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 2 — Foreign permanent establishments
511

18HC
Modification of Chapter 5 of Part 9A of TIOPA 2010
Chapter 5 of Part 9A of TIOPA 2010 (the CFC charge gateway: non-
trading finance profits) applies for the purposes of section 18H(2)
with the omission of—
(a)
in section 371EA(1), the words from “so far as” to the end, and
5
(b)
sections 371EB to 371EE.
18HD
Modification of Chapter 7 of Part 9A of TIOPA 2010
Chapter 7 of Part 9A of TIOPA 2010 (the CFC charge gateway:
captive insurance business) applies for the purposes of section
18H(2) with the omission of section 371GA(5)(b).
10
18HE
Modification of Chapter 9 of Part 9A of TIOPA 2010
(1)
Chapter 9 of Part 9A of TIOPA 2010 (exemptions for profits from
qualifying loan relationships) applies for the purposes of section
18H(2) with the following modifications.
(2)
In section 371IA(2) and (11) the reference to a chargeable company is
15
to be read as a reference to company X (as is the reference in section
371CB(8)); and references elsewhere in Chapter 9 to company C are
to be read as references to company X.
(3)
Sections 371IB, 371IC and 371IE are to be omitted.
(4)
In section 371IJ references to the relevant corporation tax accounting
20
period are to be read as references to period X.
18I
Exemptions from anti-diversion rule
(1)
The exemptions referred to in section 18G(1)(c) are the exemptions
set out in Chapters 11 to 14 of Part 9A of TIOPA 2010 (controlled
foreign companies: exemptions from the CFC charge).
25
(2)
In applying those Chapters for the purposes of section 18G(1)(c)—
(a)
references to section 371BA(2)(b) of TIOPA 2010 are to be
read as references to section 18G(1)(c),
(b)
the assumptions set out in subsection (3) are to be made, and
(c)
section 371VF(3) of TIOPA 2010 (definition of “related”
30
person) is to be read with the omission of paragraphs (b) and
(c).
(3)
For the purposes of subsection (2)(b), assume—
(a)
that the permanent establishment which company X has in
territory X is a separate company from company X,
35
(b)
that the separate company is a CFC resident in territory X,
(c)
that period X and company X’s other accounting periods for
corporation tax purposes are accounting periods of the CFC
for the purposes of Part 9A of TIOPA 2010,
(d)
that the CFC’s assumed total profits for period X are the
40
adjusted relevant profits amount,
(e)
that the CFC’s assumed taxable total profits for period X are
the same as the CFC’s assumed total profits for period X,

Finance (No. 4) Bill
Schedule 20 — Controlled foreign companies and foreign permanent establishments
Part 2 — Foreign permanent establishments
512

(f)
that the CFC is connected with company X and is also
connected or associated with any person with whom
company X is connected or associated, and
(g)
that any person who has an interest in company X also has an
interest in the CFC.
5
(4)
Chapters 11 to 14 of Part 9A of TIOPA 2010 are also to be applied
subject to sections 18IA to 18ID below.
18IA
The excluded territories exemption
(1)
Chapter 11 of Part 9A of TIOPA 2010 (controlled foreign companies:
the excluded territories exemption) applies for the purposes of
10
section 18G(1)(c) with the following modifications.
(2)
Sections 371KB(1)(b)(iii) and 371KH are to be omitted.
(3)
Section 371KC is to be omitted and the assumption set out in section
18I(3)(b) above in relation to the CFC’s residence is to be applied
instead; and references to “the CFC’s territory” are to be read
15
accordingly.
(4)
Section 371KD(3) is to be omitted and references to a CFC’s
accounting profits for an accounting period are to be read as
references to the adjusted relevant profits amount.
(5)
Section 371KE(2)(b) is to be omitted.
20
(6)
Section 371KF is to be omitted.
(7)
In section 371KG(3) the reference to the CFC’s equity or debt is to be
read as a reference to company X’s equity or debt (ignoring the
assumption in section 18I(3)(a) above).
(8)
Section 371KI(2) and (3) is to be omitted.
25
(9)
In section 371KJ—
(a)
in subsection (2)(a), the reference to intellectual property held
by the CFC is to be read as a reference to intellectual property
held by company X (ignoring the assumption in section
18I(3)(a) above), and
30
(b)
in subsections (2)(b) and (c) and (4), references to the CFC are
to be read as references to company X (ignoring that
assumption).
18IB
The low profits exemption
Chapter 12 of Part 9A of TIOPA 2010 (controlled foreign companies:
35
the low profits exemption) applies for the purposes of section
18G(1)(c) with the omission of section 371LB(2) and (4) and section
371LC(5) and (6).
18IC
The low profit margin exemption
(1)
Chapter 13 of Part 9A of TIOPA 2010 (controlled foreign companies:
40
the low profit margin exemption) applies for the purposes of section
18G(1)(c) with the following modifications.
(2)
In section 371MB—
(a)
subsection (2) is to be omitted, and

Finance (No. 4) Bill
Schedule 20 — Controlled foreign companies and foreign permanent establishments
Part 2 — Foreign permanent establishments
513

(b)
references to the CFC’s accounting profits for an accounting
period are to be read as references to the adjusted relevant
profits amount determined before any deduction for interest.
18ID
The tax exemption
(1)
Chapter 14 of Part 9A of TIOPA 2010 (controlled foreign companies:
5
the tax exemption) applies for the purposes of section 18G(1)(c) with
the following modifications.
(2)
At step 1 in section 371NB(1)—
(a)
in the first paragraph, the reference to section 371TB of
TIOPA 2010 is to be read as a reference to the assumption in
10
section 18I(3)(b) above relating to the CFC’s residence, and
(b)
the second paragraph is to be omitted.
(3)
References to the CFC’s local chargeable profits arising in the
accounting period are to be read as references to the adjusted
relevant profits amount and, accordingly, sections 371NB(4) and
15
371NC(2) to (4) are to be omitted.
(4)
In sections 371NC(5)(b) and 371NE(3) the reference to the CFC is to
be read as a reference to company X (ignoring the assumption in
section 18I(3)(a) above).”
7
After section 18P(2) insert—
20
“(3)
Subsection (2) does not apply in relation to—
(a)
a chargeable gain accruing on the disposal of an asset used,
and used only, for the purposes of a trade so far as carried on
by the company in the relevant foreign territory through the
company’s permanent establishment there, or
25
(b)
a chargeable gain accruing on the disposal of currency or of a
debt within section 252(1) of TCGA 1992 where the currency
or debt is or represents money in use for the purposes of a
trade so far as carried on by the company in the relevant
foreign territory through the company’s permanent
30
establishment there.”
Lloyd’s underwriters
8
In Chapter 5 of Part 4 of FA 1994 (Lloyd’s underwriters) after section 227B
insert—
“227C
Exemption for profits or losses of foreign permanent establishments
35
(1)
This section applies for the purposes of section 18A(6) and (7) of the
Corporation Tax Act 2009 (exemption for profits or losses of foreign
permanent establishments: “relevant profits amount” and “relevant
losses amount”).
(2)
Any regulations made under section 229(1)(d) below are to be
40
ignored.
(3)
Profits or losses which are taken to arise to a corporate member in an
underwriting year from its membership of one or more syndicates
are to be left out of account in relation to any relevant accounting
period so far as they are profits or losses of a previous underwriting
45

Finance (No. 4) Bill
Schedule 20 — Controlled foreign companies and foreign permanent establishments
Part 3 — Other amendments
514

year which began before the relevant day (as defined in section 18F
of the 2009 Act (effect of election under section 18A)).
(4)
Profits or losses arising to a corporate member from assets forming
part of a premium trust fund which are taken to be profits or losses
of an underwriting year are to be left out of account in relation to any
5
relevant accounting period so far as they are allocated under the
rules or practice of Lloyds to a previous underwriting year which
began before the relevant day (as defined in section 18F of the 2009
Act).”
Plant and machinery allowances
10
9
In section 15 of CAA 2001 (plant and machinery allowances: qualifying
activities) after subsection (2A) insert—
“(2B)
Subsection (2A) does not apply to the business so far as it consists of
a plant or machinery lease under which the company is a lessor if any
profits or losses arising from the lease are to be left out of account as
15
mentioned in section 18C(3) of CTA 2009.”
Part 3
Other amendments
TMA 1970
10
TMA 1970 is amended as follows.
20
11
In section 55 (recovery of tax not postponed) in subsection (1) omit
paragraph (d).
12
In section 59E (provision about when corporation tax due and payable) in
subsection (11) for paragraph (b) substitute—
“(b)
to any sum charged on a company at step 5 in section
25
371BC(1) of TIOPA 2010 (controlled foreign companies) as if
it were an amount of corporation tax;”.
13
In section 59F (arrangements for paying tax on behalf of group members) in
subsection (6) for paragraph (b) and the “and” after it substitute—
“(b)
a sum charged on a company at step 5 in section 371BC(1) of
30
TIOPA 2010 (controlled foreign companies) as if it were an
amount of corporation tax, and”.
ICTA
14
In ICTA omit Chapter 4 of Part 17 (controlled foreign companies).
FA 1998
35
15
FA 1998 is amended as follows.
16
In section 32 (unrelieved surplus advance corporation tax) for subsection (5)
substitute—
“(5)
The provision which may be made by regulations under this section
includes provision for or in connection with enabling unrelieved
40

Finance (No. 4) Bill
Schedule 20 — Controlled foreign companies and foreign permanent establishments
Part 3 — Other amendments
515

surplus advance corporation tax to be set against liability to a sum
charged at step 5 in section 371BC(1) of the Taxation (International
and Other Provisions) Act 2010 (controlled foreign companies) as if
it were an amount of corporation tax for an accounting period.”
17    (1)
Schedule 18 (company tax returns) is amended as follows.
5
      (2)
In paragraph 1 for “section 747(4)(a) of the Taxes Act 1988 (tax on profits of
controlled foreign company)” substitute “step 5 in section 371BC(1) of the
Taxation (International and Other Provisions) Act 2010 (controlled foreign
companies)”.
      (3)
In paragraph 8(1), in the third step, for paragraph 2 substitute—
10

“2. Any sum charged at step 5 in section 371BC(1) of the Taxation
(International and Other Provisions) Act 2010 (controlled foreign
companies).”
FA 2000
18
Schedule 22 to FA 2000 (tonnage tax) is amended as follows.
15
19    (1)
Paragraph 54 is amended as follows.
      (2)
In sub-paragraph (1)—
(a)
for “under section 747 of the Taxes Act 1988” substitute “at step 5 in
section 371BC(1) of the Taxation (International and Other
Provisions) Act 2010 (“TIOPA 2010”)”,
20
(b)
for “controlled foreign company” (in both places) substitute “CFC”,
and
(c)
at the end insert “; and, accordingly, the tonnage tax company is not
to be a chargeable company for the purposes of Part 9A of TIOPA
2010 in relation to the CFC’s accounting period in question.”
25
      (3)
For sub-paragraphs (2) to (5) substitute—
    “(2)
In relation to a CFC which—
(a)
is a member of a tonnage tax group, and
(b)
is a tonnage tax company by virtue of the group’s tonnage
tax election, or would be if it were within the charge to
30
corporation tax,

the corporation tax assumptions within the meaning of Part 9A of
TIOPA 2010 are to be taken to include the following assumption.
      (3)
The CFC is to be assumed to be a single company that is a tonnage
tax company.
35
      (4)
Nothing in section 371SL(1) of TIOPA 2010 affects sub-paragraphs
(2) and (3) above.
      (5)
In this paragraph “CFC” has the same meaning as in Part 9A of
TIOPA 2010.”
20    (1)
Paragraph 57 is amended as follows.
40
      (2)
In sub-paragraph (1)(b) for the words from “controlled” to the end substitute
“CFC apportioned to the company at step 3 in section 371BC(1) of the
Taxation (International and Other Provisions) Act 2010.”

Finance (No. 4) Bill
Schedule 20 — Controlled foreign companies and foreign permanent establishments
Part 3 — Other amendments
516

      (3)
For sub-paragraph (4) substitute—
    “(4)
For the purposes of sub-paragraph (1)(b)—
(a)
“tonnage profits” means so much of the CFC’s chargeable
profits for its accounting period in question as, applying
the corporation tax assumptions, are calculated in
5
accordance with paragraph 4 of this Schedule; and
(b)
so much of those chargeable profits as are tonnage profits
shall be treated as apportioned at step 3 in section 371BC(1)
of the Taxation (International and Other Provisions) Act
2010 in the same proportions as those profits (taken
10
generally) are apportioned.
     (4A)
In sub-paragraphs (1)(b) and (4) terms defined in Part 9A of the
Taxation (International and Other Provisions) Act 2010 have the
same meaning as in that Part.”
FA 2002
15
21
In FA 2002 omit section 90 (controlled foreign companies and treaty non-
resident companies).
ITA 2007
22    (1)
Section 725 of ITA 2007 (transfer of assets abroad: reduction in amount
charged where controlled foreign company involved) is amended as
20
follows.
      (2)
For subsection (1) substitute—
“(1)
This section applies if—
(a)
under Part 9A of TIOPA 2010 (controlled foreign companies),
the CFC charge is charged in relation to a CFC’s accounting
25
period, and
(b)
apart from this section, the amount of income treated as
arising to an individual under section 721 for a tax year
would be or include a sum forming part of the CFC’s
chargeable profits for that accounting period.”
30
      (3)
In subsection (2)—
(a)
for “controlled foreign company’s” (in both places) substitute
“CFC’s”, and
(b)
in the definition of “CA” for “chargeable amount” substitute “CFC’s
chargeable profits for that accounting period so far as apportioned to
35
chargeable companies at step 3 in section 371BC(1) of TIOPA 2010”.
      (4)
For subsection (3) substitute—
“(3)
Terms used in this section which are defined in Part 9A of TIOPA
2010 have the same meaning as in that Part.”
FA 2007
40
23    (1)
Paragraph 3 of Schedule 11 to FA 2007 (technical provision made by
insurers) is amended as follows.

Finance (No. 4) Bill
Schedule 20 — Controlled foreign companies and foreign permanent establishments
Part 3 — Other amendments
517

      (2)
In sub-paragraph (1) for paragraph (b) and the “or” after it substitute—
“(b)
a CFC (within the meaning of Part 9A of the Taxation
(International and Other Provisions) Act 2010) which
carries on general business, or”.
      (3)
In sub-paragraph (2) for paragraph (b) substitute—
5
“(b)
a company which for the purposes of Part 9A of the
Taxation (International and Other Provisions) Act 2010 has
an interest in a CFC (within the meaning of that Part)
which carries on general business.”
CTA 2009
10
24
CTA 2009 is amended as follows.
25
In section A1 (overview of the Corporation Tax Acts) in subsection (2)—
(a)
omit paragraph (b),
(b)
omit the “and” after paragraph (i), and
(c)
after paragraph (j) insert “, and
15
(k)
Part 9A of that Act (controlled foreign companies).”
26
In section 486D (disguised interest: arrangement with no tax avoidance
purpose) omit subsections (5) and (6).
27    (1)
Section 486E (disguised interest: excluded shares) is amended as follows.
      (2)
In subsection (7)(c) for “relevant controlled foreign company” substitute
20
“CFC within the meaning of Part 9A of TIOPA 2010”.
      (3)
For subsections (9) and (10) substitute—
“(9)
For the purposes of subsection (7)(b) a company (“C”) is a relevant
joint venture company if—
(a)
the holding company is one of two persons who, taken
25
together, control C,
(b)
the holding company has interests, rights and powers
representing at least 40% of the holdings, rights and powers
in respect of which the holding company and the second
person fall to be taken as controlling C, and
30
(c)
the second person has interests, rights and powers
representing—
(i)
at least 40%, but
(ii)
no more than 55%,

of the holdings, rights and powers in respect of which the
35
holding company and the second person fall to be taken as
controlling C.
(10)
For the purposes of subsection (9)—
(a)
section 371RB of TIOPA 2010 (read with section 371RD of that
Act) applies for the purpose of determining if two persons,
40
taken together, control a company, and
(b)
section 371RD of that Act applies for the purpose of
determining if the requirements of paragraphs (b) and (c) are
met in any case.”
      (4)
Omit subsection (11).
45