Finance (No. 2) Bill (HC Bill 190)

(2) When publishing a relevant document or a modified relevant document or
when revoking a relevant document, the Commissioners must also publish—

(a) an account of the representations mentioned in subsection (1)(b), and

(b) their responses to those representations.

(3) 5In this section “relevant document” means—

(a) the Governance Protocol, or

(b) any document of the kind mentioned in section 278(11).

(4) This section does not apply in relation to the first publication of the
Governance Protocol.

(5) 10This section does not affect any document of the kind mentioned in section
278(11) published before the passing of this Act except where it is to be revoked
or modified after the passing of this Act.

Offshore funds

282 Undertakings for collective investment in transferable securities and
15alternative investment funds

(1) Section 363A of TIOPA 2010 (residence of offshore funds which are
undertakings for collective investment in transferable securities) is amended as
follows.

(2) For subsections (1) and (2) substitute—

“(1) 20This section applies to—

(a) a UCITS which is authorised in a foreign country or territory
pursuant to Article 5 of the UCITS Directive, and

(b) an AIF which is authorised or registered in a foreign country or
territory, or is not authorised or registered but has its registered
25office in a foreign country or territory,

unless the UCITS or AIF is an excluded entity.

(2) If the UCITS or AIF is a body corporate which (apart from this section)
would be treated as resident in the United Kingdom for the purposes of
any enactment (within the meaning of section 354) relating to income
30tax, corporation tax or capital gains tax, the body corporate is instead to
be treated as if it were not resident in the United Kingdom.

(2A) A UCITS or AIF is “an excluded entity” if it—

(a) is a unit trust scheme the trustees of which are UK resident,

(b) is resident in the United Kingdom by virtue of section 14 of CTA
352009,

(c) is, or has been, an investment trust with respect to an
accounting period, or

(d) is or has been—

(i) a company UK REIT in relation to an accounting period,
40or

(ii) a member of a group of companies at a time when the
group is or was a group UK REIT in relation to an
accounting period.

(2B) The Treasury may, by regulations, modify this section so as to—

(a) add a description of UCITS or AIF as an excluded entity,

(b) provide that a description of UCITS or AIF is no longer an
excluded entity, or

(c) vary a description of an excluded entity.”

(3) 5In subsection (3), for “offshore fund” substitute “UCITS or AIF”.

(4) In subsection (4), for the words after “section” substitute “—

• “AIF” has the meaning given in regulation 3 of the Alternative
  Investment Fund Managers Regulations 2013,

• “foreign country or territory” means a country or territory outside
  10the United Kingdom,

• “investment trust with respect to an accounting period” is to be
  construed in accordance with section 1158 of CTA 2010,

• “UCITS” means an undertaking for collective investment in
  transferable securities,

• 15“the UCITS Directive” means Directive 2009/65/EC of the
  European Parliament and of the Council,

• “company UK REIT in relation to an accounting period” and
  “group UK REIT in relation to an accounting period” are to be
  construed in accordance with section 527 of CTA 2010.”

(5) 20Accordingly, in TIOPA 2010—

(a) in section 1 (overview of Act), in subsection (1)(e) after “funds” insert
“etc”,

(b) in the heading for Part 8, after “FUNDS” insert “ETC”, and

(c) for the heading of section 363A substitute “Residence of undertakings
25for collective investment in transferable securities and alterative
investment funds”.

(6) The amendments made by this section are treated as having come into force on
5 December 2013.

Employee-ownership trusts

283 30Companies owned by employee-ownership trusts

Schedule 33 contains provision about tax reliefs in connection with companies
owned by employee-ownership trusts.

Trusts

284 Trusts with vulnerable beneficiary: meaning of “disabled person”

(1) 35Schedule 1A to FA 2005 (meaning of “disabled person”) is amended as follows.

(2) In paragraph 1—

(a) for paragraph (c) substitute—

“(c) a person in receipt of a disability living allowance by
virtue of entitlement to—

(i) 40the care component at the highest or middle
rate, or

(ii) the mobility component at the higher rate,”,
and”

(b) in paragraph (d), omit “by virtue of entitlement to the daily living
component”.

(3) 5In paragraph 3, after “rate” insert “, or to the mobility component at the higher
rate,”.

(4) In paragraph 4, omit “by virtue of entitlement to the daily living component”.

(5) The amendments made by this section have effect—

(a) for the purposes of sections 89, 89A and 89B of IHTA 1984, in relation
10to property transferred into settlement on or after 6 April 2014, and

(b) for all other purposes, for the tax year 2014-15 and subsequent tax
years.

International matters

285 Amounts allowed by way of double taxation relief

(1) 15TIOPA 2010 is amended as follows.

(2) For section 34(1)(b) (reduction in credit: payment by reference to foreign tax)
substitute—

“(b) a tax authority makes a payment by reference to that tax, and
that payment—

(i) 20is made to P or a person connected with P, or

(ii) is made to some other person directly or indirectly in
consequence of a scheme that has been entered into.”

(3) In section 34, after subsection (3) insert—

“(4) In subsection (1)(b)(ii) “scheme” includes any scheme, arrangement or
25understanding of any kind, whether or not legally enforceable,
involving a single transaction or two or more transactions.”

(4) For section 112(3)(b) (deduction from income for foreign tax (instead of credit
against UK tax)) substitute—

“(b) a tax authority makes a payment by reference to that tax, and
30that payment—

(i) is made to P or a person connected with P, or

(ii) is made to some other person directly or indirectly in
consequence of a scheme that has been entered into,”.

(5) In section 112, after subsection (7) insert—

“(8) 35In subsection (3)(b)(ii) “scheme” includes any scheme, arrangement or
understanding of any kind, whether or not legally enforceable,
involving a single transaction or two or more transactions.”

(6) In section 42(4) (provisions relating to the limit imposed by section 42(2) on
credit against corporation tax) for the “and” after “(as defined in section 44),”
40substitute—

• “section 49B, which requires subsection (2) to be applied
  separately to certain non-trading credits, and”.

(7) After section 49A insert—

“49B Applying section 42(2) to non-trading credits from loan relationships
etc

(1) Subsection (2) applies for the purposes of section 42(2) if—

(a) 5the company has a non-trading credit relating to an item, and

(b) there is in respect of that item an amount of foreign tax for
which, under the arrangements, credit is allowable against
United Kingdom tax.

(2) Credit for the foreign tax in respect of that item must not exceed—

10

where—

• R has the same meaning as in section 42(2),

• NTC is the amount of the non-trading credit, and

• D is the amount given by subsection (3).

(3) 15D in the formula in subsection (2) is calculated as follows—

Step 1

Calculate the total amount (“TNTD”) of the non-trading debits which
are to be brought into account by the company—

• in the same accounting period, and

• 20in respect of the same loan relationship, derivative contract or
  intangible fixed asset,

as the non-trading credit.

Step 2

Calculate the total (“A”) of the amounts which, as amount D, have
25already been deducted under subsection (2) from other non-trading
credits which are to be brought into account in the same period and in
respect of the same relationship, contract or asset.

Step 3

Calculate the amount given by—

30

Step 4

If the amount calculated at step 3 is greater than or equal to NTC, then
D equals NTC.

Otherwise, D is the amount calculated at step 3.

35Otherwise, D is the amount calculated at step 3.

(4) In this section—

• “intangible fixed asset” has the same meaning as in Part 8 of CTA
  2009,

• “non-trading credit” means—

  (a)

  40a non-trading credit for the purposes of Part 5 of CTA
  2009 (which is about loan relationships but also has
  application in relation to deemed loan relationships and
  derivative contracts), or

  (b)

  a non-trading credit for the purposes of Part 8 of CTA
  452009 (intangible fixed assets), and

• “non-trading debit” means—

  (a)

  a non-trading debit for the purposes of Part 5 of CTA
  2009, or

  Finance (No. 2) BillPage 194

  (b)

  a non-trading debit for the purposes of Part 8 of CTA
  2009.”

(8) The amendments made by subsections (2), (3), (4) and (5) have effect in relation
to payments made by a tax authority on or after 5 December 2013.

(9) 5The amendments made by subsections (6) and (7) have effect in relation to
accounting periods beginning on or after 5 December 2013.

(10) For the purposes of subsection (9), an accounting period beginning before, and
ending on or after, 5 December 2013 is to be treated as if so much of the period
as falls before that date, and so much of the period as falls on or after that date,
10were separate accounting periods.

286 Controlled foreign companies: qualifying loan relationships (1)

(1) In Chapter 9 of Part 9A of TIOPA 2010 (controlled foreign companies:
qualifying loan relationships) in section 371IH (exclusions from definition of
“qualifying loan relationship”) after subsection (9) insert—

“(9A) 15Subsection (9B) applies to a creditor relationship of a CFC if—

(a) a creditor relationship (“the UK creditor relationship”) of a UK
connected company is made where the debtor is a non-UK
resident company connected with the UK connected company,

(b) subsequently, an arrangement (“the relevant arrangement”) is
20made directly or indirectly in connection with the UK creditor
relationship, and

(c) the main purpose, or one of the main purposes, of the relevant
arrangement is to secure that—

(i) the relevant UK credits of a UK connected company for
25a corporation tax accounting period of the company are
lower than they would be if the relevant arrangement
had not been made, or

(ii) the relevant UK debits of a UK connected company for
a corporation tax accounting period of the company are
30greater than they would be if the relevant arrangement
had not been made.

(9B) The CFC’s creditor relationship cannot be a qualifying loan
relationship if it is, or is connected (directly or indirectly) to, the
relevant arrangement.

(9C) 35Subsection (9D) applies for the purposes of subsection (9A)(c)(i) and (ii)
in determining what the relevant UK credits or debits of a UK
connected company for a corporation tax accounting period would be
if the relevant arrangement had not been made.

(9D) Assume that, at all times after the relevant time, the UK creditor
40relationship remains in place on the same terms as it had at the relevant
time.

(9E) In subsections (9A) to (9D)—

• “corporation tax accounting period” means an accounting period
  for corporation tax purposes,

• 45“the relevant time” means the time immediately before—

  (a)

  the time when the relevant arrangement is made, or

  Finance (No. 2) BillPage 195

  (b)

  if earlier, the time when the UK creditor relationship
  ends,

• “relevant UK credits”, in relation to a UK connected company,
  means credits which the company has under Part 5 or 7 of CTA
  52009,

• “relevant UK debits”, in relation to a UK connected company,
  means debits which the company has under Part 5 or 7 of CTA
  2009, and

• “UK connected company” means a UK resident company which—

  (a)

  10is connected with the CFC, or

  (b)

  was connected with a company with which the CFC is
  connected.”

(2) The amendment made by this section has effect for cases in which the relevant
arrangement is made on or after 5 December 2013.

287 15Controlled foreign companies: qualifying loan relationships (2)

(1) In Chapter 9 of Part 9A of TIOPA 2010 (controlled foreign companies:
qualifying loan relationships) in section 371IH (exclusions from definition of
“qualifying loan relationship”) in subsection (10)(c) for “wholly or mainly
used” substitute “used to any extent (other than a negligible one)”.

(2) 20The amendment made by this section has effect for accounting periods of CFCs
beginning on or after 5 December 2013.

(3) The following subsections apply in relation to a qualifying loan relationship of
a CFC if—

(a) profits of the qualifying loan relationship (“the relevant profits”)
25would, apart from those subsections, be included in the CFC’s
qualifying loan relationship profits for an accounting period of the CFC
(“the straddling period”) which begins before 5 December 2013 but
ends on or after that date, and

(b) the creditor relationship in question would not be a qualifying loan
30relationship for the straddling period were the amendment made by
this section to have effect for accounting periods of CFCs beginning
before 5 December 2013.

(4) Apportion the relevant profits between the part of the straddling period falling
before 5 December 2013 and the part falling on or after that date—

(a) 35in accordance with section 1172 of CTA 2010 (time basis), or

(b) if that method produces a result that is unjust or unreasonable, on a just
and reasonable basis.

(5) The relevant profits are to be excluded from the CFC’s qualifying loan
relationship profits for the straddling period so far as they are apportioned to
40the part of the straddling period falling on or after 5 December 2013.

Financial sector regulation

288 Tax consequences of financial sector regulation

(1) Section 221 of FA 2012 (tax consequences of financial sector regulation) is
amended as follows.

(2) In subsection (1) after “imposed” insert “, or which appears to the Treasury
likely to be imposed,”.

(3) After subsection (4) insert—

“(4A) Where regulations under this section make provision about the tax
5consequences of any regulatory requirement which appears to the
Treasury likely to be imposed by any EU legislation or enactment—

(a) the regulations may be made (and, accordingly, may have
effect) before the proposed legislation or enactment is adopted,
passed or made, and

(b) 10failure after the regulations are made to adopt, pass or make the
proposed legislation or enactment does not affect the validity of
the regulations.”

Scotland

289 Scottish basic, higher and additional rates of income tax

15Schedule 34 contains provision about the Scottish basic, higher and additional
rates of income tax.

290 Report on administration of the Scottish rate of income tax

(1) In Chapter 2 of Part 4A of the Scotland Act 1998, after section 80H insert—

“80HA Report by the Comptroller and Auditor General

(1) 20The Comptroller and Auditor General must for each financial year
prepare a report on the matters set out in subsection (2).

(2) Those matters are—

(a) the adequacy of any of HMRC’s rules and procedures put in
place, in consequence of the Scottish rate provisions, for the
25purpose of ensuring the proper assessment and collection of
income tax charged at rates determined under those provisions,

(b) whether the rules and procedures described in paragraph (a)
are being complied with,

(c) the correctness of the sums brought to account by HMRC which
30relate to income tax which is attributable to a Scottish rate
resolution, and

(d) the accuracy and fairness of the amounts which are reimbursed
to HMRC under section 80H (having been identified by it as
administrative expenses incurred as a result of the charging of
35income tax as mentioned in paragraph (a)).

(3) The “Scottish rate provisions” are—

(a) any provision made by or under this Chapter, and

(b) any provision made by or under the Income Tax Acts relating to
the Scottish basic rate, the Scottish higher rate or the Scottish
40additional rate.

(4) A report under this section may also include an assessment of the
economy, efficiency and effectiveness with which HMRC has used its
resources in carrying out relevant functions.

(5) “Relevant functions” are functions of HMRC in the performance of
which HMRC incurs administrative expenses which are reimbursed to
HMRC under section 80H (having been identified by it as
administrative expenses incurred as a result of the charging of income
5tax as mentioned in subsection (2)(a)).

(6) HMRC must give the Comptroller and Auditor General such
information as the Comptroller and Auditor General may reasonably
require for the purposes of preparing a report under this section.

(7) A report prepared under this section must be laid before the Scottish
10Parliament not later than 31 January of the financial year following that
to which the report relates.

(8) In this section “HMRC” means Her Majesty’s Revenue and Customs.”

(2) The amendment made by this section has effect in relation to the financial year
ending on 31 March 2015 and subsequent financial years.

15Limitation periods

291 Removal of limitation period restriction for EU cases

(1) In section 107 of FA 2007 (limitation period in old actions for mistake of law
relating to direct tax), after subsection (5) insert—

“(5A) Subsection (1) also does not have effect in relation to an action, or so
20much of an action as relates to a cause of action, if the consequences of
a mistake of law to which the action, or cause of action, relates is the
charging of tax contrary to EU law.

(5B) For the purposes of subsection (5A), tax is charged contrary to EU law
if the charge to tax is contrary to—

(a) 25the provisions relating to free movement of goods, persons,
services and capital in Titles II and IV of Part 3 of the Treaty on
the Functioning of the European Union, or

(b) the provisions of any subsequent treaty replacing the
provisions mentioned in paragraph (a).”

(2) 30The amendment made by this section has effect in relation to actions brought,
and causes of action arising, before, on or after the day on which this Act is
passed.

Local loans

292 Increase in limit for local loans

(1) 35In section 4(1) of the National Loans Act 1968 (local loans granted by the Public
Works Loan Commissioners)—

(a) for “£55,000 million” substitute “£85 billion”, and

(b) for “£70,000 million” substitute “£95 billion”.

(2) The Local Loans (Increase of Limit) Order 2008 (S.I. 2008/3004) is revoked.

(3) 40This section comes into force on such day as the Treasury may by order made
by statutory instrument appoint.

Part 7 Final provisions

293 Power to update indexes of defined terms

(1) The Treasury may by order amend any index of defined expressions contained
5in an Act relating to taxation, so as to make amendments consequential on any
enactment.

(2) In this section—

• “enactment” means any provision made by or under an Act (whether
  before or after the passing of this Act);

• 10“index of defined expressions” means a provision contained in an Act
  relating to taxation which lists where expressions used in the Act, or in
  a particular part of the Act, are defined or otherwise explained.

(3) The power to make an order under this section is exercisable by statutory
instrument.

(4) 15An order under this section is subject to annulment in pursuance of a
resolution of the House of Commons.

294 Interpretation

(1) In this Act—

• “ALDA 1979” means the Alcoholic Liquor Duties Act 1979,

• 20“BGDA 1981” means the Betting and Gaming Duties Act 1981,

• “CAA 2001” means the Capital Allowances Act 2001,

• “CEMA 1979” means the Customs and Excise Management Act 1979,

• “CRCA 2005” means the Commissioners for Revenue and Customs Act
  2005,

• 25“CTA 2009” means the Corporation Tax Act 2009,

• “CTA 2010” means the Corporation Tax Act 2010,

• “F(No.3)A 2010” means the Finance (No. 3) Act 2010,

• “IHTA 1984” means the Inheritance Tax Act 1984,

• “ITA 2007” means the Income Tax Act 2007,

• 30“ITEPA 2003” means the Income Tax (Earnings and Pensions) Act 2003,

• “ITTOIA 2005” means the Income Tax (Trading and Other Income) Act
  2005,

• “OTA 1975” means the Oil Taxation Act 1975,

• “TCGA 1992” means the Taxation of Chargeable Gains Act 1992,

• 35“TIOPA 2010” means the Taxation (International and Other Provisions)
  Act 2010,

• “TMA 1970” means the Taxes Management Act 1970,

• “TPDA 1979” means the Tobacco Products Duty Act 1979,

• “VATA 1994” means the Value Added Tax Act 1994, and

• 40“VERA 1994” means the Vehicle Excise and Registration Act 1994.

(2) In this Act—

• “FA”, followed by a year, means the Finance Act of that year, and

Finance (No. 2) BillPage 199

• “F(No.2)A”, followed by a year, means the Finance (No. 2) Act of that
  year.

295 Short title

This Act may be cited as the Finance Act 2014.