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

(9) The maximum deduction for direct payments is £2,500 or, if the
accounting period is shorter than 12 months, a proportionately reduced
amount.

(10) The Treasury may by regulations amend subsection (9) by substituting
5a higher amount for the amount for the time being specified there.

217B Meaning of qualifying expenditure on grassroots sport

(1) For the purposes of this Part, a payment is qualifying expenditure on
grassroots sport if—

(a) it is expenditure incurred for charitable purposes which are
10purposes for facilitating participation in amateur eligible sport,
and

(b) apart from this Part, no deduction from total profits, or in
calculating any component of total profits, would be allowed in
respect of the payment.

15For the meaning of charitable purposes, see sections 2, 7 and 8 of the
Charities Act 2011.

(2) Where expenditure is incurred for both—

(a) charitable purposes which are purposes for facilitating
participation in amateur eligible sport, and

(b) 20other purposes,

then, for the purposes of subsection (1), it is to be apportioned between
the purposes in paragraph (a) and the purposes in paragraph (b) on a
just and reasonable basis.

(3) For the purposes of section 217A(5) and subsection (1)(a)—

(a) 25paying a person to play or take part in a sport does not facilitate
participation in amateur sport, but paying coaches or officials
for their services may do so, and

(b) “eligible sport” means a sport that for the time being is an
eligible sport for the purposes of Chapter 9 of Part 13 (see
30section 661).

217C Meaning of qualifying sport body

(1) For the purposes of this Part, a “qualifying sport body” is—

(a) a recognised sport governing body;

(b) a body which is wholly owned by a recognised sport governing
35body.

(2) A “recognised sport governing body” is a body which is included from
time to time in a list, maintained by the National Sports Councils, of
governing bodies of sport recognised by them.

(3) The Treasury may by regulations—

(a) 40amend this section for the purpose of altering the meaning of
“qualifying sport body”;

(b) designate bodies to be treated as qualifying sport bodies for the
purposes of this Part.

(4) Regulations under section (3)(b) may designate a body by reference to
45its inclusion in a class or description of bodies.

(5) In this section “the National Sports Councils” means—

(a) the United Kingdom Sports Council,

(b) the English Sports Council,

(c) the Scottish Sports Council,

(d) the Sports Council for Wales, and

(e) 5the Sports Council for Northern Ireland.

(6) Regulations under subsection (3)(b) made before 1 April 2018 may
include provision having effect in relation to times before the
regulations are made (but not times earlier than 1 April 2017).

217D Relationship between this Part and Part 6

10If, but for section 217A, an amount—

(a) would be deductible under Part 6, or

(b) would be deductible under Part 6 but for Chapter 2A of Part 6,

the amount is not deductible under this Part, and nothing in this Part
affects the amount’s deductibility (or non-deductibility) under Part 6.””

(6) 15The amendments made by this section have effect for the purpose of allowing
deductions for payments made on or after 1 April 2017.

(7) Where a company has an accounting period beginning before 1 April 2017 and
ending on or after that date, the accounting period for the purposes of the new
section 217A(9) is so much of the accounting period as falls on or after 1 April
202017.

34 Profits from the exploitation of patents: cost-sharing arrangements

(1) Part 8A of CTA 2010 (profits from the exploitation of patents) is amended as
follows.

(2) After section 357BLE insert—

“357BLEA 25 Cases where the company is a party to a CSA

(1) Subsection (2) applies if during the relevant period—

(a) the company is a party to a cost-sharing arrangement (see
section 357GC),

(b) the company incurs expenditure in making payments under the
30arrangement that are within section 357BLC(2) by reason of
section 357GCZC, and

(c) persons who are not connected with the company make
payments under the arrangement to the company in respect of
relevant research and development undertaken or contracted
35out by the company.

(2) So much of the expenditure referred to in paragraph (b) of subsection
(1) as is equal to the amount of the payments referred to in paragraph
(c) of that subsection is to be disregarded in determining the R&D
fraction for the sub-stream.

(3) 40Subsection (4) applies if during the relevant period—

(a) the company is a party to a cost-sharing arrangement,

(b) the company incurs expenditure in making payments under the
arrangement that are within subsection (5), and

(c) the company receives payments under the arrangement that are
within subsection (6).

(4) So much of the expenditure referred to in paragraph (b) of subsection
(3) as is equal to the amount of the payments referred to in paragraph
5(c) of that subsection is to be disregarded in determining the R&D
fraction for the sub-stream.

(5) A payment is within this subsection if—

(a) it is within section 357BLD(2) by reason of section 357GCZC, or

(b) it is within section 357BLE(2) or (3) by reason of section
10357GCZD.

(6) A payment is within this subsection if—

(a) it is made by persons connected with the company in respect of
relevant research and development undertaken or contracted
out by the company, or

(b) 15it is made in respect of an assignment to the company of a
relevant qualifying IP right or a grant or transfer to the
company of an exclusive licence in respect of such a right.””

(3) For section 357GC substitute—

“357GC Meaning of “cost-sharing arrangement” etc

(1) 20This section applies for the purposes of this Part.

(2) A “cost-sharing arrangement” is an arrangement under which—

(a) each of the parties to the arrangement is required to contribute
to the cost of, or undertake activities for the purpose of, creating
or developing an item or process,

(b) 25each of those parties—

(i) is entitled to a share of any income attributable to the
item or process, or

(ii) has one or more rights in respect of the item or process,
and

(c) 30the amount of any income received by each of those parties is
proportionate to its participation in the arrangement as
described in paragraph (a).

(3) “Invention”, in relation to a cost-sharing arrangement, means the item
or process that is the subject of the arrangement (or any item or process
35incorporated within it).

357GCZA Qualifying IP right held by another party to CSA

(1) This section applies if—

(a) a company is a party to a cost-sharing arrangement,

(b) another party to the arrangement (“P”) holds a qualifying IP
40right granted in respect of the invention, and

(c) the company does not hold an exclusive licence in respect of the
right.

(2) But this section does not apply if the arrangement produces for the
company a return within section 357BG(1)(c).

(3) The company is to be treated for the purposes of this Part as if it held
the right.

(4) The right is to be treated for the purposes of this Part as a new
qualifying IP right in relation to the company if—

(a) 5the company or P (or both) became a party to the arrangement
on or after 1 April 2017, or

(b) the right is a new qualifying IP right in relation to P (or would
be if P was a company).

(5) Subsection (4) does not apply if—

(a) 10the company held an exclusive licence in respect of the right
immediately before it became a party to the arrangement, and

(b) that licence was granted to the company before the relevant
date.

(6) The right is to be treated for the purposes of this Part as an old
15qualifying IP right in relation to the company if it is not to be treated as
a new qualifying IP right by reason of subsection (4).

(7) Subsections (7) and (8) of section 357BP (meaning of “relevant date”)
apply for the purposes of subsection (5) of this section as they apply for
the purposes of subsection (6) of that section.

357GCZB 20 Exclusive licence held by another party to CSA

(1) This section applies if—

(a) a company is a party to a cost-sharing arrangement,

(b) another party to the arrangement (“P”) holds an exclusive
licence in respect of a qualifying IP right granted in respect of
25the invention, and

(c) the company does not hold the right or another exclusive
licence in respect of it.

(2) But this section does not apply if the arrangement produces for the
company a return within section 357BG(1)(c).

(3) 30The company is to be treated for the purposes of this Part as if it held an
exclusive licence in respect of the right.

(4) The right is to be treated for the purposes of this Part as a new
qualifying IP right in relation to the company if—

(a) the company or P (or both) became a party to the arrangement
35on or after 1 April 2017, or

(b) the right is a new qualifying IP right in relation to P (or would
be if P was a company).

(5) Subsection (4) does not apply if—

(a) the company held the right immediately before it became a
40party to the arrangement, and

(b) either—

(i) the right had been granted or issued to the company in
response to an application filed before 1 July 2016, or

(ii) the right had been assigned to the company before the
45relevant date.

(6) Subsection (4) also does not apply if—

(a) the company held an exclusive licence in respect of the right
immediately before it became a party to the arrangement, and

(b) that licence was granted to the company before the relevant
date.

(7) 5The right is to be treated for the purposes of this Part as an old
qualifying IP right in relation to the company if it is not to be treated as
a new qualifying IP right by reason of subsection (4).

(8) Subsections (7) and (8) of section 357BP (meaning of “relevant date”)
apply for the purposes of subsections (5) and (6) of this section as they
10apply for the purposes of subsections (5) and (6) of that section.

357GCZC R&D undertaken or contracted out by another party to CSA

(1) Subsection (2) applies if—

(a) a company is a party to a cost-sharing arrangement, and

(b) another party to the arrangement (“P”) undertakes research and
15development for the purpose of creating or developing the
invention.

(2) The research and development is to be treated for the purposes of
sections 357BLC and 357BLD as having been contracted out by the
company to P.

(3) 20Subsection (4) applies if—

(a) a company is a party to a cost-sharing arrangement,

(b) another party to the arrangement (“P”) contracts out to another
person (“A”) research and development for the purpose of
creating or developing the invention, and

(c) 25the company makes a payment under the arrangement in
respect of that research and development (whether to P or to A).

(4) For the purposes of sections 357BLC and 357BLD—

(a) the company is to be treated as having contracted out to P
research and development which is the same as that contracted
30out by P to A, and

(b) the payment mentioned in subsection (3)(c) is to be treated as if
it were a payment made to P in respect of the research and
development the company is treated as having contracted out
to P.

(5) 35In this section “research and development” has the meaning given by
section 1138.

357GCZD Acquisition of qualifying IP rights etc by another party to CSA

(1) Subsection (2) applies if—

(a) a company is a party to a cost-sharing arrangement,

(b) 40a person (“A”) assigns to another party to the arrangement (“P”)
a qualifying IP right,

(c) the qualifying IP right is a right in respect of the invention, and

(d) the company makes under the arrangement a payment in
respect of the assignment (whether to A or to P).

(2) The payment is to be treated for the purposes of section 357BLE as if it
were a payment to A in respect of the assignment by A to the company
of the right.

(3) Subsection (4) applies if—

(a) 5a company is a party to a cost-sharing arrangement,

(b) a person (“A”) grants or transfers to another party to the
arrangement (“P”) an exclusive licence in respect of qualifying
IP right,

(c) the qualifying IP right is a right granted in respect of the
10invention, and

(d) the company makes a payment under the arrangement in
respect of the grant or transfer (whether to A or to P).

(4) The payment is to be treated for the purposes of section 357BLE as if it
were a payment to A in respect of the grant or transfer by A to the
15company of the licence.

357GCZE Treatment of expenditure in connection with formation of CSA etc

(1) Where—

(a) a company makes a payment to a person (“P”) in consideration
of that person entering into a cost-sharing arrangement with the
20company, and

(b) P holds a qualifying IP right granted in respect of the invention
or holds an exclusive licence in respect of such a right,

a just and reasonable amount of the payment is to be treated for the
purposes of section 357BLE as if it was an amount paid in respect of the
25assignment to the company of the right or (as the case may be) the
transfer to the company of the licence.

(2) Where—

(a) a company makes a payment to a party to a cost-sharing
arrangement (“P”) in consideration of P agreeing to the
30company becoming a party to the arrangement (whether in
place of P or in addition to P), and

(b) any party to the arrangement holds a qualifying IP right in
respect of the invention or holds an exclusive licence in respect
of such a right,

35a just and reasonable amount of the payment is to be treated for the
purposes of section 357BLE as if it was an amount paid in respect of the
assignment to the company of the right or (as the case may be) the
transfer to the company of the licence.

(3) Where—

(a) 40a company that is a party to a cost-sharing arrangement makes
a payment to another party to the arrangement in consideration
of that party agreeing to the company becoming entitled to a
greater share of the income attributable to the invention or
acquiring additional rights in relation to the invention, and

(b) 45any party to the arrangement holds a qualifying IP right in
respect of the invention or holds an exclusive licence in respect
of such a right,

a just and reasonable amount of the payment is to be treated for the
purposes of section 357BLE as if it was an amount paid in respect of the

assignment to the company of the right or (as the case may be) the
transfer to the company of the licence.

357GCZF Treatment of income in connection with formation of CSA etc

(1) Where—

(a) 5a company receives a payment in consideration of its entering
into a cost-sharing arrangement, and

(b) the company holds a qualifying IP right granted in respect of
the invention or holds an exclusive licence in respect of such a
right,

10a just and reasonable amount of the payment is to be treated as relevant
IP income of the company.

(2) Where—

(a) a company that is a party to a cost-sharing arrangement receives
a payment from a person in consideration of its agreeing to that
15person becoming a party to the arrangement (whether in place
of the company or in addition to it), and

(b) any party to the arrangement holds a qualifying IP right in
respect of the invention or holds an exclusive licence in respect
of such a right,

20a just and reasonable amount of the payment is to be treated as relevant
IP income of the company.

(3) Where—

(a) a company that is a party to a cost-sharing arrangement receives
a payment from another party to the arrangement in
25consideration of its agreeing to that party becoming entitled to
a greater share of the income attributable to the invention or
acquiring additional rights in relation to the invention, and

(b) any party to the arrangement holds a qualifying IP right in
respect of the invention or holds an exclusive licence in respect
30of such a right,

a just and reasonable amount of the payment is to be treated as relevant
IP income of the company.””

(4) In section 357BP (meaning of “new qualifying IP right”) after subsection (12)
insert—

“(13) 35This section has effect subject to section 357GCZA (qualifying IP right
held by another party to a cost-sharing arrangement) and section
357GCZB (exclusive licence held by another party to a cost-sharing
arrangement).””

(5) The amendments made by this section have effect in relation to accounting
40periods beginning on or after 1 April 2017.

Hybrids and other mismatches

35 Permitted taxable periods of payees and deductions for amortisation

(1) Part 6A of TIOPA 2010 (hybrid and other mismatches) is amended as follows.

(2) In section 259CC(2) (hybrid and other mismatches from financial instruments:
45meaning of “permitted” taxable period of a payee), for paragraph (b)

substitute—

“(b) the period begins at a later time and it is just and reasonable for
the amount of ordinary income to arise for the period (rather
than an earlier one).””

(3) 5In section 259DD(2) (hybrid transfer deduction/non-inclusion mismatches:
meaning of “permitted” taxable period of a payee), for paragraph (b)
substitute—

“(b) the period begins at a later time and it is just and reasonable for
the amount of ordinary income to arise for the period (rather
10than an earlier one).””

(4) In section 259EB (hybrid payer deduction/non-inclusion mismatches and their
extent), after subsection (1) insert—

“(1A) But there is no hybrid payer deduction/non-inclusion mismatch so far
as the relevant deduction is—

(a) 15a debit in respect of amortisation that is brought into account
under section 729 or 731 of CTA 2009 (writing down the
capitalised cost of an intangible fixed asset), or

(b) an amount that is deductible in respect of amortisation under a
provision of the law of a territory outside the United Kingdom
20that is equivalent to either of those sections.””

(5) In section 259FA (deduction/non-inclusion mismatches relating to transfers by
permanent establishments), after subsection (4) insert—

“(4A) For the purposes of this section “the PE deduction” does not include—

(a) a debit in respect of amortisation that is brought into account
25under section 729 or 731 of CTA 2009 (writing down the
capitalised cost of an intangible fixed asset), or

(b) an amount that is deductible in respect of amortisation under a
provision of the law of a territory outside the United Kingdom
that is equivalent to either of those sections.””

(6) 30In section 259GB (hybrid payee deduction/non-inclusion mismatches and
their extent), after subsection (1) insert—

“(1A) But there is no hybrid payee deduction/non-inclusion mismatch so far
as the relevant deduction is—

(a) a debit in respect of amortisation that is brought into account
35under section 729 or 731 of CTA 2009 (writing down the
capitalised cost of an intangible fixed asset), or

(b) an amount that is deductible in respect of amortisation under a
provision of the law of a territory outside the United Kingdom
that is equivalent to either of those sections.””

(7) 40In section 259HB (multinational payee deduction/non-inclusion mismatches
and their extent), after subsection (1) insert—

“(1A) But there is no multinational payee deduction/non-inclusion mismatch
so far as the relevant deduction is—

(a) a debit in respect of amortisation that is brought into account
45under section 729 or 731 of CTA 2009 (writing down the
capitalised cost of an intangible fixed asset), or

(b) an amount that is deductible in respect of amortisation under a
provision of the law of a territory outside the United Kingdom
that is equivalent to either of those sections.””

(8) In section 259KB (imported mismatches: meaning of “excessive PE deduction”
5etc), after subsection (3) insert—

“(3A) For the purposes of this section a “PE deduction” does not include—

(a) a debit in respect of amortisation that is brought into account
under section 729 or 731 of CTA 2009 (writing down the
capitalised cost of an intangible fixed asset), or

(b) 10an amount that is deductible in respect of amortisation under a
provision of the law of a territory outside the United Kingdom
that is equivalent to either of those sections.””

(9) Part 6A of TIOPA 2010 has effect, and is to be deemed always to have had
effect, with the amendments set out in this section.

15Northern Ireland

36 Trading profits taxable at the Northern Ireland rate

Schedule 12 contains—

(a) amendments of Part 8B of CTA 2010 (trading profits taxable at the
Northern Ireland rate), and

(b) 20amendments consequential on or related to those amendments.

CHAPTER 4 Chargeable gains

37 Exemption from attribution of carried interest gains

(1) TCGA 1992 is amended as follows.

(2) In section 13(1A) (attribution of gains to members of non-resident
25companies)—

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

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

(c) a chargeable gain treated as accruing under section
103KA(2) or (3) (carried interest gains).””

(3) 30In section 86 (attribution of gains to settlors with interest in non-resident or
dual resident settlements), after subsection (4ZA) insert—

“(4ZB) Where (apart from this subsection) the amount mentioned in
subsection (1)(e) would include an amount of chargeable gains treated
as accruing under section 103KA(2) or (3) (carried interest gains), the
35amount of the gains is to be disregarded for the purposes of subsection
(1)(e).””

(4) In section 87 (non-UK resident settlements: attribution of gains to

beneficiaries), after subsection (5A) insert—

“(5B) Where (apart from this subsection) the amount mentioned in
subsection (4)(a) would include an amount of chargeable gains treated
as accruing under section 103KA(2) or (3) (carried interest gains), the
5amount of the gains is to be disregarded for the purposes of
determining the section 2(2) amount.””

(5) The amendments made by this section have effect in relation to chargeable
gains treated as accruing under section 103KA(2) or (3) of TCGA 1992 at any
time before, as well as after, the passing of this Act.

38 10Elections in relation to assets appropriated to trading stock

(1) Section 161 of TCGA 1992 (appropriations to and from trading stock) is
amended as follows.

(2) In subsection (3)—

(a) for “a person’s appropriation of an asset for the purposes of a trade”
15substitute “a case where a chargeable gain would have accrued to a
person on the appropriation of an asset for the purposes of a trade as
mentioned in that subsection”, and

(b) for “the chargeable gain or increased by the amount of the allowable
loss referred to in subsection (1), and where that subsection” substitute
20“that chargeable gain, and where subsection (1)”.

(3) In subsection (3ZB)—

(a) in paragraph (a)—

(i) omit “or loss”, and

(ii) omit “or an allowable loss”,

(b) 25in paragraph (b)—

(i) omit “, or increased by the amount of any loss,” and

(ii) omit “or allowable loss”, and

(c) in paragraph (c), at the end insert “and a loss which accrues on that
disposal which is not ATED-related is also unaffected by the election”.

(4) 30The amendments made by this section have effect in relation to appropriations
of assets made on or after 8 March 2017.

39 Substantial shareholding exemption

(1) Schedule 7AC to TCGA 1992 (exemptions for disposals by companies with
substantial shareholding) is amended as follows.

(2) 35Omit the following (which relate to requirements to be met by investing
company)—

(a) in paragraph 1(2), “the investing company and”;

(b) in paragraph 3—

(i) in sub-paragraph (2)(b), “(but see sub-paragraph (3) below)”;

(ii) 40sub-paragraph (3);

(iii) in sub-paragraph (4), “of paragraph 18(1)(b) and”;

(c) in the heading to Part 3, “investing company and”;

(d) paragraph 18 and the preceding italic heading;

(e) in paragraph 23(3), “a member of a trading group or”.