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

(3) After that subsection insert—

“(1A) A company’s “adjusted taxable total profits” of a period are what
would have been the company’s taxable total profits of the period in
the absence of sections 1(2A), 2B and 8(4A) of TCGA 1992 and section
52(2A) of CTA 2009 (certain gains on relevant high value disposals by
companies etc chargeable to capital gains tax not corporation tax).”

Part 3 Commencement

20 The amendments made by this Schedule have effect in relation to disposals
10occurring on or after 6 April 2013.

Section 71

SCHEDULE 25 Community investment tax relief

Income tax: carry forward of relief

1 Part 7 of ITA 2007 (community investment tax relief) is amended as follows.

2 15In section 335 (form and amount of CITR) in subsection (3) for “this purpose”
substitute “the purposes of this section and section 335A”.

3 After section 335 insert—

“335A Carry forward of CITR

(1) This section applies if—

(a) 20the investor is entitled to a tax reduction for a relevant tax
year under section 335 in respect of the investment, but

(b) the amount of the tax reduction is not fully deducted at Step
6 for that relevant tax year.

(2) The amount (“the excess amount”) not deducted is treated as follows.

(3) 25For each subsequent relevant tax year for which the investor—

(a) is entitled to a tax reduction under section 335 in respect of
the investment, and

(b) makes a claim under this subsection,

the investor is also entitled to a tax reduction under this subsection
30which is given effect at Step 6.

(4) The amount of the tax reduction under subsection (3) for any
relevant tax year is the excess amount so far as it has not been
deducted at Step 6 for any earlier relevant tax year by virtue of that
subsection.

(5) 35In this section “Step 6” means Step 6 of the calculation in section 23.”

4 In section 357 (attribution of CITR) after subsection (4) insert—

“(4A) In the case of CITR under section 335A, in subsection (4)(a) the
reference to the year is to be read as a reference to the year mentioned
in section 335A(1)(a).”

5 (1) 5Section 361 (disposal of securities or shares during 5 year period) is
amended as follows.

(2) For subsection (3) substitute—

“(3) Subsections (3A) to (3H) apply if—

(a) the disposal is a qualifying disposal, and

(b) 10the investor has made a claim under section 335 in respect of
the former investment for a tax year (“tax year X”).

(3A) Subsection (3B) applies if the total of the following CITR does not
exceed A—

(a) any CITR attributable to the former investment in respect of
15tax year X given under section 335, and

(b) any CITR attributable to the former investment in respect of
later tax years given under section 335A where tax year X is
the tax year mentioned in section 335A(1)(a).

(3B) All CITR falling within subsection (3A)(a) or (b) must be withdrawn.

(3C) 20If the total of the CITR falling within subsection (3A)(a) or (b) exceeds
A, that total must be reduced by A.

(3D) For the purposes of subsection (3C) CITR given in a later tax year
must be reduced before CITR given in an earlier tax year.

(3E) For the purposes of subsections (3A) and (3C) “A” is an amount equal
25to 5% of the amount or value of the consideration (if any) which the
investor receives for the former investment.

(3F) If—

(a) the total of the CITR falling within subsection (3A)(a) or (b)
(“B”) is less than

(b) 30the amount (“C”) which is equal to 5% of the invested amount
in respect of the former investment for tax year X,

“A” is to be reduced by multiplying it by the fraction—

(3G) If the amount of CITR attributable to the former investment in
35respect of a tax year has been reduced before the CITR is obtained,
the amount referred to in subsection (3F) as B is to be treated for the
purposes of that subsection as the amount it would have been
without the reduction.

(3H) Subsection (3G) does not apply to a reduction by virtue of section 358
40(attribution: bonus shares).”

(3) Omit subsections (5) to (7).

6 The amendments made by paragraphs 1 to 5 above have effect in relation to
investments made on or after 6 April 2013.

Corporation tax: carry forward of relief

7 Part 7 of CTA 2010 (community investment tax relief) is amended as follows.

8 (1) Section 220 (form and amount of CITR) is amended as follows.

(2) For subsection (3) substitute—

“(3) 5The amount of that reduction for the relevant accounting period is
5% of the invested amount in respect of the investment for the
period.”

(3) In subsection (4) for “this purpose” substitute “the purposes of this section
and section 220A”.

9 10After section 220 insert—

“220A Carry forward of CITR

(1) This section applies if—

(a) the investor is entitled to a reduction in its liability for
corporation tax for a relevant accounting period under
15section 220 in respect of the investment, but

(b) the amount of the reduction is not fully deducted at Step 2 for
that relevant accounting period.

(2) The amount (“the excess amount”) not deducted is treated as follows.

(3) For each subsequent relevant accounting period for which the
20investor—

(a) is entitled to a reduction in its liability for corporation tax
under section 220 in respect of the investment, and

(b) makes a claim under this subsection,

the investor is also entitled to a reduction in its liability for
25corporation tax under this subsection.

(4) The amount of the reduction under subsection (3) for any relevant
accounting period is the excess amount so far as it has not been
deducted at Step 2 for any earlier relevant accounting period by
virtue of that subsection.

(5) 30In this section “Step 2” means the second step in paragraph 8(1) of
Schedule 18 to FA 1998 (calculation of tax payable).”

10 In section 240 (attribution of CITR) after subsection (4) insert—

“(4A) In the case of CITR under section 220A, in subsection (4)(a) the
reference to the period is to be read as a reference to the period
35mentioned in section 220A(1)(a).”

11 (1) Section 244 (disposal of securities or shares during 5 year period) is
amended as follows.

(2) For subsection (3) substitute—

“(3) Subsections (3A) to (3H) apply if—

(a) 40the disposal is a qualifying disposal, and

(b) the investor has made a claim under section 220 in respect of
the former investment for an accounting period (“period X”).

(3A) Subsection (3B) applies if the total of the following CITR does not
exceed A—

(a) any CITR attributable to the former investment in respect of
period X given under section 220, and

(b) 5any CITR attributable to the former investment in respect of
later accounting periods given under section 220A where
period X is the accounting period mentioned in section
220A(1)(a).

(3B) All CITR falling within subsection (3A)(a) or (b) must be withdrawn.

(3C) 10If the total of the CITR falling within subsection (3A)(a) or (b) exceeds
A, that total must be reduced by A.

(3D) For the purposes of subsection (3C) CITR given in a later accounting
period must be reduced before CITR given in an earlier accounting
period.

(3E) 15For the purposes of subsections (3A) and (3C) “A” is an amount equal
to 5% of the amount or value of the consideration (if any) which the
investor receives for the former investment.

(3F) If—

(a) the total of the CITR falling within subsection (3A)(a) or (b)
20(“B”) is less than

(b) the amount (“C”) which is equal to 5% of the invested amount
in respect of the former investment for period X,

“A” is to be reduced by multiplying it by the fraction—

(3G) 25If the amount of CITR attributable to the former investment in
respect of an accounting period has been reduced before the CITR is
obtained, the amount referred to in subsection (3F) as B is to be
treated for the purposes of that subsection as the amount it would
have been without the reduction.

(3H) 30Subsection (3G) does not apply to a reduction by virtue of section 241
(attribution: bonus shares).”

(3) Omit subsections (5) to (7).

12 The amendments made by paragraphs 7 to 11 above have effect in relation
to investments made in accounting periods beginning on or after 1 April
352013.

Corporation tax: limit on State aid

13 (1) In Part 7 of CTA 2010 (community investment tax relief) after section 220A
(as inserted by paragraph 9 above) insert—

“220B Limit on State aid

(1) 40The reductions that may be made in the amount of the investor’s
liability for corporation tax under section 220 or 220A for an
accounting period (“the current accounting period”) are limited as
follows.

(2) The sum of the following amounts must not exceed \xf5 200,000—

(a) so far as it represents aid granted to the investor, the total
amount of reductions made in the amount of the investor’s
liability for corporation tax under section 220 or 220A—

(i) 5for the current accounting period, or

(ii) any earlier accounting period which ends during the
relevant 3-year period, and

(b) the total of any de minimis aid granted to the investor during
the relevant 3-year period which does not fall within
10paragraph (a).

(3) In subsection (2) “the relevant 3-year period” means the period of 3
years ending at the end of the current accounting period.

(4) Subsection (2) is to be read as if it were contained in Article 2 of
Commission Regulation (EC) No. 1998/2006 (de minimis aid).”

(2) 15The amendment made by this paragraph has effect for the purpose of
limiting CITR in respect of investments made on or after 1 April 2013.

(3) CITR in respect of investments made before that date is to be ignored for the
purposes of section 220B(2) of CTA 2010.

Section 72

SCHEDULE 26 20Lease premium relief

Income tax

1 ITTOIA 2005 is amended as follows.

2 In section 61 (tenants occupying land for purposes of trade treated as
incurring expenses) after subsection (5) insert—

“(5A) 25No expense is to be determined under this section by reference to the
taxed receipt if section 292(4B) or (4C) applies.”

3 In section 292 (tenants under taxed leases treated as incurring expenses)
after subsection (4) insert—

“(4A) No expense is to be determined under this section by reference to the
30taxed receipt if subsection (4B) or (4C) applies.

(4B) This subsection applies if there would have been no taxed receipt but
for the application of Rule 1 in section 303 in determining the
effective duration of the lease.

(4C) This subsection applies if there would have been no taxed receipt but
35for the application of Rule 1 in section 243 of CTA 2009 in
determining the effective duration of the lease for the purposes of
Chapter 4 of Part 4 of that Act.”

4 The amendments made by paragraphs 2 and 3 above have effect in relation
to leases granted on or after 6 April 2013.

Corporation tax

5 CTA 2009 is amended as follows.

6 In section 63 (tenants occupying land for purposes of trade treated as
incurring expenses) after subsection (5) insert—

“(5A) 5No expense is to be determined under this section by reference to the
taxed receipt if section 232(4B) or (4C) applies.”

7 In section 232 (tenants under taxed leases treated as incurring expenses)
after subsection (4) insert—

“(4A) No expense is to be determined under this section by reference to the
10taxed receipt if subsection (4B) or (4C) applies.

(4B) This subsection applies if there would have been no taxed receipt but
for the application of Rule 1 in section 243 in determining the
effective duration of the lease.

(4C) This subsection applies if there would have been no taxed receipt but
15for the application of Rule 1 in section 303 of ITTOIA 2005 in
determining the effective duration of the lease for the purposes of
Chapter 4 of Part 3 of that Act.”

8 The amendments made by paragraphs 6 and 7 above have effect in relation
to leases granted on or after 1 April 2013.

Section 74

20SCHEDULE 27 Manufactured payments

Part 1 Income tax

1 Before Part 11A of ITA 2007 insert—

25“ Part 11ZA Manufactured payments

614ZA Overview of Part

This Part deals with the application of the Income Tax Acts to
manufactured payment relationships and payments representative
30of dividends or interest.

614ZB Key definitions

(1) For the purposes of the Income Tax Acts a person has a
manufactured payment relationship if conditions A to C are met.

(2) Condition A is that under any arrangements—

(a) 35an amount is payable by or to the person, or

(b) any other benefit is given by or to the person (including the
release of the whole or part of any liability to pay an amount).

(3) Condition B is that the arrangements relate to the transfer of
securities.

(4) 5Condition C is that the amount or value of the other benefit—

(a) is representative of a dividend or interest on the securities, or

(b) will fall to be treated as representative of such a dividend or
interest when it is paid or given.

(5) In subsection (2) the reference to an amount being payable, or other
10benefit being given, by the person includes a reference to an amount
being payable, or other benefit being given, by another person on
behalf of the person in question.

(6) In this Part—

• “manufactured payment”, in relation to a manufactured
  15payment relationship, means an amount, or the value of a
  benefit, within subsection (2), and

• “securities” means—

  (a)

  shares in a company, and

  (b)

  loan stock or any similar security (whether the
  20security is of the government of the United Kingdom,
  any other government, any public or local authority
  in the United Kingdom or elsewhere, or any other
  company or body).

614ZC Treatment of payer of manufactured payment

(1) 25This section applies where a person has a manufactured payment
relationship under which a manufactured payment is paid by or on
behalf of the person.

(2) No deduction is allowed in respect of the manufactured payment in
calculating any profits or other income of the person for income tax
30purposes (subject to subsection (3)).

(3) Subsection (2) does not apply in relation to the person so far as the
manufactured payment is brought into account under Part 2 of
ITTOIA 2005 in calculating the profits of a trade carried on by the
person.

(4) 35But nothing in subsection (3) affects the question whether (apart
from that provision) a deduction in calculating the profits of a trade
carried on by the person is allowed.

614ZD Treatment of recipient of manufactured payment

(1) Subsection (2) applies if a person has a manufactured payment
40relationship under which a manufactured payment is payable to the
person.

(2) For the purposes of the charge to income tax on the person’s income,
the Income Tax Acts apply to the person as if the manufactured
payment were a dividend or interest on the securities (as the case
45may require).

(3) Subsection (2) is subject to subsections (4) to (6).

(4) Subsection (2) does not apply in relation to the person so far as the
manufactured payment is brought into account under Part 2 of
ITTOIA 2005 in calculating the profits of a trade carried on by the
5person.

(5) Subsection (2) does not apply in relation to the person for the
purposes of determining entitlement to double taxation relief in
respect of any dividend or interest.

(6) In a case in which the manufactured payment is treated as a dividend
10by virtue of subsection (2), the person is not entitled to a tax credit
under Chapter 3 of Part 4 of ITTOIA 2005 (tax credits for certain
recipients of distributions) in respect of the dividend.

(7) For the purposes of this section “double taxation relief” means any
relief given under or as a result of Part 2 of TIOPA 2010.”

15Part 2 Corporation tax

2 Before Part 18 of CTA 2010 insert—

“ Part 17A Manufactured dividends

814A 20 Overview of Part

This Part deals with the application of the Corporation Tax Acts to
manufactured dividend relationships and payments representative
of dividends.

814B Key definitions

(1) 25For the purposes of the Corporation Tax Acts a company has a
manufactured dividend relationship if conditions A to C are met.

(2) Condition A is that under any arrangements—

(a) an amount is payable by or to the company, or

(b) any other benefit is given by or to the company (including the
30release of the whole or part of any liability to pay an amount).

(3) Condition B is that the arrangements relate to the transfer of shares
in a company.

(4) Condition C is that the amount or value of the other benefit—

(a) is representative of a dividend on the shares, or

(b) 35will fall to be treated as representative of such a dividend
when it is paid or given.

(5) In subsection (2) the reference to an amount being payable, or other
benefit being given, by the company includes a reference to an
amount being payable, or other benefit being given, by another
40person on behalf of the company.

(6) In this Part—

• “manufactured dividend”, in relation to a manufactured
  dividend relationship, means an amount, or the value of a
  benefit, within subsection (2), and

• 5“the real dividend” means the dividend mentioned in
  subsection (4)(a).

814C Treatment of payer of manufactured dividend

(1) This section applies where a company has a manufactured dividend
relationship under which a manufactured dividend is paid by or on
10behalf of the company.

(2) No deduction in calculating income for corporation tax purposes is
allowed in respect of the manufactured dividend (subject to
subsections (3) to (7)).

(3) Subsection (2) does not apply in relation to the company so far as the
15manufactured dividend is brought into account under Part 3 of CTA
2009 in calculating the profits of a trade carried on by the company.

(4) Subsection (5) applies if—

(a) the manufactured dividend relates to investment business
which the company has,

(b) 20the company received the real dividend in the accounting
period, and

(c) the real dividend is taxed by virtue of section 548(5)
(recipients of distributions from REITs).

(5) The manufactured dividend is to be treated as expenses of
25management of the company’s investment business for the
accounting period for the purposes of Chapter 2 of Part 16 of CTA
2009.

(6) Subsection (7) applies if—

(a) the manufactured dividend is referable to basic life assurance
30and general annuity business which the company has,

(b) the company received the real dividend in the accounting
period, and

(c) the real dividend is taxed by virtue of section 548(5)
(recipients of distributions from REITs).

(7) 35So far as the manufactured dividend is referable as mentioned in
subsection (6)(a), the manufactured dividend is to be treated for the
purposes of section 76 of FA 2012 as a deemed BLAGAB
management expense for the accounting period.

(8) Nothing in subsection (3) affects the question whether (apart from
40that provision) a deduction in calculating the profits of a trade
carried on by the company is allowed.

(9) The references in subsections (4) and (6) to the real dividend include
references to a manufactured dividend which is treated as a real
dividend by virtue of section 814D(2).

(10) 45For the purposes of subsections (6) and (7), the manufactured
dividend is treated as referable to basic life assurance and general

annuity business so far as the real dividend is received by the
company and is so referable in accordance with Chapter 4 of Part 2
of FA 2012 (apportionment rules for I-E charge).

814D Treatment of recipient of manufactured dividend

(1) 5Subsection (2) applies if a company has a manufactured dividend
relationship under which a manufactured dividend is payable to it.

(2) For the purposes of the charge to corporation tax on the income of the
company, the Corporation Tax Acts apply to the company, and any
company claiming title through or under the company, as if the
10manufactured dividend were a dividend on the shares.

(3) Subsection (2) is subject to subsections (4) to (8).

(4) Subsection (2) does not apply in relation to a company so far as the
manufactured dividend is brought into account under Part 3 of CTA
2009 in calculating the profits of a trade carried on by the company.

(5) 15Subsection (2) does not apply in relation to a company for the
purposes of determining entitlement to double taxation relief in
respect of any dividend.

(6) Part 9A of CTA 2009 (company distributions), in its application in
relation to a manufactured dividend as a result of subsection (2), has
20effect with the modification in subsection (7).

(7) The modification is that—

(a) references in that Part to the payer are to be treated as
references to the company that pays the real dividend, and

(b) the definition of “the payer” in section 931T is to be treated as
25omitted.

(8) The company to which the manufactured dividend is payable is not
entitled to a tax credit under section 1109 (tax credits for certain
recipients of exempt qualifying distributions) in respect of the
dividend.

(9) 30For the purposes of subsection (5) “double taxation relief” means any
relief given under or as a result of Part 2 of TIOPA 2010.

(10) This section has effect regardless of section 358 of CTA 2009
(exclusion of credits on release of connected companies debts) or any
other provision of Part 5 of that Act (loan relationships) which
35prevents a credit from being brought into account.”

Part 3 Consequential etc amendments

Introductory

3 The following amendments are in consequence of, or otherwise connected
40with, the amendments made by Parts 1 and 2.