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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

485

 

Chapter 19

Assumed taxable total profits, assumed total profits and the corporation tax

assumptions

Overview

371SA   

Overview of Chapter

5

This Chapter explains the concepts of “assumed taxable total profits”

and “assumed total profits” (see section 371SB) and “the corporation

tax assumptions” (see section 371SC) which are referred to in this

Part.

“Assumed taxable total profits” and “assumed total profits”

10

371SB   

What are “assumed taxable total profits” and “assumed total profits”?

(1)   

For the purposes of this Part a CFC’s “assumed taxable total profits”

for an accounting period are what, applying the corporation tax

assumptions, would be the CFC’s taxable total profits of the

accounting period for corporation tax purposes.

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(2)   

“Taxable total profits” has the meaning given by section 4(2) of CTA

2010 (calculation of taxable total profits).

(3)   

But, for this purpose, in section 4(3) of CTA 2010—

(a)   

step 1 is to be applied subject to subsections (4) to (6) below,

and

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(b)   

step 2 is to be ignored.

(4)   

Any income which accrues during the accounting period to the

trustees of a settlement in relation to which the CFC is a settlor or a

beneficiary is to be added to the income determined at step 1.

(5)   

If there is more than one settlor or beneficiary in relation to the

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settlement, the income is to be apportioned between the CFC and the

other settlors or beneficiaries on a just and reasonable basis.

(6)   

If by virtue of subsection (4) any income (“the settlement income”) is

added to the income determined at step 1, any dividend or other

distribution which derives from the settlement income is to be

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excluded from the income determined at step 1.

(7)   

Subsection (8) applies if there is any income which, by virtue of

subsection (4), would (apart from subsection (8)) be included in—

(a)   

the chargeable profits for an accounting period of a CFC

which is a beneficiary in relation to a settlement, and

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(b)   

the chargeable profits for an accounting period of a CFC

which is a settlor in relation to the settlement.

(8)   

If the CFC charge is charged in relation to the beneficiary’s

accounting period, the income is not to be included in the settlor’s

chargeable profits.

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(9)   

For the purposes of this Part a CFC’s “assumed total profits” for an

accounting period are its assumed taxable total profits for the period

before taking step 2 in section 4(2) of CTA 2010.

 
 

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

486

 

“The corporation tax assumptions”

371SC   

What are “the corporation tax assumptions”?

(1)   

In this Part “the corporation tax assumptions” means the

assumptions set out in sections 371SD to 371SR.

(2)   

The corporation tax assumptions are to be applied in determining

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the following for an accounting period (“the relevant accounting

period”) of a CFC—

(a)   

the CFC’s assumed taxable total profits in accordance with

section 371SB(1),

(b)   

the corresponding UK tax in accordance with section 371NE,

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and

(c)   

the CFC’s creditable tax in accordance with Chapter 16.

371SD   

UK residence etc

(1)   

Assume—

(a)   

that the CFC is UK resident at all times during the relevant

15

accounting period,

(b)   

if the relevant accounting period is not the CFC’s first

accounting period, that the CFC has been UK resident from

the beginning of the CFC’s first accounting period, and

(c)   

except where the CFC ceases to be a CFC at the end of the

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relevant accounting period, that the CFC will continue to be

UK resident until it ceases to be a CFC,

   

and that the CFC is, has been and will continue to be within the

charge to corporation tax, and that its accounting periods (as

determined in accordance with section 371VB) are accounting

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periods for corporation tax purposes, accordingly.

(2)   

Subsection (1)—

(a)   

does not require it to be assumed that there is any change in

the place or places at which the CFC carries on its activities,

and

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(b)   

requires (in particular) that it be assumed that the CFC does

not get the benefit of section 1279 of CTA 2009 (exemption for

profits from securities free of tax to residents abroad).

(3)   

If the CFC is (actually) UK resident immediately before the

beginning of its first accounting period, assume that its UK residence

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from the beginning of that accounting period (as assumed in

accordance with subsection (1)) is not continuous with its (actual)

UK residence before the beginning of that accounting period.

(4)   

Except where the relevant accounting period is the CFC’s first

accounting period, assume that a determination of the CFC’s

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assumed taxable total profits has been made for all previous

accounting periods back to (and including) the CFC’s first

accounting period.

(5)   

Subsection (4) applies (in particular) for the purpose of applying any

relief which is relevant to two or more accounting periods.

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(6)   

In this section references to the CFC’s first accounting period are to

the CFC’s accounting period which begins when it becomes a CFC.

 
 

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

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371SE   

Close company

Assume that the CFC is not a close company.

371SF   

Claims and elections

(1)   

In relation to any relief under the Corporation Tax Acts which is

dependent upon the making of a claim or election, assume the CFC—

5

(a)   

to have made that claim or election which would give the

maximum amount of relief, and

(b)   

to have made that claim or election within any applicable

time limit.

(2)   

Subsection (1) does not cover (so far as it would otherwise do so) a

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claim or election under—

(a)   

section 18A of CTA 2009 (exemption for profits or losses of

foreign permanent establishments),

(b)   

section 1275 of CTA 2009 (relief for unremittable income),

(c)   

section 9A of CTA 2010 (designated currency of a UK

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resident investment company), or

(d)   

regulations made under paragraph 16 of Schedule 8 to FA

2006 (election for lease to be treated as long funding lease).

(3)   

Subsection (1) is also subject to section 371SK(5).

371SG   

Disapplication of assumption in section 371SF(1)

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(1)   

This section applies if a notice is given to an officer of Revenue and

Customs requesting that the CFC be assumed—

(a)   

not to have made for the relevant accounting period a

specified claim or election otherwise covered by section

371SF(1),

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(b)   

to have made for the relevant accounting period a specified

claim or election, being different from one assumed by

section 371SF(1) but being one which (subject to compliance

with any applicable time limit) could have been made by a

company within the charge to corporation tax, or

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(c)   

to have disclaimed or required the postponement, in whole

or in part, of a specified allowance for the relevant accounting

period if (subject to compliance with any applicable time

limit) a company within the charge to corporation tax could

have disclaimed the allowance or required such a

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postponement (as the case may be).

(2)   

In determining for the purposes of section 371BA(3) the CFC’s

assumed total profits and the amounts to be relieved against those

profits at step 2 in section 4(2) of CTA 2010—

(a)   

the assumption set out in the notice under subsection (1) is to

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be applied so far as relevant, and

(b)   

the assumption set out in section 371SF(1) is to be disapplied

to the extent necessary as a consequence.

(3)   

In determining the CFC’s creditable tax—

(a)   

the assumption set out in the notice under subsection (1) is to

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be applied so far as relevant, and

 
 

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

488

 

(b)   

the assumption set out in section 371SF(1) is to be disapplied

to the extent necessary as a consequence.

(4)   

The claims which may be specified in a notice under subsection (1)

by virtue of paragraph (b) include claims under the provision

mentioned in section 371SF(2)(b) or 371SK(5).

5

(5)   

A notice under subsection (1)—

(a)   

may be given only by a company or companies determined

under subsection (6) or (7), and

(b)   

must be given—

(i)   

within 20 months after the end of the relevant

10

accounting period, or

(ii)   

within such longer period as an officer of Revenue

and Customs may allow.

(6)   

A company may give a notice if—

(a)   

the company would be a chargeable company were section

15

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

relevant 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)

would represent more than half of X%.

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(7)   

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 relevant accounting period, and

(b)   

the percentage of the CFC’s chargeable profits which would

25

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

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

(8)   

In subsections (6) and (7) “X%” means the total percentage of the

CFC’s chargeable profits which would be apportioned to chargeable

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

30

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

accounting period.

371SH   

Elections under section 9A of CTA 2010

(1)   

This section applies if—

(a)   

during the relevant accounting period or any earlier

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accounting period of the CFC, a notice is given to an officer of

Revenue and Customs requesting that the CFC be assumed

to have made an election under section 9A of CTA 2010

(designated currency of a UK resident investment company)

in the form specified in the notice, and

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(b)   

the time at which the notice is given is a time at which,

applying the corporation tax assumptions apart from this

section, the CFC would have been able to make an election

under that section in the form specified in the notice (see, in

particular, section 9A(2)).

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(2)   

Assume—

 
 

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

489

 

(a)   

that an election under section 9A of CTA 2010 has been made

by the CFC in the form specified in the notice under

subsection (1) at the time in question, and

(b)   

that, accordingly, sections 9A and 9B of that Act apply to

determine the effect (if any) of that election.

5

(3)   

A notice under subsection (1) may be given only by a company or

companies determined under subsection (4) or (5).

(4)   

A company may give a notice if—

(a)   

the company would be likely to be a chargeable company in

relation to the applicable accounting period were section

10

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

period, and

(b)   

the percentage of the CFC’s chargeable profits for the

applicable accounting period which would be likely to be

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

15

would represent more than half of X%.

(5)   

Two or more companies may together give a notice if—

(a)   

the companies would all be likely to be chargeable companies

in relation to the applicable accounting period were section

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

20

period, and

(b)   

the percentage of the CFC’s chargeable profits for the

applicable accounting period which would be likely to be

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

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

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(6)   

In subsections (4) and (5) (and this subsection)—

“the applicable accounting period” means the accounting

period of the CFC during which the notice under subsection

(1) is given, and

“X%” means the total percentage of the CFC’s chargeable

30

profits for the applicable accounting period which would be

likely to be apportioned to chargeable companies at step 3 in

section 371BC(1) were section 371BC (charging the CFC

charge) to apply in relation to the applicable accounting

period.

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371SI   

Modification of sections 6 and 7 of CTA 2010

(1)   

This section applies if—

(a)   

in accordance with section 371SH, the CFC is assumed to

have made an election under section 9A of CTA 2010, but

(b)   

applying the corporation tax assumptions apart from this

40

section, section 6 or 7 of CTA 2010 could not apply in relation

to the CFC for a period of account because the CFC does not

prepare its accounts in accordance with generally accepted

accounting practice.

(2)   

If sterling is the CFC’s designated currency for the period of account,

45

assume that section 6 of CTA 2010 applies in relation to the CFC as if

the words “in accordance with generally accepted accounting

practice” were—

(a)   

omitted from subsection (1A)(a), and

 
 

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

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(b)   

in subsection (2), inserted after “its accounts in sterling”.

(3)   

If the CFC’s designated currency for the period of account is a

currency other than sterling, assume that section 7 of CTA 2010

applies in relation to the CFC as if the words “in accordance with

generally accepted accounting practice” were—

5

(a)   

omitted from subsection (1A)(a), and

(b)   

at step 1 in subsection (2), inserted after “that currency”.

371SJ   

Elections for leases to be treated as long funding leases

(1)   

This section applies if—

(a)   

a notice is given to an officer of Revenue and Customs

10

requesting that the CFC be assumed to have made a long

funding lease election in the form specified in the notice, and

(b)   

the time at which the notice is given is a time at which,

applying the corporation tax assumptions apart from this

section, the CFC would have been able to make a long

15

funding lease election in the form specified in the notice.

(2)   

Assume—

(a)   

that a long funding lease election has been made by the CFC

in the form specified in the notice under subsection (1) at the

time in question, and

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(b)   

that, accordingly, regulation 2(5) of the 2007 Regulations

applies to determine the effect (if any) of that election.

(3)   

Subsection (2)(b) does not apply if—

(a)   

a notice is given to an officer of Revenue and Customs

withdrawing the notice under subsection (1), and

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(b)   

the time at which the notice withdrawing the notice under

subsection (1) is given is a time at which, applying the

corporation tax assumptions apart from this section and the

assumption in subsection (2)(a), the CFC would have been

able to withdraw its assumed long funding lease election.

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(4)   

A notice under subsection (1) or (3) may be given only by a company

or companies determined under subsection (5) or (6).

(5)   

A company may give a notice if—

(a)   

the company would be likely to be a chargeable company in

relation to the applicable accounting period were section

35

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

period, and

(b)   

the percentage of the CFC’s chargeable profits for the

applicable accounting period which would be likely to be

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

40

would represent more than half of X%.

(6)   

Two or more companies may together give a notice if—

(a)   

the companies would all be likely to be chargeable companies

in relation to the applicable accounting period were section

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

45

period, and

(b)   

the percentage of the CFC’s chargeable profits for the

applicable accounting period which would be likely to be

 
 

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

491

 

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

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

(7)   

In this section—

(a)   

“the 2007 Regulations” means the Long Funding Leases

(Elections) Regulations 2007 (S.I. 2007/304),

5

(b)   

terms defined in the 2007 Regulations have the same

meaning as they have in the 2007 Regulations,

(c)   

“the applicable accounting period” means the CFC’s

accounting period in which falls the effective date specified

in the notice under subsection (1), and

10

(d)   

“X%” means the total percentage of the CFC’s chargeable

profits for the applicable accounting period which would be

likely to be apportioned to chargeable companies at step 3 in

section 371BC(1) were section 371BC (charging the CFC

charge) to apply in relation to the applicable accounting

15

period.

(8)   

The Treasury may by regulations amend this section as they consider

appropriate to take account of any regulations made by them from

time to time under paragraph 16 of Schedule 8 to FA 2006 (elections

for leases to be treated as long funding leases).

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371SK   

Intangible fixed assets

(1)   

This section applies for the purpose of applying Part 8 of CTA 2009

(intangible fixed assets).

(2)   

Assume that any intangible fixed asset acquired or created by the

CFC before its first accounting period was acquired or created by the

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CFC at the beginning of that accounting period at a cost equal to its

value recognised for accounting purposes at that time.

(3)   

In subsection (2) references to the CFC’s first accounting period are

to the CFC’s accounting period which begins when it becomes a

CFC.

30

(4)   

The assumption in subsection (2) does not affect the determination of

the question whether Part 8 of CTA 2009 applies to an asset in

accordance with section 882 of that Act (application of Part 8 to assets

created or acquired on or after 1 April 2002).

(5)   

Assume also that the CFC—

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(a)   

has not claimed any relief under Chapter 7 of Part 8 of CTA

2009 (roll-over relief in case of reinvestment), or

(b)   

made any provisional declaration of entitlement to such

relief.

(6)   

Subsection (5) is subject to section 371SG(4).

40

371SL   

Group relief etc

(1)   

Assume that the CFC is neither a member of a group of companies

nor a member of a consortium for the purposes of any provision of

the Tax Acts.

(2)   

Subsection (3) applies if—

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