Finance (No. 4) Bill

Session 2010 - 12
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Other Bills before Parliament

Finance (No. 4) Bill

Finance (No. 4) Bill
Schedule 20 — Controlled foreign companies and foreign permanent establishments
Part 1 — Controlled foreign companies
497

371UB
Application of the Taxes Acts to the CFC charge
(1)
The provision of step 5 in section 371BC(1) relating to the charging of
a sum as if it were an amount of corporation tax is to be taken as
applying all enactments applying generally to corporation tax.
(2)
This is subject to—
5
(a)
any provisions of the Taxes Acts, and
(b)
any necessary modifications.
(3)
The enactments referred to in subsection (1) include—
(a)
those relating to returns of information and the supply of
accounts, statements and reports,
10
(b)
those relating to the assessing, collecting and receiving of
corporation tax,
(c)
those conferring a right of appeal, and
(d)
those concerning administration, penalties, interest on
unpaid tax and priority of tax in cases of insolvency under the
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law of any part of the United Kingdom.
(4)
In particular, TMA 1970 is to have effect as if—
(a)
any reference to corporation tax included a reference to a sum
charged at step 5 in section 371BC(1) as if it were an amount
of corporation tax, and
20
(b)
any reference to profits of a company included, in the case of
a chargeable company in relation to a CFC’s accounting
period, references to the percentage of the CFC’s chargeable
profits in respect of which the company is charged at step 5
in section 371BC(1).
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(5)
Nothing in—
(a)
paragraph 10 of Schedule 18 to FA 1998 (claims or elections in
company tax returns), or
(b)
Schedule 1A to TMA 1970 (claims or elections not included in
returns),
30

applies to an election under section 371TB(8).
371UC
Just and reasonable apportionments
(1)
This section applies if—
(a)
an apportionment of a CFC’s chargeable profits and
creditable tax is to be made in accordance with section
35
371QC(2), and
(b)
a company tax return is made or amended using for the
apportionment a particular basis adopted by the company
making the return.
(2)
An officer of Revenue and Customs may determine that another
40
basis is to be used for the apportionment; and matters are then to
proceed as if that were the only basis allowed by the Taxes Acts.
(3)
The officer’s determination may be questioned on an appeal against
an amendment of the company’s tax return made under paragraph
30 or 34 of Schedule 18 to FA 1998.
45

Finance (No. 4) Bill
Schedule 20 — Controlled foreign companies and foreign permanent establishments
Part 1 — Controlled foreign companies
498

(4)
But it may be questioned only on the ground that the basis of
apportionment determined by the officer is not just and reasonable.
371UD
Relief against sum charged
(1)
Subsection (2) applies if (apart from subsection (2)) a chargeable
company in relation to a CFC’s accounting period is entitled, or on
5
the making of a claim would be entitled, to a deduction in respect of
a relevant allowance for the relevant corporation tax accounting
period.
(2)
The company may make a claim under this subsection for relief in
respect of the relevant allowance.
10
(3)
If the company makes a claim, the relief is given by setting off the
relevant sum against the sum charged on the company at step 5 in
section 371BC(1).
(4)
“The relevant sum” is the sum equal to corporation tax at the
appropriate rate on so much of the relevant allowance as is specified
15
in the claim.
(5)
So much of the relevant allowance as is specified in the claim is to be
taken for the purposes of the Tax Acts as having been allowed as a
deduction in accordance with the appropriate provision of those
Acts.
20
(6)
No other relief is available against a sum charged on a company at
step 5 in section 371BC(1).
(7)
In this section—
(a)
“the appropriate rate” and “the relevant corporation tax
accounting period” have the meaning given by section
25
371BC(3), and
(b)
“relevant allowance” means—
(i)
any loss to which section 37 or 62(1) to (3) of CTA 2010
applies,
(ii)
any qualifying charitable donation,
30
(iii)
any expenses of management to which section 1219(1)
of CTA 2009 applies,
(iv)
any adjusted BLAGAB management expenses for the
purposes of section 73 of FA 2012,
(v)
any excess to which section 260(3) of CAA 2001
35
applies,
(vi)
any amount available to the company by way of
group relief, or
(vii)
any non-trading deficit on the company’s loan
relationships.
40
371UE
Appeals affecting more than one person
(1)
This section applies if—
(a)
a relevant appeal involves any question concerning the
application of this Part in relation to a particular person, and
(b)
the resolution of that question is likely to affect the liability
45
under this Part of any other person in relation to the CFC
concerned.

Finance (No. 4) Bill
Schedule 20 — Controlled foreign companies and foreign permanent establishments
Part 1 — Controlled foreign companies
499

(2)
Each of the following is a “relevant appeal”—
(a)
an appeal under paragraph 34(3) of Schedule 18 to FA 1998
against an amendment of a company tax return, and
(b)
an appeal under paragraph 48 of that Schedule against a
discovery assessment.
5
(3)
The appeal is to be conducted as follows.
(4)
Each of the persons whose liability under this Part is likely to be
affected by the resolution of the question is entitled to be a party to
the proceedings.
(5)
The tribunal must determine the question separately from any other
10
questions in the proceedings.
(6)
The tribunal’s determination on the question is to have effect as if
made in an appeal to which each of those persons was a party.
371UF
Recovery of sum charged from other UK resident companies
(1)
This section applies if a sum charged on a company (“the defaulting
15
company”) at step 5 in section 371BC(1) as if it were an amount of
corporation tax is not fully paid before the date on which it is due
and payable in accordance with the Taxes Acts.
(2)
An officer of Revenue and Customs may give a notice of liability on
another UK resident company which holds or has held (directly or
20
indirectly) the whole or any part of the same interest in the CFC
concerned as is or was held by the defaulting company.
(3)
If such a notice is given to a company (“the responsible company”),
the following are payable by the responsible company—
(a)
the whole or, as the case may be, the corresponding part of
25
the sum charged so far as it is unpaid as at the time the notice
is given,
(b)
the whole or, as the case may be, the corresponding part of
any unpaid interest due on the sum charged as at the time the
notice is given, and
30
(c)
any interest accruing on the sum charged after the notice is
given so far as referable to the sum payable by the
responsible company under paragraph (a).
(4)
Subsection (5) applies if any sum payable by the responsible
company under subsection (3) is not fully paid by the end of the
35
period of 3 months starting with the date on which the notice is
given.
(5)
Without affecting the right of recovery from the responsible
company, the outstanding amount may be recovered from the
defaulting company.
40
Chapter 22
Supplementary provision
371VA
Definitions
In this Part—

Finance (No. 4) Bill
Schedule 20 — Controlled foreign companies and foreign permanent establishments
Part 1 — Controlled foreign companies
500

“accounting period”, in relation to a CFC, is to be read in
accordance with section 371VB,
“accounting profits”, in relation to a CFC, is to be read in
accordance with sections 371VC and 371VD,
“arrangement” includes—
5
(a)
any agreement, scheme, transaction or understanding
(whether or not legally enforceable), and
(b)
a series of arrangements or a part of an arrangement,
“assumed taxable total profits”, in relation to a CFC, is to be
read in accordance with section 371SB(1) to (6),
10
“assumed total profits”, in relation to a CFC, is to be read in
accordance with section 371SB(9), subject to section
371DA(2),
“banking business” means the business of—
(a)
banking, deposit-taking, money-lending or debt-
15
factoring, or
(b)
any activity similar to an activity falling within
paragraph (a),
“CFC” is to be read in accordance with section 371AA(3), subject
to sections 371RC, 371RE(2) and 371RG,
20
“the CFC charge” is to be read in accordance with section
371AA(1),
“chargeable company”, in relation to a CFC’s accounting
period, has the meaning given at step 4 in section 371BC(1),
“chargeable profits”, in relation to a CFC, is to be read in
25
accordance with section 371BA(3),
“company” is to be read subject to section 371VE,
“company tax return” means a return required to be made
under Schedule 18 to FA 1998,
“contract of insurance” has the meaning given by article 3(1) of
30
the Financial Services and Markets Act 2000 (Regulated
Activities) Order 2001,
“control” is to be read in accordance with sections 371RB and
371RE, subject to section 371RG(6),
“the corporation tax assumptions” is to be read in accordance
35
with section 371SC,
“creditable tax”, in relation to a CFC, is to be read in accordance
with section 371PA,
“the HMRC Commissioners” means the Commissioners for Her
Majesty’s Revenue and Customs,
40
“insurance business” means the business of effecting or
carrying out of contracts of insurance, including the
investment of premiums received,
“intellectual property” means—
(a)
any patent, trade mark, registered design, copyright
45
or design right, or
(b)
any licence or other right in relation to anything
falling within paragraph (a),
“interest”, as in an interest in a company, is to be read in
accordance with section 371VH,
50

Finance (No. 4) Bill
Schedule 20 — Controlled foreign companies and foreign permanent establishments
Part 1 — Controlled foreign companies
501

“the local tax amount”, in relation to a CFC, means the amount
of tax determined at step 2 in section 371NB(1),
“non-trading finance profits” is to be read in accordance with
section 371VG,
“non-trading income” means income which is not trading
5
income,
“property business profits” is to be read in accordance with
section 371VI,
“relevant finance lease” means—
(a)
a long funding lease for the purposes of Part 2 of CAA
10
2001 (plant and machinery allowances), or
(b)
a short lease for the purposes of that Part which meets
the finance lease test in section 70N of that Act,
and includes a part of such a lease,
“relevant interest” is to be read in accordance with Chapter 15,
15
“tax advantage” has the meaning given by section 1139 of CTA
2010,
“trading finance profits” is to be read in accordance with section
371VG,
“trading income”, in relation to a CFC, means income brought
20
into account in determining the CFC’s trading profits for the
accounting period in question,
“trading profits”, in relation to a CFC, means any profits
included in the CFC’s assumed total profits for the
accounting period in question on the basis that they would be
25
chargeable to corporation tax under Part 3 of CTA 2009
(trading income),
“UK connected capital contribution”, in relation to a CFC,
means any capital contribution to the CFC made (directly or
indirectly) by a UK resident company connected with the
30
CFC (whether in relation to an issue of shares in the CFC or
otherwise), and
“UK permanent establishment”, in relation to a non-UK
resident company, means a permanent establishment which
the company has in the United Kingdom and through which
35
it carries on a trade in the United Kingdom.
371VB
Accounting periods
(1)
This section applies for the purposes of this Part.
(2)
An accounting period of a CFC begins—
(a)
when the CFC becomes a CFC, or
40
(b)
immediately after the end of the previous accounting period
of the CFC, if the CFC is still a CFC.
(3)
An accounting period of a CFC comes to an end on the occurrence of
any of the following—
(a)
the CFC ceasing to be a CFC,
45
(b)
the CFC becoming, or ceasing to be, liable to tax in a territory
by reason of domicile, residence or place of management,
(c)
the CFC ceasing to have any source of income at all, or

Finance (No. 4) Bill
Schedule 20 — Controlled foreign companies and foreign permanent establishments
Part 1 — Controlled foreign companies
502

(d)
a company which has a relevant interest in the CFC (see
Chapter 15) ceasing to have that interest or ceasing to be
within the charge to corporation tax.
(4)
Without affecting subsections (2) and (3), sections 10(1)(a) to (d), (i)
and (j) and (5), 11(1) and (2) and 12 of CTA 2009 (corporation tax
5
accounting periods) apply as they apply for corporation tax
purposes.
(5)
Subsection (6) applies if it appears to an officer of Revenue and
Customs that the beginning or end of a CFC’s accounting period is
uncertain.
10
(6)
An officer of Revenue and Customs may by notice specify as an
accounting period of the CFC such period not exceeding 12 months
as the officer considers appropriate.
(7)
Subsection (8) applies if after the giving of a notice under subsection
(6)—
15
(a)
further facts come to the knowledge of an officer of Revenue
and Customs, and
(b)
as a result of that, it appears to an officer of Revenue and
Customs that any accounting period specified in the notice is
not the true accounting period.
20
(8)
An officer of Revenue and Customs must by notice amend the notice
under subsection (6) so as to specify what appears to the officer to be
the true accounting period.
(9)
A notice under subsection (6) or (8) must be given to each company
which the officer of Revenue and Customs considers would be likely
25
to be a chargeable company were the CFC charge to be charged in
relation to the CFC’s accounting period in question.
371VC
Accounting profits
(1)
This section and section 371VD (with which this section needs to be
read) apply for the purposes of this Part.
30
(2)
A CFC’s accounting profits for an accounting period are its pre-tax
profits for the period.
(3)
If financial statements for the CFC are prepared for the accounting
period in accordance with an acceptable accounting practice, the
CFC’s pre-tax profits are to be determined by reference to the
35
amounts disclosed in those statements (subject to subsections (4) and
(5)).
(4)
Subsection (5) applies if—
(a)
the CFC’s financial statements for the accounting period (or
any aspect of them) are not prepared in accordance with an
40
acceptable accounting practice, or
(b)
no financial statements are prepared at all for the CFC for the
accounting period within 12 months after the end of that
period.
(5)
The CFC’s pre-tax profits are to be determined by reference to the
45
amounts which would have been disclosed had financial statements

Finance (No. 4) Bill
Schedule 20 — Controlled foreign companies and foreign permanent establishments
Part 1 — Controlled foreign companies
503

for the accounting period been prepared for the CFC in accordance
with—
(a)
the acceptable accounting practice in accordance with which
financial statements for the CFC are normally prepared, or
(b)
if paragraph (a) cannot be applied, international accounting
5
standards.
(6)
Each of the following is an “acceptable accounting practice”—
(a)
international accounting standards,
(b)
UK generally accepted accounting practice, and
(c)
accounting practice which is generally accepted in the
10
territory in which the CFC is resident for the accounting
period.
(7)
In this section references to amounts disclosed in financial
statements include amounts comprised in amounts so disclosed.
(8)
If the CFC’s accounting profits (or any amounts included in them)
15
are determined in a currency other than sterling, they are to be
translated into their sterling equivalent using the average rate of
exchange for the accounting period calculated from daily spot rates.
371VD
Adjustments to accounting profits
(1)
This section applies for the purpose of determining a CFC’s
20
accounting profits for an accounting period.
(2)
The following are to be ignored in determining the profits—
(a)
any dividend or other distribution which is not brought into
account in determining the CFC’s assumed total profits for
the accounting period on the basis that it would be exempt
25
for the purposes of Part 9A of CTA 2009 (company
distributions),
(b)
any property business profits, and
(c)
any capital profits or losses.
(3)
The profits are to include—
30
(a)
any amount which accrues during the accounting period to
the trustees of a settlement in relation to which the CFC is a
settlor or beneficiary, and
(b)
the CFC’s share of any income which accrues during the
accounting period to a partnership of which the CFC is a
35
partner, as determined by apportioning that income between
the partners on a just and reasonable basis.
(4)
If there is more than one settlor or beneficiary in relation to a
settlement covered by subsection (3)(a), the income is to be
apportioned between the CFC and the other settlors or beneficiaries
40
on a just and reasonable basis.
(5)
In subsection (3)(b) “partnership” includes an entity established
under the law of a territory outside the United Kingdom of a similar
character to a partnership; and “partner” is to be read accordingly.
(6)
In determining the CFC’s accounting profits for the accounting
45
period for the purposes of this Chapter, Part 4 (transfer pricing)