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
492

(a)
under Part 5 of CTA 2010 (group relief) the CFC actually
surrenders any relief which is allowed to another company
by way of group relief, but
(b)
applying the corporation tax assumptions apart from
subsection (3), the relief would reduce the CFC’s assumed
5
taxable total profits for the relevant accounting period.
(3)
Assume that the relief is to be ignored in determining the CFC’s
assumed taxable total profits for the relevant accounting period.
371SM
Capital allowances
(1)
This section applies if, before the CFC’s first accounting period, the
10
CFC incurred any capital expenditure on the provision of plant or
machinery for the purposes of its trade.
(2)
For the purposes of Part 2 of CAA 2001 (plant and machinery
allowances) assume that the plant or machinery—
(a)
was provided for purposes wholly other than those of the
15
trade, and
(b)
was not brought into use for the purposes of the trade until
the beginning of the CFC’s first accounting period,

and that section 13 of CAA 2001 (use for qualifying activity of plant
or machinery provided for other purposes) applies accordingly.
20
(3)
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.
(4)
This section is to be read as if it were contained in Part 2 of CAA 2001.
371SN
Unremittable overseas income
(1)
For the purposes of Part 18 of CTA 2009 (unremittable overseas
25
income) assume that in section 1274(1)(a), (3) and (4) of that Act
references to the United Kingdom are references to the relevant
territories.
(2)
“The relevant territories” means—
(a)
the United Kingdom,
30
(b)
the territory in which the CFC is taken to be resident for the
relevant accounting period as determined under Chapter 19,
and
(c)
any other territory in which the CFC is in fact resident at any
time during the relevant accounting period.
35
371SO
Tax advantages
(1)
This section applies if there is an arrangement or other conduct a
purpose of which is to obtain a tax advantage within section
1139(2)(da) of CTA 2010 by obtaining by any means what would,
applying the corporation tax assumptions apart from this section, be
40
a tax advantage within section 1139(2)(a) to (d) of that Act.
(2)
So far as they would not otherwise do so, the Corporation Tax Acts
are to be assumed to apply in relation to the arrangement or other
conduct in the same way as they would apply were the purpose of
obtaining a tax advantage within section 1139(2)(da) of CTA 2010 the
45

Finance (No. 4) Bill
Schedule 20 — Controlled foreign companies and foreign permanent establishments
Part 1 — Controlled foreign companies
493

purpose of obtaining an actual tax advantage within section
1139(2)(a) to (d) of that Act by the means in question.
371SP
Disguised interest: application of Chapter 2A of Part 6 of CTA 2009
(1)
This section applies if—
(a)
applying the corporation tax assumptions apart from this
5
section, Chapter 2A of Part 6 of CTA 2009 (disguised interest)
would, but for section 486D(1) of that Act, apply in relation to
a return produced for the CFC by an arrangement to which
the CFC is a party, and
(b)
it is reasonable to assume that the main purpose, or one of the
10
main purposes, of the CFC being a party to the arrangement
is to obtain a tax advantage within section 1139(2)(da) of CTA
2010 for any person by obtaining what would, applying the
corporation tax assumptions apart from this section, be a
relevant tax advantage in relation to the CFC.
15
(2)
Chapter 2A of Part 6 of CTA 2009 is to be assumed to apply in
relation to the return.
(3)
In subsection (1)(b) the reference to obtaining what would be a
relevant tax advantage is to be read in accordance with section
486D(4) of CTA 2009.
20
(4)
This section is without prejudice to the generality of section 371SO.
371SQ
Shares accounted for as liabilities: application of section 521C of CTA
2009
(1)
This section applies if—
(a)
applying the corporation tax assumptions apart from this
25
section, section 521C of CTA 2009 (shares accounted for as
liabilities) would, but for section 521C(1)(f) of that Act, apply
to a share held by the CFC, and
(b)
the main purpose, or one of the main purposes, for which the
CFC holds the share is to obtain a tax advantage within
30
section 1139(2)(da) of CTA 2010 for any person by obtaining
what would, applying the corporation tax assumptions apart
from this section, be a relevant tax advantage in relation to
the CFC.
(2)
Section 521C of CTA 2009 is to be assumed to apply to the share.
35
(3)
In subsection (1)(b) the reference to obtaining what would be a
relevant tax advantage is to be read in accordance with section
521E(4) of CTA 2009.
(4)
This section is without prejudice to the generality of section 371SO.
371SR
Double taxation relief: counteraction notices
40
(1)
This section applies if it is reasonable to suppose that, applying the
corporation tax assumptions apart from this section, each of
conditions A to D of section 82 (double taxation relief: conditions to
be met for giving of counteraction notice) would or might be met in
relation to the CFC in relation to the relevant accounting period.
45

Finance (No. 4) Bill
Schedule 20 — Controlled foreign companies and foreign permanent establishments
Part 1 — Controlled foreign companies
494

(2)
Assume that such adjustments are to be made as are necessary for
counteracting what, applying the corporation tax assumptions apart
from this section, would be the effects of the scheme or arrangement
in question in the relevant accounting period that would be referable
to the purpose referred to in condition B of section 82.
5
Chapter 20
Residence of CFCs
371TA
The basic rule
(1)
For the purposes of this Part a CFC is taken to be resident for an
accounting period (“the relevant accounting period”) in—
10
(a)
the territory determined by applying section 371TB, or
(b)
if no territory can be determined by applying that section—
(i)
if subsection (2) applies, the territory in which the
CFC is taken to be resident under the double taxation
arrangements in question, or
15
(ii)
otherwise, the territory in which the CFC is
incorporated or formed.
(2)
This subsection applies if the CFC is incorporated or formed in the
United Kingdom but is taken to be non-UK resident by virtue of
section 18 of CTA 2009 (companies treated as non-UK resident under
20
double taxation arrangements).
(3)
This section is subject to section 371KC and step 1 in section
371NB(1).
371TB
How to determine the territory in which the CFC is resident
(1)
The CFC is taken to be resident in the territory under the law of
25
which, at all times during the relevant accounting period, the CFC is
liable to tax by reason of domicile, residence or place of management.
(2)
If there are two or more territories (each of which is called an
“eligible territory”) falling within subsection (1), the CFC is taken to
be resident in only one of the eligible territories.
30
(3)
To determine that territory, go through the following subsections.

If two or more subsections apply, the earlier or earliest subsection
takes precedence.
(4)
If an election or designation under subsection (8) or (9) has effect for
the relevant accounting period by virtue of section 371TC(8)(b), the
35
CFC is taken to be resident in the eligible territory which is the
subject of the election or designation.
(5)
If, at all times during the relevant accounting period, the CFC’s place
of effective management is situated in one of the eligible territories
only, the CFC is taken to be resident in that territory.
40
(6)
If—
(a)
at all times during the relevant accounting period, the CFC’s
place of effective management is situated in two or more of
the eligible territories, and

Finance (No. 4) Bill
Schedule 20 — Controlled foreign companies and foreign permanent establishments
Part 1 — Controlled foreign companies
495

(b)
immediately before the end of the relevant accounting
period, over 50% of the amount of the CFC’s assets is situated
in one of those eligible territories,

the CFC is taken to be resident in the territory in which over 50% of
the amount of the CFC’s assets is situated.
5

For this purpose, the amount of the CFC’s assets is determined by
reference to their market value immediately before the end of the
relevant accounting period.
(7)
If, immediately before the end of the relevant accounting period,
over 50% of the amount of the CFC’s assets is situated in one of the
10
eligible territories, the CFC is taken to be resident in that territory.

For this purpose, the amount of the CFC’s assets is determined by
reference to their market value immediately before the end of the
relevant accounting period.
(8)
If, in accordance with section 371TC(1), an election specifying an
15
eligible territory is made, the CFC is taken to be resident in that
territory.
(9)
If an officer of Revenue and Customs designates an eligible territory
on a just and reasonable basis (see section 371TC(5) to (7)), the CFC
is taken to be resident in that territory.
20
371TC
Elections and designations about residence
(1)
An election under section 371TB(8)—
(a)
may be made only by a company or companies determined
under subsection (2) or (3),
(b)
must be made by notice to an officer of Revenue and
25
Customs,
(c)
must be made no later than 12 months after the end of the
relevant accounting period,
(d)
must state, in relation to each company making the election,
the percentage of the CFC’s chargeable profits for the
30
relevant accounting period which would be likely to be
apportioned to the company at step 3 in section 371BC(1)
were section 371BC (charging the CFC charge) to apply in
relation to the relevant accounting period,
(e)
must be signed on behalf of each company making the
35
election, and
(f)
is irrevocable.
(2)
A company may make an election if it is likely that, were section
371BC (charging the CFC charge) to apply in relation to the relevant
accounting period, the company would be a chargeable company
40
whose apportioned percentage of the CFC’s chargeable profits for
the relevant accounting period would represent more than half of
X%.
(3)
Two or more companies may together make an election if it is likely
that, were section 371BC (charging the CFC charge) to apply in
45
relation to the relevant accounting period, the companies would all
be chargeable companies whose apportioned percentage of the
CFC’s chargeable profits for the relevant accounting period would,
taken together, represent more than half of X%.

Finance (No. 4) Bill
Schedule 20 — Controlled foreign companies and foreign permanent establishments
Part 1 — Controlled foreign companies
496

(4)
In subsections (2) and (3) “X%” means the total percentage of the
CFC’s chargeable profits for the relevant accounting period which
would be likely to be apportioned to chargeable companies were
section 371BC (charging the CFC charge) to apply in relation to the
relevant accounting period.
5
(5)
A designation under section 371TB(9) is irrevocable.
(6)
An officer of Revenue and Customs must give notice of a designation
to each company which the officer considers would be likely to be a
chargeable company were the CFC charge to be charged in relation
to the relevant accounting period.
10
(7)
The notice must specify—
(a)
the date on which the designation was made,
(b)
the CFC’s name,
(c)
the relevant accounting period, and
(d)
the territory designated.
15
(8)
An election or designation has effect in relation to—
(a)
the relevant accounting period, and
(b)
each successive accounting period of the CFC until
subsection (9) applies to an accounting period,

regardless of any change in the persons who have interests in the
20
CFC or any change in those interests.
(9)
This subsection applies to an accounting period (“the later period”)
if—
(a)
one or more of the territories which were eligible territories
in relation to the relevant accounting period does not fall
25
within section 371TB(1) in relation to the later period, or
(b)
some other territory also falls within section 371TB(1) in
relation to the later period.
Chapter 21
Management
30
371UA
Introduction to Chapter
(1)
The HMRC Commissioners are responsible for the management of
the CFC charge, including the collection of sums charged.
(2)
In this Chapter—
“closure notice” means a notice under paragraph 32 of Schedule
35
18 to FA 1998 (completion of enquiry and statement of
conclusions),
“discovery assessment” means a discovery assessment or
discovery determination under paragraph 41 of that
Schedule (including by virtue of paragraph 52 of that
40
Schedule), and
“the Taxes Acts” has the same meaning as in TMA 1970.