Corporation Tax (Northern Ireland) Bill (HC Bill 170)

CHAPTER 7 Northern Ireland profits and losses etc: large companies

Introductory

357N Introductory

(1) This Chapter applies to a company that is a Northern Ireland company
5in an accounting period by virtue of the large company condition in
section 357KA.

(2) In this Chapter—

(a) a reference to “the company” or “the accounting period” is to
the company or accounting period mentioned in subsection (1);

(b) 10a reference to “the trade” is to any qualifying trade carried on by
the company in the period.

(3) Section 357NA contains provision under which profits or losses of the
trade for the accounting period are—

(a) Northern Ireland profits or losses of the trade,

(b) 15mainstream profits or losses of the trade, or

(c) a combination of—

(i) profits or losses within paragraph (a), and

(ii) profits or losses within paragraph (b).

(4) Further provision under which profits or losses of the trade may be
20Northern Ireland profits or losses of the trade, or mainstream profits or
losses of the trade, is contained in—

(a) Chapters 8 to 15 of this Part, and

(b) CAA 2001 (see section 6E of that Act).

(5) This Chapter has effect for the purposes of this Part.

25Northern Ireland profits or losses and mainstream profits or losses

357NA Northern Ireland profits or losses and mainstream profits or losses

(1) Where the trade is a qualifying trade by virtue of section 357KB(1)
(trade other than excluded trade), the profits or losses of the trade for
the accounting period are Northern Ireland profits or Northern Ireland
30losses of the trade for the period to the extent that they—

(a) do not arise from an excluded activity,

(b) arise directly or indirectly through or from the company’s
NIRE, or from property or rights used by, or held by, or for, the
company’s NIRE, and

(c) 35are attributable to the company’s NIRE.

(2) Subsection (1)—

(a) does not apply in relation to any profits or losses of the trade
that form part of the Northern Ireland profits or losses of the
trade by virtue of any provision apart from this section, and

(b) 40is subject to any provision apart from this section under which
profits or losses of the trade are mainstream profits or losses of
the trade.

(3) Where the trade is a qualifying trade by virtue of section 357KB(2)
(excluded trade with back-office activities), the profits, if any,
determined under section 357NB as Northern Ireland back-office
profits of the trade for the accounting period are Northern Ireland
5profits of the trade for the period.

(4) The profits or losses of the trade for the accounting period are
mainstream profits or mainstream losses of the trade for the period to
the extent that they are not Northern Ireland profits or Northern
Ireland losses by virtue of subsection (1) or (3) or any provision apart
10from this section.

(5) Subsection (4) does not apply in relation to any profits or losses of the
trade that form part of the mainstream profits or losses of the trade by
virtue of any provision apart from this section.

(6) Sections 357NC to 357NI contain provision for determining the amount
15of profits or losses of a trade that are attributable to the company’s
NIRE.

(7) See also section 357LJ (investment managers: disregard of certain
chargeable profits), which provides for profits of certain investment
transactions to be disregarded in determining the amount of profits
20attributable to a NIRE.

357NB Profit imputed to Northern Ireland back-office activities

(1) To determine for the purposes of section 357NA(3) the Northern
Ireland back-office profits of the trade for the accounting period, take
the following steps—

25Step 1

Multiply each Northern Ireland back-office deduction by the relevant
percentage.

Step 2

Add together each amount calculated under step 1.

(2) 30In subsection (1)—

• “Northern Ireland back-office deduction” means a deduction—

  (a)

  to which the company is entitled in calculating the
  profits of the trade for the period, and

  (b)

  which is in respect of back-office activities carried on in
  35Northern Ireland;

• “the relevant percentage” means 5%.

(3) The Treasury may by regulations amend subsection (2) so as to
substitute a different percentage for the percentage for the time being
specified there.

(4) 40Regulations under this section—

(a) may make different provision for different purposes (including,
in particular, different trades or different back-office activities);

(b) may make incidental, supplemental, consequential and
transitional provision and savings.

The separate enterprise principle

357NC The separate enterprise principle

(1) The profits of the company that are attributable to its NIRE are those
that the NIRE would have made if it were a distinct and separate
5enterprise which—

(a) engaged in the same or similar activities under the same or
similar conditions, and

(b) dealt wholly independently with the company.

(2) In applying subsection (1) it is to be assumed that—

(a) 10the NIRE has the same credit rating as the company, and

(b) the NIRE has such equity and loan capital as it could reasonably
be expected to have in the circumstances specified in that
subsection.

(3) In this Chapter the principle in subsection (1) (read with subsection (2))
15is called “the separate enterprise principle”.

357ND Transactions treated as being on arm’s length terms

In accordance with the separate enterprise principle, transactions
between the company’s NIRE and any other part of the company are
treated as taking place on such terms as would have been agreed
20between parties dealing at arm’s length.

357NE Provision of goods or services for NIRE

(1) This section applies if the company provides its NIRE with goods or
services.

(2) If the goods or services are of a kind that the company supplies, in the
25ordinary course of business, to third parties dealing with it at arm’s
length, the matter is dealt with as a transaction to which the separate
enterprise principle applies.

(3) If not, the matter is dealt with as an expense incurred by the company
for the purposes of its NIRE (see section 357NF).

30Rules about deductions and receipts

357NF Allowable deductions

(1) A deduction is allowed in calculating the profits attributable to the
company’s NIRE for any allowable expenses incurred for the purposes
of the NIRE.

(2) 35Expenses incurred for the purposes of the NIRE include executive and
general administrative expenses so incurred, whether in Northern
Ireland or elsewhere.

(3) It does not matter whether the expenses are incurred by, or reimbursed
by, the NIRE.

(4) 40The amount of expenses to be taken into account under subsection (1)
is the actual cost to the company.

(5) “Allowable expenses”, means expenses of a kind in respect of which a
deduction is allowed for corporation tax purposes or (in the case of a
company that is not UK-resident) would be so allowed if incurred by a
UK resident company.

357NG 5 Deductions attributable to the NIRE for costs

A deduction is allowed in calculating the profits attributable to the
company’s NIRE for any costs that would have been incurred on the
assumptions in section 357NC(2).

357NH Payments and receipts in respect of intangible assets

(1) 10No deduction is allowed in calculating the profits attributable to the
company’s NIRE for royalties paid, or other similar payments made, by
the NIRE to any other part of the company in respect of the use of
intangible assets held by the company.

(2) But a deduction is allowed in calculating the profits attributable to the
15NIRE for any contribution by the NIRE to the costs of creation of an
intangible asset.

(3) No receipt is to be brought into account in calculating the profits
attributable to the NIRE for royalties or other similar amounts received
from any other part of the company in respect of the use of intangible
20assets held by the company for the purposes of the NIRE.

(4) But a receipt is to be brought into account in calculating profits
attributable to the NIRE for any contribution received by the NIRE in
respect of the costs of creation of an intangible asset.

(5) In this section “intangible asset”—

(a) 25includes any intellectual property (as defined in section 712(3)
of CTA 2009), and

(b) subject to that, has the meaning it has for accounting purposes.

357NI Interest or other financing costs and receipts

(1) No deduction is allowed in calculating the profits attributable to the
30company’s NIRE for payments of interest or other financing costs by
the NIRE to any other part of the company.

(2) No receipt is to be brought into account in calculating profits
attributable to the NIRE for interest or other financing income received
from any other part of the company.

35Supplementary

357NJ Losses

This Part applies in relation to the attribution of losses to a company’s
NIRE as it applies to the attribution of profits.

357NK Trade includes office

40In this Part, except so far as the context otherwise requires—

(a) references to a trade include an office, and

(b) references to carrying on a trade including holding an office.

CHAPTER 8 Intangible fixed assets

Introductory

357O Introductory

(1) This Chapter makes provision about amounts which are treated by
5section 747 of CTA 2009 (intangible fixed assets held for purposes of
trade) as receipts or expenses of a trade carried on by a Northern
Ireland company.

(2) In this Chapter “intangible fixed asset” has the same meaning as in Part
8 of CTA 2009 (see section 713 of that Act).

10Calculating Northern Ireland profits or Northern Ireland losses

357OA   Rules affecting calculation of Northern Ireland profits or losses

(1) If a company is a Northern Ireland company in an accounting period,
this section applies to the debits and credits that are given effect under
section 747 of CTA 2009 (intangible fixed assets held for purposes of
15trade) as receipts or expenses of the company’s trade in calculating the
profits of the trade.

(2) The Northern Ireland intangibles credits and Northern Ireland
intangibles debits form part of the Northern Ireland profits or Northern
Ireland losses of the trade.

(3) 20Any other credits or debits to which this section applies form part of the
mainstream profits or mainstream losses of the trade.

(4) For the meaning of “Northern Ireland intangibles credits”, see section
357OB(2)(a) and (3) and 357OC(2).

(5) For the meaning of “Northern Ireland intangibles debits”, see section
25357OB(2)(b) and (4) and 357OC(3).

Northern Ireland intangibles credits and Northern Ireland intangibles debits

357OB   Northern Ireland intangibles credits and debits: SMEs

(1) This section applies to a company that—

(a) is a Northern Ireland company in an accounting period by
30virtue of the SME condition in section 357KA, and

(b) carries on a trade which is a qualifying trade by virtue of section
357KB(1) (trade other than excluded trade).

(2) If the company does not carry on an excluded activity—

(a) the Northern Ireland intangibles credits for the accounting
35period are—

(i) the credits treated by section 747(2) of CTA 2009 as
receipts of the qualifying trade for the period, except
credits in respect of pre-commencement assets and
realisation credits, and

(ii) the Northern Ireland element of each realisation credit
for the period, and

(b) the Northern Ireland intangibles debits for the accounting
period are—

(i) 5the debits treated by section 747(3) of CTA 2009 as
expenses of the qualifying trade for the period, except
debits in respect of pre-commencement assets and
realisation debits, and

(ii) the Northern Ireland element of each realisation debit
10for the period.

(3) If the company carries on an excluded activity, the Northern Ireland
intangibles credits for the accounting period are—

(a) the credits treated by section 747(2) of CTA 2009 as receipts of
the qualifying trade for the period, to the extent that—

(i) 15they are neither credits in respect of pre-commencement
assets nor realisation credits, and

(ii) they are not attributable to assets held for the purposes
of the excluded activity, and

(b)
the Northern Ireland element of each realisation credit for the
20period.

(4) If the company carries on an excluded activity, the Northern Ireland
intangibles debits for the accounting period are—

(a) the debits treated by section 747(3) of CTA 2009 as expenses of
the qualifying trade for the period, to the extent that—

(i) 25they are neither debits in respect of pre-commencement
assets nor realisation debits, and

(ii) they are not attributable to assets held for the purposes
of the excluded activity, and

(b) the Northern Ireland element of each realisation debit for the
30period.

(5) For the meaning of “pre-commencement asset”, see section 357OH.

(6) For the meaning of a “realisation credit” and “realisation debit” and of
the “Northern Ireland element” of either, see sections 357OD and
357OE.

357OC 35  Northern Ireland intangibles credits and debits: large companies

(1) This section applies to a company that is a Northern Ireland company
in an accounting period by virtue of the large company condition in
section 357KA.

(2) The Northern Ireland intangibles credits for the accounting period
40are—

(a) the credits treated by section 747(2) of CTA 2009 as receipts of
the qualifying trade for the period, to the extent that—

(i) they are neither credits in respect of pre-commencement
assets nor realisation credits,

(ii) 45they are not attributable to assets held for the purposes
of an excluded activity, and

(iii) they would in accordance with the separate enterprise
principle in section 357NC be attributed to the
company’s NIRE, and

(b) the Northern Ireland element of each realisation credit for the
5period.

(3) The Northern Ireland intangibles debits for the accounting period are—

(a) the debits treated by section 747(3) of CTA 2009 as expenses of
the qualifying trade for the period, to the extent that—

(i) they are neither debits in respect of pre-commencement
10assets nor realisation debits,

(ii) they are not attributable to assets held for the purposes
of an excluded activity, and

(iii) they would in accordance with the separate enterprise
principle in section 357NC be attributed to the
15company’s NIRE, and

(b) the Northern Ireland element of each realisation debit for the
period.

(4) For the meaning of “pre-commencement asset”, see section 357OH.

(5) For the meaning of a “realisation credit” and “realisation debit” and of
20the “Northern Ireland element” of either, see sections 357OD and
357OE.

Realisation credits and realisation debits

357OD   “Realisation credit” and “realisation debit”

In this Chapter, a “realisation credit” or “realisation debit”, in relation
25to a trade carried on by a company in an accounting period, means a
credit or debit which—

(a) is brought into account by the company under Part 8 of CTA
2009 for the period as a result of Chapter 4 of that Part
(realisation of intangible fixed assets),

(b) 30is treated under section 747 of that Act as a receipt or expense of
the trade, and

(c) does not relate to a pre-commencement asset.

357OE   The Northern Ireland element of a realisation credit or debit

(1) This section has effect for the purposes of this Chapter.

(2) 35A realisation credit or realisation debit can have a “Northern Ireland
element” only if—

(a) the intangible fixed asset to which it relates has been held by the
company, in an accounting period in which it was a Northern
Ireland company, wholly or partly for the purposes of a
40qualifying trade carried on by the company, except so far as the
trade consists of an excluded activity, or

(b) in the case of a realisation credit, roll-over relief was previously
given in respect of an asset which was so held.

(3)
The “Northern Ireland element” of a realisation credit or realisation
45debit is determined in accordance with section 357OF or 357OG.

(4) “Roll-over relief” means relief under Chapter 7 of Part 8 of CTA 2009
(roll-over relief in case of realisation and reinvestment).

357OF   Northern Ireland element: general rule

(1) If a realisation credit or realisation debit arises under section 735 of
5CTA 2009 (asset written down for tax purposes), its Northern Ireland
element is determined by the formula—

(2) 15In subsection (1) “the total net Northern Ireland debits” means—

(a) in a case within section 742 of CTA 2009, the total debits
previously brought into account for tax purposes under Part 8
of CTA 2009 in respect of the asset so far as they were Northern
Ireland intangibles debits for the purposes of this Chapter, less
20the total credits previously so brought into account for tax
purposes so far as they were Northern Ireland intangibles
credits for the purposes of this Chapter, or

(b) in a case within section 743 of CTA 2009, the total debits
previously brought into account for tax purposes under Part 8
25of CTA 2009 in respect of the asset so far as they were Northern
Ireland intangibles debits for the purposes of this Chapter.

(3) Subsection (4) applies if—

(a) a realisation credit or realisation debit arises under section 736
of CTA 2009 (asset shown in balance sheet and not written
30down for tax purposes), or

(b) a realisation credit arises under section 738 of CTA 2009 (asset
not shown in balance sheet).

(4) The Northern Ireland element of the realisation credit or realisation
debit is such proportion of the realisation credit or realisation debit as
35can on a just and reasonable basis be attributed to the holding of the
asset for the purposes of the relevant Northern Ireland trade.

(5) This section does not apply to a realisation credit if section 357OG
(cases involving roll-over relief) applies.

(6) In this section “the relevant Northern Ireland trade” means the
40qualifying trade carried on by the company in an accounting period in
which it was a Northern Ireland company, except so far as the trade
consists of an excluded activity.

357OG   Northern Ireland element: credits where roll-over relief involved

(1) This section applies if a realisation credit relates to an asset (“the new
45asset”) whose cost recognised for tax purposes is reduced as a result of

roll-over relief previously given on the realisation of another asset (“the
old asset”).

(2) To calculate the Northern Ireland element of the realisation credit on
the realisation of the new asset, take the following steps—

5Step 1

Calculate the part (if any) of the realisation credit that is attributable to
the total net debits in respect of the new asset.

Step 2

Calculate the Northern Ireland element of the result of Step 1 by
10applying to it the proportion that the total net Northern Ireland debits
bears to the total net debits.

Step 3

If the realisation credit exceeds the total net debits, calculate any part of
the excess that is attributable to the reduction in the cost of the new
15asset recognised for tax purposes that resulted from the roll-over relief.

Step 4

If, in the absence of roll-over relief, a proportion of the realisation credit
on the realisation of the old asset would in accordance with section
357OF have been a Northern Ireland element, calculate the Northern
20Ireland element of the result of Step 3 by applying that proportion to it.

Step 5

If any remaining amount of the realisation credit has not been
attributed under Step 1 or 3, calculate the Northern Ireland element of
that remaining amount by determining how much of that remaining
25amount can on a just and reasonable basis be attributed to the holding
of the new asset for the purposes of the relevant Northern Ireland trade.

(3) The Northern Ireland element of the realisation credit is the total of the
Northern Ireland elements calculated at Steps 2, 4 and 5.

(4) In this section—

• 30“the relevant Northern Ireland trade” means the qualifying trade
  carried on by the company in an accounting period in which it
  was a Northern Ireland company, except so far as the trade
  consists of an excluded activity;

• “the total net debits” means—

  (a)

  35in a case within section 742 of CTA 2009, the total debits
  previously brought into account for tax purposes under
  Part 8 of CTA 2009 in respect of the asset, less the total
  credits previously so brought into account (if any), or

  (b)

  in a case within section 743 of CTA 2009, the total debits
  40previously brought into account for tax purposes under
  Part 8 of CTA 2009 in respect of the asset;

• “the total Northern Ireland net debits” has the meaning given by
  section 357OF(2).

Pre-commencement assets

357OH 45  Pre-commencement asset

(1) An intangible fixed asset is a “pre-commencement asset” if it was
created before the commencement day.

(2) “The commencement day” has the meaning given by section 5(4) of the
Corporation Tax (Northern Ireland) Act 2015.

(3) Subsections (1) and (2) have effect for the purposes of this Chapter.

(4) The general rule is that intangible fixed assets are treated for the
5purposes of subsection (1) as having been created before the
commencement day if they were held (by the company or another
person) at any time before that day.

(5) The general rule is subject to the following provisions—

(a) section 357OI (goodwill);

(b) 10section 357OJ (assets representing production expenditure on
films).

(a)(a) section 357OI (goodwill);

(b) section 357OJ (assets representing production expenditure on
films).

357OI 15  Goodwill

For the purposes of section 357OH(1) (pre-commencement asset),
goodwill is treated as created—

(a) before the commencement day in a case in which the business
in question was carried on by the company or any other person
20at any time before that day, and

(b) on or after the commencement day in any other case.

357OJ   Assets representing production expenditure on films

(1) In determining for the purposes of section 357OH(1) (pre-
commencement asset) whether an asset representing production
25expenditure on a film was created before the commencement day or on
or after that day, the asset is treated as created when the film is
completed.

(2) In this section—

(a) “completed” has the same meaning as in Part 15 of CTA 2009
30(see section 1181(5) of that Act),

(b) “film” has the same meaning as in that Part (see section 1181 of
that Act), and

(c) “production expenditure” has the same meaning as in that Part
(see section 1184 of that Act).

357OK 35  Fungible assets

(1) This section and section 357OL have effect for the purposes of this
Chapter in relation to assets to which section 858 of CTA 2009
(treatment of fungible assets) applies.

(2) Section 858 of CTA 2009 applies as if—

(a) 40pre-commencement assets, and

(b) intangible fixed assets that are not pre-commencement assets,

were assets of different kinds.

(3) If section 858 of CTA 2009 applies (whether or not it is a case where
subsection (2) has effect)—

(a) 45a single asset comprising pre-commencement assets is treated
as itself being a pre-commencement asset, and