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

TCGA 1992

4 TCGA 1992 is amended as follows.

5 In section 263B (stock lending arrangements), for subsection (7) substitute—

“(7) In this section “securities” has the meaning given by section 263AA.”

6 5Omit section 263D (gains accruing to persons paying manufactured
dividends).

7 In section 263F (power to modify repo provisions: non-standard repo
cases)—

(a) in subsection (1)—

(i) 10at the end of paragraph (c) insert “or”, and

(ii) omit paragraph (d) (and the word “or” at the end of it), and

(b) in subsection (2), omit “or 263D”.

8 In section 263G (power to modify repo provisions: redemption
arrangements)—

(a) 15in subsection (1), omit paragraph (d) (but not the word “or” at the
end of it), and

(b) in subsection (2), omit “or 263D”.

9 In section 263H (sections 263F and 263G: supplementary provisions), in
subsection (3)(b) omit “or 263D”.

10 (1) 20Section 263I (powers about manufactured overseas dividend) is amended as
follows.

(2) In subsection (1), for paragraphs (a) and (b) substitute—

“(a) pays or receives an amount (a “manufactured overseas
dividend”) which is representative of an overseas dividend
25on overseas securities where the payment or receipt is
required to be made under an arrangement for the transfer of
the securities, or

(b) is treated as doing so for any purposes of the Tax Acts.”

(3) For subsection (6) substitute—

“(6) 30In this section—

(a) “overseas securities” means shares, stock or other securities
issued by—

(i) a government, local authority or other public
authority of a territory outside the United Kingdom,
35or

(ii) another body of persons not resident in the United
Kingdom,

(b) “overseas securities” includes shares in a company which is
not resident in the United Kingdom,

(c) 40“overseas dividend” means any interest, dividend or other
annual payment payable in respect of overseas securities,
and

(d) “securities” includes loan stock or any similar security.”

FA 2004

11 In Schedule 24 to FA 2004 (manufactured dividends), omit paragraph 3(1)
and (3).

ITTOIA 2005

12 5ITTOIA 2005 is amended as follows.

13 In section 397(6) (list of provisions to which the section is subject), for the
words from “section 592” to “owner under repo),” substitute—

• “section 614ZD(6) of ITA 2007,”.

14 In section 397A (tax credit for distributions of non-UK resident
10companies)—

(a) in subsection (6), for the words from “section 592” to the end
substitute—

• “section 614ZD(6) of ITA 2007.”, and

(b) omit subsection (8).

15 15Omit section 397B (tax credits under section 397A: manufactured overseas
dividends).

ITA 2007

16 ITA 2007 is amended as follows.

17 In section 2 (overview of Act)—

(a) 20omit subsection (11), and

(b) before subsection (11A) insert—

“(11ZA) Part 11ZA is about manufactured payments.”

18 Omit the following provisions (which deal with manufactured payments
and repos)—

(a) 25sections 565 to 595,

(b) section 596(1) to (4), and

(c) section 606(8).

19 In section 647 (makers of manufactured payments), for subsection (6)
substitute—

“(6) 30In this section “manufactured payments contract” means a contract
under which—

(a) the seller is required to pay another person an amount which
is representative of a periodical payment of interest on UK
securities under an arrangement between them for the
35transfer of the securities, or

(b) the seller is required to pay another person an amount which
is representative of an overseas dividend on overseas
securities under an arrangement between them for the
transfer of the securities.

(7) 40In this section—

(a) “overseas securities” means shares, stock or other securities
issued by—

(i) a government, local authority or other public
authority of a territory outside the United Kingdom,
or

(ii) another non-UK resident body of persons,

5and includes shares in a non-UK resident company,

(b) “overseas dividend” means any interest, dividend or other
annual payment payable in respect of overseas securities,
and

(c) “UK securities” means securities of—

(i) 10the government of the United Kingdom,

(ii) a local authority in the United Kingdom,

(iii) another public authority in the United Kingdom, or

(iv) a UK resident company or other UK resident body,

but does not include shares in a UK resident company.”

20 15In section 658 (powers to modify: supplementary), for subsection (5)
substitute—

“(5) Subsections (6) to (10) apply for the purposes of sections 656 and 657
and this section.

(6) “UK shares” means shares in a UK resident company.

(7) 20“UK securities” means securities of—

(a) the government of the United Kingdom,

(b) a local authority in the United Kingdom,

(c) another public authority in the United Kingdom, or

(d) a UK resident company or other UK resident body.

(8) 25But “UK securities” does not include UK shares.

(9) “Overseas securities” means shares, stock or other securities issued
by—

(a) a government, local authority or other public authority of a
territory outside the United Kingdom, or

(b) 30another non-UK resident body of persons.

(10) “Overseas securities” includes shares in a non-UK resident
company.”

21 In section 918(1) (manufactured dividends on UK shares: REITs), for
paragraph (a) substitute—

“(a) 35a person pays a manufactured payment as mentioned in
section 614ZC(1) and the amount payable is representative of
a dividend (a “manufactured dividend”), and”.

22 In section 919 (manufactured interest on UK securities)—

(a) for subsection (1) substitute—

“(1) 40This section applies if—

(a) a person pays a manufactured payment as mentioned
in section 614ZC(1),

(b) the amount payable is representative of interest on
UK securities (“manufactured interest”), and

(c) 45the person —

(i) is UK resident, or

(ii) pays the manufactured interest in the course
of a trade carried on in the United Kingdom
through a branch or agency.”,

(b) 5in subsection (4), omit the words from “section 583” to “special
cases)”, and

(c) after subsection (5) insert—

“(6) In subsection (1) “UK securities” means securities of—

(a) the government of the United Kingdom,

(b) 10a local authority in the United Kingdom,

(c) another public authority in the United Kingdom, or

(d) a UK resident company or other UK resident body.

(7) But “UK securities” does not include shares in a UK resident
company.

(8) 15In this section “securities” includes loan stock or any similar
security.”

23 Omit section 920 (foreign payers of manufactured interest: the reverse
charge).

24 In section 921 (cases where interest on underlying securities paid gross), in
20subsection (3), for the words from ““securities”” to the end substitute
““manufactured interest” has the same meaning as in section 919.”

25 Omit sections 922 to 925 (manufactured overseas dividends).

26 In section 925A(2) (creditor repos), for “to 925” substitute “, 919 and 921”.

27 Omit section 925B (debtor repos).

28 25In section 925C (actual payments ignored)—

(a) in the heading, omit “or 925B”,

(b) omit “or 925B(2)”, and

(c) for “to 925” substitute “, 919 and 921”.

29 In section 926 (interpretation of Chapter 9 of Part 15), omit subsections (1)
30and (1A).

30 In Schedule 1 (minor and consequential amendments), omit paragraph
335(1) to (4) and (6) to (8).

31 In Schedule 2 (transitionals and savings), omit paragraphs 108 to 111 (and
the headings “Part 12”, “Manufactured payments and repos” and “Tax
35credits: stock lending arrangements and repos” immediately preceding
paragraph 108).

32 In Schedule 4 (index of defined expressions), omit the entries for—

• “buying back securities, in the context of a repo (in Part 11)”,

• “company UK REIT (in Chapter 2 of Part 11)”,

• 40“gross amount (in Chapter 2 of Part 11)”,

• “group (in Chapter 2 of Part 11)”,

• “group UK REIT (in Chapter 2 of Part 11)”,

• “manufactured dividend (in Chapter 2 of Part 11)”,

• “manufactured dividend (in Chapter 3 of Part 11)”,

Finance (No. 2) BillPage 364

• “manufactured interest (in Chapter 2 of Part 11)”,

• “manufactured overseas dividend (in Chapter 2 of Part 11)”,

• “overseas dividend (in Part 11)”,

• “overseas dividend (in Chapter 9 of Part 15)”,

• 5“overseas securities (in Part 11)”,

• “overseas tax (in Chapter 2 of Part 11)”,

• “overseas tax (in Chapter 9 of Part 15)”,

• “overseas tax credit (in Chapter 2 of Part 11)”,

• “prescribed (in Chapter 2 of Part 11)”,

• 10“principal company (in Chapter 2 of Part 11)”,

• “principal company (in Chapter 9 of Part 15)”,

• “property rental business (in Chapter 2 of Part 11)”,

• “property rental business (in Chapter 9 of Part 15)”,

• “related agreements (in Part 11)”,

• 15“relevant withholding tax (in Chapter 2 of Part 11)”,

• “repo (in Part 11)”,

• “the rules about manufactured payments (in Chapter 4 of Part 11)”,

• “stock lending arrangement (in Part 11)”,

• “trade carried on through a branch or agency (in Chapter 2 of Part 11)”,

• 20“transfer (in Chapter 2 of Part 11)”,

• “UK securities (in Part 11)”, and

• “UK shares (in Part 11)”.

FA 2008

33 (1) FA 2008 is amended as follows.

(2) 25In Schedule 12 (tax credit for certain foreign distributions), omit paragraphs
26, 27(2)(a) and (c) and (3), 28(2)(a) and (c) and (3), 29(2)(a), (c)(i) and (d) and
(3) and 30.

(3) In Schedule 23 (manufactured payments: anti avoidance), omit paragraphs
1 to 4, 6, 7 and 9 to 11.

30CTA 2009

34 CTA 2009 is amended as follows.

35 In section 539 (introduction to Chapter about manufactured interest), omit
subsection (7).

36 In section 540(3) (manufactured interest treated as interest under loan
35relationship), omit “and to section 799 of CTA 2010”.

37 In section 550 (which makes provision about the effect of the sale of
securities on a borrower)—

(a) in subsection (4), for “(6)” substitute “(5C)”,

(b) after subsection (5A) insert—

“(5B) 40Nothing in subsection (3) entitles the borrower to double
taxation relief in respect of any income payable in respect of
overseas securities.

(5C) But nothing in subsection (3) affects the entitlement of the
borrower to double taxation relief in respect of any overseas
tax deducted from any amount representative of income
payable in respect of overseas securities.

(5D) 5In subsection (5C) “overseas tax” means tax under the law of
a territory outside the United Kingdom.”, and

(c) omit subsection (6).

38 In section 1221(1) (amounts treated as expenses of management), for
paragraph (i) substitute—

“(i) 10section 814C(5) of CTA 2010 (treatment of payer of
manufactured dividend),”.

39 In section 1248 (expenses in connection with arrangements for securing a tax
advantage)—

(a) omit subsection (3), and

(b) 15in subsection (5), omit the definition of “relevant tax relief”.

FA 2009

40 In Schedule 19 to FA 2009 (income tax credits for foreign distributions), omit
paragraphs 4 and 13(b).

CTA 2010

41 20CTA 2010 is amended as follows.

42 In section 1 (overview of Act), in subsection (4)—

(a) omit paragraph (d), and

(b) before paragraph (e) insert—

“(da) manufactured dividends (see Part 17A),”.

43 25Omit Part 17 (manufactured payments and repos).

44 (1) Section 1109(5) (provisions to which section 1109 is subject) is amended as
follows.

(2) Omit paragraphs (a) to (c) (and the word “and” at the end of paragraph (c)).

(3) Immediately before subsection (5)(d) insert—

“(ca) 30section 814D (no tax credits for recipient of manufactured
dividend), and”.

45 In Schedule 1 (minor and consequential amendments), omit paragraphs 259,
537, 538, 539(b) and (c), 635, 636 and 689(a) and (b)(i).

46 In Schedule 2 (transitionals and savings), omit Part 17 (manufactured
35payments and repos).

47 In Schedule 4 (index of defined expressions), omit the entries for—

• “creditor quasi-repo (in Chapter 5 of Part 17)”,

• “creditor repo (in Chapter 5 of Part 17)”,

• “debtor quasi-repo (in Chapter 5 of Part 17)”,

• 40“debtor repo (in Chapter 5 of Part 17)”,

• “manufactured dividend (in Part 17)”,

Finance (No. 2) BillPage 366

• “manufactured overseas dividend (in Part 17)”,

• “overseas dividend (in Part 17)”,

• “overseas securities (in Part 17)”,

• “overseas tax (in Part 17)”,

• 5“prescribed (in Chapter 4 of Part 17)”,

• “stock lending arrangement (in Chapter 5 of Part 17)”, and

• “UK shares (in Part 17)”.

TIOPA 2010

48 (1) TIOPA 2010 is amended as follows.

(2) 10In section 85A(4) (schemes involving deemed foreign tax), omit paragraph
(b) of the definition of “real foreign tax”.

(3) In Schedule 7 (miscellaneous relocations), omit paragraph 113.

(4) In Schedule 8 (minor and consequential amendments), omit paragraph 82.

FA 2011

49 15In Schedule 13 to FA 2011 (profits of foreign permanent establishments),
omit paragraphs 22 to 24.

FA 2012

50 (1) FA 2012 is amended as follows.

(2) Omit section 22 (treatment of the receipt of manufactured overseas
20dividends).

(3) In section 78(3) (amounts which are deemed BLAGAB management expense
for accounting period), for “783(6), 785(4) or 791(6)” substitute “814C(7)”.

(4) In Schedule 16 (minor and consequential amendments), omit paragraphs
220 to 223.

25Part 4 Commencement

51 The amendments made by Parts 1 and 2 of this Schedule have effect in
relation to any payment representative of a dividend or interest which is
made on or after 1 January 2014.

52 30The amendments made by Part 3 of this Schedule come into force on that
date.

Section 76

SCHEDULE 28 Close companies

Part 1 Amendments of Part 10 of CTA 2010

1 5Part 10 of CTA 2010 (close companies) is amended as follows.

2 (1) In section 438 (overview), after subsection (2) insert—

“(2A) Chapter 3A imposes a charge to tax in connection with other
arrangements involving close companies and participators.

(2B) Chapter 3B restricts the relief available to close companies in
10connection with loans, advances and other arrangements.”

(2) The amendment made by this paragraph is treated as having come into force
on 20 March 2013.

3 (1) In section 455 (charge to tax in case of loan to participator), for subsection (1)
substitute—

“(1) 15This section applies if a close company makes a loan or advances
money to—

(a) a relevant person who is a participator in the company or an
associate of such a participator,

(b) the trustees of a settlement one or more of the trustees or
20actual or potential beneficiaries of which is a participator in
the company or an associate of such a participator, or

(c) a limited liability partnership or other partnership one or
more of the partners in which is an individual who is—

(i) a participator in the company, or

(ii) 25an associate of an individual who is such a
participator.”

(2) The amendment made by this paragraph has effect in relation to a loan or
advance made on or after 20 March 2013.

4 (1) In section 459(2) (application of other provisions where loan treated as made
30to participator), after “458” insert “and 464C and 464D”.

(2) The amendment made by this paragraph is treated as having come into force
on 20 March 2013.

5 (1) After Chapter 3 insert—

“CHAPTER 3A Charge to tax: other arrangements

464A 35Charge to tax: arrangements conferring benefit on participator

(1) This section applies if—

(a) a close company is at any time a party to tax avoidance
arrangements, and

(b) as a result of those arrangements, a benefit is conferred
(whether directly or indirectly) on an individual who is—

(i) a participator in the company, or

(ii) an associate of such a participator.

(2) 5But this section does not apply if, or to the extent that, the conferral
of the benefit gives rise to—

(a) a charge to tax on the company under section 455, or

(b) a charge to income tax on the participator or associate.

(3) There is due from the company, as if it were an amount of
10corporation tax chargeable on the company for the accounting
period in which the benefit is conferred on the participator or
associate, an amount equal to 25% of the value of the benefit
conferred.

(4) Tax due under this section in relation to a benefit conferred on a
15participator or associate is due and payable in accordance with
section 59D of TMA 1970 on the day following the end of the period
of 9 months from the end of the accounting period in which the
benefit was conferred.

(5) If a company (C) controls another company (D), a participator in C is
20to be treated for the purposes of this section as being also a
participator in D.

(6) For the purposes of this section, arrangements are “tax avoidance
arrangements” if the main purpose, or one of the main purposes, of
the arrangements is—

(a) 25to avoid or reduce, or obtain a relief or increased relief from,
a charge to tax on the company under section 455, or

(b) to obtain a tax advantage for the participator or associate.

(7) In this section—

• “arrangements” includes any arrangements, scheme or
  30understanding of any kind, whether or not legally
  enforceable, involving a single transaction or two or more
  transactions, and

• “tax advantage” has the meaning given in section 1139, reading
  references to tax in that section as references to income tax.

464B 35Relief in case of return payment to company

(1) Subsection (2) applies if a benefit has been conferred which gave rise
to a charge to tax on the company under section 464A.

(2) Relief is to be given from that tax, or a proportionate part of it, if—

(a) a payment (“the return payment”) is made to the company in
40respect of the benefit, and

(b) no consideration is given for the return payment.

(3) Relief under this section is to be given on a claim, which must be
made within 4 years from the end of the financial year in which the
return payment is made to the company.

(4) Subsection (5) applies if the return payment is made on or after the
day on which tax under section 464A becomes due and payable in
relation to the benefit.

(5) Relief in respect of the return payment may not be given under this
5section at any time before the end of the period of 9 months from the
end of the accounting period in which the return payment was made.

(6) Schedule 1A to TMA 1970 (claims and elections not included in
return) applies to a claim for relief under this section unless—

(a) the claim is included (by amendment or otherwise) in the
10return for the period in which the benefit was conferred, and

(b) the relief may be given at the time the claim is made.”

(2) The amendment made by this paragraph has effect in relation to
arrangements to which a close company becomes a party on or after 20
March 2013.

6 (1) 15After Chapter 3A insert—

“CHAPTER 3B Restriction on relief

464C Restriction on relief under sections 458 and 464B

(1) Subsection (4) applies where, within any period of 30 days—

(a) one or more repayments totalling £5,000 or more are made to
20a close company in respect of one or more chargeable
payments made by the company to a person, and

(b) one or more chargeable payments totalling £5,000 or more are
made by the company to the person or an associate of the
person.

(2) 25Subsection (4) also applies where—

(a) immediately before a repayment is made, £15,000 or more is
owed to a close company in respect of one or more chargeable
payments made by the company to a person,

(b) at any time after the repayment is made, the close company
30makes a chargeable payment (“the new payment”) to the
person or an associate of the person, and

(c) the condition in subsection (3) is met.

(3) The condition is that, at the time of the repayment—

(a) any person intended that the new payment would be made,
35or

(b) arrangements had been made for the new payment to be
made.

(4) Where this section applies, relief is not to be given under section
458(2) or 464B(2) (or, if already given, is to be withdrawn) in respect
40of whichever is the lower of the following amounts—

(a) the amount repaid, and

(b) the amount of—