Finance (No. 2) Bill (HC Bill 154)

(10) To determine if a person has a “business establishment” in a territory
outside the United Kingdom, apply sections 1141, 1142(1) and 1143
of CTA 2010 as if in those provisions—

(a) references to a company were to a person, and

(b) 5references to a permanent establishment were to a business
establishment.

(11) Subsection (6) does not apply if—

(a) the relevant transfer is made by an individual who makes it
wholly—

(i) 10for personal reasons (and not commercial reasons),
and

(ii) for the personal benefit (and not the commercial
benefit) of other individuals, and

(b) no consideration is given (directly or indirectly) for the
15relevant transfer or otherwise for any benefit received by any
individual mentioned in paragraph (a)(ii),

and all assets and income falling within subsection (12) are dealt with
accordingly.

(12) The assets and income falling within this subsection are—

(a) 20any of the assets transferred by the relevant transfer;

(b) any assets directly or indirectly representing any of the assets
transferred;

(c) any income arising from any assets within paragraph (a) or
(b);

(d) 25any assets directly or indirectly representing the
accumulations of income arising from any assets within
paragraph (a) or (b).

(13) In subsections (11) and (12) references to the relevant transfer are
to—

(a) 30if the transaction mentioned in subsection (1) is a relevant
transfer, the transfer, or

(b) if the transaction so mentioned is an associated operation, the
relevant transfer to which it relates.

(14) Subsection (15) applies if—

(a) 35subsection (2) would apply in relation to a transaction but for
the individual being unable to satisfy an officer of Revenue
and Customs for the purposes of condition B that the
transaction meets the requirements set out in subsection (6),
but

(b) 40the individual does satisfy an officer of Revenue and
Customs that those requirements are met in relation to a part
of the transaction.

(15) Subsection (2) applies as if the reference to the transaction were to
that part of the transaction.”

8 45In section 751 (the Tribunal’s jurisdiction on appeals) after paragraph (d)
insert—

“(da) section 742A (post-5 April 2012 transactions: exemption for
genuine transactions),”.

9 (1) The amendment made by paragraph 2 above has effect in relation to times
on or after 6 April 2012.

(2) The amendments made by paragraphs 3 to 8 above have effect for the tax
year 2012-13 and subsequent tax years.

5Part 3 Amendments relating to the charges under sections 720 and 727

Main provision

10 (1) Section 721 (individuals with power to enjoy income as a result of a relevant
transaction) is amended as follows.

(2) 10In subsection (3) after “the income” insert “of the person abroad”.

(3) Before subsection (3) insert—

“(3B) The amount of the income treated as arising under subsection (1) is
equal to the amount of the income of the person abroad (subject to
sections 724 and 725).

(3C) 15Subsection (1) does not apply if—

(a) the individual is liable for income tax charged on the income
of the person abroad by virtue of a charge not contained in
this Chapter, and

(b) all that income tax has been paid.”

(4) 20In subsection (4) after “the income” insert “of the person abroad”.

(5) Omit subsection (5)(a).

11 (1) Section 724 (special rules where benefit provided out of income of person
abroad) is amended as follows.

(2) In subsection (2) after “on” insert “an amount equal to”.

(3) 25In subsection (3)—

(a) for “on” substitute “by reference to”, and

(b) after “previous tax year” insert “under this Chapter”.

12 (1) Section 725 (reduction in amount charged where controlled foreign
company involved) is amended as follows.

(2) 30In subsection (1), as substituted by paragraph 22 of Schedule 20 to FA 2012,
for paragraph (b) and the “and” before it substitute—

“(b) an amount of income is treated as arising to an individual
under section 721 for a tax year, and

(c) the income mentioned in section 721(2) is or includes a sum
35forming part of the CFC’s chargeable profits for that
accounting period.”

(3) After subsection (2) insert—

“(2A) In a case in which section 724 applies, the reference to S in the
formula in subsection (2) is to be read as a reference to X% of S.

(2B) “X%” is determined as follows—

(4) In relation to cases in which the amendments made by paragraph 22 of
Schedule 20 to FA 2012 are to be ignored in accordance with paragraph 50(9)
of that Schedule, the amendment made by sub-paragraph (5) below has
10effect instead of the amendment made by sub-paragraph (2) above.

(5) In subsection (1) for paragraph (c) and the “and” before it substitute—

“(c) an amount of income is treated as arising to an individual
under section 721 for a tax year, and

(d) the income mentioned in section 721(2) is or includes a sum
15forming part of the controlled foreign company’s chargeable
profits for that accounting period.”

13 In section 726 (non-UK domiciled individuals to whom remittance basis
applies) in subsection (2) for “the extent” substitute “the corresponding
extent”.

14 (1) 20Section 728 (individuals receiving capital sums as a result of a relevant
transaction) is amended as follows.

(2) After subsection (1) insert—

“(1A) The amount of the income treated as arising under subsection (1) is
equal to the amount of the income of the person abroad (subject to
25subsection (2)).”

(3) In subsection (2) for the words from “it applies” to the end substitute “if—

(a) in subsection (1) of that section—

(i) the reference to section 721 were a reference to this
section, and

(ii) 30the reference to section 721(2) were a reference to
subsection (1)(a) of this section, and

(b) subsections (2A) and (2B) of that section were omitted.”

(4) After subsection (2) insert—

“(2A) Subsection (1) does not apply if—

(a) 35the individual is liable for income tax charged on the income
of the person abroad by virtue of a charge not contained in
this Chapter, and

(b) all that income tax has been paid.”

(5) Omit subsection (3)(a).

15 40In section 730 (non-UK domiciled individuals to whom remittance basis
applies) in subsection (2) for “the extent” substitute “the corresponding
extent”.

16 (1) Section 743 (no duplication of charges) is amended as follows.

(2) After subsection (2) insert—

“(2A) Subsection (2B) applies if—

(a) in the case of an individual, an amount of income is taken into
account in charging income tax under section 720 or 727, and

(b) 5the individual subsequently receives that income.

(2B) The income received is treated as not being the individual’s income
for income tax purposes.”

(3) In subsection (3) for “subsections (1) and (2)” substitute “this section”.

(4) Omit subsection (4).

17 (1) 10Section 744 (meaning of taking income into account in charging income tax
for section 743) is amended as follows.

(2) In subsection (1) for “743(1) and (2)” substitute “743”.

(3) In subsection (2)—

(a) in paragraph (a) omit “or value of the benefit”, and

(b) 15in paragraph (b) for “income charged” substitute “the income
mentioned in section 721(2)”.

(4) In subsection (3) for “that income” substitute “the income mentioned in
section 728(1)(a)”.

18 (1) Section 745 (rates of tax applicable to income charged under sections 720 and
20727 etc) is amended as follows.

(2) In subsection (1) for “so far as it” substitute “if (and to the corresponding
extent that) the income mentioned in section 721(2) or 728(1)(a)”.

(3) For subsections (3) and (4) substitute—

“(3) Subsection (4) applies to income treated as arising to an individual
25under section 721 or 728 so far as subsection (1) does not apply to it.

(4) The charge to income tax under section 720 or 727 operates by
treating the income as if it were income within section 19(2)
(meaning of “dividend income”) if the income mentioned in section
721(2) or 728(1)(a) would be dividend income were it the income of
30the individual.”

19 In section 746 (deductions and reliefs where individual charged under
section 720 or 727) for subsection (2) substitute—

“(2) For the purpose of determining the deductions and reliefs allowed to
the individual, the individual is to be treated as if the individual had
35actually received the amount by reference to which the income
treated as arising to the individual under section 721 or 728 is
determined.”

Commencement and transitional provision

20 (1) The amendments made by this Part of this Schedule have effect for the tax
40year 2013-14 and subsequent tax years.

(2) They have effect in relation to relevant transfers occurring before 6 April
2013 as well as relevant transfers occurring on or after that date.

21 (1) Sections 721(3C) and 728(2A) of ITA 2007 (as inserted by paragraphs 10(3)
and 14(4) above) have effect only if the income of the person abroad arises to
that person on or after 6 April 2013.

(2) The amendments made by paragraphs 10(5) and 14(5) above have no effect
5in relation to income arising to a person abroad before 6 April 2013.

Section 27

SCHEDULE 11 Deduction of income tax at source etc

Deduction from interest payable on compensation

1 Chapter 3 of Part 15 of ITA 2007 (deduction from certain payments of yearly
10interest) is amended as follows.

2 In section 874 (duty to deduct from certain payments of yearly interest), after
subsection (5) insert—

“(5A) For the purposes of subsection (1) a payment of interest which is
payable to an individual in respect of compensation is to be treated
15as a payment of yearly interest (irrespective of the period in respect
of which the interest is paid).

(5B) But the Commissioners for Her Majesty’s Revenue and Customs
may make regulations which provide that subsection (5A) does not
apply in the circumstances prescribed in the regulations.”

3 20In section 875 (interest paid by building societies), at the end insert “unless
it is treated as a payment of yearly interest by virtue of section 874(5A).”

4 In section 878 (interest paid by banks), after subsection (1) insert—

“(1A) But that duty does apply to such a payment if it is treated as a
payment of yearly interest by virtue of section 874(5A).”

25Deduction from yearly interest: specialties

5 In section 874 of ITA 2007 (duty to deduct from certain payments of yearly
interest), after subsection (6) insert—

“(6A) In determining for the purposes of subsection (1) whether a payment
of interest arises in the United Kingdom no account is to be taken of
30the location of any deed which records the obligation to pay the
interest.”

Payment of interest in kind

6 After section 370 of ITTOIA 2005 insert—

“370A Valuation of interest not paid in cash

(1) 35This section applies to the payment of an amount of interest in the
form of—

(a) goods or services, or

(b) a voucher.

(2) Where this section applies by virtue of subsection (1)(a), the amount
of the payment is to be taken to be equal to the market value, at the
time the payment is made, of the goods or services.

(3) Where this section applies by virtue of subsection (1)(b), the amount
5of the payment is to be taken to be equal to whichever is the higher
of—

(a) the face value of the voucher,

(b) the amount of money for which the voucher is capable of
being exchanged, or

(c) 10the market value, at the time the payment is made, of any
goods or services for which the voucher is capable of being
exchanged.

(4) In this section references to a voucher are to a voucher, stamp or
similar document or token which is capable of being exchanged for
15money, goods or services.”

7 In section 380 of that Act (funding bonds), in subsection (3), at the end insert
“(but does not include any instrument providing for payment in the form of
goods or services or a voucher)”.

8 In section 939 of ITA 2007 (duty to retain bonds where issue treated as
20payment of interest), in subsection (6), at the end insert “(but does not
include any instrument providing for payment in the form of goods or
services or a voucher)”.

9 In section 975 of that Act (statements about deduction of income tax), in
subsection (1)—

(a) 25after “if” insert “—

(a)”, and

(b) at the end insert “, and

(b) the person is not under a duty to provide a statement
under section 975A”.

10 30After section 975 of that Act insert—

“975A Statements about certain payments of interest

(1) Subsection (2) applies if a person makes a payment of interest of
which the whole or part is in the form of goods or services or a
voucher.

(2) 35The person must provide the recipient of the payment with a
statement showing—

(a) the gross amount of the payment,

(b) the amount of the sum deducted under any provision of
Chapters 2 to 7 or under section 919 or 928 (if any),

(c) 40the actual amount paid, and

(d) the date on which the payment was made.

(3) The amounts mentioned in paragraphs (a) to (c) of subsection (2) are
to be calculated in accordance with section 370A of ITTOIA 2005.

(4) Subsection (5) applies where a person—

(a) is treated as making a payment of an amount of interest (“the
deemed interest”) by virtue of section 413 of CTA 2009 or
section 380 of ITTOIA 2005 (funding bonds), and

(b) is under a duty under section 939(2) to retain funding bonds
5equal in value to income tax on the deemed interest at the
basic rate.

(5) The person must provide the recipient of the funding bonds with a
statement showing—

(a) the gross amount of the deemed interest,

(b) 10the sum representing income tax which the person is treated
under section 939(3) as having deducted by retaining
funding bonds,

(c) the amount of the deemed interest after the deduction of that
sum, and

(d) 15the date on which the deemed interest is treated as being
paid.

(6) The amount of the deemed interest is to be calculated in accordance
with section 413 of CTA 2009 or section 380 of ITTOIA 2005, as the
case may require.

(7) 20A statement under this section must be provided in writing to the
recipient on the date that the payment is made or (as the case may be)
the date that the deemed interest is treated as being paid.

(8) The duty to comply with this section is enforceable by the recipient.

(9) In this section—

(a) 25references to a voucher are to a voucher, stamp or similar
document or token which is capable of being exchanged for
money, goods or services, and

(b) “funding bonds” has the same meaning as in Chapter 12 (see
section 939(6)).”

11 30In section 413 of CTA 2009 (issue of funding bonds), in subsection (3), at the
end insert “(but does not include any instrument providing for payment in
the form of goods or services or a voucher)”.

Commencement

12 (1) The amendments made by paragraphs 1 to 4 have effect—

(a) 35in relation to any payment of interest by a building society which is
made on or after 1 September 2013, and

(b) in relation to any other payment of interest which is made on or after
1 October 2013.

(2) The amendments made by paragraphs 5 to 11 have effect in relation to any
40payment of interest which is made on or after the day on which this Act is
passed.

Section 28

SCHEDULE 12 Disguised interest

Key amendments to Part 4 of ITTOIA 2005

1 Part 4 of ITTOIA 2005 (savings and investment income) is amended in
5accordance with paragraphs 2 and 3.

2 In section 365(1) (overview of Part 4)—

(a) after paragraph (a) insert—

“(aa) Chapter 2A (disguised interest),”, and

(b) omit paragraph (k).

3 10After Chapter 2 insert—

“CHAPTER 2A Disguised interest

381A Charge to tax on disguised interest

(1) This Chapter applies where a person is party to an arrangement
which produces for the person a return in relation to any amount
15which is economically equivalent to interest.

(2) Income tax is charged on the return if the return is not charged to
income tax under or as a result of any other provision of this Act or
any other Act.

(3) Subsection (2) does not apply to a return that would be charged to
20income tax under or as a result of another provision but for an
exemption.

(4) For the purposes of this Chapter a return produced for a person by
an arrangement in relation to any amount is “economically
equivalent to interest” if (and only if)—

(a) 25it is reasonable to assume that it is a return by reference to the
time value of that amount of money,

(b) it is at a rate reasonably comparable to what is (in all the
circumstances) a commercial rate of interest, and

(c) at the relevant time there is no practical likelihood that it will
30cease to be produced in accordance with the arrangement
unless the person by whom it falls to be produced is
prevented (by reason of insolvency or otherwise) from
producing it.

(5) In subsection (4)(c) “the relevant time” means the time when the
35person becomes party to the arrangement or, if later, when the
arrangement begins to produce a return for the person.

(6) In this Chapter “arrangement” includes any agreement,
understanding, scheme, transaction or series of transactions
(whether or not legally enforceable).

381B Income charged

Tax is charged under this Chapter on the full amount of the return,
or any part of the return, arising in the tax year.

381C Person liable

5The person liable for any tax charged under this Chapter is the
person receiving or entitled to the return or the part of the return.

381D Avoidance of double taxation

(1) This section applies if at any time a tax other than income tax (“the
other tax”) is charged in relation to a return on which income tax is
10charged under this Chapter.

(2) In order to avoid a double charge to tax in respect of the return, a
person may make a claim for one or more consequential adjustments
to be made in respect of the other tax.

(3) On a claim under this section an officer of Revenue and Customs
15must make such of the consequential adjustments claimed (if any) as
are just and reasonable.

(4) Consequential adjustments may be made—

(a) in respect of any period,

(b) by way of an assessment, the modification of an assessment,
20the amendment of a claim, or otherwise, and

(c) despite any time limit imposed by or under any enactment.

381E Exception for returns from certain shares

(1) This Chapter does not apply in relation to an arrangement that
produces a return for a person, in relation to an amount, which is
25economically equivalent to interest where—

(a) the arrangement involves only excluded shares, and

(b) no relevant arrangement has been made (by any person) in
relation to those excluded shares.

(2) For the purposes of this section shares are excluded shares if they are
30admitted to trading on a regulated market and—

(a) they were issued before 6 April 2013, or

(b) if issued on or after that date, at the time of issue no
arrangements involving only the shares would produce a
return, in relation to an amount, which is economically
35equivalent to interest.

(3) In subsection (2) “regulated market” has the same meaning as in
Directive 2004/39/EC of the European Parliament and of the
Council on markets in financial instruments (see Article 4.1(14)).

(4) For the purposes of this section an arrangement is relevant, in
40relation to excluded shares, where—

(a) the arrangement is made on or after 6 April 2013, and

(b) it is reasonable to assume that the main purpose, or one of the
main purposes, of the arrangement is to secure that
arrangements involving only the shares produce a return, in

relation to an amount, which is economically equivalent to
interest.”

Consequential amendments

4 The following amendments are in consequence of the amendments made by
5paragraphs 2(a) and 3.

TCGA 1992

5 TCGA 1992 is amended as follows.

6 In section 37 (consideration chargeable to tax on income), after subsection (2)
insert—

“(2A) 10Subsection (1) is not to be taken as excluding from the consideration
so taken into account any money or money’s worth which is, or is
taken into account in computing, a return on which income tax is
charged under Chapter 2A of Part 4 of ITTOIA 2005 (disguised
interest) (but see section 381D of that Act).”

7 15In section 39 (exclusion of expenditure by reference to tax on income), after
subsection (3) insert—

“(3A) This section is not to be taken as excluding, from the sums allowable
under section 38 as a deduction in the computation of the gain,
expenditure allowable as a deduction in computing a return on
20which income tax is charged under Chapter 2A of Part 4 of ITTOIA
2005 (disguised interest) (but see section 381D of that Act).”

8 Omit sections 148A to 148C (provision dealing with the capital gains tax
consequences of Chapter 12 of Part 4 of ITTOIA 2005).

9 (1) Section 263A (agreements for sale and repurchase of securities) is amended
25as follows.

(2) Before subsection (1) insert—

“(A1) For the purposes of this section there is a repo in respect of securities
if—

(a) a person (“the original owner”) has agreed to sell the
30securities to another person (“the interim holder”), and

(b) the original owner or a person connected with the original
owner—

(i) is required to buy back the securities by the
agreement or a related agreement,

(ii) 35is required to buy back the securities as a result of the
exercise of an option acquired under the agreement or
a related agreement, or

(iii) exercises an option to buy back the securities which
was acquired under the agreement or a related
40agreement.”

(3) In subsection (1), for the words from “falling” to “repos)” substitute “where
under a repo in respect of securities the original owner has transferred the
securities to the interim holder”.

(4) Omit subsection (5).