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

(1) Section 531 (gains from contracts for life insurance etc: cases where income
tax not treated as paid) is amended as follows.

(2) In subsection (3)(a), for “tax exempt life or endowment business” substitute
“exempt BLAGAB or eligible PHI business”.

(3) 5In subsection (4), for the definition of “tax exempt life or endowment
business” substitute—

• ““exempt BLAGAB or eligible PHI business” has the same
  meaning as in Part

  3

  10 of FA 2012 (see sections 154 and 155).”

Corporation Tax Act 2009

19 CTA 2009 is amended as follows.

20 In section A1(2) (overview of the Corporation Tax Acts), after paragraph (k)
(as inserted by paragraph 136(b) of Schedule 16 to this Act) insert “, and

(l) 15Part

3

of that Act (friendly societies carrying on long-term
business).”

21 In section 564(1) (section 563: interpretation), for “section 460 of ICTA”
20substitute “section 158 of FA 2012”.

22 In section 931S(3) (company distributions: meaning of “small company”), in
the definition of “friendly society”, for “section 466(2) of ICTA” substitute
“section 172 of FA 2012”.

Consequential repeals

23 25In consequence of the amendments made by this Schedule, omit the
following provisions—

(a) in FA 1990—

(i) section 49(1) to (4),

(ii) section 50, and

(iii) 30paragraph 6 of Schedule 9,

(b) in FA 1991, paragraphs 1 to 3 of Schedule 9,

(c) in FA 1995, paragraphs 1 and 2 of Schedule 10,

(d) in FA 1996, section 171,

(e) in FA 2007—

(i) 35section 44,

(ii) paragraphs 40 and 43 of Schedule 7, and

(iii) Schedule 12, and

(f) in FA 2008—

(i) section 44, and

(ii) 40Schedule 18.

Section 177

SCHEDULE 19 Part

3

: transitional provision

Approvals given for purposes of section 461 or 461C of ICTA

1 5Anything which, as a result of section 461(11) or 461A(4) of ICTA, is treated
as having been done by HMRC Commissioners on a particular date under a
provision of ICTA repealed by this Act is to continue to be treated as having
been done by them on that date under the provision of this Part
corresponding to that repealed provision, despite the fact that neither
10section 461(11) nor section 461A(4) of ICTA is rewritten in this Act.

General transitional provision in relation to provisions re-enacted in Part

3

of this Act

(1) This paragraph applies where any provision of this Part of this Act re-enacts
(with or without modification) an enactment repealed by this Part of this
15Act.

(2) The repeal and re-enactment does not affect the continuity of the law.

(3) Any subordinate legislation or other thing which—

(a) has been made or done, or has effect as if made or done, under or for
the purposes of the repealed provision, and

(b) 20is in force or effective in relation to accounting periods of friendly
societies ending on 31 December 2012,

has effect in relation to subsequent accounting periods of friendly societies
as if made or done under or for the purposes of the corresponding provision
of this Part of this Act.

(4) 25Any reference (express or implied) in any enactment, instrument or
document to a provision of this Part of this Act is to be read as including, in
relation to times, circumstances or purposes in relation to which the
corresponding repealed provision had effect, a reference to that
corresponding provision.

(5) 30Any reference (express or implied) in any enactment, instrument or
document to a repealed provision is to be read, in relation to times,
circumstances or purposes in relation to which the corresponding provision
of this Part of this Act has effect, as a reference or (as the context may require)
as including a reference to that corresponding provision.

(6) 35This paragraph is subject to any specific transitional, transitory or saving
provision made by or under this Schedule.

(7) The generality of this paragraph is not to be affected by specific transitional,
transitory or saving provision made by or under this Schedule.

(8) This paragraph has effect instead of section 17(2) of the Interpretation Act
401978.

Section 180

SCHEDULE 20 Controlled foreign companies and foreign permanent establishments

Part 1 Controlled foreign companies

1 5After Part 9 of TIOPA 2010 insert—

“Part 9A

Controlled foreign companies

Chapter 1

Overview

371AA 10 Overview of Part

(1) A charge (“the CFC charge”) is charged under this Part on UK
resident companies which have certain interests in CFCs.

(2) The CFC charge is charged by reference to the chargeable profits of
CFCs.

(3) 15A “CFC” is a non-UK resident company which is controlled by a UK
resident person or persons (but see subsection (6)).

(4) Chapter 2 sets out the basic details of the CFC charge, including—

(a) the CFC charge gateway (through which profits of a CFC
must pass in order to be chargeable profits), and

(b) 20the steps to be taken for charging the CFC charge.

(5) Chapter 2 is supplemented by Chapters 3 to 17; in particular—

(a) Chapter 3 sets out how to determine which (if any) of
Chapters 4 to 8 apply in relation to the profits of a CFC,

(b) so far as applicable, Chapters 4 to 8 set out how to determine
25which profits (if any) of a CFC pass through the CFC charge
gateway, with—

(i) Chapter 4 dealing with profits attributable to UK
activities,

(ii) Chapter 5 dealing with non-trading finance profits,

(iii) 30Chapter 6 dealing with trading finance profits,

(iv) Chapter 7 dealing with profits derived from captive
insurance business, and

(v) Chapter 8 dealing with cases involving solo
consolidation,

(c) 35Chapter 9 sets out exemptions for profits from qualifying
loan relationships,

(d) Chapters 10 to 14 set out full exemptions from the CFC
charge,

(e) Chapter 15 sets out how to determine the persons whose
40interests in a CFC are relevant to the charging of the CFC
charge,

(f) Chapter 16 sets out how to determine the creditable tax of
CFCs (for which credit is given against chargeable profits),
and

(g) Chapter 17 sets out how to apportion a CFC’s chargeable
5profits and creditable tax among the persons who have
relevant interests in the CFC.

(6) Chapter 18 explains the concept of “control” and also sets out certain
cases in which a non-UK resident company is to be taken to be a CFC
even though it is not controlled by a UK resident person or persons.

(7) 10Chapter 19 explains the concepts of “assumed taxable total profits”,
“assumed total profits” and “the corporation tax assumptions” which
are referred to in this Part.

(8) Chapter 20 contains rules for determining the territory in which a
CFC is resident for the purposes of this Part.

(9) 15Chapter 21 contains provision about the management of the CFC
charge, including the collection of sums charged.

(10) Chapter 22 contains supplementary provision, including definitions
of terms used in this Part.

(11) Nothing in this Part affects—

(a) 20the liability to corporation tax of a non-UK resident company
in accordance with section 5(2) and (3) of CTA 2009 (non-UK
resident companies within the charge to corporation tax), or

(b) the determination of such a company’s chargeable profits for
corporation tax purposes in accordance with Chapter 4 of
25Part 2 of CTA 2009.

(12) This Part is part of the Corporation Tax Acts.

Chapter 2

The CFC charge

371BA Introduction to the CFC charge

(1) The CFC charge is charged in relation to accounting periods of CFCs
30in accordance with section 371BC.

(2) Section 371BC applies in relation to a CFC’s accounting period if
(and only if)—

(a) the CFC has chargeable profits for the accounting period, and

(b) none of the exemptions set out in Chapters 10 to 14 applies for
35the accounting period.

(3) A CFC’s chargeable profits for an accounting period are its assumed
taxable total profits for the accounting period determined on the
basis—

(a) that the CFC’s assumed total profits for the accounting
40period are limited to only so much of those profits as pass
through the CFC charge gateway, and

(b) that amounts are to be relieved against the assumed total
profits at step 2 in section 4(2) of CTA 2010 only so far as it is

just and reasonable for them to be so relieved having regard
to paragraph (a).

(4) “The CFC charge gateway” is explained in section 371BB.

(5) Subsection (3) is subject to section 371SB (7) and (8) (which relates to
5settlement income included in a CFC’s chargeable profits).

371BB The CFC charge gateway

(1) Take the following steps to determine the extent to which a CFC’s
assumed total profits for an accounting period pass through the CFC
charge gateway.

10 Step 1

In accordance with Chapter 3, determine which (if any) of Chapters
4 to 8 apply for the accounting period.

Step 2

Determine the extent to which the CFC’s assumed total profits fall
15within any of the Chapters which applies for the accounting period.

(2) Subsection (1) is subject to—

(a) Chapter 9 (exemptions for profits from qualifying loan
relationships), and

(b) section 371JE (which provides for adjustments of profits
20which would otherwise pass through the CFC charge
gateway linked to the exemption set out in Chapter 10).

371BC Charging the CFC charge

(1) Take the following steps if, as provided for by section 371BA (2), this
section applies in relation to a CFC’s accounting period.

25 Step 1

In accordance with Chapter 15, determine the persons (“the relevant
persons”) who have relevant interests in the CFC at any time during
the accounting period.

Step 2

30In accordance with Chapter 16, determine the CFC’s creditable tax
for the accounting period.

Step 3

In accordance with Chapter 17, apportion the CFC’s chargeable
profits and creditable tax among the relevant persons.

35 Step 4

Take each relevant person which is a company meeting the UK
residence condition and, in accordance with section 371BD,
determine if the company is a chargeable company.

5 Step 5

The CFC charge is charged on each chargeable company as follows.

A sum equal to—

• corporation tax at the appropriate rate on P% of the CFC’s
  chargeable profits, less

• 10Q% of the CFC’s creditable tax,

is charged on the chargeable company as if it were an amount of
corporation tax charged on the company for the relevant corporation
tax accounting period.

(2) A company meets the UK residence condition if it is UK resident at a
15time during the accounting period when it has a relevant interest in
the CFC.

(3) For the purpose of taking step 5 in subsection (1) in relation to a
chargeable company (“CC”)—

• “the appropriate rate”, subject to section 371BH, means—

  (a)

  20the rate of corporation tax applicable to CC’s profits
  of the relevant corporation tax accounting period on
  which corporation tax is chargeable (see section 4(1)
  and (2) of CTA 2010), or

  (b)

  if there is more than one such rate, the average rate
  25over the whole of the relevant corporation tax
  accounting period,

• “P%” means the percentage of the CFC’s chargeable profits
  apportioned to CC,

• “Q%” means the percentage of the CFC’s creditable tax
  30apportioned to CC, and

• “the relevant corporation tax accounting period” means CC’s
  accounting period for corporation tax purposes during which
  the CFC’s accounting period ends.

371BD Chargeable companies

(1) 35A company (“C”) which meets the UK residence condition is a
chargeable company for the purposes of step 4 in section 371BC (1) if
the total of the following percentages is at least 25%—

(a) the percentage of the CFC’s chargeable profits apportioned
to C at step 3 in section 371BC (1), and

(b) 40the percentages (if any) of those profits which are
apportioned at that step to relevant persons who, at any time
during the accounting period, are connected or associated
with C.

(2) Subsection (1) is subject to sections 371BE to 371BG.

371BE Companies which are managers of offshore funds etc

(1) A company (“C”) is not a chargeable company for the purposes of
step 4 in section 371BC (1) if—

(a) the CFC is an offshore fund (as defined in section 355),

(b) 5the genuine diversity of ownership condition set out in
regulation 75 of the Offshore Funds (Tax) Regulations 2009
(S.I. 2009/3001S.I. 2009/3001) is met in relation to the fund,

(c) C meets the fund management condition, and

(d) apart from this section, a sum of no more than £500,000
10would be charged on C as a chargeable company at step 5 in
section 371BC (1).

(2) In applying regulation 75 of the 2009 Regulations for the purposes of
subsection (1)(b), the reference in paragraph (1) to the period of
account is to be read as a reference to the accounting period.

(3) 15C meets the fund management condition if at all times during the
accounting period when C has relevant interests in the offshore
fund—

(a) the assets of the offshore fund are managed by C or a person
connected with C,

(b) 20C or the person connected with C receives out of those assets
fees for managing those assets, and

(c) C holds its relevant interests only or mainly for the purpose
of attracting participants (as defined in section 362) to the
fund who are not connected with C.

(4) 25If the accounting period is less than 12 months, the amount specified
in subsection (1)(d) is to be reduced proportionately.

371BF Companies which are participants in offshore funds

(1) A company (“C”) is not a chargeable company for the purposes of
step 4 in section 371BC (1) if—

(a) 30the CFC is an offshore fund (as defined in section 355),

(b) at the relevant time and at all subsequent relevant times, C
reasonably believes that the requirement of section 371BD (1)
will not be met in relation to it, and

(c) the meeting of that requirement in relation to C is in no way
35attributable to any step—

(i) which was taken by C or any person connected or
associated with C, and

(ii) which, at the time it was taken, could reasonably have
been expected to cause that requirement to be met.

(2) 40“The relevant time” means—

(a) the beginning of the accounting period, or

(b) if C has no relevant interests in the offshore fund at the
beginning of the accounting period, the time when C first has
a relevant interest during the accounting period.

(3) 45“Subsequent relevant time” means any time during the accounting
period at which there is an increase or some other change in the
relevant interests in the offshore fund which C has.

371BG Companies holding shares as trading assets etc

(1) A company (“C”) is not a chargeable company for the purposes of
step 4 in section 371BC (1) if—

(a) C has its relevant interests in the CFC by virtue only of its
5holding, directly or indirectly, shares in the CFC,

(b) any increase in the value of the shares held by C which occurs
during the accounting period is (or would be) income, or
brought into account in determining any income, of C for
corporation tax purposes, and

(c) 10any dividend or other distribution received by C from the
CFC during the accounting period is (or would be) income, or
brought into account in determining any income, of C for
corporation tax purposes.

(2) Subsection (3) applies if—

(a) 15C has relevant interests in the CFC by virtue of section
371OB (3) or (4),

(b) the CFC is an offshore fund (as defined in section 355) which
does not meet the qualifying investments test in section 493
of CTA 2009, and

(c) 20in consequence of the offshore fund not meeting that test, the
requirements of subsection (1)(b) and (c) are not met.

(3) The requirements of subsection (1)(b) and (c) are to be taken to be
met.

371BH Companies carrying on BLAGAB

(1) 25Step 5 in section 371BC (1) is to be taken in relation to a chargeable
company (“CC”) on the basis set out in subsection (2) if—

(a) CC carries on basic life assurance and general annuity
business during the relevant corporation tax accounting
period,

(b) 30the assets which represent CC’s relevant interests in the CFC
are (to any extent) assets held by CC for the purposes of CC’s
long-term business, and

(c) the I - E rules apply to CC for the relevant corporation tax
accounting period.

(2) 35That basis is—

(a) in paragraph (a), the reference to the appropriate rate is to be
read as a reference to—

(i) the policyholders’ rate of tax under section 102 of FA
2012 applicable to the I - E profit of CC for the relevant
40corporation tax accounting period, or

(ii) if there is more than one such rate, the average rate
over the whole of the relevant corporation tax
accounting period,

(b) paragraph (a) is to apply only in relation to the policyholders’
45share of the BLAGAB component of the CFC’s chargeable
profits (“the apportioned profit”) apportioned to CC at step 3
in section 371BC (1), and

(c) for the purposes of paragraph (b), the CFC’s creditable tax
apportioned to CC is to be reduced so as to be equal to the

proportion which the policyholders’ share of the BLAGAB
component of the apportioned profit bears to the whole of the
apportioned profit.

(3) Take the following steps to determine the “BLAGAB component” of
5the apportioned profit.

Step 1

Assume that the apportioned profit is income falling within section
74(1)(j) of FA 2012 paid to CC at the end of the CFC’s accounting
period.

10 Step 2

Calculate how much of that income would be referable, in
accordance with Chapter 4 of Part 2 of FA 2012, to CC’s basic life
assurance and general annuity business.

(4) The “policyholders’ share” of the BLAGAB component of the
15apportioned profit is equal to the policyholders’ share of the I - E
profit for the relevant corporation tax accounting period as
determined in accordance with the rules contained in Chapter 5 of
Part 2 of FA 2012.

Chapter 3

The CFC charge gateway: determining which (if any) of Chapters 4 to 8 applies

371CA 20 Does Chapter 4 apply?

(1) Chapter 4 (profits attributable to UK activities) applies for a CFC’s
accounting period unless condition A, B, C or D is met.

(2) Condition A is that, at no time during the accounting period, does
the CFC hold assets or bear risks under an arrangement to which
25both subsections (3) and (4) apply.

(3) This subsection applies to an arrangement if—

(a) the main purpose, or one of the main purposes, of the
arrangement is to reduce or eliminate any liability of any
person to tax or duty imposed under the law of the United
30Kingdom, and

(b) in consequence of the arrangement, at any time the CFC
expects its business to be more profitable than it would
otherwise be (other than negligibly so).

(4) This subsection applies to an arrangement if—

(a) 35there is an expectation that, as a consequence of the
arrangement, one or more persons will have liabilities to tax
or duty imposed under the law of any territory reduced or
eliminated, and

(b) it is reasonable to suppose that, but for that expectation, the
40arrangement would not have been made.

(5) Condition B is that, at no time during the accounting period, does the
CFC have any UK managed assets or bear any UK managed risks
(see subsection (9)).

(6) Condition C is that, at all times during the accounting period, the
CFC has itself the capability to ensure that the CFC’s business would
be commercially effective were—

(a) the UK managed assets of the CFC, and

(b) 5the UK managed risks borne by the CFC,

to stop being UK managed.

(7) In subsection (6) the reference to the capability of the CFC includes
(in particular) its capability to select persons not connected with it to
provide it with goods or services and to manage the transactions it
10has with persons not connected with it.

(8) In determining if the requirements of subsection (6) are met at any
time (“the relevant time”) during the accounting period, assume—

(a) that the CFC would continue to carry on the same business as
it is actually carrying on at the relevant time, and

(b) 15that no relevant UK activities (see subsection (10)) by which
any asset or risk was UK managed would be replaced—

(i) by activities carried on by any person connected with
the CFC at any time, or

(ii) in any other way which relies to any extent upon the
20CFC receiving (directly or indirectly) resources or
other assistance from a person connected with it at
any time.

(9) An asset or risk is “UK managed” if—

(a) the acquisition, creation, development or exploitation of the
25asset, or

(b) the taking on, or bearing, of the risk,

is managed or controlled to any significant extent by way of relevant
UK activities.

(10) “Relevant UK activities” means activities carried on in the United
30Kingdom—

(a) by the CFC, otherwise than through a UK permanent
establishment, or

(b) by companies connected with the CFC under arrangements
which would not, it is reasonable to suppose, be entered into
35by companies not connected with each other.

(11) Condition D is that the CFC’s assumed total profits consist only of
one or both of the following—

(a) non-trading finance profits;

(b) property business profits.

371CB 40 Does Chapter 5 apply?

(1) Subject to sections 371CC and 371CD, Chapter 5 (non-trading finance
profits) applies for a CFC’s accounting period if (and only if) the CFC
has non-trading finance profits.

(2) In this section and Chapter 5 references to the CFC’s non-trading
45finance profits are to those profits excluding any profits falling
within subsection (3) or (4) or Chapter 8 (solo consolidation).