Session 2012 - 13
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Finance Bill


Finance Bill
Schedule 20 — Controlled foreign companies and foreign permanent establishments
Part 1 — Controlled foreign companies

461

 

company (apart from the ultimate debtor) for the purposes of

Part 3 of CTA 2009 (trading income).

(7)   

In subsection (6) “relevant UK connected company” means a UK

resident company connected with the CFC, the main business of

which is banking business or insurance business.

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(8)   

A creditor relationship of the CFC cannot be a qualifying loan

relationship if—

(a)   

the CFC receives relevant UK funds or other assets for the

purpose of funding the loan which is the subject of the CFC’s

creditor relationship,

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(b)   

the provision of the relevant UK funds or other assets is itself

funded (wholly or partly and directly or indirectly) by a loan

made to a UK connected company,

(c)   

the relevant loan is wholly or mainly used to repay wholly or

partly another loan made to the ultimate debtor by a person

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not connected with the ultimate debtor, and

(d)   

the events mentioned in paragraphs (a) to (c) take place

under, or are otherwise connected (directly or indirectly)

with, an arrangement the main purpose, or one of the main

purposes, of which is to obtain a tax advantage for any

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person.

(9)   

In subsection (8)—

(a)   

“relevant UK funds or other assets” and “UK connected

company” have the same meaning as in section 371EC, and

(b)   

in paragraph (c) “the relevant loan” means—

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(i)   

the loan which is the subject of the CFC’s creditor

relationship, or

(ii)   

if the ultimate debtor is determined in accordance

with section 371IG(4) or (5), loan B.

(10)   

In subsections (4)(b) and (9)(b)(ii) references to loan B do not include

30

any part of loan B—

(a)   

which loan A is not made and used to fund, or

(b)   

in relation to which the requirement of section 371IG(3)(c) is

not met.

371II   

Power to amend definitions

35

The HMRC Commissioners may by regulations amend this

Chapter—

(a)   

so as to amend the definition of “qualifying resources” for the

purposes of section 371IB, or

(b)   

so as to amend the definition of “qualifying loan

40

relationship” for the purposes of this Chapter (including by

way of amending the definition of “ultimate debtor”).

371IJ   

Claims

(1)   

A claim under this Chapter must be made by being included in

company C’s company tax return for the relevant corporation tax

45

accounting period (as defined in section 371BC(3)).

 
 

Finance Bill
Schedule 20 — Controlled foreign companies and foreign permanent establishments
Part 1 — Controlled foreign companies

462

 

(2)   

The claim may be included in the return originally made or by

amendment.

(3)   

A claim under this Chapter may be made, amended or withdrawn at

any time up to whichever is the last of the following dates—

(a)   

the first anniversary of the filing date for company C’s

5

company tax return for the relevant corporation tax

accounting period under paragraph 14 of Schedule 18 to FA

1998;

(b)   

if notice of enquiry is given into that return under paragraph

24 of that Schedule, 30 days after the enquiry is completed;

10

(c)   

if after such an enquiry an officer of Revenue and Customs

amends the return under paragraph 34(2) of that Schedule, 30

days after notice of the amendment is issued;

(d)   

if an appeal is brought against such an assessment, 30 days

after the date on which the appeal is finally determined.

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(4)   

A claim under this Chapter may be made, amended or withdrawn at

a later time if an officer of Revenue and Customs allows it.

(5)   

In any event, if after a claim under this Chapter is made there is a

change of circumstances affecting the tested income amount or the

tested expense amount mentioned in section 371IE(2), the claim may

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be amended at any time within the period of 12 months after the

change of circumstances for the purpose of taking account of the

change of circumstances.

(6)   

The time limits otherwise applicable to amendment of a company tax

return do not apply to an amendment to the extent that it makes,

25

amends or withdraws a claim under this Chapter within the time

allowed by or under this section.

(7)   

In subsection (3) references to an enquiry into a company tax return

do not include an enquiry restricted to a previous amendment

making, amending or withdrawing a claim under this Chapter.

30

(8)   

An enquiry is so restricted if—

(a)   

the scope of the enquiry is limited as mentioned in paragraph

25(2) of Schedule 18 to FA 1998, and

(b)   

the amendment giving rise to the enquiry consisted of the

making, amending or withdrawing of a claim under this

35

Chapter.

Chapter 10

The exempt period exemption

371JA   

Introduction to Chapter

(1)   

This Chapter sets out an exemption called “the exempt period

40

exemption” for the purposes of section 371BA(2)(b).

(2)   

Section 371JE also provides for adjustments of profits which would

otherwise pass through the CFC charge gateway (see section

371BB(2)(b)) linked to the exempt period exemption.

 
 

Finance Bill
Schedule 20 — Controlled foreign companies and foreign permanent establishments
Part 1 — Controlled foreign companies

463

 

371JB   

The basic rule

(1)   

The exempt period exemption applies for a CFC’s accounting period

if—

(a)   

the accounting period ends during an exempt period of the

CFC (see sections 371JC and 371JD),

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(b)   

the subsequent period condition is met, and

(c)   

the chargeable company condition is met.

(2)   

The subsequent period condition is met if—

(a)   

the CFC does not cease to be a CFC before having at least one

accounting period which begins after the end of the exempt

10

period, and

(b)   

section 371BC (charging the CFC charge) does not apply in

relation to the CFC’s first accounting period to begin after the

end of the exempt period (see section 371BA(2)).

(3)   

The chargeable company condition is met if, at all times during the

15

relevant period—

(a)   

the charging condition in section 371JC is met, and

(b)   

each company which would be a chargeable company for the

purposes of that condition is an original chargeable company

or is connected with an original chargeable company.

20

(4)   

In subsection (3)—

“original chargeable company” means a company which, for

the purposes of the charging condition in section 371JC,

would be a chargeable company at the beginning of the

exempt period, and

25

“the relevant period” means the period which—

(a)   

begins immediately after the beginning of the exempt

period, and

(b)   

ends at the end of the CFC’s first accounting period to

begin after the end of the exempt period.

30

(5)   

This section is subject to section 371JF (anti-avoidance).

371JC   

When does an exempt period begin?

(1)   

An exempt period of a CFC begins at any time (“the relevant time”)

during an accounting period of the CFC if—

(a)   

the initial condition is met,

35

(b)   

the charging condition is met at the relevant time, and

(c)   

at no time during the relevant preceding period (if there is

one) is the charging condition met.

(2)   

The initial condition is met if—

(a)   

immediately before the relevant time, the company (“C”)

40

which is the CFC is carrying on a business, or

(b)   

if the relevant time is the time at which C is incorporated or

formed, C is incorporated or formed by one or more persons

for the purpose of controlling one or more companies in

circumstances where it is expected that an exempt period will

45

begin in relation to one or more of those companies when C

begins to control the company or companies.

 
 

Finance Bill
Schedule 20 — Controlled foreign companies and foreign permanent establishments
Part 1 — Controlled foreign companies

464

 

(3)   

To determine if the charging condition is met at any time, assume—

(a)   

that the company which is the CFC is a CFC at the time in

question if that is not otherwise the case,

(b)   

that the time in question is itself an accounting period of the

CFC, and

5

(c)   

that section 371BC (charging the CFC charge) applies in

relation to the assumed accounting period.

(4)   

The charging condition is met at the time in question if, as a result of

steps 1, 3 and 4 in section 371BC(1), there would be one or more

chargeable companies in relation to the assumed accounting period.

10

(5)   

“The relevant preceding period” means the period of 12 months

ending immediately before the relevant time, excluding any part of

that period during which the company which is the CFC does not

exist.

371JD   

How long is an exempt period?

15

(1)   

Subject to what follows, an exempt period of a CFC lasts 12 months.

(2)   

Subsection (3) applies if a notice is given to an officer of Revenue and

Customs requesting that the length of an exempt period of a CFC be

extended (or further extended).

(3)   

An officer of Revenue and Customs may extend (or further extend)

20

the length of the exempt period.

(4)   

A notice under subsection (2) must be given no later than the end of

the exempt period (as it stands at the time the notice is given).

(5)   

A notice under subsection (2) may be given only by a company

which, at the time the notice is given, would be a chargeable

25

company for the purposes of the charging condition in section 371JC.

371JE   

Adjustment of profits passing through the CFC charge gateway

(1)   

This section applies for a CFC’s accounting period if—

(a)   

the accounting period begins, but does not end, during an

exempt period of the CFC, and

30

(b)   

the subsequent period condition and the chargeable

company condition in section 371JB are both met.

(2)   

The CFC’s assumed total profits which would otherwise pass

through the CFC charge gateway are to be adjusted to ensure that no

profits which arise in the exempt period, as determined on a just and

35

reasonable basis, pass through the CFC charge gateway.

(3)   

This section is subject to section 371JF (anti-avoidance).

371JF   

Anti-avoidance

(1)   

The exempt period exemption does not apply for a CFC’s accounting

period (“the relevant accounting period”) if condition A or B is met.

40

(2)   

Condition A is that—

(a)   

an arrangement is entered into at any time,

(b)   

the main purpose, or one of the main purposes, of the

arrangement is to secure a tax advantage for any person,

 
 

Finance Bill
Schedule 20 — Controlled foreign companies and foreign permanent establishments
Part 1 — Controlled foreign companies

465

 

(c)   

the arrangement is linked to the exempt period exemption

applying or being expected to apply (apart from this

section)—

(i)   

for the relevant accounting period, or

(ii)   

for that period and one or more other accounting

5

periods of the CFC, and

(d)   

the arrangement involves one or both of the following—

(i)   

the CFC holding assets which give rise to non-trading

finance profits or trading finance profits of the CFC,

or

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(ii)   

the CFC holding intellectual property which gives

rise to any income of the CFC.

(3)   

Condition B is that—

(a)   

an arrangement is entered into at any time,

(b)   

in consequence of the arrangement, the length of any

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accounting period of the CFC is less than 12 months, and

(c)   

the main purpose, or one of the main purposes, of the

arrangement is to secure that the exempt period exemption

applies—

(i)   

for the relevant accounting period, or

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(ii)   

for that period and one or more other accounting

periods of the CFC.

(4)   

In this section references to the exempt period exemption include

references to section 371JE.

371JG   

Amendment of company tax returns

25

(1)   

This section applies in relation to a company’s company tax return

for a corporation tax accounting period if an exempt period of a CFC

falls (wholly or partly) in the corporation tax accounting period.

(2)   

Any amendment of the return which relates to the application (or

non-application) of the exempt period exemption or section 371JE for

30

an accounting period of the CFC may be made by the company at

any time no later than 12 months after the relevant filing date.

(3)   

“The relevant filing date” means the date which is the filing date

under paragraph 14 of Schedule 18 to FA 1998 for the company’s

company tax return for its corporation tax accounting period in

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which ends the CFC’s first accounting period to begin after the end

of the exempt period.

(4)   

“Corporation tax accounting period” means an accounting period for

corporation tax purposes.

Chapter 11

40

The excluded territories exemption

371KA   

Introduction to Chapter

This Chapter sets out an exemption called “the excluded territories

exemption” for the purposes of section 371BA(2)(b).

 
 

 
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Revised 9 May 2012