Finance (No. 2) Bill (151)

Finance (No. 2) BillPage 100

Group ratio: leaving R&D expenditure credits out of account

6 In section 416 (meaning of “the group-EBITDA”), after subsection (2)
insert—

(2A) An amount is not to be taken into account in calculating a worldwide
5group’s profit before tax for the purposes of subsection (2) if it is, or
relates to, an R&D expenditure credit within the meaning of section
104A of CTA 2009.”

Public infrastructure

7 (1) Section 433 (meaning of “qualifying infrastructure company”) is amended as
10follows.

(2) In subsection (1)(c), for “(see subsection (11))” substitute “(see subsections
(11) and (12))”.

(3) In subsection (11)(a), for “activity that the company carries on” substitute
“source of income that the company has”.

(4) 15After subsection (11) insert—

(12) In determining whether the condition in subsection (11)(a) is met in
the case of a company not resident in the United Kingdom in an
accounting period, a source of income of the company is ignored if,
having regard to all the circumstances, it is reasonable to regard as
20insignificant the amount of income arising in the accounting period
from the source.”

8 (1) Section 434 (elections under section 433) is amended as follows.

(2) In subsection (1)(a), for “the beginning” substitute “the end”.

(3) In subsection (5), after paragraph (a) (but before the “and” at the end of it)
25insert—

(ab) the time of the transfer falls in a period of account of a
worldwide group of which both the transferor and transferee
are members,”.

9 (1) Section 436 (meaning of “qualifying infrastructure activity”) is amended as
30follows.

(2) In subsection (2)(d), for “(see subsection (10))” substitute “(see subsections
(10) and (10A))”.

(3) After subsection (10) insert—

(10A) In determining whether the condition in subsection (10)(b) is met in
35relation to a company not resident in the United Kingdom at any
time, a source of income of the company is ignored if, having regard
to all the circumstances, it is reasonable to regard as insignificant the
amount of income arising from the source for the accounting period
including that time.”

10 40In section 443 (interest capacity for group with qualifying infrastructure
company etc), for subsection (2) substitute—

(2) There is an exception to the general rule (see subsections (4) and (5))
which—

Finance (No. 2) BillPage 101

(a) applies if no tax-interest income amounts of any qualifying
infrastructure company (“Q”) which is a member of the
group for the period are receivable from another qualifying
infrastructure company which is not a member of the group
5for the period but is a related party of Q at any time in that
period, and

(b) depends on the comparison set out in subsection (3),

and, for the purposes of paragraph (a), tax-interest income amounts
are to be ignored if, having regard to all the circumstances, it is
10reasonable to regard the amounts as insignificant.”

11 In section 444 (joint venture companies), in subsection (1), after “a qualifying
infrastructure company (“the joint venture company”)” insert “which is the
ultimate parent of a worldwide group at all times in that period”.

Identifying members of a worldwide group

12 15After section 454 insert—

“Investment managers
454A Investments held by investment managers

(1) This section applies where—

(a) an entity (“S”) is a member of a worldwide group as a result
20of one or more other members of the group managing S and
holding rights or interests in relation to S,

(b) the entity managing S does so in the ordinary course of
carrying on a business of providing investment management
services, and

(c) 25the management of S is not coordinated to any extent with
the management by any person of any other entity.

(2) For the purposes of this Part—

(a) the group does not include entities that are subsidiaries of S,
and

(b) 30accordingly, none of those entities is regarded as a
consolidated subsidiary of any member of the group.

(3) In this section “subsidiary” has the meaning given by international
accounting standards.”

13 (1) Section 475 (meaning of “non-consolidated subsidiary” and “consolidated
35subsidiary”) is amended as follows.

(2) In subsection (1)(b), at the end insert “or on the basis that X were an asset
held for sale or held for distribution to owners”.

(3) For subsection (3) substitute—

(3) In this section each of the following expressions has the meaning
40given by international accounting standards—

  • “held for distribution to owners”

  • “held for sale”

  • “subsidiary”.”

Finance (No. 2) BillPage 102

Interest restriction returns

14 (1) Paragraph 9 of Schedule 7A (extended period for submission of full return
in place of abbreviated return) is amended as follows.

(2) In sub-paragraph (1)(a), omit “abbreviated”.

(3) 5In sub-paragraph (2)—

(a) for “a full interest restriction return” substitute “an interest
restriction return”, and

(b) after “paragraph 8” insert “which is a full interest restriction return”.

(4) In the italic heading before that paragraph, for “in place of abbreviated
10return” substitute “for period where no restriction”.

15 (1) Paragraph 70 of Schedule 7A (cases where company treated as amending
return) is amended as follows.

(2) In sub-paragraph (1), for “is treated as having amended” substitute “must
amend”.

(3) 15After that sub-paragraph insert—

(1A) The amendment must be made before whichever is the later of—

(a) the end of the period of 3 months beginning with the day
on which the interest restriction return was submitted, or

(b) the time limit given by paragraph 15(4) of Schedule 18 to
20FA 1998.”

(4) For the italic heading before that paragraph substitute “Other cases where
company must amend its return etc”.

16 After paragraph 70 of Schedule 7A insert—

“Failure to comply with a requirement to amend company tax return

70A (1) 25This paragraph applies if a company—

(a) is required, as a result of paragraph 69(2), (3) or (6) or 70(1),
to make an amendment of its company tax return for an
accounting period, and

(b) has failed to make the required amendment by the
30amendment deadline.

(2) The company is liable to a penalty of £500.

(3) At any time before the end of the period of 12 months beginning
with the amendment deadline, an officer of Revenue and Customs
may, to the best of the officer’s information and belief, make the
35required amendments of the company tax return.

(4) If an officer of Revenue and Customs amends the company tax
return under sub-paragraph (3), the company may amend the
return so as to correct the amendments made by the officer.

(5) An amendment under sub-paragraph (4) must be made before the
40end of the period of 3 months beginning with the day on which the
officer amends the return under sub-paragraph (3) (and the time

Finance (No. 2) BillPage 103

limit for amending a company tax return given by paragraph 15(4)
of Schedule 18 to FA 1998 is subject to this sub-paragraph).

(6) Paragraph 29(3) to (7) apply in relation to a penalty under this
paragraph as they apply in relation to a penalty under paragraph
529 but as if the reference in paragraph 29(4) to the filing date were
to the amendment deadline.

(7) In this paragraph “the amendment deadline” means the end of the
period for the making of the amendment given by paragraph
69(2), (4) or (6) or 70(1A).”

17 (1) 10Paragraph 71 of Schedule 7A (regulations for purposes of paragraph 70 etc)
is amended as follows.

(2) In sub-paragraph (1)(a), for “paragraph 70” substitute “paragraph 70(2)”.

(3) In the italic heading before that paragraph, for “paragraph 70” substitute
“paragraph 70(2)”.

15Other amendments

18 In section 378 (disallowed tax-interest expense amounts carried forward), in
subsections (3) and (6), omit “the later accounting period or”.

19 In section 393(5)(a) (amount of interest allowance for a period that is
“available” in a later period), for “is made” substitute “has effect”.

20 (1) 20Section 411 (meaning of “relevant expense amount” and “relevant income
amount”) is amended as follows.

(2) In subsection (1)—

(a) in paragraph (b), after “loan relationship” insert “or related
transaction”, and

(b) 25in paragraph (h), after “debt factoring” insert “or any similar
transaction”.

(3) In subsection (2)(f), after “debt factoring” insert “or any similar transaction”.

21 (1) Section 412 (section 411: interpretation) is amended as follows.

(2) In subsection (1)—

(a) 30in the opening words, after “a loan relationship” insert “or related
transaction”,

(b) after paragraph (a) insert—

(ab) in entering into or giving effect to, or attempting to
enter into or give effect to, the related transaction,”,

(c) 35in paragraph (b), after “the loan relationship” insert “or as a result of
the related transaction”, and

(d) in paragraph (c), after “the loan relationship” insert “or in accordance
with the related transaction”.

(3) In subsection (6)—

(a) 40in paragraph (a), for “(1)(c)” substitute “(1)(b) and (c)”, and

(b) in paragraph (b), for “(1)(e)” substitute “(1)(e) and (f)”.

Finance (No. 2) BillPage 104

Commencement

22 (1) The amendments made by paragraphs 2 to 5, 10 and 13 have effect in relation
to periods of account of worldwide groups that begin on or after 1 January
2018.

(2) 5The following provisions apply if—

(a) financial statements of a worldwide group are drawn up by or on
behalf of the ultimate parent in respect of a period that begins before,
and ends on or after, 1 January 2018,

(b) the period in respect of which the financial statements are drawn up
10is 18 months or less, and

(c) the financial statements are drawn up before the end of the period of
30 months beginning with the period in respect of which they are
drawn up.

(3) In this paragraph—

(a) 15“the group’s actual financial statements” means the financial
statements mentioned in sub-paragraph (2), and

(b) “the straddling period of account” means the period in respect of
which those financial statements are drawn up.

(4) For the purposes of Part 10 of TIOPA 2010, the group’s actual financial
20statements are treated as not having been drawn up.

(5) Instead, financial statements of the worldwide group are treated for those
purposes as having been drawn up in respect of each of the following
periods—

(a) the period beginning at the time the straddling period of account
25begins and ending with 31 December 2017, and

(b) the period beginning with 1 January 2018 and ending at the time the
straddling period of account ends.

(6) If condition C or D in section 481 of TIOPA 2010 is met in relation to the
group’s actual financial statements, the financial statements treated as
30drawn up by sub-paragraph (5) are treated as drawn up in accordance with
the generally accepted accounting principles and practice with which the
group’s actual financial statements were drawn up.

(7) If neither of those conditions is met in relation to the group’s actual financial
statements, the financial statements treated as drawn up by sub-paragraph
35(5) are IAS financial statements.

(8) If, for the purpose of determining amounts recognised in the financial
statements treated as drawn up by sub-paragraph (5), it is expedient to
apportion any amount that is recognised in the group’s actual financial
statements, the apportionment is to be made in accordance with section 1172
40of CTA 2010 (apportionment on a time basis).

(9) But if it appears that apportionment in accordance with that section would
work unjustly or unreasonably, the apportionment is to be made on a just
and reasonable basis.

(10) Expressions used in this paragraph and in Part 10 of TIOPA 2010 have the
45same meaning in this paragraph as they have in that Part.

Finance (No. 2) BillPage 105

23 (1) Part 10 of TIOPA 2010 has effect, and is to be deemed always to have had
effect, with the amendments set out in paragraphs 6 to 9, 12 and 18 to 21.

(2) But, in the case of the amendment set out in paragraph 6 or 12, the reporting
company of the worldwide group for any period of account beginning
5before 1 January 2018 may make an election for the amendment to have no
effect in relation to the period of account.

(3) Paragraph 12 of Schedule 7A to TIOPA 2010 applies to an election under
sub-paragraph (2).

(4) Expressions used in this paragraph and in Part 10 of TIOPA 2010 have the
10same meaning in this paragraph as they have in that Part.

24 The amendment made by paragraph 11 has effect in relation to accounting
periods beginning on or after 1 January 2018.

25 The amendments made by paragraph 15 have effect in relation to interest
restriction returns whenever submitted.

26 15The amendment made by paragraph 16 does not have effect in relation to
any case where a company tax return is amended before the day on which
this Act is passed.

Part 2 Other amendments

27 20In section 9A of CTA 2010 (designated currency of a UK resident investment
company), in subsection (7)—

(a) in the definition of “financial statements of the group”, for “(within
the meaning of section 351 of TIOPA 2010)” substitute “(and for this
purpose “subsidiaries” has the meaning given by international
25accounting standards)”, and

(b) for the definition of “Y’s group” substitute—

  • ““Y’s group” means a worldwide group of which Y is
    the ultimate parent within the meaning of Part 10 of
    TIOPA 2010,”.

28 30The amendment made by paragraph 27 has effect in relation to elections that
are made on or after 1 January 2018.

Section 33

SCHEDULE 9 Bank levy

Part 1 35Chargeable equity and liabilities

Introductory

1 Part 4 of Schedule 19 to FA 2011 (bank levy: chargeable equity and liabilities)
is amended as follows.

Finance (No. 2) BillPage 106

Chargeable equity and liabilities: relevant groups and relevant entities

2 For paragraphs 15 to 23 (and the italic heading preceding paragraph 15)
substitute—

“Chargeable equity and liabilities: relevant groups

15 (1) 5This paragraph applies if the bank levy is charged as provided for
by paragraph 4 (groups).

(2) The amount of the chargeable equity and liabilities of the relevant
group is the total of—

(a) the UK-based equity and liabilities, as at the end of the
10chargeable period, of—

(i) each UK sub-group, and

(ii) each chargeable UK resident entity, and

(b) if a relevant foreign bank is a member of the relevant
group, the UK allocated equity and liabilities of that bank
15as at the end of the chargeable period (see paragraph 24).

Chargeable equity and liabilities: relevant entities

15A (1) This paragraph applies if the bank levy is charged as provided for
by paragraph 5 (entities which are not members of groups).

(2) The amount of the chargeable equity and liabilities of the relevant
20entity is—

(a) in the case of a UK resident bank or building society, the
amount of the UK-based equity and liabilities of the entity,
as at the end of the chargeable period, or

(b) in the case of a relevant foreign bank, the amount of the UK
25allocated equity and liabilities of that bank as at the end of
the chargeable period (see paragraph 24).

Meaning of “UK sub-group”

15B UK sub-group” means a group of entities—

(a) which is a group for the purposes of those provisions of
30international accounting standards which relate to the
preparation of consolidated financial statements,

(b) which has as its parent or parent undertaking for the
purposes of those provisions an entity which is—

(i) if the relevant group is a relevant non-banking
35group, a UK resident bank, or

(ii) in any other case, a UK resident entity,

(c) the members of which, for the purposes of those
provisions, are all members of the relevant group,

(d) in respect of which consolidated financial statements for
40the chargeable period are prepared under international
accounting standards, and

(e) the members of which are not members of any larger
group of entities, in respect of which the conditions in
paragraphs (a) to (c) are met, for which such financial
45statements are prepared.

Finance (No. 2) BillPage 107

Meaning of “chargeable UK resident entity”

15C (1) “Chargeable UK resident entity” means a UK resident entity
which—

(a) is a member of the relevant group, but is not a member of
5a UK sub-group, and

(b) if the relevant group is a relevant non-banking group, is a
banking entity.

(2) A UK resident entity is a “banking entity” for the purposes of sub-
paragraph (1) if it is—

(a) 10a UK resident bank, or

(b) a subsidiary of a UK resident bank.

(3) In sub-paragraph (2)(b) “subsidiary” has the meaning given by
those provisions of international accounting standards which
relate to the preparation of consolidated financial statements.

15Election to disregard non-UK allocated equity and liabilities

15D (1) This paragraph applies if—

(a) the bank levy is charged as provided for by paragraph 4
(groups), and

(b) a UK resident entity, which is a member of the relevant
20group, has a foreign permanent establishment.

(2) For the purposes of this Part of this Schedule, a UK resident entity
“has a foreign permanent establishment” if the entity carries on a
trade in a territory outside the United Kingdom through a
permanent establishment (the “foreign permanent
25establishment”) in that territory.

(3) The relevant group’s responsible member may, for the purposes
of determining the UK-based equity and liabilities of a UK sub-
group or a chargeable UK resident entity, elect to disregard the
non-UK allocated equity and liabilities attributable to—

(a) 30any or all of the foreign permanent establishments of any
or all of the UK resident entities which are members of the
UK sub-group;

(b) any or all of the foreign permanent establishments of the
chargeable UK resident entity.

(4) 35See paragraph 15Z1 for further provision about non-UK allocated
equity and liabilities.

15E (1) This paragraph applies if—

(a) the bank levy is charged as provided for by paragraph 5
(entities which are not members of groups), and

(b) 40the relevant entity is a UK resident entity which has a
foreign permanent establishment.

(2) The relevant entity may, for the purposes of determining its UK-
based equity and liabilities, elect to disregard the non-UK
allocated equity and liabilities attributable to any or all of its
45foreign permanent establishments.

Finance (No. 2) BillPage 108

15F (1) An election made under paragraph 15D or 15E in respect of a UK
resident entity—

(a) must be made in the form and manner specified by the
Commissioners for Her Majesty’s Revenue and Customs,

(b) 5must contain such information and declarations as the
Commissioners may require, and

(c) may be revoked at any time—

(i) in the case of an election under paragraph 15D, by
the relevant group’s responsible member;

(ii) 10in the case of an election under paragraph 15E, by
the relevant entity.

(2) In this Schedule, “designated FPE entity” means a UK resident
entity in respect of which an election is made under paragraph
15D or 15E.

15Determining the assets, equity and liabilities of UK resident entities

15G (1) This paragraph applies, in relation to a UK resident entity, for the
purposes of paragraphs 15H(2), 15L(3) and 15Z1.

(2) The assets, equity and liabilities, as at the end of the chargeable
period, of the entity are to be determined by reference to—

(a) 20the amounts recognised in the entity’s financial statements
for the chargeable period as prepared under international
accounting standards, or

(b) if no such financial statements are prepared, the amounts
which would have been so recognised had such financial
25statements been prepared under international accounting
standards.

Determining the UK-based equity and liabilities of UK resident entities

15H (1) This paragraph applies in relation to a UK resident entity, other
than a designated FPE entity, which is—

(a) 30where the bank levy is charged as provided for by
paragraph 4 (groups), a chargeable UK resident entity;

(b) where the bank levy is charged as provided for by
paragraph 5 (entities which are not members of groups),
the relevant entity.

(2) 35To determine the UK-based equity and liabilities of the UK
resident entity, as at the end of the chargeable period—

(a) determine the amount of the entity’s equity and liabilities,
in accordance with paragraph 15G(2), and

(b) adjust that amount in accordance with paragraph 15N.

15I (1) 40This paragraph applies in relation to a designated FPE entity
which is—

(a) where the bank levy is charged as provided for by
paragraph 4 (groups), a chargeable UK resident entity;

(b) where the bank levy is charged as provided for by
45paragraph 5 (entities which are not members of groups),
the relevant entity.

Finance (No. 2) BillPage 109

(2) To determine the UK-based equity and liabilities of the entity, as
at the end of the chargeable period, take Steps 1 to 5 in paragraph
15Z1.

Determining the UK-based equity and liabilities of UK sub-groups

15J (1) 5This paragraph applies in relation to a UK sub-group if—

(a) each member of the UK sub-group is a UK resident entity,

(b) none of those members is a designated FPE entity, and

(c) the relevant group’s responsible member has not made an
entity-by-entity election (see paragraph 15L) in relation to
10the UK sub-group.

(2) The assets, equity and liabilities, as at the end of the chargeable
period, of the UK sub-group are to be determined by reference to
the amounts recognised in the sub-group’s consolidated financial
statements for the chargeable period.

(3) 15To determine the UK-based equity and liabilities of the UK sub-
group, as at the end of the chargeable period—

(a) determine the amount of the UK sub-group’s equity and
liabilities in accordance with sub-paragraph (2), and

(b) adjust that amount in accordance with paragraph 15N.

15K (1) 20This paragraph applies in relation to a UK sub-group if—

(a) at least one member of the UK sub-group is—

(i) a non-UK resident entity, or

(ii) a designated FPE entity, and

(b) the relevant group’s responsible member has not made an
25entity-by-entity election (see paragraph 15L) in relation to
the UK sub-group.

(2) In this Schedule, “residual UK sub-group” means, in relation to a
UK sub-group to which this paragraph applies, the group of
entities consisting of the members of the UK sub-group which—

(a) 30are UK resident entities, but

(b) are not designated FPE entities.

(3) The assets, equity and liabilities of the residual UK sub-group are
to be determined by reference to the amounts which, if financial
statements had been prepared for the residual UK sub-group for
35the chargeable period under international accounting standards,
would have been recognised in those statements.

(4) The amount of the UK-based equity and liabilities of the UK sub-
group, as at the end of the chargeable period, is the total amount
of—

(a) 40the equity and liabilities of the residual UK sub-group as at
the end of that period, adjusted in accordance with
paragraph 15N, and

(b) the adjusted equity and liabilities of each designated FPE
entity which is a member of the UK sub-group (see Step 5
45in paragraph 15Z1).