mentioned in subsection (1)(d), and

35

(b)   

would, in relation to the CFC’s business, have the same

commercial effect as those arrangements.

(3)   

Subsection (4) applies if—

(a)   

there are SPFs which are relevant to the economic ownership

of a number of assets, or the assumption and management of

40

a number of risks, included in the relevant assets and risks,

and

(b)   

it is not reasonably practicable to separate those assets or

risks for the purpose of determining the extent to which the

SPFs are relevant to the economic ownership of each of those

45

assets, or the assumption and management of each of those

risks, separately.

(4)   

In subsection (1) references to an asset or risk are to be read as

references to those assets or risks taken together.

 
 

 
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