Finance Bill

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
485

Chapter 19
Assumed taxable total profits, assumed total profits and the corporation tax
assumptions
Overview
371SA
Overview of Chapter
5
This 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”
10
371SB
What are “assumed taxable total profits” and “assumed total profits”?
(1)
For 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.
15
(2)
“Taxable total profits” has the meaning given by section 4(2) of CTA
2010 (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
20
(b)
step 2 is to be ignored.
(4)
Any 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
25
settlement, the income is to be apportioned between the CFC and the
other 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
30
excluded from the income determined at step 1.
(7)
Subsection (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
35
(b)
the chargeable profits for an accounting period of a CFC
which 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.
40
(9)
For the purposes of this Part a CFC’s “assumed total profits” for an
accounting period are its assumed taxable total profits for the period
before taking step 2 in section 4(2) of CTA 2010.

Finance Bill
Schedule 20 — Controlled foreign companies and foreign permanent establishments
Part 1 — Controlled foreign companies
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“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
5
the 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,
10
and
(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
15
accounting 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
20
relevant 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
25
periods 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
30
(b)
requires (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
35
from 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
40
assumed 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.
45
(6)
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.

Finance Bill
Schedule 20 — Controlled foreign companies and foreign permanent establishments
Part 1 — Controlled foreign companies
487

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
dependent upon the making of a claim or election, assume the CFC—
5
(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)
Subsection (1) does not cover (so far as it would otherwise do so) a
10
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)
section 9A of CTA 2010 (designated currency of a UK
15
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
Disapplication of assumption in section 371SF(1)
20
(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
371SF(1),
25
(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
company within the charge to corporation tax, or
30
(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
have disclaimed the allowance or required such a
35
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)
the assumption set out in the notice under subsection (1) is to
40
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)
the assumption set out in the notice under subsection (1) is to
45
be applied so far as relevant, and

Finance Bill
Schedule 20 — Controlled foreign companies and foreign permanent establishments
Part 1 — Controlled foreign companies
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(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
mentioned in section 371SF(2)(b) or 371SK(5).
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)
within 20 months after the end of the relevant
10
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)
the company would be a chargeable company were section
15
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)
would represent more than half of X%.
20
(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)
the percentage of the CFC’s chargeable profits which would
25
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
companies at step 3 in section 371BC(1) were section 371BC
30
(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)
during the relevant accounting period or any earlier
35
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)
in the form specified in the notice, and
40
(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
particular, section 9A(2)).
45
(2)
Assume—

Finance Bill
Schedule 20 — Controlled foreign companies and foreign permanent establishments
Part 1 — Controlled foreign companies
489

(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
determine the effect (if any) of that election.
5
(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
relation to the applicable accounting period were section
10
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 company at step 3 in section 371BC(1)
15
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
371BC (charging the CFC charge) to apply in relation to that
20
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%.
25
(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
“X%” means the total percentage of the CFC’s chargeable
30
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
period.
35
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)
applying the corporation tax assumptions apart from this
40
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)
If sterling is the CFC’s designated currency for the period of account,
45
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

Finance Bill
Schedule 20 — Controlled foreign companies and foreign permanent establishments
Part 1 — Controlled foreign companies
490

(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
generally accepted accounting practice” were—
5
(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)
a notice is given to an officer of Revenue and Customs
10
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
section, the CFC would have been able to make a long
15
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
time in question, and
20
(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
withdrawing the notice under subsection (1), and
25
(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
able to withdraw its assumed long funding lease election.
30
(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
relation to the applicable accounting period were section
35
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 company at step 3 in section 371BC(1)
40
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
371BC (charging the CFC charge) to apply in relation to that
45
period, and
(b)
the percentage of the CFC’s chargeable profits for the
applicable accounting period which would be likely to be

Finance Bill
Schedule 20 — Controlled foreign companies and foreign permanent establishments
Part 1 — Controlled foreign companies
491

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
(Elections) Regulations 2007 (S.I. 2007/304),
5
(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
in the notice under subsection (1), and
10
(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
charge) to apply in relation to the applicable accounting
15
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
for leases to be treated as long funding leases).
20
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
CFC before its first accounting period was acquired or created by the
25
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
CFC.
30
(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)
Assume also that the CFC—
35
(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)
Subsection (5) is subject to section 371SG(4).
40
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)
Subsection (3) applies if—
45