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

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
5by 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
10see 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
15Reporting Standard 2, or

(b) any relevant document.

(2) “Relevant document” means—

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

(b) 20a 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) 25which 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
30accordance 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
35a 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) 40are 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
45one 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
5(“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
10company (“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) 15Y 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
20accrue 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
25of 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
30time 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
35relation 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) 40“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
45ordinary course of its business.

Chapter 19

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

Overview

371SA Overview of Chapter

5This 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) 10For 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
152010 (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) 20Any 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
25other 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) 30Subsection (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
35which 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
40accounting 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
5the 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,
10and

(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
15accounting 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
20relevant 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
25periods 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) 30requires (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
35from 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
40assumed 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) 45In 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
5dependent 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) 10Subsection (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) 15section 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 20 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
25 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
30company 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
35have 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) 40the 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) 45the 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
5mentioned 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) 10within 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) 15the 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)
20would 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) 25the 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
30companies 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) 35during 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)
40in 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
45particular, 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
5determine 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
10relation 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
15apportioned 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
20 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
25section 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

• 30“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
  35period.

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) 40applying 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) 45If 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
5generally 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) 10a 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
15section, 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
20time 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
25withdrawing 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
30able 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
35relation 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
40apportioned 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
45 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
5(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
10in 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
15charge) 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
20for 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
25CFC 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
30CFC.

(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) 35Assume 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) 40Subsection (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) 45Subsection (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
5subsection (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) 10This 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) 15was 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
20or 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) 25For 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) 30the 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
35time 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,
40applying 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
45obtaining a tax advantage within section 1139(2)(da) of CTA 2010 the