Finance Bill (HC Bill 47)

(2B) To the extent that the income-based carried interest arises by virtue of
pre-arrival services, the individual is liable for income tax for the
relevant tax year in respect of it as if—

(a) in relation to pre-arrival services performed in the United
5Kingdom—

(i) the individual were carrying on a trade for the relevant
year consisting of the performance of those services,

(ii) the income-based carried interest, so far as arising by
virtue of those services, were profits of that trade, and

(iii) 10the individual were the person receiving or entitled to
those profits, and

(b)
in relation to pre-arrival services performed outside the United
Kingdom—

(i) the individual were carrying on a trade for the relevant
15tax year consisting of the performance of those services,

(ii) the income-based carried interest, so far as arising by
virtue of those services, were profits of that trade, and

(iii) the individual were the person receiving or entitled to
those profits.

(2C) 20In subsection (2B) “pre-arrival services” means investment
management services performed before the end of the period of non-
residence.””

(2) The amendment made by this section has effect in relation to sums of carried
interest arising on or after 6 April 2016 (whenever the arrangements under
25which the sums arise were made).

Deduction at source

39 Deduction of income tax at source

Schedule 6 contains provisions about deduction of income tax at source.

40 Deduction of income tax at source: intellectual property

(1) 30Part 15 of ITA 2007 (deduction from other payments connected with
intellectual property) is amended as specified in subsections (2) and (3).

(2) In section 906 (certain royalties etc where usual place of abode of owner is
abroad), for subsections (1) to (3) substitute—

“(1) This section applies to any payment made in a tax year where condition
35A or condition B is met.

(2) Condition A is that—

(a) the payment is a royalty, or a payment of any other kind, for the
use of, or the right to use, intellectual property (see section 907),

(b) the usual place of abode of the owner of the intellectual
40property is outside the United Kingdom, and

(c) the payment is charged to income tax or corporation tax.

(3) Condition B is that—

(a) the payment is a payment of sums payable periodically in
respect of intellectual property,

(b) the person entitled to those sums (“the assignor”) assigned the
intellectual property to another person,

(c) 5the usual place of abode of the assignor is outside the United
Kingdom, and

(d) the payment is charged to income tax or corporation tax.””

(3) For section 907 substitute—

“907 Meaning of “intellectual property”

(1) 10In section 906 “intellectual property” means—

(a) copyright of literary, artistic or scientific work,

(b) any patent, trade mark, design, model, plan, or secret formula
or process,

(c) any information concerning industrial, commercial or scientific
15experience, or

(d) public lending right in respect of a book.

(2)
In this section “copyright of literary, artistic or scientific work” does not
include copyright in—

(a) a cinematographic film or video recording, or

(b) 20the sound-track of a cinematographic film or video recording,
except so far as it is separately exploited.””

(4) The amendments made by subsections (2) and (3) have effect in respect of
payments made on or after 28 June 2016.

(5) In determining whether section 906 of ITA 2007 applies to a payment, no
25regard is to be had to any arrangements the main purpose of which, or one of
the main purposes of which, is to avoid the effect of the amendments made by
this section.

(6) Where arrangements are disregarded under subsection (5) in relation to a
payment which—

(a) 30is made before 28 June 2016, and

(b) is due on or after that day,

the payment is to be regarded for the purposes of section 906 of ITA 2007 as
made on the date on which it is due.

(7) In determining the date on which a payment is due for the purposes of
35subsection (6), disregard the arrangements referred to in that subsection.

(8) In this section “arrangements” includes any agreement, understanding,
scheme, transaction or series of transactions (whether or not legally
enforceable and whether entered into before, or on or after, 28 June 2016).

41 Deduction of income tax at source: intellectual property - tax avoidance

(1) 40In Part 15 of ITA 2007 (deduction of income tax at source), after section 917

insert—

““Tax avoidance

917A Tax avoidance arrangements

(1) This section applies if and to the extent that—

(a) 5a person (“the payer”) makes an intellectual property royalty
payment,

(b) the payment is received by a person (“the payee”) who is
connected with the payer, and

(c) the payment is made under DTA tax avoidance arrangements.

(2) 10Any duty under Chapter 6 or 7 to deduct a sum representing income
tax at any rate applies without regard to any double taxation
arrangements.

(3) Any income tax deducted by virtue of subsection (2) may not be set off
under section 967 or 968 of CTA 2010.

(4) 15In this section—

• “arrangements” (except in the phrase “double taxation
  arrangements”) includes any agreement, understanding,
  scheme, transaction or series of transactions, whether or not
  legally enforceable;

• 20“DTA tax avoidance arrangements” means arrangements where,
  having regard to all the circumstances, it is reasonable to
  conclude that—

  (a)

  the main purpose, or one of the main purposes, of the
  arrangements was to obtain a tax advantage by virtue of
  25any provisions of a double taxation arrangement, and

  (b)

  obtaining that tax advantage is contrary to the object
  and purpose of those provisions;

• “intellectual property royalty payment” means a payment
  referred to in section 906(2)(a) or (3)(a);

• 30“receive” means receive—

  (a)

  directly or indirectly;

  (b)

  by one payment or by a series of payments;

• “tax advantage” is to be construed in accordance with section 208
  of FA 2013.

(5) 35For the purposes of this section the payer is connected with the payee
if the participation condition is met as between them.

(6) Section 148 of TIOPA 2010 (when the participation condition is met)
applies for the purposes of subsection (5) as for the purposes of section
147(1)(b) of that Act, but as if references to the actual provision were to
40the provision made or imposed between the payer and the payee in
respect of the arrangements under which the payment is made.””

(2) The amendment made by this section has effect in respect of a payment made
on or after 17 March 2016 under arrangements entered into at any time
(including arrangements entered into before that date).

(3) 45In relation to payments made (under any such arrangements) on or after 17
March 2016 and on or before the day on which this Act is passed, section 917A

of ITA 2007 as inserted by subsection (1) has effect as if the definition of
“intellectual property royalty payment” in that section were as follows—

• “““intellectual property royalty payment” means—

  (a)

  a payment of a royalty or other sum in respect of the use
  5of a patent,

  (b)

  a payment specified in section 906(1)(a) (as originally
  enacted), or

  (c)

  a payment which is a “qualifying annual payment” for
  the purposes of Chapter 6 by virtue of section
  10899(3)(a)(ii) (royalties etc from intellectual property);”.”

(4) In relation to payments made (under any such arrangements) on or after 28
10June 2016 and on or before the day on which this Act is passed, section 917A of
ITA 2007 as inserted by subsection (1) has effect as if “intellectual property
royalty payment” also included (so far as it would not otherwise do so) any
15payments referred to in section 906(2)(a) or (3)(a) of ITA 2007 as substituted by
section 40.

Receipts from intellectual property

42 Receipts from intellectual property: territorial scope

(1) In section 577 of ITTOIA 2005 (territorial scope of Part 5 charges), at the end
20insert—

“(5) See also section 577A (territorial scope of Part 5 charges: receipts from
intellectual property).””

(2) After that section insert—

“577A Territorial scope of Part 5 charges: receipts from intellectual property

(1) 25References in section 577 to income which is from a source in the United
Kingdom include income arising where—

(a) a royalty or other sum is paid in respect of intellectual property
by a person who is non-UK resident, and

(b) the payment is made in connection with a trade carried on by
30that person through a permanent establishment in the United
Kingdom.

(2) Subsection (3) applies where a royalty or other sum is paid in respect of
intellectual property by a person who is non-UK resident in connection
with a trade carried on by that person only in part through a permanent
35establishment in the United Kingdom.

(3)
The payment referred to in subsection (2) is to be regarded for the
purposes of subsection (1)(b) as made in connection with a trade carried
on through a permanent establishment in the United Kingdom to such
extent as is just and reasonable, having regard to all the circumstances.

(4) 40In determining for the purposes of section 577 whether income arising
is from a source in the United Kingdom, no regard is to be had to
arrangements the main purpose of which, or one of the main purposes
of which, is to avoid the effect of the rule in subsection (1).

(5) In this section—

Finance BillPage 84

• “arrangements” includes any agreement, understanding, scheme,
  transaction or series of transactions (whether or not legally
  enforceable);

• “intellectual property” has the same meaning as in section 579;

• 5“permanent establishment”—

  (a)

  in relation to a company, is to be read (by virtue of
  section 1007A of ITA 2007) in accordance with Chapter
  2 of Part 24 of CTA 2010, and

  (b)

  in relation to any other person, is to be read in
  10accordance with that Chapter but as if references in that
  Chapter to a company were references to that person.””

(3) The amendments made by subsections (1) and (2) have effect in relation to
royalties or other sums paid in respect of intellectual property on or after 28
June 2016.

(4) 15It does not matter for the purposes of subsection (4) of section 577A of ITTOIA
2005 (as inserted by this section) whether the arrangements referred to in that
subsection are entered into before, or on or after, 28 June 2016.

(5) Where arrangements are disregarded under subsection (4) of section 577A of
ITTOIA 2005 (as inserted by this section) in relation to a payment of a royalty
20or other sum which—

(a) is made before 28 June 2016, but

(b) is due on or after that day,

the payment is to be regarded for the purposes of subsection (1) of that section
as made on the date on which it is due.

(6) 25In determining the date on which a payment is due for the purposes of
subsection (5), disregard the arrangements referred to in that subsection.

(7) Where—

(a) an intellectual property royalty payment within the meaning of section
917A of ITA 2007 is made on or after 28 June 2016,

(b) 30the payment is made under arrangements (within the meaning of that
section) entered into before that day,

(c) the arrangements are not DTA tax avoidance arrangements for the
purposes of that section,

(d) it is reasonable to conclude that the main purpose, or one of the main
35purposes, of the arrangements was to obtain a tax advantage by virtue
of any provisions of a foreign double taxation arrangement, and

(e) obtaining that tax advantage is contrary to the object and purpose of
those provisions,

the arrangements are to be regarded as DTA tax avoidance arrangements for
40the purposes of section 917A of ITA 2007 in relation to the payment.

(8) In subsection (7)—

• “foreign double taxation arrangement” means an arrangement made by
  two or more territories outside the United Kingdom with a view to
  affording relief from double taxation in relation to tax chargeable on
  45income (with or without other tax relief);

• “tax advantage” is to be construed in accordance with section 208 of FA
  2013 but as if references in that section to “tax” were references to tax
  chargeable on income under the law of a territory outside the United
  Kingdom.

(9) Where—

(a) a royalty is paid on or after 28 June 2016,

(b) the right in respect of which the royalty is paid was created or assigned
before that day,

(c) 5section 765(2) of ITTOIA 2005 does not apply in relation to the
payment, and

(d) it is reasonable to conclude that the main purpose, or one of the main
purposes, of any person connected with the creation or assignment of
the right was to take advantage, by means of that creation or
10assignment, of the law of any territory giving effect to Council Directive
2003/49/EC of 3rd June 2003 on a common system of taxation
applicable to interest and royalty payments made between associated
companies of different member States,

section 758 of ITTOIA 2005 does not apply in relation to the payment.

43 15Receipts from intellectual property: diverted profits tax

(1) Part 3 of FA 2015 (diverted profits tax) is amended as follows.

(2) In section 79 (charge to tax), at the end insert—

“(6) But banking surcharge profits and notional banking surcharge profits,
to the extent that they are determined by reference to notional PE
20profits (or what would have been notional PE profits) for an accounting
period, do not include any amount which is (or would have been)
included in notional PE profits for that period by virtue of section
88(5)(b).””

(3) In section 88 (which relates to the calculation of taxable diverted profits), for
25subsection (5) substitute—

“(5) “Notional PE profits”, in relation to an accounting period, means an
amount equal to the sum of—

(a) the amount of profits (if any) which would have been the
chargeable profits of the foreign company for that period,
30attributable (in accordance with sections 20 to 32 of CTA 2009)
to the avoided PE, had the avoided PE been a permanent
establishment in the United Kingdom through which the
foreign company carried on the trade mentioned in section
86(1)(b), and

(b) 35an amount equal to the total of royalties or other sums which are
paid by the foreign company during that period in connection
with that trade in circumstances where the payment avoids the
application of section 906 of ITA 2007 (duty to deduct tax).

(5A) For the purposes of subsection (5)(b) a payment of a royalty or other
40sum avoids the application of section 906 of ITA 2007 if—

(a) that section does not apply in relation to the payment, but

(b) that section would have applied in relation to the payment had
the avoided PE been a permanent establishment in the United
Kingdom through which the foreign company carried on the
45trade mentioned in section 86(1)(b).””

(4) In section 100 (credit for UK or foreign tax on same profits), for the heading
substitute “Credits for tax on the same profits”.

(5) In section 100, after subsection (2) insert—

“(2A) Subsection (2)(b) does not allow a credit against a liability to diverted
profits tax if or to the extent that the liability arises by virtue of section
88(5)(b) (payments of royalties etc).””

(6) 5In section 100, after subsection (4) insert—

“(4A) Subsection (4B) applies where—

(a) a company’s notional PE profits for an accounting period
include an amount under section 88(5)(b) determined by
reference to a royalty or other sum,

(b)
10the company’s liability to diverted profits tax for the accounting
period is determined by reference to taxable diverted profits
calculated under section 91(4) or (5), and

(c) those taxable diverted profits include an amount of relevant
taxable income referred to in section 91(4)(b) or (5)(b)
15determined by reference to the same royalty or other sum.

(4B) A credit equal to the company’s liability to diverted profits tax for that
accounting period which arises by virtue of section 88(5)(b) in respect
of the royalty or other sum, to the extent that it is included in relevant
taxable income for the purposes of section 91(4)(b) or (5)(b), is allowed
20against the company’s total liability to diverted profits tax for that
period.

(4C) Subsection (4D) applies where—

(a) by reason of the payment of a royalty or other sum a company’s
liability to diverted profits tax for an accounting period includes
25liability arising by virtue of section 88(5)(b),

(b) the royalty or other sum is paid to a person who is resident in a
country or territory outside the United Kingdom, and

(c) under any relevant provision relief would have been due to that
person had the avoided PE been a permanent establishment in
30the United Kingdom through which the company carried on the
trade mentioned in section 86(1)(b).

(4D) Such credit as is just and reasonable having regard to the amount of the
relief referred to in subsection (4C)(c) is allowed against the company’s
liability to diverted profits tax.

(4E) 35In subsection (4C)(c) “relevant provision” means—

(a) the provision of a double taxation arrangement (as defined by
section 2(4) of TIOPA 2010), or

(b) section 758 of ITTOIA 2005 (exemption for certain interest and
royalty payments).””

(7) 40The amendments made by this section have effect in relation to accounting
periods ending on or after 28 June 2016.

(8) For the purposes of section 88(5)(b) of FA 2015 as substituted by this section, a
royalty or other sum which would not otherwise be regarded as paid during
an accounting period ending on or after 28 June 2016 is to be regarded as so
45paid if—

(a) for the purposes of section 906 of ITA 2007 it is regarded as paid on a
date during that period by virtue of section 40(6), or

(b) for the purposes of section 577A(1) of ITTOIA 2005 it is regarded as
paid on a date during that period by virtue of section 42(5).

Part 2 Corporation tax

5Charge and rates

44 Charge for financial year 2017

Corporation tax is charged for the financial year 2017.

45 Rate of corporation tax for financial year 2020

In section 7(2) of F(No.2)A 2015 (main rate of corporation tax for the financial
10year 2020) for “18%” substitute “17%”.

Research and development

46 Abolition of vaccine research relief

(1) CTA 2009 is amended in accordance with subsections (2) to (9).

(2) Omit Chapter 7 of Part 13 (vaccine research relief).

(3) 15In section 1039 (overview of Part 13) omit—

(a) subsection (6), and

(b) in subsection (8) “or 7”.

(4) In section 1042 (meaning of “relevant research and development”) omit
subsection (3).

(5) 20In section 1113 (cap on aid under Chapters 2 and 7)—

(a) in the heading omit “or 7”, and

(b) in subsection (4) omit—

(i) the “or” at the end of paragraph (a), and

(ii) paragraph (b).

(6) 25In section 1118(2) (meaning of “qualifying expenditure”) omit—

(a) the “or” at the end of paragraph (a), and

(b) paragraph (b).

(7) In section 1133(3) (sub-contractor payments) omit “and section 1102(2).”

(8) In section 1137(1)(b) (accounting periods) omit “or qualifying Chapter 7
30expenditure”.

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

(a) qualifying Chapter 7 expenditure (in Part 13), and

(b) qualifying R&D activity (in Chapter 7 of Part 13).

(10) CTA 2010 is amended in accordance with subsections (11) to (13).

(11) In section 357P (research and development expenditure: introduction and
interpretation)—

(a) in subsection (1) omit—

(i) the “and” at the end of paragraph (b), and

(ii) 5paragraph (c), and

(b) omit subsection (2)(d) and (e).

(12) Omit section 357PF (additional deduction under section 1087 CTA 2009).

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

(a) Northern Ireland qualifying Chapter 7 expenditure (in Chapter 9 of
10Part 8B), and

(b) qualifying Chapter 7 expenditure (in Chapter 9 of Part 8B).

(14) In consequence of the amendments made by subsections (1) to (13)—

(a) in Schedule 3 to FA 2012 omit paragraphs 7, 12 to 14, 16(2), 17, 20 to 30,
and 31(2), and

(b) 15in FA 2015 omit section 28(4)(o) and (p).

(15) The amendments made by this section have effect in relation to expenditure
incurred on or after 1 April 2017.

47 Cap on R&D aid

(1) CTA 2009 is amended as follows.

(2) 20In section 1114 (calculation of total R&D aid)—

(a) in the formula for “(N x CT)” substitute “N”, and

(b) in the definition of “N” for “relief” substitute “R&D expenditure credit”.

(3) In section 1118(1) (meaning of “notional relief”)—

(a) for “relief” in the first two places it occurs substitute “R&D expenditure
25credit”,

(b) for “Chapter 5 (relief for large companies)” substitute “Chapter 6A of
Part 3 (trade profits: R&D expenditure credits)”, and

(c) in the heading for “relief” substitute “R&D expenditure credit”.

(4) The amendments made by this section have effect in relation to expenditure
30incurred on or after 1 April 2016.

Loan relationships

48 Loan relationships and derivative contracts

Schedule 7 contains amendments relating to loan relationships and derivative
contracts.

49 35Loans to participators etc: rate of tax

(1) In section 455 of CTA 2010 (charge to tax in case of loan to participator), in
subsection (2), for “25% of the amount of the loan or advance” substitute “such
percentage of the amount of the loan or advance as corresponds to the
dividend upper rate specified in section 8(2) of ITA 2007 for the tax year in
40which the loan or advance is made”.

(2) The amendment made by subsection (1) has effect in relation to a loan or
advance made on or after 6 April 2016.

(3) In section 464A of CTA 2010 (charge to tax: arrangements conferring benefit on
participator), in subsection (3), for “25% of the value of the benefit conferred”
5substitute “such percentage of the value of the benefit conferred as corresponds
to the dividend upper rate specified in section 8(2) of ITA 2007 for the tax year
in which the benefit is conferred”.

(4) The amendment made by subsection (3) has effect in relation to a benefit
conferred on or after 6 April 2016.

50 10Loans to participators etc: trustees of charitable trusts

(1) In section 456 of CTA 2010 (exceptions to the charge to tax in case of loan to
participator), after subsection (2) insert—

“(2A) Section 455 does not apply to a loan or advance made to a trustee of a
charitable trust if the loan or advance is applied to the purposes of the
15charitable trust only.””

(2) The amendment made by subsection (1) has effect in relation to a loan or
advance made on or after 25 November 2015.

Intangible fixed assets

51 Intangible fixed assets: pre-FA 2002 assets

(1) 20Chapter 16 of Part 8 of CTA 2009 (pre-FA 2002 assets) is amended as follows.

(2) In section 882 (application of Part 8 to assets created or acquired on or after 1
April 2002), after subsection (5) insert—

“(5A) References in this section to one person being (or not being) a related
party in relation to another person are to be read as including
25references to the participation condition being met (or, as the case may
be, not met) as between those persons.

(5B) References in subsection (5A) to a person include a firm in a case where,
for section 1259 purposes, references in this section to a company are
read as references to the firm.

(5C) 30In subsection (5B) “section 1259 purposes” means the purposes of
determining under section 1259 the amount of profits or losses to be
allocated to a partner in a firm.

(5D) Section 148 of TIOPA 2010 (when the participation condition is met)
applies for the purposes of subsection (5A) as it applies for the purposes
35of section 147(1)(b) of TIOPA 2010.””

(3) In section 894 (preserved status condition etc), after subsection (6) insert—

“(6A) Section 882(5A) to (5D) applies for the purposes of section 893 and this
section.””

(4) In section 895 (assets acquired in connection with disposals of pre-FA 2002
40assets), at the end insert—

“(5) Section 882(5A) to (5D) applies for the purposes of this section.””