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
504

applies as it applies in relation to the determination of the CFC’s
assumed taxable total profits for the accounting period.
(7)
But subsection (6) is to be ignored if the difference made in the
amount of the profits as a result of its application would not be more
than £50,000.
5
371VE
Cell companies etc
(1)
This Part applies in relation to unincorporated cells and incorporated
cells as if they were non-UK resident companies.
(2)
An “unincorporated cell” is an identifiable part (by whatever name
known) of a non-UK resident company which meets the following
10
condition.
(3)
The condition is that, under the law under which the non-UK
resident company is incorporated or formed, under the articles of
association or other document regulating the non-UK resident
company or under any arrangement entered into by or in relation to
15
the non-UK resident company—
(a)
assets and liabilities of the non-UK resident company may be
wholly or mainly allocated to the part of the company in
question,
(b)
liabilities so allocated are to be met wholly or mainly out of
20
assets so allocated, and
(c)
there are members of the non-UK resident company who
have rights in relation to the company’s assets which cover
only or mainly assets so allocated.
(4)
Subsection (1) does not affect the status of the non-UK resident
25
company mentioned in subsection (2) as a company for the purposes
of this Part; but its assets and liabilities are to be apportioned
between it and the unincorporated cell (and any other
unincorporated cells which are part of the company) on a just and
reasonable basis.
30
(5)
An “incorporated cell” is an entity (by whatever name known)
established under the articles of association or other document
regulating a non-UK resident company—
(a)
which, under the law under which the non-UK resident
company is incorporated or formed, has a legal personality
35
distinct from that of the non-UK resident company, but
(b)
which is not itself a company (ignoring this section).
(6)
Subsection (1) does not affect the status of the non-UK resident
company mentioned in subsection (5) as a company for the purposes
of this Part.
40
(7)
The Treasury may by regulations provide for this Part to apply in
relation to—
(a)
parts of companies falling within specified descriptions, or
(b)
other entities falling within specified descriptions which are
not themselves companies (ignoring this section),
45
as if they were non-UK resident companies.

Finance Bill
Schedule 20 — Controlled foreign companies and foreign permanent establishments
Part 1 — Controlled foreign companies
505

(8)
Regulations under subsection (7) may add to, repeal or otherwise
amend subsections (1) to (6).
371VF
Connected persons etc
(1)
This section applies for the purposes of this Part.
(2)
The following provisions of CTA 2010 apply—
5
(a)
section 882(2) to (7) (“associated” persons), and
(b)
section 1122 (“connected” persons).
(3)
A person is “related” to a CFC if—
(a)
the person is connected or associated with the CFC,
(b)
at least 25% of the CFC’s chargeable profits would be
10
apportioned to the person at step 3 in section 371BC(1) were
that step required to be taken in relation to the accounting
period in question, or
(c)
if the CFC is a CFC by virtue of section 371RC, the person is
connected or associated with either or both of the controllers.
15
(4)
If a CFC is a CFC by virtue of section 371RG, a person is to be taken
to be connected, associated or related to the CFC if it is reasonable to
suppose that, apart from the arrangement falling within section
371RG(4), the person would be connected, associated or related to
the CFC.
20
371VG
Finance profits
(1)
In this Part “non-trading finance profits”, in relation to a CFC, means
any amounts—
(a)
which are included in the CFC’s assumed total profits for the
accounting period in question on the basis that they would be
25
chargeable to corporation tax under—
(i)
section 299 of CTA 2009 (charge to tax on non-trading
profits from loan relationships), or
(ii)
Part 9A of that Act (company distributions), or
(b)
which—
30
(i)
are included in the CFC’s assumed total profits for the
accounting period in question on the basis that they
arise from an arrangement which would be a relevant
finance lease, but
(ii)
are not trading profits.
35
(2)
Subsection (1) is subject to subsection (3) and sections 371CB(2) and
(8) and 371CE(2).
(3)
Any credits or debits which are to be brought into account in
determining the CFC’s property business profits for the accounting
period in question in accordance with section 371VI(2) are not to be
40
brought into account in determining the CFC’s non-trading finance
profits.
(4)
In this Part “trading finance profits”, in relation to a CFC, means any
amounts included in the CFC’s assumed total profits for the
accounting period in question—
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Finance Bill
Schedule 20 — Controlled foreign companies and foreign permanent establishments
Part 1 — Controlled foreign companies
506

(a)
which are trading profits by virtue of section 297, 573 or
931W of CTA 2009, or
(b)
which are trading profits arising from an arrangement which
would be a relevant finance lease.
(5)
Subsection (4) is subject to section 371CE(2).
5
371VH
Interests in companies
(1)
This section applies for the purposes of this Part.
(2)
The following persons have an “interest” in a company—
(a)
any person who has, or is entitled to acquire, share capital or
voting rights in the company,
10
(b)
any person who has, or is entitled to acquire, a right to receive
or participate in distributions of the company,
(c)
any person who is entitled to secure that income or assets of
the company will be applied directly or indirectly for the
person’s benefit, and
15
(d)
any other person who, either alone or together with other
persons, has control of the company.
(3)
In subsection (2) references to a person being entitled to do anything
cover cases in which—
(a)
a person is presently entitled to do it at a future date, or
20
(b)
a person will at a future date be entitled to do it.
(4)
But an entitlement to secure that the income or assets of a company
will be applied as mentioned in subsection (2)(c) which is contingent
upon a default of the company or any other person under any
agreement does not fall within subsection (2)(c) unless the default
25
has occurred.
(5)
Rights which a person has as a loan creditor of a company are to be
ignored for the purposes of subsection (2).
(6)
In subsection (5)—
“loan creditor” has the meaning given by section 453 of CTA
30
2010, but ignoring subsection (4) of that section, and
“rights” does not include any rights excluded from subsection
(5) by subsection (8).
(7)
Subsection (8) applies if, in accordance with generally accepted
accounting practice, a loan creditor divides its rights and liabilities
35
under a loan relationship to which it is a party as mentioned in
section 415(1) of CTA 2009 (loan relationships with embedded
derivatives).

For this purpose, if a loan creditor does not prepare its accounts in
accordance with generally accepted accounting practice, assume that
40
it prepares IAS accounts (within the meaning of section 1127 of CTA
2010).
(8)
Any rights falling within section 415(1)(b) of CTA 2009 are to be
excluded from subsection (5).
(9)
Subsection (10) applies in relation to a CFC which is a CFC by virtue
45
of section 371RG.

Finance Bill
Schedule 20 — Controlled foreign companies and foreign permanent establishments
Part 1 — Controlled foreign companies
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(10)
The persons who have “interests” in the CFC, and the nature of their
interests, are to be determined by applying section 371RG(3) and
otherwise by reference to what it is reasonable to suppose would
have been the state of affairs in relation to the CFC apart from the
arrangement falling within section 371RG(4).
5
(11)
Subsections (12) and (13) apply if—
(a)
apart from subsection (12), a person has, or two or more
persons together have, an interest in a company (“company
1”), and
(b)
company 1 has an interest in another company (“company
10
2”).

(In paragraph (b) “interest” includes an interest by virtue of
subsection (12).)
(12)
The person or persons mentioned in subsection (11)(a) are to be taken
to have an interest in company 2 (and references to a person’s
15
interest in a company are to be read accordingly).
(13)
For the purposes of references to one person’s interest in a company
being the same as another person’s interest—
(a)
the person mentioned in subsection (11)(a), or
(b)
each of the persons so mentioned,
20

is to be taken as having, to the extent of that person’s interest in
company 1, the same interest as company 1 has in company 2.
(14)
If two or more persons jointly have an interest in a company
otherwise than in a fiduciary or representative capacity, they are
taken to have the interest in equal shares.
25
371VI
Property business profits
(1)
Subject to what follows, in this Part “property business profits”, in
relation to a CFC, means any profits included in the CFC’s assumed
total profits for the accounting period in question on the basis that
they would be chargeable to corporation tax under Part 4 of CTA
30
2009 (property income).
(2)
Any credits or debits—
(a)
which are brought into account under Part 5 of CTA 2009 in
determining the CFC’s assumed total profits for the
accounting period, and
35
(b)
which fall within subsection (3) or (5),

are to be brought into account in determining the CFC’s property
business profits.
(3)
Credits and debits fall within this subsection so far as they are from
a debtor relationship of the CFC where the loan which is the subject
40
of the debtor relationship—
(a)
is made and used solely for the purposes of a relevant
property business, and
(b)
is not used to any extent for the purpose of funding (directly
or indirectly) a loan to any other person.
45
(4)
In subsection (3) “debtor relationship” has the meaning given by
section 302(6) of CTA 2009 (and does not include anything which,

Finance Bill
Schedule 20 — Controlled foreign companies and foreign permanent establishments
Part 2 — Foreign permanent establishments
508

although not falling within section 302(1) of that Act, is treated for
any purpose as if it were a debtor relationship); and “loan” is to be
read accordingly.
(5)
Credits and debits fall within this subsection so far as they—
(a)
are from any derivative contract or other arrangement
5
entered into by the CFC as a hedge of risk in connection with
a relevant property business, and
(b)
are attributable to that hedge of risk.
(6)
“Relevant property business” means a UK property business or
overseas property business of the CFC, profits of which are included
10
in the CFC’s property business profits apart from subsection (2).
371VJ
Regulations
Regulations under this Part may contain incidental, supplemental,
consequential and transitional provision and savings.”
Part 2
15
Foreign permanent establishments
Main provision
2
Chapter 3A of Part 2 of CTA 2009 (foreign permanent establishments of UK
resident companies) is amended as follows.
3
In section 18A(1) omit “UK resident”.
20
4
After section 18C insert—
“18CA
Income arising from immovable property
The references in section 18A(6) to profits which would be taken to
be attributable to the permanent establishment of a company in a
territory include any income arising from immovable property
25
which has been used for the purposes of the business carried on by
the company through the permanent establishment in the territory
(to such extent as is appropriate having regard to the extent to which
it has been so used); and the references to losses in section 18A(7) are
to be construed accordingly.
30
18CB
Profits and losses from investment business
(1)
In determining any relevant profits amount or relevant losses
amount under section 18A(6) or (7) in relation to a company, there
are to be left out of account any profits or losses of any part of the
company’s business which consists of the making of investments.
35
(2)
Subsection (1) does not apply to profits or losses arising from assets
so far as they are effectively connected with any part of the
permanent establishment through which a trade or overseas
property business of the company is carried on in the territory.
(3)
In subsection (2) “effectively connected” is to be given the same
40
meaning as it would be given for the purposes of the OECD model
were subsection (2) contained in the OECD model.”

Finance Bill
Schedule 20 — Controlled foreign companies and foreign permanent establishments
Part 2 — Foreign permanent establishments
509

5     (1)
Section 18F is amended as follows.
      (2)
In subsection (1)(a) for “subsection (6)” substitute “subsections (6) to (8)”.
      (3)
For subsection (2) substitute—
“(2)
“The relevant day”, in relation to an election made by a UK resident
company, means—
5
(a)
the day on which, at the time of the election, the company’s
accounting period following that in which the election is
made is expected to begin, or
(b)
if the election is made before the company’s first accounting
period, the day on which that accounting period begins.
10
(2A)
“The relevant day”, in relation to an election made by a non-UK
resident company, means the day on which the company becomes
UK resident.”
      (4)
In subsection (6) for “The election can be revoked” substitute “An election
can be revoked by the company which made it”.
15
      (5)
After subsection (6) insert—
“(7)
An election made by a UK resident company is revoked if the
company ceases to be UK resident.
(8)
An election made by a non-UK resident company is revoked if,
having become UK resident, the company ceases to be UK resident.”
20
6
For sections 18G to 18I substitute—
“18G
Anti-diversion rule
(1)
This section applies for the purposes of this Chapter for any relevant
accounting period (“period X”) of a company (“company X”) in
relation to a territory outside the United Kingdom (“territory X”) if—
25
(a)
there is an adjusted relevant profits amount in relation to
territory X for period X,
(b)
the adjusted relevant profits amount includes diverted
profits (see section 18H), and
(c)
none of the exemptions mentioned in section 18I applies for
30
period X.
(2)
The diverted profits are to be left out of the adjusted relevant profits
amount.
(3)
For the purposes of this Chapter “adjusted”, in relation to a relevant
profits amount, is what the relevant profits amount would be if it
35
were determined without reference to gains or losses which are
chargeable gains or allowable losses for corporation tax purposes.
18H
What are “diverted profits”?
(1)
In section 18G(1)(b) “diverted profits” means so much of company
X’s total profits of period X as pass through the diverted profits
40
gateway.
(2)
To determine the extent to which company X’s total profits of period
X pass through the diverted profits gateway, apply—

Finance Bill
Schedule 20 — Controlled foreign companies and foreign permanent establishments
Part 2 — Foreign permanent establishments
510

(a)
section 371BB of TIOPA 2010 (controlled foreign companies:
the CFC charge gateway), and
(b)
except Chapter 8 of Part 9A of that Act, the other provisions
referred to in that section,

as if references to the CFC charge gateway were references to the
5
diverted profits gateway.
(3)
In applying section 371BB of TIOPA 2010 and the other provisions
referred to in it assume—
(a)
that company X is a CFC resident in territory X,
(b)
that period X is the CFC’s accounting period, and
10
(c)
that company X’s total profits of period X are the CFC’s
assumed total profits for the accounting period.
(4)
Subsection (3)(a) does not require it to be assumed that there is any
change in the place or places at which company X carries on its
activities.
15
(5)
Section 371BB of TIOPA 2010 and the other provisions referred to in
it are also to be applied subject to sections 18HA to 18HE below.
(6)
In this section—
(a)
references to company X’s total profits of period X are to
those profits ignoring this Chapter and step 2 in section 4(3)
20
of CTA 2010, and
(b)
references to section 371BB of TIOPA 2010 are to that section
omitting subsection (2)(b).
18HA
Modification of Chapter 3 of Part 9A of TIOPA 2010
Chapter 3 of Part 9A of TIOPA 2010 (the CFC charge gateway:
25
determining which of Chapters 4 to 8 applies) applies for the
purposes of section 18H(2) with the omission of—
(a)
section 371CA(10)(a),
(b)
in section 371CB(2), the words “or Chapter 8 (solo
consolidation)”,
30
(c)
section 371CC(1)(b), (3)(b) and (c), (4) to (7), (9) and (10),
(d)
section 371CD,
(e)
section 371CE(2) to (7), and
(f)
section 371CG.
18HB
Modification of Chapter 4 of Part 9A of TIOPA 2010
35
(1)
Chapter 4 of Part 9A of TIOPA 2010 (the CFC charge gateway: profits
attributable to UK activities) applies for the purposes of section
18H(2) with the following modifications.
(2)
The modifications are—
(a)
section 371DA(3)(g)(i) is to be omitted, and
40
(b)
in section 371DH(4), after “the accounting period”, in the
second place it occurs, there is to be inserted “or the United
Kingdom”.
(3)
Section 371VF(3) of TIOPA 2010 (definition of “related” person) is to
be applied as relevant with the omission of paragraphs (b) and (c).
45