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

If two or more subsections apply, the earlier or earliest subsection takes precedence.

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 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.

(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

(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.

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.

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 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.

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 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.

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 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 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 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 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 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%.

(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) 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.

(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.

(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 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 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

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 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 Schedule), and

• “the Taxes Acts” has the same meaning as in TMA 1970.

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—

(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,

(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 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

(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).

(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),

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 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 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.

(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 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.

(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 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.

(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 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,

(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 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.

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 under this Part of any other person in relation to the CFC concerned.

(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.

(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 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 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 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 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

(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 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.

Chapter 22

Supplementary provision

371VA Definitions

In this Part—

• “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—

  (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),

• “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-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,

• “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 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 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 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,

• “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 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,

• “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 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 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,

• “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 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 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 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 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

(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,

(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

(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 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.

(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)—

(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.

(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 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.

(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 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 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 amounts which would have been disclosed had financial statements

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 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 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) 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 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 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—

(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 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 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 period for the purposes of this Chapter, Part 4 (transfer pricing)

applies as it applies in relation to the determination of the CFC’s assumed taxable total profits for the accounting period.

(7) But subsection (6) is to be ignored if the difference made in the amount of the profits as a result of its application would not be more than £50,000.

371VE Cell companies etc

(1) This Part applies in relation to unincorporated cells and incorporated cells as if they were non-UK resident companies.

(2) An “unincorporated cell” is an identifiable part (by whatever name known) of a non-UK resident company which meets the following condition.

(3) The condition is that, under the law under which the non-UK resident company is incorporated or formed, under the articles of association or other document regulating the non-UK resident company or under any arrangement entered into by or in relation to the non-UK resident company—

(a) assets and liabilities of the non-UK resident company may be wholly or mainly allocated to the part of the company in question,

(b) liabilities so allocated are to be met wholly or mainly out of assets so allocated, and

(c) there are members of the non-UK resident company who have rights in relation to the company’s assets which cover only or mainly assets so allocated.

(4) Subsection (1) does not affect the status of the non-UK resident company mentioned in subsection (2) as a company for the purposes of this Part; but its assets and liabilities are to be apportioned between it and the unincorporated cell (and any other unincorporated cells which are part of the company) on a just and reasonable basis.

(5) An “incorporated cell” is an entity (by whatever name known) established under the articles of association or other document regulating a non-UK resident company—

(a) which, under the law under which the non-UK resident company is incorporated or formed, has a legal personality distinct from that of the non-UK resident company, but

(b) which is not itself a company (ignoring this section).

(6) Subsection (1) does not affect the status of the non-UK resident company mentioned in subsection (5) as a company for the purposes of this Part.

(7) The Treasury may by regulations provide for this Part to apply in relation to—

(a) parts of companies falling within specified descriptions, or

(b) other entities falling within specified descriptions which are not themselves companies (ignoring this section),

as if they were non-UK resident companies.

(8) Regulations under subsection (7) may add to, repeal or otherwise amend subsections (1) to (6).

371VF Connected persons etc

(1) This section applies for the purposes of this Part.

(2) The following provisions of CTA 2010 apply—

(a) section 882(2) to (7) (“associated” persons), and

(b) section 1122 (“connected” persons).

(3) A person is “related” to a CFC if—

(a) the person is connected or associated with the CFC,

(b) at least 25% of the CFC’s chargeable profits would be apportioned to the person at step 3 in section 371BC (1) were that step required to be taken in relation to the accounting period in question, or

(c) if the CFC is a CFC by virtue of section 371RC, the person is connected or associated with either or both of the controllers.

(4) If a CFC is a CFC by virtue of section 371RG, a person is to be taken to be connected, associated or related to the CFC if it is reasonable to suppose that, apart from the arrangement falling within section 371RG (4), the person would be connected, associated or related to the CFC.

371VG Finance profits

(1) In this Part “non-trading finance profits”, in relation to a CFC, means any amounts—

(a) which are included in the CFC’s assumed total profits for the accounting period in question on the basis that they would be chargeable to corporation tax under—

(i) section 299 of CTA 2009 (charge to tax on non-trading profits from loan relationships), or

(ii) Part 9A of that Act (company distributions), or

(b) which—

(i) are included in the CFC’s assumed total profits for the accounting period in question on the basis that they arise from an arrangement which would be a relevant finance lease, but

(ii) are not trading profits.

(2) Subsection (1) is subject to subsection (3) and sections 371CB (2) and (8) and 371CE (2).

(3) Any credits or debits which are to be brought into account in determining the CFC’s property business profits for the accounting period in question in accordance with section 371VI (2) are not to be brought into account in determining the CFC’s non-trading finance profits.

(4) In this Part, “trading finance profits”, in relation to a CFC, means any amounts included in the CFC’s assumed total profits for the accounting period in question—

(a) which are trading profits by virtue of section 297, 573 or 931W of CTA 2009, or

(b) which are trading profits arising from an arrangement which would be a relevant finance lease.

(5) Subsection (4) is subject to section 371CE (2).

371VH Interests in companies

(1) This section applies for the purposes of this Part.

(2) The following persons have an “interest” in a company—

(a) any person who has, or is entitled to acquire, share capital or voting rights in the company,

(b) any person who has, or is entitled to acquire, a right to receive or participate in distributions of the company,

(c) any person who is entitled to secure that income or assets of the company will be applied directly or indirectly for the person’s benefit, and

(d) any other person who, either alone or together with other persons, has control of the company.

(3) In subsection (2) references to a person being entitled to do anything cover cases in which—

(a) a person is presently entitled to do it at a future date, or

(b) a person will at a future date be entitled to do it.

(4) But an entitlement to secure that the income or assets of a company will be applied as mentioned in subsection (2)(c) which is contingent upon a default of the company or any other person under any agreement does not fall within subsection (2)(c) unless the default has occurred.

(5) Rights which a person has as a loan creditor of a company are to be ignored for the purposes of subsection (2).

(6) In subsection (5)—

• “loan creditor” has the meaning given by section 453 of CTA 2010, but ignoring subsection (4) of that section, and

• “rights” does not include any rights excluded from subsection (5) by subsection (8).

(7) Subsection (8) applies if, in accordance with generally accepted accounting practice, a loan creditor divides its rights and liabilities under a loan relationship to which it is a party as mentioned in section 415(1) of CTA 2009 (loan relationships with embedded derivatives).

For this purpose, if a loan creditor does not prepare its accounts in accordance with generally accepted accounting practice, assume that it prepares IAS accounts (within the meaning of section 1127 of CTA 2010).

For this purpose, if a loan creditor does not prepare its accounts in accordance with generally accepted accounting practice, assume that it prepares IAS accounts (within the meaning of section 1127 of CTA 2010).

(8) Any rights falling within section 415(1)(b) of CTA 2009 are to be excluded from subsection (5).

(9) Subsection (10) applies in relation to a CFC which is a CFC by virtue of section 371RG.

(10) The persons who have “interests” in the CFC, and the nature of their interests, are to be determined by applying section 371RG (3) and otherwise by reference to what it is reasonable to suppose would have been the state of affairs in relation to the CFC apart from the arrangement falling within section 371RG (4).

(11) Subsections (12) and (13) apply if—

(a) apart from subsection (12), a person has, or two or more persons together have, an interest in a company (“company 1”), and

(b) company 1 has an interest in another company (“company 2”).

(In paragraph (b) “interest” includes an interest by virtue of subsection (12).)

(12) The person or persons mentioned in subsection (11)(a) are to be taken to have an interest in company 2 (and references to a person’s interest in a company are to be read accordingly).

(13) For the purposes of references to one person’s interest in a company being the same as another person’s interest—

(a) the person mentioned in subsection (11)(a), or

(b) each of the persons so mentioned,

is to be taken as having, to the extent of that person’s interest in company 1, the same interest as company 1 has in company 2.

(14) If two or more persons jointly have an interest in a company otherwise than in a fiduciary or representative capacity, they are taken to have the interest in equal shares.

371VI Property business profits

(1) Subject to what follows, in this Part “property business 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 chargeable to corporation tax under Part 4 of CTA 2009 (property income).

(2) Any credits or debits—

(a) which are brought into account under Part 5 of CTA 2009 in determining the CFC’s assumed total profits for the accounting period, and

(b) which fall within subsection (3) or (5),

are to be brought into account in determining the CFC’s property business profits.

(3) Credits and debits fall within this subsection so far as they are from a debtor relationship of the CFC where the loan which is the subject of the debtor relationship—

(a) is made and used solely for the purposes of a relevant property business, and

(b) is not used to any extent for the purpose of funding (directly or indirectly) a loan to any other person.

(4) In subsection (3) “debtor relationship” has the meaning given by section 302(6) of CTA 2009 (and does not include anything which,

although not falling within section 302(1) of that Act, is treated for any purpose as if it were a debtor relationship); and “loan” is to be read accordingly.

(5) Credits and debits fall within this subsection so far as they—

(a) are from any derivative contract or other arrangement entered into by the CFC as a hedge of risk in connection with a relevant property business, and

(b) are attributable to that hedge of risk.

(6) “Relevant property business” means a UK property business or overseas property business of the CFC, profits of which are included in the CFC’s property business profits apart from subsection (2).

371VJ Regulations

Regulations under this Part may contain incidental, supplemental, consequential and transitional provision and savings.”

Part 2 Foreign permanent establishments

Main provision

2 Chapter 3A of Part 2 of CTA 2009 (foreign permanent establishments of UK resident companies) is amended as follows.

3 In section 18A(1) omit “UK resident”.

4 After section 18C insert—

“18CA Income arising from immovable property

The references in section 18A(6) to profits which would be taken to be attributable to the permanent establishment of a company in a territory include any income arising from immovable property which has been used for the purposes of the business carried on by the company through the permanent establishment in the territory (to such extent as is appropriate having regard to the extent to which it has been so used); and the references to losses in section 18A(7) are to be construed accordingly.

18CB Profits and losses from investment business

(1) In determining any relevant profits amount or relevant losses amount under section 18A(6) or (7) in relation to a company, there is to be left out of account any profits or losses of any part of the company’s business which consists of the making of investments.

(2) Subsection (1) does not apply to profits or losses arising from assets so far as they are effectively connected with any part of the permanent establishment through which a trade or overseas property business of the company is carried on in the territory.

(3) In subsection (2) “effectively connected” is to be given the same meaning as it would be given for the purposes of the OECD model were subsection (2) contained in the OECD model.”

5 (1) Section 18F is amended as follows.

(2) In subsection (1)(a) for “subsection (6)” substitute “subsections (6) to (8)”.

(3) For subsection (2) substitute—

“(2) The relevant day”, in relation to an election made by a UK resident company, means—

(a) the day on which, at the time of the election, the company’s accounting period following that in which the election is made is expected to begin, or

(b) if the election is made before the company’s first accounting period, the day on which that accounting period begins.

(2A) “The relevant day”, in relation to an election made by a non-UK resident company, means the day on which the company becomes UK resident.”

(4) In subsection (6) for “The election can be revoked” substitute “An election can be revoked by the company which made it”.

(5) After subsection (6) insert—

“(7) An election made by a UK resident company is revoked if the company ceases to be UK resident.

(8) An election made by a non-UK resident company is revoked if, having become UK resident, the company ceases to be UK resident.”

6 For sections 18G to 18I substitute—

“18G Anti-diversion rule

(1) This section applies for the purposes of this Chapter for any relevant accounting period (“period X”) of a company (“company X”) in relation to a territory outside the United Kingdom (“territory X”) if—

(a) there is an adjusted relevant profits amount in relation to territory X for period X,

(b) the adjusted relevant profits amount includes diverted profits (see section 18H), and

(c) none of the exemptions mentioned in section 18I applies for period X.

(2) The diverted profits are to be left out of the adjusted relevant profits amount.

(3) For the purposes of this Chapter “adjusted”, in relation to a relevant profits amount, is what the relevant profits amount would be if it were determined without reference to gains or losses which are chargeable gains or allowable losses for corporation tax purposes.

18H What are “diverted profits”?

(1) In section 18G (1)(b) “diverted profits” means so much of company X’s total profits of period X as pass through the diverted profits gateway.

(2) To determine the extent to which company X’s total profits of period X pass through the diverted profits gateway, apply—

(a) section 371BB of TIOPA 2010 (controlled foreign companies: the CFC charge gateway), and

(b) except Chapter 8 of Part 9A of that Act, the other provisions referred to in that section,

as if references to the CFC charge gateway were references to the diverted profits gateway.

(3) In applying section 371BB of TIOPA 2010 and the other provisions referred to in it assume—

(a) that company X is a CFC resident in territory X,

(b) that period X is the CFC’s accounting period, and

(c) that company X’s total profits of period X are the CFC’s assumed total profits for the accounting period.

(4) Subsection (3)(a) does not require it to be assumed that there is any change in the place or places at which company X carries on its activities.

(5) Section 371BB of TIOPA 2010 and the other provisions referred to in it are also to be applied subject to sections 18HA to 18HE below.

(6) In this section—

(a) references to company X’s total profits of period X are to those profits ignoring this Chapter and step 2 in section 4(3) of CTA 2010, and

(b) references to section 371BB of TIOPA 2010 are to that section omitting subsection (2)(b).

18HA Modification of Chapter 3 of Part 9A of TIOPA 2010

Chapter 3 of Part 9A of TIOPA 2010 (the CFC charge gateway: determining which of Chapters 4 to 8 applies) applies for the purposes of section 18H (2) with the omission of—

(a) section 371CA (10)(a),

(b) in section 371CB (2), the words “or Chapter 8 (solo consolidation)”,

(c) section 371CC (1)(b), (3)(b) and (c), (4) to (7) and (9) and (10),

(d) section 371CD,

(e) section 371CE (2) to (7), and

(f) section 371CG.

18HB Modification of Chapter 4 of Part 9A of TIOPA 2010

(1) Chapter 4 of Part 9A of TIOPA 2010 (the CFC charge gateway: profits attributable to UK activities) applies for the purposes of section 18H (2) with the following modifications.

(2) The modifications are—

(a) section 371DA (3)(g)(i) is to be omitted, and

(b) in section 371DH (4), after “the accounting period”, in the second place it occurs, there is to be inserted “or the United Kingdom”.

(3) Section 371VF (3) of TIOPA 2010 (definition of “related” person) is to be applied as relevant with the omission of paragraphs (b) and (c).

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

(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).

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 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 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).

(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” 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,

(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 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,

(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.

(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 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 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.

(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.