Finance (No. 2) Bill (HL Bill 156)

(i) requires returns to be made or information to be
submitted by electronic communications, or

(ii) requires records to be kept or preserved in electronic
form,

5(including in particular a decision as to whether such a
requirement applies and a decision to impose a penalty).””

Enquiries

123 Partial closure notices

Schedule 26 makes provision for partial closure notices in respect of enquiries
10under sections 9A, 12ZM and 12AC of TMA 1970 and Schedule 18 to FA 1998.

Avoidance etc

124 Errors in taxpayers’ documents

(1) Schedule 24 to FA 2007 (penalties for errors) is amended as set out in
subsections (2) and (3).

(2) 15After paragraph 3 insert—

““Errors related to avoidance arrangements

3A (1) This paragraph applies where a document of a kind listed in the
Table in paragraph 1 is given to HMRC by a person (“P”) and the
document contains an inaccuracy which—

(a) 20falls within paragraph 1(2), and

(b) arises because the document is submitted on the basis that
particular avoidance arrangements (within the meaning of
paragraph 3B) had an effect which in fact they did not have.

(2) It is to be presumed that the inaccuracy was careless, within the
25meaning of paragraph 3, unless—

(a) the inaccuracy was deliberate on P’s part, or

(b) P satisfies HMRC or (on an appeal notified to the tribunal) the
tribunal that P took reasonable care to avoid inaccuracy.

(3) In considering whether P took reasonable care to avoid inaccuracy,
30HMRC and (on an appeal notified to the tribunal) the tribunal must
take no account of any evidence of any reliance by P on advice where
the advice is disqualified.

(4) Advice is “disqualified” if any of the following applies—

(a) the advice was given to P by an interested person;

(b) 35the advice was given to P as a result of arrangements made
between an interested person and the person who gave the
advice;

(c) the person who gave the advice did not have appropriate
expertise for giving the advice;

(d) 40the advice took no account of P’s individual circumstances;

(e) the advice was addressed to, or given to, a person other than
P;

but this is subject to sub-paragraphs (5) and (7).

(5) Where (but for this sub-paragraph) advice would be disqualified
5under any of paragraphs (a) to (c) of sub-paragraph (4), the advice is
not disqualified under that paragraph if at the relevant time P—

(a) has taken reasonable steps to find out whether the advice
falls within that paragraph, and

(b) reasonably believes that it does not.

(6) 10In sub-paragraph (4) “an interested person” means—

(a) a person, other than P, who participated in the avoidance
arrangements or any transaction forming part of them, or

(b) a person who for any consideration (whether or not in
money) facilitated P’s entering into the avoidance
15arrangements.

(7) Where (but for this sub-paragraph) advice would be disqualified
under paragraph (a) of sub-paragraph (4) because it was given by a
person within sub-paragraph (6)(b), the advice is not disqualified
under that paragraph if—

(a) 20the person giving the advice had appropriate expertise for
giving it,

(b) the advice took account of P’s individual circumstances, and

(c) at the time when the question whether the advice is
disqualified arises—

(i) 25Condition E in paragraph 3B(5) is met in relation to
the avoidance arrangements, but

(ii) none of Conditions A to D in paragraph 3B(5) is or has
at any time been met in relation to them.

(8) If the document mentioned in sub-paragraph (1) is given to HMRC
30by P as a personal representative of a deceased person (“D”)—

(a) sub-paragraph (4) is to be read as if—

(i) the references in paragraphs (a) and (b) to P were to P
or D;

(ii) the reference in paragraph (d) to P were to D, and

(iii) 35the reference in paragraph (e) to a person other than
P were to a person who is neither P nor D,

(b) sub-paragraph (6) is to be read as if—

(i) the reference in paragraph (a) to P were a reference to
the person to whom the advice was given, and

(ii) 40the reference in paragraph (b) to P were to D (or,
where P also participated in the avoidance
arrangements, P or D), and

(c) sub-paragraph (7) is to be read as if the reference in
paragraph (b) to P were to D.

(9) 45In this paragraph—

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

Finance (No. 2) BillPage 112

• “the relevant time” means the time when the document
  mentioned in sub-paragraph (1) is given to HMRC;

• “the tribunal” has the same meaning as in paragraph 17 (see
  paragraph 17(5A)).

3B (1) 5In paragraph 3A “avoidance arrangements” means, subject to sub-
paragraph (3), arrangements which fall within sub-paragraph (2).

(2) Arrangements fall within this sub-paragraph if, having regard to all
the circumstances, it would be reasonable to conclude that the
obtaining of a tax advantage was the main purpose, or one of the
10main purposes, of the arrangements.

(3) Arrangements are not avoidance arrangements for the purposes of
paragraph 3A if (although they fall within sub-paragraph (2))—

(a) they are arrangements which accord with established
practice, and

(b) 15HMRC had, at the time the arrangements were entered into,
indicated its acceptance of that practice.

(4) If, at any time, any of Conditions A to E is met in relation to particular
arrangements—

(a) for the purposes of this Schedule the arrangements are to be
20taken to fall within (and always to have fallen within) sub-
paragraph (2), and

(b) in relation to the arrangements, sub-paragraph (3) (and the
reference to it in sub-paragraph (1)) are to be treated as
omitted.

25This does not prevent arrangements from falling within sub-
paragraph (2) other than by reason of one or more of Conditions A to
E being met.

(5) Conditions A to E are as follows—

(a) Condition A is that the arrangements are DOTAS
30arrangements within the meaning given by section 219(5)
and (6) of FA 2014;

(b) Condition B is that the arrangements are disclosable VAT
arrangements or disclosable indirect tax arrangements for the
purposes of Schedule 18 to FA 2016 (see paragraphs 8A to 9A
35of that Schedule);

(c) Condition C is that both of the following apply—

(i) P has been given a notice under a provision
mentioned in sub-paragraph (6) stating that a tax
advantage arising from the arrangements is to be
40counteracted, and

(ii) that tax advantage has been counteracted under
section 209 of FA 2013;

(d) Condition D is that a follower notice under section 204 of FA
2014 has been given to P by reference to the arrangements
45(and not withdrawn) and—

(i) the necessary corrective action for the purposes of
section 208 of FA 2014 has been taken in respect of the
denied advantage, or

(ii) the denied advantage has been counteracted
otherwise than as mentioned in sub-paragraph (i);

(e) Condition E is that a tax advantage asserted by reference to
the arrangements has been counteracted (by an assessment,
5an amendment of a return or claim, or otherwise) on the basis
that an avoidance-related rule applies in relation to P’s
affairs.

(6) The provisions referred to in sub-paragraph (5)(c)(i) are—

(a) paragraph 12 of Schedule 43 to FA 2013 (general anti-abuse
10rule: notice of final decision);

(b) paragraph 8 or 9 of Schedule 43A to that Act (pooled or
bound arrangements: notice of final decision);

(c) paragraph 8 of Schedule 43B to that Act (generic referrals:
notice of final decision).

(7) 15In sub-paragraph (5)(d) the reference to giving a follower notice to P
includes giving a partnership follower notice in respect of a
partnership return in relation to which P is a relevant partner; and for
the purposes of this sub-paragraph—

(a) “relevant partner” has the meaning given by paragraph 2(5)
20of Schedule 31 to FA 2014;

(b) a partnership follower notice is given “in respect of” the
partnership return mentioned in paragraph 2(2)(a) or (b) of
that Schedule.

(8) For the purposes of sub-paragraph (5)(d) it does not matter whether
25the denied advantage has been dealt with—

(a) wholly as mentioned in one or other of sub-paragraphs (i)
and (ii) of sub-paragraph (5)(d), or

(b) partly as mentioned in one of those sub-paragraphs and
partly as mentioned in the other;

30and “the denied advantage” has the same meaning as in Chapter 2 of
Part 4 of FA 2014 (see section 208(3) of and paragraph 4(3) of
Schedule 31 to that Act).

(9) For the purposes of sub-paragraph (5)(e) a tax advantage has been
“asserted by reference to” the arrangements if a return, claim or
35appeal has been made by P on the basis that the tax advantage results
from the arrangements.

(10) In this paragraph—

• “arrangements” has the same meaning as in paragraph 3A;

• “avoidance-related rule” has the same meaning as in Part 4 of
  40Schedule 18 to FA 2016 (see paragraph 25 of that Schedule);

• a “tax advantage” includes—

  (a)

  relief or increased relief from tax,

  (b)

  repayment or increased repayment of tax,

  (c)

  avoidance or reduction of a charge to tax or an
  45assessment to tax,

  (d)

  avoidance of a possible assessment to tax,

  (e)

  deferral of a payment of tax or advancement of a
  repayment of tax,

  Finance (No. 2) BillPage 114

  (f)

  avoidance of an obligation to deduct or account for
  tax, and

  (g)

  in relation to VAT, anything which is a tax advantage
  for the purposes of Schedule 18 to FA 2016 under
  5paragraph 5 of that Schedule.””

(3) In paragraph 18, after sub-paragraph (5) insert—

“(6) Paragraph 3A applies where a document is given to HMRC on behalf
of P as it applies where a document is given to HMRC by P (and in
paragraph 3B(9) the reference to P includes a person acting on behalf
10of P).””

(4) In FA 2014, omit section 276 (which is superseded by the provision inserted by
subsections (2) and (3)).

(5) The amendments made by this section have effect in relation to any document
of a kind listed in the Table in paragraph 1 of Schedule 24 to FA 2007 which
15relates to a tax period that—

(a) begins on or after 6 April 2017, and

(b) ends on or after the day on which this Act is passed.

(6) In subsection (5) “tax period” has the meaning given by paragraph 28(g) of
Schedule 24 to FA 2007.

125 20Penalties for enablers of defeated tax avoidance

Schedule 27 makes provision for penalties for persons who enable tax
avoidance which is defeated.

126 Disclosure of tax avoidance schemes: VAT and other indirect taxes

(1) Schedule 28 contains provision about the disclosure of tax avoidance schemes
25involving VAT or other indirect taxes.

(2) In consequence of the provision made by Schedule 28, section 58A of, and
Schedule 11A to, VATA 1994 (disclosure of VAT avoidance schemes) cease to
have effect to require a person to disclose any scheme which—

(a) is first entered into by that person on or after 1 September 2017,

(b) 30constitutes notifiable arrangements under Schedule 28,

(c) implements proposals which are notifiable proposals under Schedule
28.

(3) No scheme or proposed scheme may be notified to the Commissioners under
paragraph 9 of Schedule 11A to VATA 1994 (voluntary notification of schemes)
35on or after 1 September 2017.

(4) This section and Schedule 28 come into force—

(a) so far as is necessary for enabling the making of regulations under that
Schedule, on the passing of this Act, and

(b) for all other purposes, on 1 September 2017.

127 40Promoters of tax avoidance schemes: threshold conditions etc

(1) In Part 2 of Schedule 34 to FA 2014 (meeting the threshold conditions: bodies
corporate and partnerships), in paragraph 13A (interpretation), for sub-

paragraphs (6) to (8) substitute—

“(6) Two or more persons together control a body corporate if together
they have the power to secure that the affairs of the body corporate
are conducted in accordance with their wishes in any way specified
5in sub-paragraph (5)(a) to (c).

(7) A person controls a partnership if the person is a member of the
partnership and—

(a) has the right to a share of more than half the assets, or more
than half the income, of the partnership, or

(b) 10directs, or is on a day-to-day level in control of, the
management of the business of the partnership.

(8) Two or more persons together control a partnership if they are
members of the partnership and together they—

(a) have the right to a share of more than half the assets, or of
15more than half the income, of the partnership, or

(b) direct, or are on a day-to-day level in control of, the
management of the business of the partnership.

(9) Paragraph 19(2) to (5) of Schedule 36 (connected persons etc) applies
to a person referred to in sub-paragraph (7) or (8) as if references to
20“P” were to that person.

(10) A person has significant influence over a body corporate or
partnership if the person—

(a) does not control the body corporate or partnership, but

(b) is able to, or actually does, exercise significant influence over
25it (whether or not as the result of a legal entitlement).

(11) Two or more persons together have significant influence over a body
corporate or partnership if together those persons—

(a) do not control the body corporate or partnership, but

(b) are able to, or actually do, exercise significant influence over
30it (whether or not as the result of a legal entitlement).

(12) References to a person being a promoter are to the person carrying
on business as a promoter.””

(2) In Part 2 of Schedule 34 to FA 2014, for paragraphs 13B to 13D substitute—

““Relevant bodies controlled etc by other persons treated as meeting a threshold
35condition

13B (1) A relevant body is treated as meeting a threshold condition at the
relevant time if any of Conditions A to C is met.

(2) Condition A is that—

(a) a person met the threshold condition at a time when the
40person was a promoter, and

(b) the person controls or has significant influence over the
relevant body at the relevant time.

(3) Condition B is that—

(a) a person met the threshold condition at a time when the
person controlled or had significant influence over the
relevant body,

(b) the relevant body was a promoter at that time, and

(c) 5the person controls or has significant influence over the
relevant body at the relevant time.

(4) Condition C is that—

(a) two or more persons together controlled or had significant
influence over the relevant body at a time when one of those
10persons met the threshold condition,

(b) the relevant body was a promoter at that time, and

(c) those persons together control or have significant influence
over the relevant body at the relevant time.

(5) Where the person referred to in sub-paragraph (2)(a) or (3)(a) or
15(4)(a) as meeting a threshold condition is an individual, sub-
paragraph (1) only applies if the threshold condition is a relevant
threshold condition.

(6) For the purposes of sub-paragraph (2) it does not matter whether the
relevant body existed at the time referred to in sub-paragraph (2)(a).

20Persons who control etc a relevant body treated as meeting a threshold condition

13C (1) If at a time when a person controlled or had significant influence
over a relevant body—

(a) the relevant body met a threshold condition, and

(b) the relevant body, or another relevant body which the person
25controlled or had significant influence over, was a promoter,

the person is treated as meeting the threshold condition at the
relevant time.

(2) It does not matter whether any relevant body referred to sub-
paragraph (1) exists at the relevant time.

30Relevant bodies controlled etc by the same person treated as meeting a threshold
condition

13D (1) If—

(a) a person controlled or had significant influence over a
relevant body at a time when it met a threshold condition,
35and

(b) at that time that body, or another relevant body which the
person controlled or had significant influence over, was a
promoter,

any relevant body which the person controls or has significant
40influence over at the relevant time is treated as meeting the threshold
condition at the relevant time.

(2) If—

(a) two or more persons together controlled or had significant
influence over a relevant body at a time when it met a
45threshold condition, and

(b) at that time that body, or another relevant body which those
persons together controlled or had significant influence over,
was a promoter,

any relevant body which those persons together control or have
5significant influence over at the relevant time is treated as meeting
the threshold condition at the relevant time.

(3) It does not matter whether—

(a) a relevant body referred to in sub-paragraph (1)(a) or (b) or
(2)(a) or (b) exists at the relevant time, or

(b) 10a relevant body existing at the relevant time existed at the
time referred to in sub-paragraph (1)(a) or (2)(a).””

(3) In Part 4 of Schedule 34A to FA 2014 (meeting section 237A conditions: bodies
corporate and partnerships), for paragraphs 20 to 22 substitute—

““Relevant bodies controlled etc by other persons treated as meeting section 237A
15condition

20 (1) A relevant body is treated as meeting a section 237A condition at the
section 237A(2) relevant time if any of Conditions A to C is met.

(2) Condition A is that—

(a) a person met the section 237A condition at a time when the
20person was a promoter, and

(b) the person controls or has significant influence over the
relevant body at the section 237A(2) relevant time.

(3) Condition B is that—

(a) a person met the section 237A condition at a time when the
25person controlled or had significant influence over the
relevant body,

(b) the relevant body was a promoter at that time, and

(c) the person controls or has significant influence over the
relevant body at the section 237A(2) relevant time.

(4) 30Condition C is that—

(a) two or more persons together controlled or had significant
influence over the relevant body at a time when one of those
persons met the section 237A condition,

(b) the relevant body was a promoter at that time, and

(c) 35those persons together control or have significant influence
over the relevant body at the section 237A(2) relevant time.

(5) Sub-paragraph (1) does not apply where the person referred to in
sub-paragraph (2)(a), (3)(a), or (4)(a) as meeting a section 237A
condition is an individual.

(6) 40For the purposes of sub-paragraph (2) it does not matter whether the
relevant body existed at the time referred to in sub-paragraph (2)(a).

Persons who control etc a relevant body treated as meeting a section 237A condition

21 (1) If at a time when a person controlled or had significant influence
over a relevant body—

(a) the relevant body met a section 237A condition, and

(b) the relevant body, or another relevant body which the person
controlled or had significant influence over, was a promoter,

the person is treated as meeting the section 237A condition at the
5section 237A(2) relevant time.

(2) It does not matter whether any relevant body referred to sub-
paragraph (1) exists at the section 237A(2) relevant time.

Relevant bodies controlled etc by the same person treated as meeting a section 237A
condition

22 (1) 10If—

(a) a person controlled or had significant influence over a
relevant body at a time when it met a section 237A condition,
and

(b) at that time that body, or another relevant body which the
15person controlled or had significant influence over, was a
promoter,

any relevant body which the person controls or has significant
influence over at the section 237A(2) relevant time is treated as
meeting the section 237A condition at the section 237A(2) relevant
20time.

(2) If—

(a) two or more persons together controlled or had significant
influence over a relevant body at a time when it met a section
237A condition, and

(b) 25at that time that body, or another relevant body which those
persons together controlled or had significant influence over,
was a promoter,

any relevant body which those persons together control or have
significant influence over at the section 237A(2) relevant time is
30treated as meeting the section 237A condition at the section 237A(2)
relevant time.

(3) It does not matter whether—

(a) a relevant body referred to in sub-paragraph (1)(a) or (b) or
(2)(a) or (b) exists at the section 237A(2) relevant time, or

(b) 35a relevant body existing at the section 237A(2) relevant time
existed at the time referred to in sub-paragraph (1)(a) or
(2)(a).””

(4) In Part 4 of Schedule 34A to FA 2014, in paragraph 23 (interpretation)—

(a) in sub-paragraph (1), for the definition of “control” substitute—

• 40“““control” and “significant influence” have the same
  meanings as in Part 4 of Schedule 34 (see paragraph
  13A(5) to (11));

• references to a person being a promoter are to the person
  carrying on business as a promoter;”;”

(b) 45in sub-paragraph (2), for “20(1)(a), 21(1)(a) and 22(1)(a)” substitute “20
to 22”.

(5) The amendments made by subsections (1) and (2) have effect for the purposes
of determining whether a person meets a threshold condition in a period of
three years ending on or after 8 March 2017.

(6) The amendments made by subsections (3) and (4) have effect for the purposes
5of determining whether a person meets a section 237A condition in a period of
three years ending on or after 8 March 2017.

128 Requirement to correct certain offshore tax non-compliance

Schedule 29 makes provision for and in connection with requiring persons to
correct any offshore tax non-compliance subsisting on 6 April 2017.

129 10Penalty for transactions connected with VAT fraud etc

(1) VATA 1994 is amended as follows.

(2) After section 69B (penalty for breach of record-keeping requirements imposed
by directions) insert—

“69C Transactions connected with VAT fraud

(1) 15A person (T) is liable to a penalty where—

(a) T has entered into a transaction involving the making of a
supply by or to T (“the transaction”), and

(b) conditions A to C are satisfied.

(2) Condition A is that the transaction was connected with the fraudulent
20evasion of VAT by another person (whether occurring before or after T
entered into the transaction).

(3) Condition B is that T knew or should have known that the transaction
was connected with the fraudulent evasion of VAT by another person.

(4) Condition C is that HMRC have issued a decision (“the denial
25decision”) in relation to the supply which—

(a) prevents T from exercising or relying on a VAT right in relation
to the supply,

(b) is based on the facts which satisfy conditions A and B in relation
to the transaction, and

(c) 30applies a relevant principle of EU case law (whether or not in
circumstances that are the same as the circumstances in which
any relevant case was decided by the European Court of
Justice).

(5) In this section “VAT right” includes the right to deduct input tax, the
35right to apply a zero rate to international supplies and any other right
connected with VAT in relation to a supply.

(6) The relevant principles of EU case law for the purposes of this section
are the principles established by the European Court of Justice in the
following cases—

(a) 40joined Cases C-439/04 and C-440/04 Axel Kittel v. Belgian State;
Belgium v. Recolta Recycling (denial of right to deduct input tax),
and

(b)