Finance Bill (HC Bill 47)

Finance BillPage 450

(c) a type 1, type 2 or type 3 finance arrangement for the
purposes of Chapter 2 of Part 16 of CTA 2010 (factoring of
income etc: finance arrangements),

(d) a share forming part of a company’s issued share capital or
5any arrangement that provides a person with economic
rights corresponding to those provided by holding such a
share, or

(e) anything else that is a financial instrument.

(2) In subsection (1)(e) “financial instrument” has the meaning that it has
10for the purposes of UK generally accepted accounting practice.

(3) But “financial instrument” does not include—

(a) a hybrid transfer arrangement (within the meaning given by
section 259DB), or

(b) anything that is a regulatory capital security for the purposes
15of the Taxation of Regulatory Capital Securities Regulations
2013 (S.I. 2013/3209S.I. 2013/3209) (as amended from time to time).

(4) Subsection (3)(b) is subject to any provision to the contrary that may
be made by regulations under section 221 of FA 2012 (tax
consequences of financial sector regulation).

20Control groups and related persons
259NA Control groups

(1) A person (“A”) is in the same control group as another person (“B”)—

(a) throughout any period for which they are consolidated for
accounting purposes,

(b) 25on any day on which the participation condition is met in
relation to them, or

(c) on any day on which the 50% investment condition is met in
relation to them.

(2) A and B are consolidated for accounting purposes for a period if—

(a) 30their financial results for the period are required to be
comprised in group accounts,

(b) their financial results for the period would be required to be
comprised in group accounts but for the application of an
exemption, or

(c) 35their financial results for the period are in fact comprised in
group accounts.

(3) In subsection (2), “group accounts” means accounts prepared
under—

(a) section 399 of the Companies Act 2006, or

(b) 40any corresponding provision of the law of a territory outside
the United Kingdom.

(4) The participation condition is met in relation to A and B (“the
relevant parties”) on a day if, within the period of 6 months
beginning with the day—

(a) 45one of the relevant parties directly or indirectly participates
in the management, control or capital of the other, or

Finance BillPage 451

(b) the same person or persons directly or indirectly participate
in the management, control or capital of each of the relevant
parties.

(5) For the interpretation of subsection (4), see sections 157(1), 158(4),
5159(1) and 160(1) (which have the effect that references in subsection
(4) to direct or indirect participation are to be read in accordance with
provisions of Chapter 2 of Part 4).

(6) The 50% investment condition is met in relation to A and B if—

(a) A has a 50% investment in B, or

(b) 10a third person has a 50% investment in each of A and B.

(7) Section 259NC applies for the purposes of determining whether a
person has a “50% investment” in another person.

259NB Related persons

(1) Two persons are “related” on any day that—

(a) 15they are in the same control group (see section 259NA), or

(b) the 25% investment condition is met in relation to them.

(2) The 25% investment condition is met in relation to a person (“A”) and
another person (“B”) if—

(a) A has a 25% investment in B, or

(b) 20a third person has a 25% investment in each of A and B.

(3) Section 259NC applies for the purposes of determining whether a
person has a “25% investment” in another person.

259NC Meaning of “50% investment” and “25% investment”

(1) Where this section applies for the purposes of determining whether
25a person has a “50% investment” in another person for the purposes
of section 259NA(6), references in this section to X% are to be read as
references to 50%.

(2) Where this section applies for the purposes of determining whether
a person has a “25% investment” in another person for the purposes
30of section 259NB(2), references in this section to X% are to be read as
references to 25%.

(3) A person (“P”) has an X% investment in a company (“C”) if it is
reasonable to suppose that—

(a) P possesses or is entitled to acquire X% or more of the share
35capital or issued share capital of C,

(b) P possesses or is entitled to acquire X% or more of the voting
power in C, or

(c) if the whole of C’s share capital were disposed of, P would
receive (directly or indirectly and whether at the time of
40disposal or later) X% or more of the proceeds of the disposal.

(4) A person (“P”) has an X% investment in another person (“Q”) if it is
reasonable to suppose that—

(a) if the whole of Q’s income were distributed, P would receive
(directly or indirectly and whether at the time of the

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distribution or later) X% or more of the distributed amount,
or

(b) in the event of a winding-up of Q or in any other
circumstances, P would receive (directly or indirectly and
5whether or not at the time of the winding-up or other
circumstances or later) X% or more of Q’s assets which would
then be available for distribution.

(5) In this section, references to a person receiving any proceeds, amount
or assets include references to the proceeds, amount or assets being
10applied (directly or indirectly) for that person’s benefit.

(6) For the purposes of subsections (3) and (4), in determining what
percentage investment a person (“P”) has in another person (“U”),
where P acts together with a third person (“T”) in relation to U, P is
to be taken to have all of T’s rights and interests in relation to U.

(7) 15P is to be taken to “act together” with T in relation to U if (and only
if)—

(a) P and T are connected (within the meaning given by section
163),

(b) P is able to secure that T acts in accordance with the wishes of
20P, or T is able to secure that P acts in accordance with the
wishes of T, for the purpose of influencing the conduct of U’s
affairs,

(c) P and T are party to any arrangement that—

(i) it is reasonable to suppose is designed to affect the
25value of any of T’s rights or interests in relation to U,
or

(ii) relates to the exercise of any of T’s rights in relation to
U, or

(d) the same person manages—

(i) 30some or all of P’s rights or interests in relation to U,
and

(ii) some or all of T’s rights or interests in relation to U.

(8) But P does not “act together” with T in relation to U under paragraph
(d) of subsection (7) where—

(a) 35the person who manages the rights or interests of P
mentioned in sub-paragraph (i) of that paragraph, does so as
the operator of a collective investment scheme,

(b) that person manages the rights or interests of T mentioned in
sub-paragraph (ii) of that paragraph as the operator of a
40different collective investment scheme, and

(c) the Commissioners are satisfied that the management of the
schemes is not coordinated for the purpose of influencing the
conduct of U ’s affairs.

(9) In subsection (8) “collective investment scheme” and “operator” have
45the same meaning as in Part 17 of the Financial Services and Markets
Act 2000 (see sections 235 and 237 of that Act).

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Partnerships
259ND Treatment of a person who is a member of a partnership

(1) This section applies where a person is a member of a partnership.

(2) Any reference in this Part to income, profits or an amount of the
5person includes a reference to the person’s share of (as the case may
be) income, profits or an amount of the partnership.

(3) For this purpose “the person’s share” of income, profits or an amount
is determined by apportioning the income, profits or amount
between the partners on a just and reasonable basis.

(4) 10In this section—

(a) “partnership” includes an entity established under the law of
a territory outside the United Kingdom of a similar character
to a partnership, and

(b) “member” of a partnership is to be read accordingly.

15Definitions
259NE Definitions

In this Part—

  • “arrangement” includes any agreement, understanding,
    scheme, transaction or series of transactions (whether or not
    20legally enforceable);

  • “CFC” and “CFC charge” have the meaning given by section
    259B(4);

  • “the Commissioners” means the Commissioners for Her
    Majesty’s Revenue and Customs;

  • 25“control group” has the meaning given by section 259NA;

  • “financial instrument” has the meaning given by section 259N;

  • “foreign CFC” and “foreign CFC charge” have the meaning
    given by section 259B(4);

  • “hybrid entity” has the meaning given by section 259BE;

  • 30“investor”, in relation to a hybrid entity, has the meaning given
    by section 259BE(4);

  • “investor jurisdiction” has the meaning given by section
    259BE(4);

  • “ordinary income” is to be read in accordance with sections
    35259BC and 259BD;

  • “payee”—

    (a)

    in relation to a payment, has the meaning given by
    section 259BB(6)(a), and

    (b)

    in relation to a quasi-payment, has the meaning given
    40by section 259BB(6)(b);

  • “payee jurisdiction” has the meaning given by 259BB(9);

  • “payer”—

    (a)

    in relation to a payment, has the meaning given by
    section 259BB(1)(a), and

    (b)

    45in relation to a quasi-payment, has the meaning given
    by section 259BB(2);

  • Finance BillPage 454

  • “payment” has the meaning given by section 259BB(1);

  • “payment period”—

    (a)

    in relation to a payment, has the meaning given by
    section 259BB(1)(b), and

    (b)

    5in relation to a quasi-payment, has the meaning given
    by section 259BB(2);

  • “permanent establishment” has the meaning given by section
    259BF;

  • “quasi-payment” has the meaning given by section 259BB(2) to
    10(5);

  • “related” has the meaning given by section 259NB;

  • “relevant deduction”—

    (a)

    in relation to a payment, has the meaning given by
    section 259BB(1)(b), and

    (b)

    15in relation to a quasi-payment, has the meaning given
    by section 259BB(2)(a);

  • “tax” has the meaning given by section 259B;

  • “taxable period” means—

    (a)

    in relation to corporation tax, an accounting period,

    (b)

    20in relation to income tax, a tax year,

    (c)

    in relation to the CFC charge, a relevant corporation
    tax accounting period (within the meaning given by
    section 371BC(3)),

    (d)

    in relation to a foreign CFC charge, a period (by
    25whatever name known) that corresponds to a
    relevant corporation tax accounting period, and

    (e)

    in relation to any other tax, a period for which the tax
    is charged;

  • “taxable profits” is to be read in accordance with sections
    30259BC(2) and 259BD(5).”

Part 2 Consequential amendments

FA 1998

2 Schedule 18 to FA 1998 (company tax returns) is amended as follows.

3 35In paragraph 25(3)—

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

(b) omit paragraph (d) and the “or” preceding it.

4 In paragraph 42(4)—

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

(b) 40omit paragraph (c) and the “or” preceding it.

CTA 2009

5 In section A1 of CTA 2009 (overview of the Corporation Tax Acts), in
subsection (2)—

(a) omit paragraph (h), and

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(b) after that paragraph insert—

(ha) Part 6A of that Act (hybrid and other mismatches),”.

CTA 2010

6 CTA 2010 is amended as follows.

7 5In section 938N (group mismatch schemes: priority)—

(a) omit paragraph (d), and

(b) after that paragraph insert—

(da) Part 6A of that Act (hybrid and other mismatches);”.

8 In section 938V (tax mismatch schemes: priority)—

(a) 10omit paragraph (c), and

(b) after that paragraph insert—

(ca) Part 6A of TIOPA 2010 (hybrid and other
mismatches);”.

TIOPA 2010

9 15TIOPA 2010 is amended as follows.

10 In section 1 (overview of Act), in subsection (1)—

(a) omit paragraph (c), and

(b) after that paragraph insert—

(ca) Part 6A (hybrid and other mismatches),”.

11 20In section 157 (direct participation), in subsection (1)—

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

(b) after paragraph (c) insert , and

(d) in Part 6A, section 259NA(4).”

12 In section 158 (indirect participation: defined by sections 159 to 162), in
25subsection (4)—

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

(b) after paragraph (c) insert , and

(d) in Part 6A, section 259NA(4),”.

13 In section 159 (indirect participation: potential direct participant), in
30subsection (1)—

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

(b) after paragraph (c) insert , and

(d) in Part 6A, section 259NA(4).”

14 In section 160 (indirect participation: one of several major participants), in
35subsection (1)—

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

(b) after paragraph (c) insert , and

(d) in Part 6A, section 259NA(4).”

15 Omit Part 6 (tax arbitrage).

16 40Omit Part 4 of Schedule 11 (tax arbitrage: index of defined expressions used
in Part 6).

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17 After that Part of that Schedule insert—

“Part 4A Hybrid and other mismatches: index of defined expressions used in
Part 6A
arrangement (in Part 6A) 5section 259NE
CFC and CFC charge (in Part 6A) section 259B(4)
the Commissioners (in Part 6A) section 259NE
control group (in Part 6A) section 259NA
deduction period (in Chapter 10 of
Part 6A)
section 259JA(5)(a)
10
dual resident company (in
Chapter 10 of Part 6A)
section 259JA(3)
dual territory double deduction
amount (in Chapter 10 of Part 6A)
section 259JA(5)
excessive PE deduction (in
Chapter 6 of Part 6A)
15section 259FA(8)
financial instrument (in Part 6A) section 259N
foreign CFC and foreign CFC
charge (in Part 6A)
section 259B(4)
foreign deduction period (in
Chapter 10 of Part 6A)
20section 259JA(5)(b)
hybrid entity (in Part 6A) section 259BE
hybrid entity deduction period (in
Chapter 9 of Part 6A)
section 259IA(2)(a)
hybrid entity double deduction
amount (in Chapter 9 of Part 6A)
25section 259IA(4)
hybrid or otherwise impermissible
deduction/non-inclusion
mismatch (in Chapter 3 of Part
6A)
section 259CB


30
hybrid payee (in Chapter 7 of Part
6A)
section 259GA(3)
hybrid payee deduction/non-
inclusion mismatch (in Chapter 7
of Part 6A)
section 259GB

35
hybrid payer (in Chapter 5 of Part
6A)
section 259EA(3)

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hybrid payer deduction/non-
inclusion mismatch (in Chapter 5
of Part 6A)
section 259EB

hybrid transfer arrangement (in
Chapter 4 of Part 6A)
section 259DB
5
hybrid transfer deduction/non-
inclusion mismatch (in Chapter 4
of Part 6A)
section 259DC

imported mismatch payment (in
Chapter 11 of Part 6A)
section 259KA(2)
10
imported mismatch arrangement
(in Chapter 11 of Part 6A)
section 259KA(2)
investor (in Part 6A) section 259BE(4)
investor deduction period (in
Chapter 9 of Part 6A)
section 259IA(2)(b)
15
investor jurisdiction (in Part 6A) section 259BE(4)
mismatch payment (in Chapter 11
of Part 6A)
section 259KA(6)
multinational company (in
Chapter 6 of Part 6A)
section 259FA(3)
20
multinational company (in
Chapter 8 of Part 6A)
section 259HA(4)
multinational payee deduction/
non-inclusion mismatch (in
Chapter 8 of Part 6A)
section 259HB

25
ordinary income (in Part 6A) sections 259BC and 259BD
over-arching arrangement (in
Chapter 11 of Part 6A)
section 259KA(5)
P (in Chapter 11 of Part 6A) section 259KA(3)
parent jurisdiction (in Chapter 6 of
Part 6A)
30section 259FA(3)(a)
parent jurisdiction (in Chapter 8 of
Part 6A)
section 259HA(4)(a)
parent jurisdiction (in Chapter 10
of Part 6A)
section 259JA(4)(b)(ii)
35
payee (in Part 6A) section 259BB(6)
payee jurisdiction (in Part 6A) section 259BB(9)
payer (in Part 6A) section 259BB(1)(a) or (2)

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payment (in Part 6A) section 259BB(1)
payment period (in Part 6A) section 259BB(1)(b) or (2)
PE jurisdiction (in Chapter 6 of
Part 6A)
section 259FA(3)(b)
PE jurisdiction (in Chapter 8 of
Part 6A)
5section 259HA(4)(b)
PE jurisdiction (in Chapter 10 of
Part 6A)
section 259JA(4)(a)
permanent establishment (in Part
6A)
section 259BF
10
quasi-payment (in Part 6A) section 259BB(2) to (5)
related (in Part 6A) section 259NB
relevant deduction (in Part 6A) section 259BB(1)(b) or (2)(a)
relevant mismatch (in Chapter 11
of Part 6A)
section 259KA(6)
15
relevant multinational company
(in Chapter 10 of Part 6A)
section 259JA(4)
relevant PE period (in Chapter 6 of
Part 6A)
section 259FA(4)
series of arrangements (in Chapter
11 of Part 6A)
20section 259KA(5)
substitute payment (in Chapter 4
of Part 6A)
section 259DB(5)
tax (in Part 6A) section 259B
taxable period (in Part 6A) 25section 259NE
taxable profits (in Part 6A) sections 259BC(2) and 259BD(5)
underlying instrument (in
Chapter 4 of Part 6A)
section 259DB(3)
underlying return (in Chapter 4 of
Part 6A)
section 259DB(5)(b)
30

Part 3 Commencement

18 Chapters 3 to 5 and 7 and 8 of Part 6A of TIOPA 2010 (counteraction of
deduction/non-inclusion mismatches arising from payments and quasi-
35payments) have effect in relation to—

(a) payments made on or after the commencement date, and

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(b) quasi-payments in relation to which the payment period begins on or
after the commencement date.

19 Chapter 6 of Part 6A of TIOPA 2010 (counteraction of deduction/non-
inclusion mismatches relating to intra-company transfers from permanent
5establishments) has effect in relation to excessive PE deductions in relation
to which the relevant PE period begins on or after the commencement date.

20 Chapters 9 and 10 of Part 6A of TIOPA 2010 (counteraction of double
deduction mismatches) have effect for accounting periods beginning on or
after the commencement date.

21 10Chapter 11 of Part 6A of TIOPA 2010 (imported mismatch payments) has
effect in relation to imported mismatch payments that are—

(a) payments made on or after the commencement date, or

(b) quasi-payments in relation to which the payment period begins on or
after the commencement date.

22 15The following provisions of this Schedule have effect in relation to
accounting periods beginning on or after the commencement date—

(a) paragraphs 2 to 4, and

(b) paragraphs 5(a), 7(a), 8(a), 10(a), 15 and 16.

23 For the purposes of paragraph 18 and 21, where a payment period begins
20before the commencement date and ends on or after that date (“the
straddling period”)—

(a) so much of the straddling period as falls before the commencement
date, and so much of that period as falls on or after that date, are to
be treated as separate taxable periods, and

(b) 25where it is necessary to apportion an amount for the straddling
period to the two separate taxable periods, it is to be apportioned—

(i) on a time basis according to the respective length of the
separate taxable periods, or

(ii) if that method would produce a result that is unjust or
30unreasonable, on a just and reasonable basis.

24 For the purposes of paragraph 19, where a relevant PE period begins before
the commencement date and ends on or after that date (“the straddling
period”)—

(a) so much of the straddling period as falls before the commencement
35date, and so much of that period as falls on or after that date, are to
be treated as separate taxable periods, and

(b) where it is necessary to apportion an amount for the straddling
period to the two separate taxable periods, it is to be apportioned—

(i) on a time basis according to the respective length of the
40separate taxable periods, or

(ii) if that method would produce a result that is unjust or
unreasonable, on a just and reasonable basis.

25 For the purposes of paragraphs 20 and 22(b), where a company has an
accounting period beginning before the commencement date and ending on
45or after that date (“the straddling period”)—

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