Finance Bill (HC Bill 47)

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(6) For the purposes of this section, the “qualifying residual profit” of a
trade of a company for an accounting period is the amount which
(assuming the company did not make an election under this section)
would be equal to the aggregate of the relevant IP income sub-streams
5established at Step 2 in section 357BF(2) in determining the relevant IP
profits of the trade for the accounting period, following the deductions
from those sub-streams required by Step 4 in section 357BF(2) (ignoring
the amount of any sub-stream which is not greater than nil following
those deductions).

(7) 10For the purposes of this section, the “relevant maximum” for an
accounting period of a company is—

(a) in a case where no company is a related 51% group company of
the company in the accounting period, £3,000,000;

(b) in a case where one or more companies are related 51% group
15companies of the company in the accounting period, the
amount given by the formula—


where N is the number of those related 51% group companies
in relation to which an election under section 357A(1) has effect
20for the accounting period.

(8) For an accounting period of less than 12 months, the relevant maximum
is proportionally reduced.

357BNA Notional royalty election

(1) Subsection (2) applies where a company has made a notional royalty
25election for an accounting period under section 357BN(2)(a).

(2) In its application for the purposes of determining the relevant IP profits
of the trade of the company for the accounting period, section 357BHA
(notional royalty) has effect as if—

(a) in subsection (2) for “the appropriate percentage” there were
30substituted “75%”, and

(b) subsections (3) to (6) were omitted.

357BNB Small claims figure election

(1) Subsection (2) applies where a company has made a small claims figure
election for an accounting period under section 357BN(2)(b).

(2) 35In its application for the purposes of determining the relevant IP profits
of the trade of the company for the accounting period, section 357BF(2)
(steps for calculating relevant IP profits) has effect as if in Step 5—

(a) for “marketing assets return figure” there was substituted
“small claims figure”, and

(b) 40for “(see section 357BK)” there was substituted “(see section
357BNB(3))”.

(3) Subsections (4) to (9) apply for the purpose of calculating the small
claims figure for a relevant IP income sub-stream established at Step 2
in section 357BF(2) in determining the relevant IP profits of a trade of a
45company for an accounting period.

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(4) If 75% of the qualifying residual profit of the trade for the accounting
period is lower than the small claims threshold, the small claims figure
for the sub-stream is 25% of the amount of the sub-stream following
Step 4 in section 357BF(2).

(5) 5If 75% of the qualifying residual profit of the trade for the accounting
period is higher than the small claims threshold, the small claims figure
for the sub-stream is the amount given by—


where—

  • 10A is the amount of the sub-stream following the deductions
    required by Step 4 in section 357BF(2),

  • QRP is the qualifying residual profit of the trade of the company
    for the accounting period, and

  • SCT is the small claims threshold.

(6) 15If no company is a related 51% group company of the company in the
accounting period, the small claims threshold is £1,000,000.

(7) If one or more companies are related 51% group companies of the
company in the accounting period, the small claims threshold is—


20where N is the number of those related 51% group companies in
relation to which an election under section 357A(1) has effect for the
accounting period.

(8) For an accounting period of less than 12 months, the small claims
threshold is proportionately reduced.

(9) 25Subsection (6) of section 357BN (meaning of “qualifying residual
profit”) applies for the purposes of subsection (4) and (5) of this section.

357BNC Global streaming election

(1) Subsection (2) applies where a company has made a global streaming
election for an accounting period under section 357BN(2)(c).

(2) 30In its application for the purpose of determining the relevant IP profits
of the trade of the company for the accounting period, this Chapter has
effect with the following modifications.

(3) In subsection (2) of section 357BF (relevant IP profits)—

(a) omit Step 2,

(b) 35in Step 3 for “each of the relevant IP income sub-streams”
substitute “the relevant IP income stream”,

(c) in Step 4—

(i) in the words before paragraph (a), for “each” substitute
“the”,

(ii) 40for “sub-stream”, in each place it occurs, substitute
“stream”,

(d) in Step 5—

(i) at the beginning insert “If the relevant IP income stream
is greater than nil following Step 4,”,

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(ii) for the words from “each” to “Step 4” substitute “the
stream”,

(iii) for “sub-stream”, in the second place it occurs, substitute
“stream”,

(e) 5in Step 6—

(i) for “each relevant IP income sub-stream” substitute “the
relevant IP income stream”,

(ii) for “sub-stream”, in the second place it occurs, substitute
“stream”,

(f) 10omit Step 7, and

(g) in Step 8 for “given by Step 7” substitute “of the relevant IP
income stream following Step 6”.

(4) In subsection (3) of that section for “given by” substitute “of the
relevant IP income stream following the Steps in”.

(5) 15In subsection (4) of that section for “given by” substitute “of the
relevant IP income stream following the Steps in”.

(6) Omit subsections (5) to (7) of that section.

(7) In section 357BIA(3) (certain amounts not to be deducted from sub-
streams at Step 4 of section 357BF)—

(a) 20for “a relevant IP income sub-stream” substitute “the relevant IP
income stream”;

(b) for “sub-stream”, in the second and third places it occurs,
substitute “stream”.

(8) In section 357BJ (routine return figure)—

(a) 25for “sub-stream”, in each place it occurs, substitute “stream”,
and

(b) in subsection (1) for “Step 2” substitute “Step 1”.

(9) In section 357BK (marketing asset return figure) for “sub-stream”, in
each place it occurs, substitute “stream”.

(10) 30In section 357BKA (notional marketing royalty)—

(a) for “sub-stream”, in each place it occurs, substitute “stream”,
and

(b) in subsection (1) for “Step 2” substitute “Step 1”.

(11) In section 357BKB (actual marketing royalty) for “sub-stream”, in each
35place it occurs, substitute “stream”.

(12) In section 357BL (R&D fraction: introduction)—

(a) for “sub-stream” (in each place it occurs) substitute “stream”,
and

(b) in subsection (1) for “Step 2” substitute “Step 1”.

(13) 40In section 357BLA(1) (R&D fraction) for “sub-stream” substitute
“stream”.

(14) In section 357BLB(5) (qualifying expenditure on relevant R&D
undertaken in-house) for the words after “1138)” substitute “which
relates to a qualifying IP right to which income in the stream is
45attributable”.

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(15) In section 357BLE(6) (qualifying expenditure on acquisition of relevant
qualifying IP rights) for the words from “means” to the end substitute
“means a qualifying IP right to which income in the stream is
attributable”.

(16) 5In section 357BLG (cases where the company is a new entrant with
insufficient information about pre-enactment expenditure) for “sub-
stream”, in each place it occurs, substitute “stream”.

(17) In section 357BLH (R&D fraction: increase for exceptional
circumstances) for “sub-stream”, in each place it occurs, substitute
10“stream”.

(18) In section 357BNB (small claims figure election)—

(a) for “sub-stream”, in each place it occurs, substitute “stream”,
and

(b) in subsection (3) for “Step 2” substitute “Step 1”.

CHAPTER 2B 15Relevant IP profits: cases mentioned in section 357A(7): income from new
IP
357BO Relevant IP profits

(1) Section 357BF applies, with the modifications set out in section 357BQ,
for the purposes of determining the relevant IP profits of a trade of a
20company for an accounting period in a case where—

(a) the accounting period begins before 1 July 2021,

(b) the company is not a new entrant (see section 357A(11)), and

(c) any amount of relevant IP income brought into account as a
credit in calculating the profits of the trade for the accounting
25period is properly attributable to a new qualifying IP right (see
section 357BP).

(2) Where it is necessary for the purposes of section 357BF, as applied by
this section, to determine the R&D fraction for a relevant IP income sub-
stream, the company concerned is to be treated for the purposes of
30sections 357BLF and 357BLG as if it were a new entrant.

(3) Where section 357BF applies by reason of this section for the purposes
of determining the relevant IP profits of a trade of a company for an
accounting period, the company may not make a global streaming
election for the accounting period under section 357BN(2)(c).

357BP 35 Meaning of “new qualifying IP right” and “old qualifying IP right”

(1) This section applies for the purposes of this Part.

(2) “New qualifying IP right”, in relation to a company, means a qualifying
IP right which meets condition A, B or C.

(3) “Old qualifying IP right”, in relation to a company, means a qualifying
40IP right which does not meet any of those conditions.

(4) Condition A is that the right was granted or issued to the company in
response to an application filed on or after the relevant date.

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(5) Condition B is that the right was assigned to the company on or after
the relevant date.

(6) Condition C is that an exclusive licence in respect of the right was
granted to the company on or after the relevant date.

(7) 5The “relevant date” for the purposes of subsections (4), (5) and (6) is 1
July 2016; but this is subject to subsection (8).

(8) The “relevant date” for the purposes of subsections (5) and (6) is 2
January 2016 if—

(a) the company and the person who assigned the right or granted
10the licence were connected at the time of the assignment or
grant,

(b) the main purpose, or one of the main purposes, of the
assignment of the right or the grant of the licence was the
avoidance of a foreign tax,

(c) 15the person who assigned the right or granted the licence was not
within the charge to corporation tax at the time of the
assignment or grant, and

(d) the person who assigned the right or granted the licence was not
liable at the time of the assignment or grant to a foreign tax
20which is designated for the purposes of this section by
regulations made by the Treasury.

(9) Regulations may be made under subsection (8)(d) which designate a
foreign tax only if it appears to the Treasury that the tax may be charged
at a reduced rate under provisions of the law of the country or territory
25concerned which correspond to the provisions of this Part.

(10) Regulations may not be made under subsection (8)(d) after 31
December 2016.

(11) In this section “foreign tax” means a tax under the law of a country or
territory outside the United Kingdom.

(12) 30Section 1122 (meaning of “connected” persons) applies for the purposes
of this section.

357BQ The modifications

(1) The modifications of section 357BF referred to in section 357BO(1) are
as follows.

(2) 35Omit subsection (1).

(3) In subsection (2)—

(a) in Step 2—

(i) before paragraph (a) insert—

(aa) a sub-stream consisting of income properly
40attributable to old qualifying IP rights (“an old IP
rights sub-stream”),”,

(ii) in paragraph (a) before “qualifying IP right” insert
“new”,

(iii) in the words after paragraph (c) for “and (7)” substitute
45“to (7E)”,

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(b) in Step 6, for “relevant IP income sub-stream” substitute
“individual IP right sub-stream, each product sub-stream and
each process sub-stream”, and

(c) for Step 7 substitute—

  • 5Step 7

  • Add together—

    (a)

    the amount of any old IP rights sub-stream
    (following Steps 4 and 5), and

    (b)

    the amount of each of the individual IP right
    10sub-streams, each of the product sub-streams
    and each of the process sub-streams (following
    Step 6).”

(4) In subsection (7) for paragraph (a) substitute—

(a) it would not be reasonably practicable to apportion the income
15between—

(i) individual IP rights sub-streams, or

(ii) individual IP rights sub-streams and an old IP rights
sub-stream, or”.

(5) After subsection (7) insert—

(7A) 20Subsections (7B) to (7E) apply where—

  • (a)

    income which is properly attributable to an IP item or IP
    process may in accordance with subsection (7) be
    allocated at Step 2 of subsection (2) to a product sub-
    stream or process sub-stream, and

    (b)

    25the IP item or IP process incorporates—

    (i)

    at least one item or process in respect of which an
    old qualifying IP right held by the company has
    been granted, and

    (ii)

    at least one item or process in respect of which a
    30new qualifying IP right held by the company has
    been granted.

(7B) If—

  • (a)

    the value of the IP item or IP process is wholly or mainly
    attributable to the incorporation in it of the items or
    35processes referred to in subsection (7A)(b)(i), or

    (b)

    the old IP percentage for the IP item or IP process is 80%
    or more,

the income properly attributable to the IP item or IP process
may be treated as if it were properly attributable to old
40qualifying IP rights only; and, accordingly, the income may be
allocated at Step 2 of subsection (2) to an old qualifying IP rights
sub-stream (rather than to a product sub-stream or process sub-
stream).

(7C) If the old IP percentage for the IP item or IP process is less than
4580% but not less than 20%, that percentage of the income which
is properly attributable to the IP item or IP process may be
treated as if it were properly attributable to old qualifying IP
rights only; and, accordingly, that percentage of the income
may be allocated at Step 2 of subsection (2) to an old IP rights

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sub-stream (and the remainder is to be allocated to a product
sub-stream or process sub-stream).

(7D) Where by reason of subsection (7C) only part of the income
properly attributable to the IP item or IP process is allocated to
5a product sub-stream or process sub-stream, the IP item or IP
process is to be treated, in determining the R&D fraction for the
sub-stream, as if it did not incorporate the items or processes
referred to in subsection (7A)(b)(i).

(7E) For the purposes of subsection (7B) and (7C), the “old IP
10percentage” for an IP item or IP process is the percentage found
by the following calculation—


Where—

O is the number of items or processes incorporated in the IP
15item or IP process in respect of which an old qualifying IP right
held by the company has been granted, and

T is the number of items or processes incorporated in the IP item
or IP process in respect of which an old or a new qualifying IP
right held by the company has been granted.””

(4) 20In section 357FB (tax advantage schemes)—

(a) in subsection (2)(b) (list of ways by which deductions can be inflated)—

(i) omit “or” at the end of sub-paragraph (ii), and

(ii) after sub-paragraph (iii) insert , or

(iv) an R&D fraction (see subsection (4A))
25being greater than it would be but for the
scheme.”, and

(b) after subsection (4) insert—

(4A) The reference in subsection (2)(b)(iv) to an R&D fraction is a
reference to such a fraction as is mentioned at Step 6 of section
30357BF(2).”

(5) After section 357GC insert—

“Transferred trades
357GCA Application of this Part in relation to transferred trades

(1) Where—

(a) 35a company (“the transferor”) ceases to carry on a trade which
involves the exploitation of a qualifying IP right (“the relevant
qualifying IP right”),

(b) the transferor assigns the relevant qualifying IP right, or grants
or transfers an exclusive licence in respect of it, to another
40company (“the transferee”), and

(c) the transferee begins to carry on the trade,

the following provisions apply in determining under this Part the
relevant IP profits of the trade carried on by the transferee.

(2) The transferee is to be treated as not being a new entrant if—

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(a) an election under section 357A(1) has effect in relation to the
transferor on the date of the assignment, grant or transfer
mentioned in subsection (1)(b) (“the transfer date”), and

(b) the first accounting period of the transferor for which that
5election had effect began before 1 July 2016.

(3) The relevant qualifying IP right is to be treated as being an old
qualifying IP right in relation to the transferee if by reason of section
357BP it is an old qualifying IP right in relation to the transferor.

(4) Expenditure incurred prior to the transfer date by the transferor which
10is attributable to relevant research and development undertaken by the
transferor is to be treated for the purposes of section 357BLB as if it is
expenditure incurred by the transferee which is attributable to relevant
research and development undertaken by the transferee.

(5) Expenditure incurred prior to the transfer date by the transferor in
15making a payment to a person in respect of relevant research and
development contracted out by the transferor to that person is to be
treated for the purposes of sections 357BLC and 357BLD as if it is
expenditure incurred by the transferee in making a payment to that
person in respect of relevant research and development contracted out
20by the transferee to that person.

(6) Expenditure incurred prior to the transfer date by the transferor in
making a payment in connection with the relevant qualifying IP right
which is within subsection (2), (3) or (4) of section 357BLE is to be
treated for the purposes of that section as if it is expenditure incurred
25by the transferee in making a payment in connection with that right
which is within one of those subsections.

(7) Expenditure incurred by the transferee in making a payment to the
transferor in respect of the assignment, grant or transfer mentioned in
subsection (1)(b) is to be ignored for the purposes of section 357BLE.

(8) 30In this section—

  • “trade” includes part of a trade, and

  • “relevant research and development” means research and
    development which relates to the relevant qualifying IP right.

(9) For the purposes of this section research and development “relates” to
35the relevant qualifying IP right if—

(a) it creates, or contributes to the creation of the invention,

(b) it is undertaken for the purpose of developing the invention,

(c) it is undertaken for the purpose of developing ways in which
the invention may be used or applied, or

(d) 40it is undertaken for the purpose of developing any item or
process incorporating the invention.”

(6) Schedule 9 contains amendments consequential on this section.

(7) The amendments made by this section have effect in relation to accounting
periods beginning on or after 1 July 2016.

(8) 45Subsection (9) applies where a company has an accounting period (“the
straddling period”) which begins before, and ends on or after, 1 July 2016 or 1
July 2021 (“the relevant date”).

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(9) For the purposes of this section and Part 8A of CTA 2010—

(a) so much of the straddling period as falls before the relevant date, and
so much of that period as falls on or after that date, are treated as
separate accounting periods, and

(b) 5any amounts brought into account for the purposes of calculating for
corporation tax purposes the profits of any trade of the company for the
straddling period are apportioned to the two separate accounting
periods on such basis as is just and reasonable.

(10) Subsection (11) applies if—

(a) 10an election is made by a company under section 357A(1) of CTA 2010,
and

(b) the notice under section 357G of that Act specifies the accounting
period of the company which ends on 30 June 2016, or any earlier
accounting period, as being the first accounting period for which the
15election is to have effect.

(11) Nothing in section 357GA(5) prevents the election having effect in relation to
the accounting period of the company which ends on 30 June 2016 or any
subsequent accounting period.

(12) Subsection (13) applies to an amount of relevant IP income of a company if—

(a) 20the company is not a new entrant,

(b) the income is properly attributable to a new qualifying IP right which
was assigned to the company, or in respect of which an exclusive
licence was granted to the company, during the period beginning on 2
January 2016 and ending on 1 July 2016, and

(c) 25the income accrued to the company during the period beginning on 1
July 2016 and ending on 1 January 2017.

(13) The income is to be treated for the purposes of Part 8A of CTA 2010 as being
properly attributable to an old qualifying IP right.

(14) Expressions used in subsections (12) and (13) and in Part 8A of CTA 2010 have
30the meaning they have in that Part.

Miscellaneous

64 Power to make regulations about the taxation of securitisation companies

(1) Section 624 of CTA 2010 (power to make regulations about the application of
the Corporation Tax Acts in relation to securitisation companies) is amended
35in accordance with subsections (2) to (4).

(2) In subsection (1), for “Corporation Tax Acts” substitute “Taxes Acts”.

(3) In subsection (2), for “Corporation Tax Acts” substitute “Taxes Acts”.

(4) In subsection (9), after “section” insert

  • “the Taxes Acts” has the meaning given by section 118(1) of TMA
    401970, and”.

(5) In section 625 of CTA 2010 (regulations: supplementary provision) in
subsection (3) (power to include retrospective provision) after “may” insert “,
insofar as they concern the application of the Corporation Tax Acts in relation
to a securitisation company,”.

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65 Hybrid and other mismatches

Schedule 10 contains provision that counteracts, for corporation tax purposes,
hybrid and other mismatches that would otherwise arise.

66 Insurance companies carrying on long-term business

(1) 5Part 2 of FA 2012 (insurance companies carrying on long-term business) is
amended as follows.

(2) In section 73 (the I-E basis), in step 4—

(a) for “(but not below nil) by the” substitute “by the relievable”, and

(b) at the end of the step insert—

10“In this step, “the relievable amount” of a non-trading deficit means so
much of the deficit as does not exceed the total of—

(a) the amount given by the calculation required by step 1,

(b) the amount given by the calculation required by step 2, and

(c) any amount of an I-E receipt under section 92 brought into
15account under step 3.”

(3) In section 88 (loan relationships, derivative contracts and intangible fixed
assets), in subsection (6), for “excess—” and paragraphs (a) and (b), substitute
“excess is treated for the purposes of section 76 as a deemed BLAGAB
management expense for that period.”

(4) 20In section 126 (restrictions in respect of non-trading deficit), in subsection (2),
for “would have under section 388” to the end substitute “has, calculated by
reference only to credits and debits—

(a) arising in respect of such of the company’s loan relationships as are
debtor relationships (see section 302(6) of CTA 2009), and

(b) 25referable, in accordance with Chapter 4, to the company’s basic life
assurance and general annuity business.”

(5) The amendments made by this section have effect in relation to accounting
periods beginning on or after the day on which this Act is passed.

67 Taking over payment obligations as lessee of plant or machinery

(1) 30In Part 20 of CTA 2010 (tax avoidance involving leasing plant or machinery),
after section 894 insert—

“CHAPTER 3 Consideration for taking over payment obligations as lessee treated as
income
894A Consideration for taking over payment obligations as lessee treated as
35income

(1) This section applies where under any arrangements—

(a) a company chargeable to corporation tax (C) agrees to take over
obligations of another person (D) as lessee under a lease of plant
or machinery,