Finance Bill (HC Bill 49)

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371UC Just and reasonable apportionments

(1) This section applies if—

(a) an apportionment of a CFC’s chargeable profits and
creditable tax is to be made in accordance with section
5371QC(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) An officer of Revenue and Customs may determine that another
10basis 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
30 or 34 of Schedule 18 to FA 1998.

(4) 15But 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
company in relation to a CFC’s accounting period is entitled, or on
20the 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
respect of the relevant allowance.

(3) 25If 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
appropriate rate on so much of the relevant allowance as is specified
30in 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
Acts.

(6) 35No 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
accounting period” have the meaning given by section
40371BC(3), and

(b) “relevant allowance” means—

(i) any loss to which section 37 or 62(1) to (3) of CTA 2010
applies,

(ii) any qualifying charitable donation,

(iii) 45any expenses of management to which section 1219(1)
of CTA 2009 applies,

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(iv) any adjusted BLAGAB management expenses for the
purposes of section 73 of FA 2012,

(v) any excess to which section 260(3) of CAA 2001
applies,

(vi) 5any amount available to the company by way of
group relief, or

(vii) any non-trading deficit on the company’s loan
relationships.

(8) But, in relation to a sum charged on a company by virtue of section
10371BH(2), in this section—

(a) “the appropriate rate” means the rate given by section
371BH(3)(a), and

(b) “relevant allowance” means any adjusted BLAGAB
management expenses for the purposes of section 73 of FA
152012.

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) 20the 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
25against an amendment of a company tax return, and

(b) an appeal under paragraph 48 of that Schedule against a
discovery assessment.

(3) The appeal is to be conducted as follows.

(4) Each of the persons whose liability under this Part is likely to be
30affected by the resolution of the question is entitled to be a party to
the proceedings.

(5) The 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
35made in an appeal to which each of those persons was a party.

371UF Recovery of sum charged from other UK resident companies

(1) This 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
40and payable in accordance with the Taxes Acts.

(2) An officer of Revenue and Customs may give a notice of liability to
another 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) 45If such a notice is given to a company (“the responsible company”),
the following are payable by the responsible company—

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(a) the 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
5any unpaid interest due on the sum charged as at the time the
notice 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) 10Subsection (5) applies if any sum payable by the responsible
company 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
15company, the outstanding amount may be recovered from the
defaulting company.

Chapter 22

Supplementary provision

371VA Definitions

In this Part—

  • 20“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,

  • “arrangement” includes—

    (a)

    25any 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
    read in accordance with section 371SB(1) to (6),

  • 30“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)

    banking, deposit-taking, money-lending or debt-
    35factoring, or

    (b)

    any activity similar to an activity falling within
    paragraph (a),

  • “CFC” is to be read in accordance with section 371AA(3), subject
    to sections 371RC and 371RE(2) and regulations under
    40section 371RF(4),

  • “the CFC charge” is to be read in accordance with section
    371AA(1),

  • “chargeable company”, in relation to a CFC’s accounting
    period, means a company which is a chargeable company for
    45the purposes of step 4 in section 371BC(1),

  • “chargeable profits”, in relation to a CFC, is to be read in
    accordance with section 371BA(3),

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  • “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,

  • “contract of insurance” has the meaning given by article 3(1) of
    5the 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 371RF,

  • “the corporation tax assumptions” is to be read in accordance
    10with 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
    Majesty’s Revenue and Customs,

  • 15“insurance business” means the business of effecting or
    carrying out of contracts of insurance, including the
    investment of premiums received,

  • “intellectual property” means—

    (a)

    any patent, trade mark, registered design, copyright
    20or 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
    accordance with section 371VH,

  • 25“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,

  • “non-trading income” means income which is not trading
    30income,

  • “property business profits” is to be read in accordance with
    section 371VI,

  • “relevant finance lease” means—

    (a)

    a long funding lease for the purposes of Part 2 of CAA
    352001 (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,

  • “relevant interest” is to be read in accordance with Chapter 15,

  • 40“tax advantage” has the meaning given by section 1139 of CTA
    2010,

  • “trading finance profits” is to be read in accordance with section
    371VG,

  • “trading income”, in relation to a CFC, means income brought
    45into 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
    accounting period in question on the basis that they would be
    50chargeable to corporation tax under Part 3 of CTA 2009
    (trading income),

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  • UK connected capital contribution”, in relation to a CFC,
    means any capital contribution to the CFC made (directly or
    indirectly) by a UK resident company connected with the
    CFC (whether in relation to an issue of shares in the CFC or
    5otherwise), and

  • UK permanent establishment”, in relation to a non-UK
    resident company, means a permanent establishment which
    the company has in the United Kingdom and through which
    it carries on a trade in the United Kingdom.

371VB 10 Accounting periods

(1) This section applies for the purposes of this Part.

(2) An accounting period of a CFC begins—

(a) when the CFC becomes a CFC, or

(b) immediately after the end of the previous accounting period
15of 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) the CFC ceasing to be a CFC,

(b) the CFC becoming, or ceasing to be, liable to tax in a territory
20by 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 ceasing
to have any relevant interest in the CFC at all or ceasing to be
within the charge to corporation tax.

(4) 25Without affecting subsections (2) and (3), sections 10(1)(a) to (d), (i)
and (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
30Customs that the beginning or end of a CFC’s accounting period is
uncertain.

(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) 35Subsection (8) applies if after the giving of a notice under subsection
(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
40Customs that any accounting period specified in the notice is
not 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) 45A notice under subsection (6) or (8) must be given to each company
which the officer of Revenue and Customs considers would be likely

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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
read) apply for the purposes of this Part.

(2) 5A 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
CFC’s pre-tax profits are to be determined by reference to the
10amounts 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
any aspect of them) are not prepared in accordance with an
15acceptable 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) The CFC’s pre-tax profits are to be determined by reference to the
20amounts which would have been disclosed had financial statements
for the accounting period been prepared for the CFC in accordance
with—

(a) the acceptable accounting practice in accordance with which
financial statements for the CFC are normally prepared, or

(b) 25if paragraph (a) cannot be applied, international accounting
standards.

(6) Each of the following is an “acceptable accounting practice”—

(a) international accounting standards,

(b) UK generally accepted accounting practice, and

(c) 30accounting practice which is generally accepted in the
territory in which the CFC is resident for the accounting
period.

(7) In this section references to amounts disclosed in financial
statements include amounts comprised in amounts so disclosed.

(8) 35If the CFC’s accounting profits (or any amounts included in them)
are determined in a currency other than sterling, they are to be
translated into their sterling equivalent using the average rate of
exchange for the accounting period calculated from daily spot rates.

371VD Adjustments to accounting profits

(1) 40This section applies for the purpose of determining a CFC’s
accounting profits for an accounting period.

(2) The following are to be ignored in determining the profits—

(a) any dividend or other distribution which is not brought into
account in determining the CFC’s assumed total profits for
45the accounting period on the basis that it would be exempt

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for the purposes of Part 9A of CTA 2009 (company
distributions),

(b) any property business profits or property business losses,
and

(c) any capital profits or losses.

(3) 5In subsection (2)(b) “property business losses” means any losses of a
UK property business or overseas property business of the CFC; such
losses are to be determined in a way corresponding to the way in
which property business profits are determined.

(4) The profits are to include—

(a) 10any amount which accrues during the accounting period to
the trustees of a settlement in relation to which the CFC is a
settlor or beneficiary, and

(b) the CFC’s share of any income which accrues during the
accounting period to a partnership of which the CFC is a
15partner, as determined by apportioning that income between
the partners on a just and reasonable basis.

(5) If there is more than one settlor or beneficiary in relation to a
settlement covered by subsection (4)(a), the income is to be
apportioned between the CFC and the other settlors or beneficiaries
20on a just and reasonable basis.

(6) In subsection (4)(b) “partnership” includes an entity established
under the law of a territory outside the United Kingdom of a similar
character to a partnership; and “partner” is to be read accordingly.

(7) Part 4 (transfer pricing) applies as it applies in relation to the
25determination of the CFC’s assumed taxable total profits for the
accounting period.

(8) But subsection (7) 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.

371VE 30 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
35condition.

(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
40the 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
45assets so allocated, and

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(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
5company 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.

(5) 10An “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
15distinct 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.

(7) 20The 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),

25as if they were non-UK resident companies.

(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) 30The following provisions of CTA 2010 apply—

(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) 35at least 25% of the CFC’s chargeable profits would be
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
40connected or associated with either or both of the controllers.

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
45accounting period in question on the basis that they would be
chargeable to corporation tax under—

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(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—

(i) 5are 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.

(2) 10Subsection (1) is subject to subsection (3) and sections 371CB(2) and
(8), 371CE(2) and 371IA(9).

(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
15brought 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—

(a) 20which 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).

371VH 25 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,

(b) 30any 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—

(i) to direct how income or assets of the company are to
be applied,

(ii) 35to have such income or assets applied on the person’s
behalf, or

(iii) otherwise to secure that such income or assets will be
applied (directly or indirectly) for the person’s
benefit, and

(d) 40any 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

(b) 45a person will at a future date be entitled to do it.

(4) In subsection (2)(c) references to a person being entitled to do
anything also cover cases in which it is reasonable to suppose that a

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person is presently able, or will at a future date become able, to do
the thing (even though the person presently has, or will have, no
entitlement to do the thing).

(5) Subsection (6) applies if a person’s entitlement (or supposed ability)
to do anything mentioned in subsection (2)(c) is (or would be)
5contingent upon a default of the company or any other person under
any agreement.

(6) The person is not to have an interest in the company under
subsection (2)(c) by virtue of that entitlement (or supposed ability)
unless the default has occurred.

(7) 10Rights which a person has as a loan creditor of a company are to be
ignored for the purposes of subsection (2).

(8) In subsection (7)

  • “loan creditor” has the meaning given by section 453 of CTA
    2010, but ignoring subsection (4) of that section, and

  • 15“rights” does not include any rights excluded from subsection
    (7) by subsection (10).

(9) Subsection (10) applies if, in accordance with generally accepted
accounting practice, a loan creditor divides its rights and liabilities
under a loan relationship to which it is a party as mentioned in
20section 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
it prepares IAS accounts (within the meaning of section 1127 of CTA
252010).

(10) Any rights falling within section 415(1)(b) of CTA 2009 are to be
excluded from subsection (7).

(11) Subsections (12) and (13) apply if—

(a) apart from subsection (12), a person has, or two or more
30persons together have, an interest in a company (“company
1”), and

(b) company 1 has an interest in another company (“company
2”).

(In paragraph (b) “interest” includes an interest by virtue of
35subsection (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
interest in a company are to be read accordingly).

(13) For the purposes of references to one person’s interest in a company
40being the same as another person’s interest—

(a) the person mentioned in subsection (11)(a), or

(b) each of the persons so mentioned,

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.