Finance (No. 4) Bill

Session 2010 - 12
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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
461

company (apart from the ultimate debtor) for the purposes of
Part 3 of CTA 2009 (trading income).
(7)
In subsection (6) “relevant UK connected company” means a UK
resident company connected with the CFC, the main business of
which is banking business or insurance business.
5
(8)
A creditor relationship of the CFC cannot be a qualifying loan
relationship if—
(a)
the CFC receives relevant UK funds or other assets for the
purpose of funding the loan which is the subject of the CFC’s
creditor relationship,
10
(b)
the provision of the relevant UK funds or other assets is itself
funded (wholly or partly and directly or indirectly) by a loan
made to a UK connected company,
(c)
the relevant loan is wholly or mainly used to repay wholly or
partly another loan made to the ultimate debtor by a person
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not connected with the ultimate debtor, and
(d)
the events mentioned in paragraphs (a) to (c) take place
under, or are otherwise connected (directly or indirectly)
with, an arrangement the main purpose, or one of the main
purposes, of which is to obtain a tax advantage for any
20
person.
(9)
In subsection (8)—
(a)
“relevant UK funds or other assets” and “UK connected
company” have the same meaning as in section 371EC, and
(b)
in paragraph (c) “the relevant loan” means—
25
(i)
the loan which is the subject of the CFC’s creditor
relationship, or
(ii)
if the ultimate debtor is determined in accordance
with section 371IG(4) or (5), loan B.
(10)
In subsections (4)(b) and (9)(b)(ii) references to loan B do not include
30
any part of loan B—
(a)
which loan A is not made and used to fund, or
(b)
in relation to which the requirement of section 371IG(3)(c) is
not met.
371II
Power to amend definitions
35
The HMRC Commissioners may by regulations amend this
Chapter—
(a)
so as to amend the definition of “qualifying resources” for the
purposes of section 371IB, or
(b)
so as to amend the definition of “qualifying loan
40
relationship” for the purposes of this Chapter (including by
way of amending the definition of “ultimate debtor”).
371IJ
Claims
(1)
A claim under this Chapter must be made by being included in
company C’s company tax return for the relevant corporation tax
45
accounting period (as defined in section 371BC(3)).

Finance (No. 4) Bill
Schedule 20 — Controlled foreign companies and foreign permanent establishments
Part 1 — Controlled foreign companies
462

(2)
The claim may be included in the return originally made or by
amendment.
(3)
A claim under this Chapter may be made, amended or withdrawn at
any time up to whichever is the last of the following dates—
(a)
the first anniversary of the filing date for company C’s
5
company tax return of the relevant corporation tax
accounting period under paragraph 14 of Schedule 18 to FA
1998;
(b)
if notice of enquiry is given into that return under paragraph
24 of that Schedule, 30 days after the enquiry is completed;
10
(c)
if after such an enquiry an officer of Revenue and Customs
amends the return under paragraph 34(2) of that Schedule, 30
days after notice of the amendment is issued;
(d)
if an appeal is brought against such an assessment, 30 days
after the date on which the appeal is finally determined.
15
(4)
A claim under this Chapter may be made, amended or withdrawn at
a later time if an officer of Revenue and Customs allows it.
(5)
In any event, if after a claim under this Chapter is made there is a
change of circumstances affecting the tested income amount or the
tested expense amount mentioned in section 371IE(2), the claim may
20
be amended at any time within the period of 12 months after the
change of circumstances for the purpose of taking account of the
change of circumstances.
(6)
The time limits otherwise applicable to amendment of a company tax
return do not apply to an amendment to the extent that it makes,
25
amends or withdraws a claim under this Chapter within the time
allowed by or under this section.
(7)
In subsection (3) references to an enquiry into a company tax return
do not include an enquiry restricted to a previous amendment
making, amending or withdrawing a claim under this Chapter.
30
(8)
An enquiry is so restricted if—
(a)
the scope of the enquiry is limited as mentioned in paragraph
25(2) of Schedule 18 to FA 1998, and
(b)
the amendment giving rise to the enquiry consisted of the
making, amending or withdrawing of a claim under this
35
Chapter.
Chapter 10
The exempt period exemption
371JA
Introduction to Chapter
(1)
This Chapter sets out an exemption called “the exempt period
40
exemption” for the purposes of section 371BA(2)(b).
(2)
Section 371JE also provides for adjustments of profits which would
otherwise pass through the CFC charge gateway (see section
371BB(2)(b)) linked to the exempt period exemption.

Finance (No. 4) Bill
Schedule 20 — Controlled foreign companies and foreign permanent establishments
Part 1 — Controlled foreign companies
463

371JB
The basic rule
(1)
The exempt period exemption applies for a CFC’s accounting period
if—
(a)
the accounting period ends during an exempt period of the
CFC (see sections 371JC and 371JD),
5
(b)
the subsequent period condition is met, and
(c)
the chargeable company condition is met.
(2)
The subsequent period condition is met if—
(a)
the CFC does not cease to be a CFC before having at least one
accounting period which begins after the end of the exempt
10
period, and
(b)
section 371BC (charging the CFC charge) does not apply in
relation to the CFC’s first accounting period to begin after the
end of the exempt period (see section 371BA(2)).
(3)
The chargeable company condition is met if, at all times during the
15
relevant period—
(a)
the charging condition in section 371JC is met, and
(b)
each company which would be a chargeable company for the
purposes of that condition is an original chargeable company
or is connected with an original chargeable company.
20
(4)
In subsection (3)—
“original chargeable company” means a company which, for
the purposes of the charging condition in section 371JC,
would be a chargeable company at the beginning of the
exempt period, and
25
“the relevant period” means the period which—
(a)
begins immediately after the beginning of the exempt
period, and
(b)
ends at the end of the CFC’s first accounting period to
begin after the end of the exempt period.
30
(5)
This section is subject to section 371JF (anti-avoidance).
371JC
When does an exempt period begin?
(1)
An exempt period of a CFC begins at any time (“the relevant time”)
during an accounting period of the CFC if—
(a)
the initial condition is met,
35
(b)
the charging condition is met at the relevant time, and
(c)
at no time during the relevant preceding period (if there is
one) is the charging condition met.
(2)
The initial condition is met if—
(a)
immediately before the relevant time, the company (“C”)
40
which is the CFC is carrying on a business, or
(b)
if the relevant time is the time at which C is incorporated or
formed, C is formed or incorporated by one or more persons
for the purpose of controlling one or more companies in
circumstances where it is expected that an exempt period will
45
begin in relation to one or more of those companies when C
begins to control the company or companies.

Finance (No. 4) Bill
Schedule 20 — Controlled foreign companies and foreign permanent establishments
Part 1 — Controlled foreign companies
464

(3)
To determine if the charging condition is met at any time, assume—
(a)
that the company which is the CFC is a CFC at the time in
question if that is not otherwise the case,
(b)
that the time in question is itself an accounting period of the
CFC, and
5
(c)
that section 371BC (charging the CFC charge) applies in
relation to the assumed accounting period.
(4)
The charging condition is met at the time in question if, as a result of
steps 1, 3 and 4 in section 371BC(1), there would be one or more
chargeable companies in relation to the assumed accounting period.
10
(5)
“The relevant preceding period” means the period of 12 months
ending immediately before the relevant time, excluding any part of
that period during which the company which is the CFC does not
exist.
371JD
How long is an exempt period?
15
(1)
Subject to what follows, an exempt period of a CFC lasts 12 months.
(2)
Subsection (3) applies if a notice is given to an officer of Revenue and
Customs requesting that the length of an exempt period of a CFC be
extended (or further extended).
(3)
An officer of Revenue and Customs may extend (or further extend)
20
the length of the exempt period.
(4)
A notice under subsection (2) must be given no later than the end of
the exempt period (as it stands at the time the notice is given).
(5)
A notice under subsection (2) may be given only by a company
which, at the time the notice is given, would be a chargeable
25
company for the purposes of the charging condition in section 371JC.
371JE
Adjustment of profits passing through the CFC charge gateway
(1)
This section applies for a CFC’s accounting period if—
(a)
the accounting period begins, but does not end, during an
exempt period of the CFC, and
30
(b)
the subsequent period condition and the chargeable
company condition in section 371JB are both met.
(2)
The CFC’s assumed total profits which would otherwise pass
through the CFC charge gateway are to be adjusted to ensure that no
profits which arise in the exempt period, as determined on a just and
35
reasonable basis, pass through the CFC charge gateway.
(3)
This section is subject to section 371JF (anti-avoidance).
371JF
Anti-avoidance
(1)
The exempt period exemption does not apply for a CFC’s accounting
period (“the relevant accounting period”) if condition A or B is met.
40
(2)
Condition A is that—
(a)
an arrangement is entered into at any time,
(b)
the main purpose, or one of the main purposes, of the
arrangement is to secure a tax advantage for any person,

Finance (No. 4) Bill
Schedule 20 — Controlled foreign companies and foreign permanent establishments
Part 1 — Controlled foreign companies
465

(c)
the arrangement is linked to the exempt period exemption
applying or being expected to apply (apart from this
section)—
(i)
for the relevant accounting period, or
(ii)
for that period and one or more other accounting
5
periods of the CFC, and
(d)
the arrangement involves one or both of the following—
(i)
the CFC holding assets which give rise to non-trading
finance profits or trading finance profits of the CFC,
or
10
(ii)
the CFC holding intellectual property which gives
rise to any income of the CFC.
(3)
Condition B is that—
(a)
an arrangement is entered into at any time,
(b)
in consequence of the arrangement, the length of any
15
accounting period of the CFC is less than 12 months, and
(c)
the main purpose, or one of the main purposes, of the
arrangement is to secure that the exempt period exemption
applies—
(i)
for the relevant accounting period, or
20
(ii)
for that period and one or more other accounting
periods of the CFC.
(4)
In this section references to the exempt period exemption include
references to section 371JE.
371JG
Amendment of company tax returns
25
(1)
This section applies in relation to a company’s company tax return
for a corporation tax accounting period if an exempt period of a CFC
falls (wholly or partly) in the corporation tax accounting period.
(2)
Any amendment of the return which relates to the application (or
non-application) of the exempt period exemption or section 371JE for
30
an accounting period of the CFC may be made by the company at
any time no later than 12 months after the relevant filing date.
(3)
“The relevant filing date” means the date which is the filing date
under paragraph 14 of Schedule 18 to FA 1998 for the company’s
company tax return for its corporation tax accounting period in
35
which ends the CFC’s first accounting period to begin after the end
of the exempt period.
(4)
“Corporation tax accounting period” means an accounting period for
corporation tax purposes.
Chapter 11
40
The excluded territories exemption
371KA
Introduction to Chapter
This Chapter sets out an exemption called “the excluded territories
exemption” for the purposes of section 371BA(2)(b).