Finance Bill

Session 2013 - 14
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Finance Bill

Finance Bill
Schedule 10 — Transfer of assets abroad
Part 2 — New exemption for genuine transactions etc
221

Schedule 10
Section 26

Transfer of assets abroad
Part 1
Introduction
1
Chapter 2 of Part 13 of ITA 2007 (tax avoidance: transfer of assets abroad) is
5
amended as follows.
Part 2
New exemption for genuine transactions etc
2
In section 718 (meaning of “person abroad” etc) in subsection (2) omit
paragraph (a) (UK resident body corporate incorporated outside UK treated
10
as resident outside UK).
3
In section 720 (charge to tax on income treated as arising under section 721)
in subsection (7)—
(a)
for “742” substitute “742A”, and
(b)
after “transaction” insert “, etc”.
15
4
In section 727 (charge to tax on income treated as arising under section 728)
in subsection (5)—
(a)
for “742” substitute “742A”, and
(b)
after “transaction” insert “, etc”.
5
In section 731 (charge to tax on income treated as arising under section 732)
20
in subsection (4)—
(a)
for “742” substitute “742A”, and
(b)
after “transaction” insert “, etc”.
6     (1)
Section 736 (exemptions: introduction) is amended as follows.
      (2)
In subsection (1) for “742” substitute “742A”.
25
      (3)
After subsection (2) insert—
“(2A)
The exemption given by section 742A applies only in the case of a
relevant transaction effected on or after 6 April 2012.”
7
After section 742 insert—
“742A
Post-5 April 2012 transactions: exemption for genuine transactions
30
(1)
Subsection (2) applies for the purpose of determining the liability of
an individual to tax under this Chapter by reference to a relevant
transaction if—
(a)
the transaction is effected on or after 6 April 2012, and
(b)
conditions A and B are met.
35
(2)
Income is to be left out of account so far as the individual satisfies an
officer of Revenue and Customs that it is attributable to the
transaction.
(3)
Condition A is that—

Finance Bill
Schedule 10 — Transfer of assets abroad
Part 2 — New exemption for genuine transactions etc
222

(a)
were, viewed objectively, the transaction to be considered to
be a genuine transaction having regard to any arrangements
under which it is effected and any other relevant
circumstances, and
(b)
were the individual to be liable to tax under this Chapter by
5
reference to the transaction,

the individual’s liability to tax would, in contravention of a relevant
treaty provision, constitute an unjustified and disproportionate
restriction on a freedom protected under that relevant treaty
provision.
10
(4)
In subsection (3) “relevant treaty provision” means—
(a)
Title II or IV of Part Three of the Treaty on the Functioning of
the European Union,
(b)
Part II or III of the EEA agreement, or
(c)
the provision of any subsequent treaty replacing a provision
15
mentioned in paragraph (a) or (b).
(5)
Condition B is that the individual satisfies an officer of Revenue and
Customs that, viewed objectively, the transaction must be
considered to be a genuine transaction having regard to any
arrangements under which it is effected and any other relevant
20
circumstances.
(6)
Without prejudice to the generality of subsection (3)(a) or (5), in
order for the transaction to be considered to be a genuine transaction
the transaction must not—
(a)
be on terms other than those that would have been made
25
between persons not connected with each other dealing at
arm’s length, or
(b)
be a transaction that would not have been entered into
between such persons so dealing,

having regard to any arrangements under which the transaction is
30
effected and any other relevant circumstances.
(7)
Subsection (8) applies if any asset or income falling within subsection
(12) is used for the purposes of, or is received in the course of,
activities carried on in a territory outside the United Kingdom by a
person (“the relevant person”) through a business establishment
35
which the relevant person has in that territory.
(8)
Without prejudice to the generality of subsection (3)(a) or (5), in
order for the transaction to be considered to be a genuine transaction
the activities mentioned in subsection (7) must consist of the
provision by the relevant person of goods or services to others on a
40
commercial basis and involve—
(a)
the use of staff in numbers, and with competence and
authority,
(b)
the use of premises and equipment, and
(c)
the addition of economic value, by the relevant person, to
45
those to whom the goods or services are provided,

commensurate with the size and nature of those activities.
(9)
In subsection (8)(a) “staff” means employees, agents or contractors of
the relevant person.

Finance Bill
Schedule 10 — Transfer of assets abroad
Part 2 — New exemption for genuine transactions etc
223

(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)
references to a permanent establishment were to a business
5
establishment.
(11)
Subsection (6) does not apply if—
(a)
the relevant transfer is made by an individual who makes it
wholly—
(i)
for personal reasons (and not commercial reasons),
10
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
relevant transfer or otherwise for any benefit received by any
15
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)
any of the assets transferred by the relevant transfer;
20
(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)
any assets directly or indirectly representing the
25
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)
if the transaction mentioned in subsection (1) is a relevant
30
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)
subsection (2) would apply in relation to a transaction but for
35
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)
the individual does satisfy an officer of Revenue and
40
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
In section 751 (the Tribunal’s jurisdiction on appeals) after paragraph (d)
45
insert—
“(da)
section 742A (post-5 April 2012 transactions: exemption for
genuine transactions),”.

Finance Bill
Schedule 10 — Transfer of assets abroad
Part 3 — Amendments relating to the charges under sections 720 and 727
224

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.
Part 3
5
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)
In subsection (3) after “the income” insert “of the person abroad”.
10
      (3)
Before subsection (4) 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)
Subsection (1) does not apply if—
15
(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)
In subsection (4) after “the income” insert “of the person abroad”.
20
      (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)
In subsection (3)—
25
(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)
In subsection (1), as substituted by paragraph 22 of Schedule 20 to FA 2012,
30
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
forming part of the CFC’s chargeable profits for that
35
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.

Finance Bill
Schedule 10 — Transfer of assets abroad
Part 3 — Amendments relating to the charges under sections 720 and 727
225

(2B)
“X%” is determined as follows—

where—
A is the amount on which the individual is liable as determined
under section 724(2), and
I is the amount of the income mentioned in section 721(2).”
5
      (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
effect instead of the amendment made by sub-paragraph (2) above.
      (5)
In subsection (1) for paragraph (c) and the “and” before it substitute—
10
“(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
forming part of the controlled foreign company’s chargeable
profits for that accounting period.”
15
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)
Section 728 (individuals receiving capital sums as a result of a relevant
transaction) is amended as follows.
20
      (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
subsection (2)).”
      (3)
In subsection (2) for the words from “it applies” to the end substitute “if—
25
(a)
in subsection (1) of that section—
(i)
the reference to section 721 were a reference to this
section, and
(ii)
the reference to section 721(2) were a reference to
subsection (1)(a) of this section, and
30
(b)
subsections (2A) and (2B) of that section were omitted.”
      (4)
After subsection (2) insert—
“(2A)
Subsection (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
35
this Chapter, and
(b)
all that income tax has been paid.”
      (5)
Omit subsection (3)(a).
15
In section 730 (non-UK domiciled individuals to whom remittance basis
applies) in subsection (2) for “the extent” substitute “the corresponding
40
extent”.
16    (1)
Section 743 (no duplication of charges) is amended as follows.

Finance Bill
Schedule 10 — Transfer of assets abroad
Part 3 — Amendments relating to the charges under sections 720 and 727
226

      (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)
the individual subsequently receives that income.
5
(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)
Section 744 (meaning of taking income into account in charging income tax
10
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)
in paragraph (b) for “income charged” substitute “the income
15
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
727 etc) is amended as follows.
20
      (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
under section 721 or 728 so far as subsection (1) does not apply to it.
25
(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
the individual.”
30
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
actually received the amount by reference to which the income
35
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
year 2013-14 and subsequent tax years.
40
      (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.

Finance Bill
Schedule 11 — Deduction of income tax at source etc
227

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
in relation to income arising to a person abroad before 6 April 2013.
5
Schedule 11
Section 27

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
interest) is amended as follows.
10
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
as a payment of yearly interest (irrespective of the period in respect
15
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
In section 875 (interest paid by building societies), at the end insert “unless
20
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).”
Deduction from yearly interest: specialties
25
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
the location of any deed which records the obligation to pay the
30
interest.”
Payment of interest in kind
6
After section 370 of ITTOIA 2005 insert—
“370A
Valuation of interest not paid in cash
(1)
This section applies to the payment of an amount of interest in the
35
form of—
(a)
goods or services, or
(b)
a voucher.