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

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) 5applying 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) 10it 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
15relevant 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
20486D(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) 25applying 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
30CFC 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) 35Section 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 40 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
45relation 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
5to 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) 10the 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) 15otherwise, 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
20double 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
25which, 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) 30To determine that territory, go through the following subsections.

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
35CFC 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) 40If—

(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
5the 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.

(7) If, immediately before the end of the relevant accounting period,
10over 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.

(8) 15If, 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
20is 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) 25must 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,
30the 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) 35must 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
40accounting 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
45that, 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
5relevant 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
10to 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) 15the 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,

20regardless 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
25in 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 30 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
  3518 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
  40Schedule), 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) 5This 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
10accounts, 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
15unpaid 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
20of 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
25in 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
30returns),

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
35creditable 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) 40An 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
4530 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
5company 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
10respect 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
15appropriate 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
20Acts.

(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
25accounting 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) 30any 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) 35any 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
40relationships.

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) 45the 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
5discovery 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) 10The 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) 15This 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
20another 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) 25the 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
30notice 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
35company 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
40defaulting company.

Chapter 22

Supplementary provision

371VA Definitions

In this Part—

Finance (No. 4) BillPage 497

• “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,

• 5“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
  10read 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)

  15banking, 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
  20to 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),

• 25“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,

• 30“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),

• 35“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
  40Majesty’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)

  45any 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
  50accordance with section 371VH,

Finance (No. 4) BillPage 498

• “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,

• 5“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)

  10a 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,

• 15“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,

• 20“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
  25accounting 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
  30indirectly) 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
  35the 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) 40when 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) 45the 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)
5and (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
10uncertain.

(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
15 (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
20not 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
25which 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
30read) 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
35CFC’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
40any 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) 45The CFC’s pre-tax profits are to be determined by reference to the
amounts which would have been disclosed had financial statements