Finance (No. 4) Bill (HC Bill 325)

(3) “Ordinary shares”, in relation to any company, means shares of a single class, however described, which is the only class of share issued by the company.

(4) For the purposes of subsection (3)—

(a) “share” includes a fraction of a share, and

(b) shares issued by a company which are paid up to different amounts are not to be taken to be of a single class.

(5) A person (“P”) holds ordinary shares in the CFC “indirectly” if P directly holds ordinary shares in a company which is share-linked to the CFC.

(6) A company is “share-linked” to the CFC if it has an interest in the CFC only by virtue of it holding directly—

(a) ordinary shares in the CFC, or

(b) ordinary shares in another company which is share-linked to the CFC (whether by virtue of paragraph (a) or this paragraph),

and “share-linked company” means a company which is share-linked to the CFC.

How are the apportionments to be made?

371QC The basic rules

(1) If conditions X to Z are met, the CFC’s chargeable profits and creditable tax are to be apportioned among the relevant persons in accordance with section 371QD.

(2) If not, the percentage of the chargeable profits and the percentage of the creditable tax to be apportioned to each relevant person is to be determined on a just and reasonable basis.

(3) Condition X is that the relevant persons all have their relevant interests by virtue only of their holding, directly or indirectly, ordinary shares in the CFC.

(4) Condition Y is that each relevant person meets the requirement that the person is either—

(a) UK resident at all times during the accounting period, or

(b) non-UK resident at all times during the accounting period.

(5) Condition Z is that no company which has an intermediate interest in the CFC at any time in the accounting period has that interest otherwise than by virtue of holding, directly or indirectly, ordinary shares in the CFC.

(6) A company (“C”) has an “intermediate interest” in the CFC if—

(a) C has an interest in the CFC, and

(b) one or more of the relevant persons have relevant interests in the CFC by virtue of having an interest in C.

371QD Apportionments to be made in proportion to shareholding

(1) If conditions X to Z in section 371QC are met, apply subsections (2)and (3) to each relevant person.

(2) Determine the percentage (“P%”) of the issued ordinary shares in the CFC represented by the relevant person’s relevant interest.

(3) P% of the CFC’s chargeable profits and P% of the CFC’s creditable tax is then apportioned to the relevant person.

(4) This section is supplemented by sections 371QE and 371QF.

371QE Indirect shareholdings

(1) This section applies to the relevant interest of a relevant person (“R”) so far as R has that interest by virtue of holding, indirectly, ordinary shares in the CFC (“the relevant shares”).

(2) The percentage of the issued ordinary shares in the CFC represented by R’s relevant interest (so far as this section applies to it) is given by the following formula—

where—

(3) “The appropriate fraction”, in relation to any person who directly holds ordinary shares in a share-linked company, means that fraction of the issued ordinary shares in the share-linked company which the holding represents.

(4) If R has different indirect holdings of shares in the CFC (as in the case where different shares are held through different share-linked companies)—

(a) apply subsection (2) separately in relation to each holding (reading references to the relevant shares accordingly), and

(b) then add the separate results together to give the total percentage of the issued ordinary shares in the CFC represented by R’s relevant interest (so far as this section applies to it).

371QF Variable shareholdings

(1) This section applies if the percentage of the issued ordinary shares in the CFC represented by a relevant person’s relevant interest varies during the accounting period.

(2) That percentage is taken to be the percentage equal to the sum of the relevant percentages for each holding period.

(3) “Holding period” means a part of the accounting period during which the percentage of the issued ordinary shares in the CFC represented by the relevant person’s relevant interest remains the same.

(4) “Relevant percentage”, in relation to a holding period, means the percentage given by the following formula—

where—

Chapter 18

Control etc

371RA Overview of Chapter

(1) Sections 371RB and 371RE set out how to determine for the purposes of this Part if a company is “controlled” by another person or persons.

(2) Sections 371RC and 371RG set out circumstances in which a non-UK resident company which would not otherwise be a CFC is to be taken to be a CFC for the purposes of this Part.

371RB Legal and economic control

(1) A person (“P”) “controls” a company (“C”) if—

(a) by means of the holding of shares or the possession of voting power in or in relation to C or any other company, or

(b) by virtue of any powers conferred by the articles of association or other document regulating C or any other company,

P has the power to secure that the affairs of C are conducted in accordance with P’s wishes.

(2) A person (“P”) “controls” a company (“C”) if it is reasonable to suppose that P would—

(a) if the whole of C’s share capital were disposed of, receive (directly or indirectly and whether at the time of the disposal or later) over 50% of the proceeds of the disposal,

(b) if the whole of C’s income were distributed, receive (directly or indirectly and whether at the time of the distribution or later) over 50% of the distributed amount, or

(c) in the event of the winding-up of C or in any other circumstances, receive (directly or indirectly and whether at the time of the winding-up or other circumstances or later) over 50% of C’s assets which would then be available for distribution.

(3) For the purposes of subsection (2) any rights which P has as a relevant bank are to be ignored.

(4) In subsection (2)—

(a) in paragraph (a) the reference to C’s share capital is to C’s share capital excluding any share capital held by relevant banks,

(b) in determining for the purposes of paragraph (b) the percentage of the distributed amount which it is reasonable to suppose P would receive, ignore any rights of a relevant bank which would entitle the bank directly to receive a percentage of the distributed amount at the time of the distribution, and

(c) in determining for the purposes of paragraph (c) the percentage of C’s assets which it is reasonable to suppose P would receive, ignore any rights of a relevant bank which

would entitle the bank directly to receive a percentage of C’s assets at the time of the winding-up or other circumstances.

(5) “Relevant bank” means a person (“RB”) who—

(a) carries on banking business which is regulated in the territory in which RB is resident, and

(b) is acting, in the ordinary course of that business, in relation to money lent to C by RB in the ordinary course of that business.

(6) In subsections (2) and (4) references to P receiving any proceeds, amount or assets include references to the proceeds, amount or assets being applied (directly or indirectly) for P’s benefit.

(7) If two or more persons, taken together, meet the requirement of subsection (1) or (2) for controlling a company, those persons are taken to control the company.

371RC Legal and economic control: the 40% rule

(1) This section applies to a non-UK resident company (“C”) if—

(a) in accordance with section 371RB (7), two persons (“the controllers”) control C, and

(b) one of the controllers is UK resident and the other is non-UK resident.

(2) If conditions X and Y are met, C is to be taken to be a CFC (if C would not otherwise be).

(3) Condition X is that the UK resident controller has interests, rights and powers representing at least 40% of the holdings, rights and powers in respect of which the controllers fall to be taken as controlling C.

(4) Condition Y is that the non-UK resident controller has interests, rights and powers representing—

(a) at least 40%, but

(b) no more than 55%,

of the holdings, rights and powers in respect of which the controllers fall to be taken as controlling C.

371RD Legal and economic control: supplementary provision

(1) Subsection (2) applies for the purpose of—

(a) determining, in accordance with section 371RB, if a person, or two or more persons, control a company, or

(b) determining if condition X or Y in section 371RC is met in relation to two persons who control a company.

(2) There is to be attributed to each person all the rights and powers mentioned in subsection (3) (so far as they would not otherwise be attributed to the person).

(3) The rights and powers referred to in subsection (2) are—

(a) rights and powers which the person (“P”) is entitled to acquire at a future date or which P will, at a future date, become entitled to acquire,

(b) rights and powers of other persons so far as they fall within subsection (4),

(c) if P is UK resident, rights and powers of any UK resident person who is connected with P, and

(d) if P is UK resident, rights and powers which would, in accordance with subsection (2), be attributed to a UK resident person (“Q”) who is connected with P if Q were P (including rights and powers which would be attributed to Q by virtue of this paragraph).

(4) Rights and powers fall within this subsection so far as they—

(a) are required, or may be required, to be exercised in one or more of the following ways—

(i) on behalf of P,

(ii) under the direction of P, or

(iii) for the benefit of P, and

(b) are not confined, in a case where a loan has been made by one person to another, to rights and powers conferred in relation to property of the borrower by the terms of any security relating to the loan.

(5) In subsections (3)(b) to (d) and (4) references to a person’s rights and powers include references to any rights or powers which the person—

(a) is entitled to acquire at a future date, or

(b) will, at a future date, become entitled to acquire.

(6) In determining for the purposes of this section whether one person is connected with another, section 1122(4) of CTA 2010 (as applied by section 371VF (2)(b)) is to be ignored.

(7) In this section and sections 371RB and 371RC references to—

(a) rights and powers of a person, or

(b) rights and powers which a person is or will become entitled to acquire,

include references to rights and powers which are exercisable by that person, or (when acquired by that person) will be exercisable, only jointly with one or more other persons.

371RE Control determined by reference to accounting standards

(1) A person (“P”) “controls” a company (“C”) at any time when P is C’s parent undertaking.

(2) But C is not to be taken to be a CFC by virtue of subsection (1) at the time in question unless the 50% condition is met at that time.

(3) To determine if the 50% condition is met at the time in question, assume—

(a) that C is a CFC at that time,

(b) that that time is itself an accounting period of the CFC, and

(c) that section 371BC (charging the CFC charge) applies in relation to the assumed accounting period.

(4) The 50% condition is met at the time in question if, as a result of steps 1 and 3 in section 371BC (1), at least 50% of the CFC’s chargeable

profits would be apportioned to P taken together with its UK resident subsidiary undertakings (if any).

(5) “Parent undertaking” and “subsidiary undertaking” are to be read in accordance with Financial Reporting Standard 2 issued in July 1992 by the Accounting Standards Board, as from time to time modified, amended or revised.

(6) For the purposes of this section it does not matter if P does not prepare, or is not required to prepare, consolidated financial statements in accordance with Financial Reporting Standard 2 (but see section 371RF (3)).

371RF Power to amend section 371RE etc

(1) The Treasury may by regulations amend section 371RE as they consider appropriate to take account of—

(a) any modification, amendment or revision of Financial Reporting Standard 2, or

(b) any relevant document.

(2) “Relevant document” means—

(a) a document which replaces Financial Reporting Standard 2, or

(b) a document which replaces, modifies, amends or revises a document falling within paragraph (a) or a document which is a relevant document by virtue of this paragraph.

(3) The Treasury may by regulations make provision corresponding to section 371RE—

(a) which operates by reference to any other accounting standard dealing with consolidated financial statements, and

(b) which is to apply, instead of section 371RE, to determine if a person “controls” a company where that person prepares, or is required to prepare, consolidated financial statements in accordance with that standard.

(4) In subsection (3) references to section 371RE are to that section as amended from time to time by regulations under subsection (1).

371RG Anti-avoidance

(1) This section applies to a non-UK resident company (“C”) which is not a CFC if it is reasonable to suppose that, apart from an arrangement falling within subsection (4), C would be a CFC.

(2) C is to be taken to be a CFC.

(3) The person or persons who it is reasonable to suppose would control C apart from the arrangement—

(a) are to be taken to control C, and

(b) are to have attributed to them all interests, rights and powers which it is reasonable to suppose would be attributed to them apart from the arrangement.

(4) An arrangement falls within this subsection if the main purpose, or one of the main purposes, of the arrangement is to secure that C is not a CFC.

(5) An arrangement which would otherwise fall within subsection (4)does not fall within that subsection if—

(a) the arrangement is solely for—

(i) a transfer of shares in a non-UK resident company (“X”) from a UK resident company to another non-UK resident company (“Y”) so that X becomes controlled by Y either alone or with other non-UK resident companies, or

(ii) the incorporation or formation of a non-UK resident company (“X”) which, on its incorporation or formation, is controlled by another non-UK resident company (“Y”) either alone or with other non-UK resident companies,

(b) at the relevant time—

(i) Y is not the 51% subsidiary of any other company, and

(ii) the no CFC charge condition is met, and

(c) it is reasonable to suppose that—

(i) after the relevant time, no economic benefit will accrue to any UK resident company (directly or indirectly) from X, or

(ii) the total economic benefits which will accrue after the relevant time to UK resident companies (directly or indirectly) from X will be an insignificant proportion of the total economic benefits which will accrue to companies from X.

(6) In subsection (5)(a) “controlled” is to be read in accordance with section 371RB (with section 371RD).

(7) To determine if the no CFC charge condition is met at the relevant time for the purposes of subsection (5)(b)(ii), assume—

(a) that Y is a CFC at the relevant time,

(b) that the relevant time is itself an accounting period of the CFC, and

(c) that section 371BC (charging the CFC charge) applies in relation to the assumed accounting period.

(8) The no CFC charge condition is met at the relevant time if, in accordance with the provision made at step 1 or 4 in section 371BC (1), the CFC charge would not be charged in relation to the assumed accounting period.

(9) “The relevant time” means the time at which, as the case may be—

(a) the shares in X are transferred to Y, or

(b) X is incorporated or formed.

(10) “Economic benefit” does not include revenue received by a company in exchange for goods or services provided by the company in the ordinary course of its business.

Chapter 19

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

Overview

371SA Overview of Chapter

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”

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.

(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

(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 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 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

(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.

(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.

“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 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, 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 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 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 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

(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 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 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.

(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.

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—

(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 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 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)

(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),

(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

(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 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 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 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.

(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) 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 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 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%.

(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 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(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 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

(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)).

(2) Assume—

(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.

(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 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)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 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%.

(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 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.

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 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, 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

(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—

(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 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 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

(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

(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.

(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 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)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 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%.

(7) In this section—

(a) “the 2007 Regulations” means the Long Funding Leases (Elections) Regulations 2007 (S.I. 2007/304S.I. 2007/304),

(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

(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 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).

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 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.

(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—

(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).

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—

(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 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 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 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.

(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 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,

(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.

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 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

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 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 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.

(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.

(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 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 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.

(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

(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.

(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.

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—

(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

(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 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 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.

(3) To determine that territory, go through the following subsections.