Finance (No. 2) Bill (HC Bill 193)

(i) an Order that is, or has been, specified in the Order of
Wear published in the London Gazette (“the Order of
Wear”), or

(ii) an Order of a country or territory outside the United
5Kingdom,

(b) that is, or has been, specified in the Order of Wear,

(c) that was awarded for valour or gallant conduct,

(d) that was awarded for, or in connection with, a person being, or
having been, a member of, or employed or engaged in
10connection with, the armed forces of any country or territory,

(e) that was awarded for, or in connection with, a person being, or
having been, an emergency responder within the meaning of
section 153A (death of emergency service personnel etc), or

(f) that was awarded by the Crown or a country or territory
15outside the United Kingdom for, or in connection with, public
service or achievement in public life.”

(2) The amendment made by subsection (1) has effect in relation to transfers of
value made, or treated as made, on or after 3 December 2014.

75 Inheritance tax: exemption for emergency service personnel etc

(1) 20IHTA 1984 is amended as follows.

(2) After section 153 insert—

“Emergency services

153A Death of emergency service personnel etc

(1) The reliefs in subsection (2) apply where a person—

(a) 25dies from an injury sustained, accident occurring or disease
contracted at a time when that person was responding to
emergency circumstances in that person’s capacity as an
emergency responder, or

(b) dies from a disease contracted at some previous time, the death
30being due to, or hastened by, the aggravation of the disease
during a period when that person was responding to
emergency circumstances in that person’s capacity as an
emergency responder.

(2) The reliefs are—

(a) 35that no potentially exempt transfer made by the person
becomes a chargeable transfer under section 3A(4) because of
the death,

(b) that section 4 (transfers on death) does not apply in relation to
the death, and

(c) 40that no additional tax becomes due under section 7(4) because
of a transfer made by the person within 7 years of the death.

(3) “Emergency circumstances” means circumstances which are present or
imminent and are causing or likely to cause—

(a) the death of a person,

(b) 45serious injury to, or the serious illness of, a person,

(c) the death of an animal,

(d) serious injury to, or the serious illness of, an animal,

(e) serious harm to the environment (including the life and health
of plants and animals),

(f) 5serious harm to any building or other property, or

(g) a worsening of any such injury, illness or harm.

(e)(e)serious harm to the environment (including the life and health
of plants and animals),

(f) serious harm to any building or other property, or

(g) 10a worsening of any such injury, illness or harm.

(4) A person is “responding to emergency circumstances” if the person—

(a) is going anywhere for the purpose of dealing with emergency
circumstances occurring there, or

(b) is dealing with emergency circumstances, preparing to do so
15imminently or dealing with the immediate aftermath of
emergency circumstances.

(5) For the purposes of this section, circumstances to which a person is
responding are to be taken to be emergency circumstances if the person
believes and has reasonable grounds for believing they are or may be
20emergency circumstances.

(6) “Emergency responder” means—

(a) a person employed, or engaged, in connection with the
provision of fire services or fire and rescue services,

(b) a person employed for the purposes of providing, or engaged to
25provide, search services or rescue services (or both),

(c) a person employed for the purposes of providing, or engaged to
provide, medical, ambulance or paramedic services,

(d) a constable or a person employed for police purposes or
engaged to provide services for police purposes,

(e) 30a person employed for the purposes of providing, or engaged to
provide, services for the transportation of organs, blood,
medical equipment or medical personnel, or

(f) a person employed, or engaged, by the government of a state or
territory, an international organisation or a charity in
35connection with the provision of humanitarian assistance.

(7) For the purposes of subsection (6)—

(a) it is immaterial whether the employment or engagement is paid
or unpaid, and

(b) “international organisation” means an organisation of which—

(i) 40two or more sovereign powers are members, or

(ii) the governments of two or more sovereign powers are
members.

(8) The Treasury may, by regulations made by statutory instrument,
extend the definition of “emergency responder” in subsection (6).

(9) 45Regulations under this section are subject to annulment in pursuance of
a resolution of the House of Commons.”

(3) In section 154 (death on active service)—

(a) in subsection (1), for “Section 4 shall not apply” substitute “The reliefs
in subsection (1A) apply”,

(b) 50after that subsection insert—

“(1A) The reliefs are—

(a) that no potentially exempt transfer made by the
deceased becomes a chargeable transfer under section
3A(4) because of the death,

(b) that section 4 (transfers on death) does not apply in
5relation to the death, and

(c) that no additional tax becomes due under section 7(4)
because of a transfer made by the deceased within 7
years of the death.”,

(c) in subsection (2) omit “either” and after paragraph (b) insert “or

(c) 10responding to emergency circumstances in the course of
the person’s duties as a member of any of those armed
forces or as a civilian subject to service discipline.”, and

(d) after that subsection insert—

“(2A) Section 153A(3) to (5) applies for the purposes of this section.”

(4) 15After section 155 insert—

“Constables and service personnel

155A Death of constables and service personnel targeted because of their
status

(1) The reliefs in subsection (3) apply where a person—

(a) 20dies from an injury sustained or disease contracted in
circumstances where the person was deliberately targeted by
reason of his or her status as a constable or former constable, or

(b) dies from a disease contracted at some previous time, the death
being due to, or hastened by, the aggravation of the disease by
25an injury sustained or disease contracted in circumstances
mentioned in paragraph (a).

(2) The reliefs in subsection (3) apply where it is certified by the Defence
Council or the Secretary of State that a person—

(a) died from an injury sustained or disease contracted in
30circumstances where the person was deliberately targeted by
reason of his or her status as a service person or former service
person, or

(b) died from a disease contracted at some previous time, the death
being due to, or hastened by, the aggravation of the disease by
35an injury sustained or disease contracted in circumstances
mentioned in paragraph (a).

(3) The reliefs are—

(a) that no potentially exempt transfer made by the person
becomes a chargeable transfer under section 3A(4) because of
40the death,

(b) that section 4 (transfers on death) does not apply in relation to
the death, and

(c) that no additional tax becomes due under section 7(4) because
of a transfer made by the person within 7 years of the death.

(4) 45For the purposes of this section, it is immaterial whether a person who
was a constable or service person at the time the injury was sustained
or the disease was contracted was acting in the course of his or her

duties as such at that time (and for this purpose ignore the references in
subsections (1)(b) and (2)(b) to a disease contracted at some previous
time).

(5) “Service person” means a person who is a member of the armed forces
5of the Crown or a civilian subject to service discipline (within the
meaning of the Armed Forces Act 2006).

(6) This section does not apply where section 153A or 154 applies in
relation to a person’s death.”

(5) The amendments made by this section have effect in relation to deaths
10occurring on or after 19 March 2014.

The bank levy

76 The bank levy: rates from 1 April 2015

(1) Schedule 19 to FA 2011 (bank levy) is amended as follows.

(2) In paragraph 6 (steps for determining the amount of the bank levy), in sub-
15paragraph (2)—

(a) for “0.078%” substitute “0.105%”, and

(b) for “0.156%” substitute “0.21%”.

(3) In paragraph 7 (special provision for chargeable periods falling wholly or
partly before 1 January 2014)—

(a) 20in sub-paragraph (1) for “1 January 2014” substitute “1 April 2015”;

(b) in sub-paragraph (2), in the first column of the table in the substituted
Step 7, for “Any time on or after 1 January 2014” substitute “1 January
2014 to 31 March 2015”;

(c) at the end of that table add—

(d) in the italic heading before paragraph 7, for “1 January 2014” substitute
“1 April 2015”.

(4) 30The amendments made by subsections (2) and (3) come into force on 1 April
2015.

(5) Subsections (6) to (12) apply where—

(a) an amount of the bank levy is treated as if it were an amount of
corporation tax chargeable on an entity (“E”) for an accounting period
35of E,

(b) the chargeable period in respect of which the amount of the bank levy
is charged begins before but ends on or after 1 April 2015, and

(c) under the Instalment Payment Regulations, one or more instalment
payments, in respect of the total liability of E for the accounting period,
40were treated as becoming due and payable before 1 April 2015 (“pre-
commencement instalment payments”).

(6) Subsections (1) to (4) are to be ignored for the purpose of determining the
amount of any pre-commencement instalment payment.

(7) If there is at least one instalment payment, in respect of the total liability of E
for the accounting period, which under the Instalment Payment Regulations is
5treated as becoming due and payable on or after 1 April 2015 (“post-
commencement instalment payments”), the amount of that instalment
payment, or the first of them, is to be increased by the adjustment amount.

(8) If there are no post-commencement instalment payments, a further instalment
payment, in respect of the total liability of E for the accounting period, of an
10amount equal to the adjustment amount is to be treated as becoming due and
payable on 30 April 2015.

(9) “The adjustment amount” is the difference between—

(a) the aggregate amount of the pre-commencement instalments
determined in accordance with subsection (6), and

(b) 15the aggregate amount of those instalment payments determined
ignoring subsection (6) (and so taking account of subsections (1) to (4)).

(10) In the Instalment Payment Regulations—

(a) in regulations 6(1)(a), 7(2), 8(1)(a) and (2)(a), 9(5), 10(1), 11(1) and 13,
references to regulation 4A, 4B, 4C, 4D, 5, 5A or 5B of those Regulations
20are to be read as including a reference to subsections (5) to (9) (and in
regulation 7(2) “the regulation in question”, and in regulation 8(2) “that
regulation”, are to be read accordingly), and

(b) in regulation 9(3), the reference to those Regulations is to be read as
including a reference to subsections (5) to (9).

(11) 25In section 59D of TMA 1970 (general rule as to when corporation tax is due and
payable), in subsection (5), the reference to section 59E is to be read as
including a reference to subsections (5) to (10).

(12) In this section—

• “the chargeable period” is to be construed in accordance with paragraph
  304 or (as the case may be) 5 of Schedule 19 to FA 2011;

• “the Instalment Payment Regulations” means the Corporation Tax
  (Instalment Payments) Regulations 1998 (S.I. 1998/3175S.I. 1998/3175);

and references to the total liability of E for an accounting period are to be
construed in accordance with regulation 2(3) of the Instalment Payment
35Regulations.

Part 3 Diverted profits tax

Introduction and overview

77 Introduction to the tax

(1) 40A tax (to be known as “diverted profits tax”) is charged in accordance with this
Part on taxable diverted profits arising to a company in an accounting period.

(2) Taxable diverted profits arise to a company in an accounting period only if one
or more of sections 80, 81 and 86 applies or apply in relation to the company
for that period.

78 Overview of Part 3

(1) Sections 80 and 81 relate to cases involving entities or transactions which lack
economic substance.

(2) In these cases—

(a) 5sections 82 to 85 deal with the calculation of taxable diverted profits
(and ensure appropriate account is taken of any transfer pricing
adjustments already made), and

(b) section 96 deals with the estimation of those profits when initially
imposing a charge.

(3) 10Section 86 relates to cases where, despite activity being carried on in the United
Kingdom, a company avoids carrying on its trade in the United Kingdom in
circumstances where—

(a) provision is made or imposed which involves entities or transactions
lacking economic substance, or

(b) 15there are tax avoidance arrangements.

(4)
In these cases—

(a) sections 88 to 91 deal with the calculation of taxable diverted profits,
and

(b) section 97 deals with the estimation of those profits when initially
20imposing a charge.

(5) There is an exception from section 86 for cases involving limited UK-related
sales or expenses (see section 87).

(6) Key terms used in this Part are defined in sections 106 to 114.

(7) Other provisions in this Part—

• 25ensure HMRC are notified of companies potentially within the scope of
  the tax (see section 92);

• deal with the process for imposing a charge to diverted profits tax (see
  sections 93 to 97);

• deal with payment of the tax and make provision about credits given for
  30other tax paid on the same profits (see sections 98 to 100); and

• provide for reviews of, and appeals against, decisions to impose a charge
  to diverted profits tax (see sections 101 and 102).

Charge to tax

79 Charge to tax

(1) 35A charge to diverted profits tax is imposed for an accounting period by a
designated HMRC officer issuing to the company a charging notice in
accordance with section 95 or a supplementary charging notice in accordance
with section 101(8).

(2) The amount of tax charged by a notice is the sum of—

(a) 4025% of the amount of taxable diverted profits specified in the notice,
and

(b) the interest (if any) on the amount within paragraph (a) determined
under subsection (4).

(3) But if, and to the extent that, the taxable diverted profits are adjusted ring fence
profits or notional adjusted ring fence profits, and determined under section 84
or 85, subsection (2)(a) has effect in relation to those profits as if the rate
specified were 55% rather than 25%.

(4) 5The interest mentioned in subsection (2)(b) is interest at the rate applicable
under section 178 of FA 1989 for the period (if any) which—

(a) begins 6 months after the end of the accounting period to which the
charge relates, and

(b) ends with the day the notice imposing the charge to tax is issued.

(5) 10In this section—

• “adjusted ring fence profits” has the same meaning as in section 330 of
  CTA 2010 (supplementary charge in respect of ring fence trades);

• “notional adjusted ring fence profits”, in relation to the company, means
  the total of—

  (a)

  15profits within section 85(5)(a), to the extent that (assuming they
  were profits of the company chargeable to corporation tax) they
  would have been adjusted ring fence profits, and

  (b)

  any amounts of relevant taxable income of a company (“CC”)
  within section 85(4)(b) or (5)(b), to the extent that (assuming
  20those amounts were profits of CC chargeable to corporation tax)
  they would have been adjusted ring fence profits of CC.

Involvement of entities or transactions lacking economic substance

80 UK company: involvement of entities or transactions lacking economic
substance

(1) 25This section applies in relation to a company (“C”) for an accounting period
if—

(a) C is UK resident in that period,

(b) provision has been made or imposed as between C and another person
(“P”) (whether or not P is UK resident) by means of a transaction or
30series of transactions (“the material provision”),

(c) the participation condition is met in relation to C and P (see section
106),

(d) the material provision results in an effective tax mismatch outcome, for
the accounting period, as between C and P (see sections 107 and 108),

(e) 35the effective tax mismatch outcome is not an excepted loan relationship
outcome (see section 109),

(f) the insufficient economic substance condition is met (see section 110),
and

(g) C and P are not both small or medium-sized enterprises for that period.

(2) 40For the purposes of subsection (1)(b) provision made or imposed as between a
partnership of which C is a member and another person is to be regarded as
provision made or imposed as between C and that person.

81 Non-UK company: involvement of entities or transactions lacking economic
substance

(1) This section applies in relation to a company (“the foreign company”) for an
accounting period if—

(a) 5it is non-UK resident in that period,

(b) by reason of the foreign company carrying on a trade in the United
Kingdom through a permanent establishment in the United Kingdom
(“UKPE”), Chapter 4 of Part 2 of CTA 2009 (non-UK resident
companies: chargeable profits) applies to determine the chargeable
10profits of the foreign company for that period, and

(c) section 80 would apply to UKPE for that period were it treated for the
purposes of section 80 and sections 106 to 110—

(i) as a distinct and separate person from the foreign company
(whether or not it would otherwise be so treated),

(ii) 15as a UK resident company under the same control as the foreign
company, and

(iii) as having entered into any transaction or series of transactions
entered into by the foreign company to the extent that the
transaction or series is relevant to UKPE.

(2) 20For the purposes of subsection (1)(c)(iii) a transaction or series of transactions
is “relevant” to UKPE only if, and to the extent that, it is relevant, for
corporation tax purposes, when determining the chargeable profits of the
foreign company attributable (in accordance with sections 20 to 32 of CTA
2009) to UKPE.

(3) 25Where section 1313(2) of CTA 2009 (UK sector of the continental shelf: profits
of foreign company deemed to be profits of trade carried on by the company in
the UK through a permanent establishment in the UK) applies to treat profits
arising to a company as profits of a trade carried on by the company in the
United Kingdom through a permanent establishment in the United Kingdom,
30this Part applies as if the company actually carried on that trade in the United
Kingdom through that permanent establishment.

(4) In this section “control” is to be construed in accordance with section 1124 of
CTA 2010.

Calculation of taxable diverted profits: section 80 or 81 cases

82 35Calculation of taxable diverted profits in section 80 or 81 case: introduction

(1) If section 80 or 81 applies in relation to a company (“the relevant company”) for
an accounting period—

(a) no taxable diverted profits arise, in relation to the material provision in
question, if section 83 applies, and

(b) 40in other cases, section 84 or 85 applies to determine the taxable diverted
profits in relation to that material provision.

(2) But see also section 96 for how a designated HMRC officer estimates those
profits when issuing a preliminary notice under section 93 or a charging notice
under section 95.

(3) 45Subsections (4) to (9) define some key expressions used in sections 83 to 85 and
this section.

(4) “The material provision” has the same meaning as in section 80.

(5) “The relevant alternative provision” means the alternative provision which it
is just and reasonable to assume would have been made or imposed as between
the relevant company and one or more companies connected with that
5company, instead of the material provision, had tax (including any non-UK
tax) on income not been a relevant consideration for any person at any time.

(6) For the purposes of subsection (5), making or imposing no provision is to be
treated as making or imposing an alternative provision to the material
provision.

(7) 10“The actual provision condition” is met if—

(a) the material provision results in expenses of the relevant company for
which (ignoring Part 4 of TIOPA 2010 (transfer pricing)) a deduction for
allowable expenses would be allowed in computing—

(i) in a case where section 80 applies, its liability for corporation tax
15for the accounting period, and

(ii) in a case where section 81 applies, its chargeable profits
attributable (in accordance with sections 20 to 32 of CTA 2009)
to UKPE, and

(b) the relevant alternative provision—

(i) 20would also have resulted in allowable expenses of the relevant
company of the same type and for the same purposes (whether
or not payable to the same person) as so much of the expenses
mentioned in paragraph (a) as results in the effective tax
mismatch outcome mentioned in section 80(1)(d), but

(ii) 25would not have resulted in relevant taxable income of a
connected company for that company’s corresponding
accounting period.

(8) “Relevant taxable income” of a company for a period is—

(a) income of the company, for the period, which would have resulted
30from the relevant alternative provision and in relation to which the
company would have been within the charge to corporation tax had
that period been an accounting period of the company, less

(b) the total amount of expenses which it is just and reasonable to assume
would have been incurred in earning that income and would have been
35allowable expenses of the company for that period.

(9) “Connected company” means a company which is or, if the relevant alternative
provision had been made, would have been connected with the relevant
company.

83 Section 80 or 81 cases where no taxable diverted profits arise

(1) 40Where section 80 or 81 applies in relation to a company for an accounting
period, no taxable diverted profits arise to the company in that period in
relation to the material provision in question if—

(a) the actual provision condition is met, and

(b) either—

(i) 45there are no diverted profits of that company for the accounting
period, or

(ii) the full transfer pricing adjustment has been made.

(2) “Diverted profits” of the company for the accounting period means an
amount—

(a) in respect of which the company is chargeable to corporation tax for
that period by reason of the application of Part 4 of TIOPA 2010
5(transfer pricing) to the results of the material provision, and

(b) which, in a case where section 81 applies, is attributable (in accordance
with sections 20 to 32 of CTA 2009) to UKPE.

(3) “The full transfer pricing adjustment” is made if all of the company’s diverted
profits for the accounting period are taken into account in an assessment to
10corporation tax included, before the end of the review period, in the company’s
company tax return for the accounting period.

84 Section 80 or 81: calculation of profits by reference to the actual provision

(1) This section applies where—

(a) section 80 or 81 applies in relation to a company for an accounting
15period,

(b) the actual provision condition is met, and

(c) section 83 (cases where no taxable diverted profits arise) does not apply
for that period.

(2) In relation to the material provision in question, the taxable diverted profits
20that arise to the company in the accounting period are the amount (if any)—

(a) in respect of which the company is chargeable to corporation tax for
that period by reason of the application of Part 4 of TIOPA 2010
(transfer pricing) to the results of the material provision,

(b) which, in a case where section 81 applies, is attributable (in accordance
25with sections 20 to 32 of CTA 2009) to UKPE, and

(c) which is not taken into account in an assessment to corporation tax
which is included before the end of the review period in the company’s
company tax return for that accounting period.

85 Section 80 or 81: calculation of profits by reference to the relevant alternative
30provision

(1) This section applies where—

(a) section 80 or 81 applies in relation to a company (“the relevant
company”) for an accounting period, and

(b) the actual provision condition is not met.

(2) 35The taxable diverted profits that arise to the relevant company in the
accounting period in relation to the material provision in question are
determined in accordance with subsections (3) to (5).

(3) Subsection (4) applies if the actual provision condition would have been met
but for the fact that the relevant alternative provision would have resulted in
40relevant taxable income of a company for that company’s corresponding
accounting period.

(4) The taxable diverted profits that arise to the relevant company in the
accounting period are an amount equal to the sum of—

(a) the amount described in section 84(2), and