Finance (No. 3) Bill (HC Bill 282)

(3) Where an appeal is made, anything required by the notice to be paid
is due and payable as if there had been no appeal.

(4) Section 56 of TMA 1970 (payment of tax where further appeal)
applies in relation to any further appeal against the notice, but the
5relevant court or tribunal may, on the application of Her Majesty’s
Revenue and Customs, direct that section 56(2) does not apply to
anything required by the notice to be paid.

(5) A direction may be given if the relevant court or tribunal considers it
necessary for the protection of the revenue.

(6) 10In this section “relevant court or tribunal” has the same meaning as
in section 56 of TMA 1970.

608R Payment notice: effect of making payment etc

(1) This section applies where a notice under section 608O is given to a
person.

(2) 15A person who pays an amount in pursuance of the notice may
recover that amount from the taxpayer.

(3) In calculating the person’s income, profits or losses for any tax
purposes—

(a) a payment in pursuance of the notice is not allowed as a
20deduction, and

(b) the reimbursement of any such payment is not regarded as a
receipt.

(4) Any amount paid by the person in pursuance of the notice is to be
taken into account in calculating—

(a) 25the amount unpaid, and

(b) the amount due by virtue of any other notice under section
608O relating to the amount unpaid.

(5) Similarly, any payment by the taxpayer of any of the amount unpaid
is to be taken into account in calculating the amount due by virtue of
30the notice (or by virtue of any other notice under section 608O
relating to the amount unpaid).

Meaning of “control group” and “related person”

608S Control groups

(1) Two persons are in the same control group at any time if—

(a) 35they are consolidated for accounting purposes for a period
which includes that time,

(b) one of them has a 51% investment in the other at that time, or

(c) a third person has a 51% investment in each of them at that
time.

(2) 40Two persons are consolidated for accounting purposes for a period
if—

(a) their 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) their financial results for the period are in fact comprised in
5group accounts.

(3) In this section “group accounts” means accounts prepared under—

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

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

(4) 10For the meaning of having a 51% investment, see section 608U.

608T Related persons

(1) Two persons are “related” at any time if—

(a) at that time—

(i) they are in the same control group,

(ii) 15one of them has a 25% investment in the other, or

(iii) a third person has a 25% investment in both of them,
or

(b) at any time in the period of 6 months beginning or ending at
that time—

(i) 20one of them directly or indirectly participates in the
management, control or capital of the other, or

(ii) a third person directly or indirectly participates in the
management, control or capital of both of them.

(2) See—

• 25section 608S for the meaning of being in the same “control
  group”;

• section 608U for the meaning of having a 25% investment;

• section 608V for the meaning of direct or indirect participation
  in the management, control or capital of a person.

608U 30Meaning of “51% investment” and “25% investment”

(1) A person (P) has a 51% investment in another person (C) if any of the
following apply—

(a) P possesses or is entitled to acquire more than half of the
voting power in C;

(b) 35in the event of a disposal of the whole of the equity in C, P
would receive more than half of the proceeds;

(c) in the event that the income in respect of the equity in C were
distributed among the equity holders in C, P would receive
more than half of the amount so distributed;

(d) 40in the event of a winding-up of C or in any other
circumstances, P would receive more than half of C’s assets
which would then be available for distribution among the
equity holders in C in respect of the equity in C.

(2) A person (P) has a 25% investment in another person (C) where any
45paragraph of subsection (1) would apply if in that paragraph for
“more than half” there were substituted “at least a quarter”.

(3) Section 464(2) to (11) and section 465 of TIOPA 2010 apply for the
purposes of subsections (1) and (2) of this section.

(4) In the application of section 464(10) of TIOPA for the purposes of
subsection (1), the reference to a “25% investment” is to be read as a
5“51% investment”.

608V Meaning of direct or indirect participation in management, control or
capital

(1) This section applies for the purposes of section 608T.

(2) A person is directly participating in the management, control or
10capital of another person at a particular time only if section 157 of
TIOPA 2010 so provides.

(3) A person is indirectly participating in the management, control or
capital of another person at a particular time only if section 159 or 160
of TIOPA 2010 so provides.

15General

608W Anti-avoidance

(1) This section applies if a person has entered into any arrangements
the main purpose, or one of the main purposes, of which is to obtain
a tax advantage for the person as a result (wholly or partly) of—

(a) 20anything not being subject to the charge under section 608A,
or

(b) any provisions of double taxation arrangements having effect
in a case where the advantage is contrary to the object and
purpose of the provisions.

(2) 25The tax advantage is to be counteracted by the making of such
adjustments as are just and reasonable.

(3) The adjustments may be made (whether by an officer of Revenue and
Customs or the person) by way of an assessment, the modification of
an assessment, amendment or disallowance of a claim, or otherwise.

(4) 30Where this section applies by virtue of subsection (1)(b), the
counteraction has effect despite section 6(1) of TIOPA 2010.

(5) In this section “tax advantage” includes—

(a) relief or increased relief from tax,

(b) repayment or increased repayment of tax,

(c) 35avoidance or reduction of a charge to tax or an assessment to
tax,

(d) avoidance of a possible assessment to tax,

(e) deferral of a payment of tax or advancement of a repayment
of tax, and

(f) 40avoidance of an obligation to deduct or account for tax.

608X Interaction with other general provisions

(1) This section applies where section 608A applies in relation to a
person for a tax year (or would apply, if the following provisions of
this section applied).

(2) Part 6 (exempt income) does not apply in relation to UK-derived
amounts arising to the person in the tax year.

(3) For the purposes of calculating the person’s liability to income tax for
the tax year—

(a) 5Chapter 1 of Part 14 of ITA 2007 (limits on liability to income
tax of non-residents) does not apply in relation to UK-
derived amounts arising to the person in the tax year;

(b) accordingly, the person’s liability is the sum of—

(i) the person’s liability as regards UK-derived amounts
10(with that Chapter not applying), and

(ii) the person’s liability as regards anything else (with
that Chapter applying, to the extent it would
otherwise apply).

608Y Appeals against assessments

(1) 15This section applies where a person (“the taxpayer”) makes an
appeal in relation to an amount of income tax charged on the
taxpayer under section 608A.

(2) Section 55(3) to (8A) of TMA 1970 (application for postponement of
payment of tax pending appeal) do not apply in relation to the tax
20charged (and no agreement as to the postponement of payment of
any of that tax, or of interest on it, may be made).

(3) In the case of a further appeal, the relevant court or tribunal (as
defined by section 56 of TMA 1970) may, on the application of Her
Majesty’s Revenue and Customs, direct that section 56(2) of TMA
251970 does not apply to the tax charged.

(4) A direction may be given if the relevant court or tribunal considers it
necessary for the protection of the revenue.

(5) Nothing in this section applies in relation to a liability arising as a
result of the giving of a notice under section 608O.

30Interpretation: general

608Z Interpretation of Chapter: general

In this Chapter—

• “arrangements” includes any agreement, understanding,
  scheme, transaction or series of transactions (whether or not
  35legally enforceable);

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

• “control group” has the meaning given by section 608S;

• “double taxation arrangements” means arrangements that have
  40effect under section 2(1) of TIOPA 2010;

• “full treaty territory” has the meaning given by section 608E;

• “intangible property” has the meaning given by section 608H;

• “related”: references to two persons being related are to be read
  in accordance with section 608T;

• 45“resident”: references to being resident in a territory are to be
  read in accordance with section 608D;

Finance (No. 3) BillPage 194

• “UK-derived amount” has the meaning given by section 608F;

• “UK sales” has the meaning given by section 608F.”

5 In section 873(3) (procedure for orders and regulations) before paragraph (c)
insert—

“(ba) 5section 608N (offshore receipts in respect of intangible
property),”.

6 (1) TIOPA 2010 is amended as follows.

(2) In section 157(1) (direct participation)—

(a) omit the “and” at the end of paragraph (d);

(b) 10at the end of paragraph (e) insert “, and

(f) section 608T of ITTOIA 2005.”

(3) In section 159(1) (indirect participation: potential direct participant)—

(a) omit the “and” at the end of paragraph (d);

(b) at the end of paragraph (e) insert “, and

(f) 15section 608T of ITTOIA 2005.”

(4) In section 160(1) (indirect participation: one of several major participants)—

(a) omit the “and” at the end of paragraph (d);

(b) at the end of paragraph (e) insert “, and

(f) section 608T of ITTOIA 2005.”

7 20The amendments made by this Schedule have effect for the tax year 2019-20
and subsequent tax years.

8 In section 608W of ITTOIA 2005 (inserted by paragraph 4 of this Schedule)
the reference to arrangements is to arrangements made on or after 29
October 2018.

9 25The Treasury may by regulations make such amendments of the Tax Acts as
they consider appropriate in consequence of any of the preceding provisions
of this Schedule.

10 The Treasury may by regulations amend Chapter 2A of Part 5 of ITTOIA
2005 (inserted by paragraph 4 of this Schedule).

11 30Regulations under paragraph 10 may—

(a) make any provision that could be made by an Act;

(b) make incidental, supplementary, consequential or transitional
provision or savings.

The consequential provision that may be made includes provision
35amending any Act (or any instrument under an Act).

12 Regulations under paragraph 10 may not make provision having effect
before 29 October 2018.

13 No regulations under paragraph 10 may be made after 31 December 2019.

14 A statutory instrument containing (whether alone or with other provision)
40regulations under paragraph 10 may not be made unless a draft of the
instrument has been laid before and approved by a resolution of the House
of Commons.

Section 16

SCHEDULE 4 Avoidance involving profit fragmentation arrangements

Introduction and overview

1 (1) This Schedule contains provision about countering the tax effects of certain
5arrangements (“profit fragmentation arrangements”).

(2) Profit fragmentation arrangements involve the following parties—

(a) a person resident in the United Kingdom (“the resident party”),

(b) an overseas person or entity (“the overseas party”) who is not
resident in the United Kingdom, and

(c) 10an individual (a “related individual”) who is—

(i) the resident party,

(ii) a member of a partnership of which the resident party is a
partner, or

(iii) a participator in a company which is the resident party.

(3) 15An “overseas person or entity” means—

(a) a person abroad within the meaning given by section 718 of ITA
2007, or

(b) a company, partnership, trust or other entity or arrangements
established or having effect under the law of a country or territory
20outside the United Kingdom (regardless of whether it has legal
personality as a body corporate).

(4) Paragraphs 2 to 6 deal with the definition of profit fragmentation
arrangements.

(5) Paragraph 7 deals with the adjustments which must be made to counteract
25the effects of such arrangements.

(6) Other provisions of this Schedule—

(a) deal with double taxation and the tax treatment of reimbursement
payments (paragraphs 8 and 9), and

(b) deal with interpretation and commencement (paragraphs 10 to 12).

30Profit fragmentation arrangements

2 (1) Arrangements are “profit fragmentation arrangements” if—

(a) provision has been made or imposed as between the resident party
and the overseas party by means of the arrangements (“the material
provision”),

(b) 35as a result of the material provision, value is transferred from the
resident party to the overseas party which derives directly or
indirectly from the profits of a business chargeable to income tax or
corporation tax (see paragraph 3),

(c) the value transferred is greater than it would have been if it had
40resulted from provision made or imposed as between independent
parties acting at arm’s length, and

(d) any of the enjoyment conditions are met in relation to a related
individual (see paragraph 4).

(2) But arrangements are not “profit fragmentation arrangements” if—

(a) the material provision does not result in a tax mismatch for a tax
period of the resident party (see paragraphs 5 and 6), or

(b) it is not reasonable to conclude that the main purpose, or one of the
main purposes, for which the arrangements were entered into was to
5obtain a tax advantage.

(3) For the purposes of sub-paragraph (1)(a) provision made or imposed as
between a partnership of which the resident party is a member and the
overseas party is to be regarded as provision made or imposed as between
the resident party and the overseas party.

10Transfer of value deriving directly or indirectly from a business

3 (1) In determining whether value deriving directly or indirectly from a business
is transferred from the resident party to the overseas party, account is to be
taken of any method, however indirect, by which—

(a) any property or right is transferred or transmitted, or

(b) 15the value of any property or right is enhanced or diminished.

(2) Sub-paragraph (1) applies in particular to—

(a) sales, contracts and other transactions made otherwise than for full
consideration or for more than full consideration,

(b) any method by which any property or right, or the control of any
20property or right, is transferred or transmitted by assigning—

(i) share capital or other rights in a company,

(f) rights in a partnership, or

(f) an interest in settled property,

(c) the creation of an option affecting the disposition of any property or
25right and the giving of consideration for granting it,

(d) the creation of a requirement for consent affecting such a disposition
and the giving of consideration for granting it,

(e) the creation of an embargo affecting such a disposition and the
giving of consideration for releasing it, and

(f) 30the disposal of any property or right on the winding up, dissolution
or termination of a company, partnership or trust.

(3) Value may be traced through any number of individuals, companies,
partnerships, trusts and other entities or arrangements.

(4) The property held by a company, partnership, trust or other entity or under
35any arrangements must be attributed to the shareholders, partners or
members, beneficiaries or other participants at each stage on a just and
reasonable basis.

The enjoyment conditions

4 (1) The enjoyment conditions are met in relation to a related individual if—

(a) 40it is reasonable to conclude that some or all of the value transferred
as a result of the material provision relates to something done by, or
any property or purported right of, the individual, and

(b) either of the conditions in sub-paragraph (2) is met.

(2) The conditions are that—

(a) 45under the arrangements—

(i) the value transferred, or part of it, is so dealt with by any
person as to be calculated at some time to enure for the
benefit of the individual,

(ii) the value transferred, or part of it, operates to increase the
5value of any assets which the individual holds or are held for
the benefit of the individual,

(iii) the individual receives or is entitled to receive any benefit
provided or to be provided out of the value transferred or
part of it,

(iv) 10the individual may become entitled to the beneficial
enjoyment of the value transferred, or part of it, if one or
more powers are exercised or successively exercised (and for
those purposes it does not matter who may exercise the
powers or whether they are exercisable with or without the
15consent of another person), or

(v) the individual (whether acting alone or together with any
other person) is able in any manner to control directly or
indirectly the application of the value transferred or part of it,
or

(b) 20it is reasonable to conclude that the individual (whether acting alone
or with any other person) procured the transfer of value from the
resident party to the overseas party in such a way as to avoid the
conditions in paragraph (a) being met.

(3) In determining whether the conditions in sub-paragraph (2)(a) are met in
25relation to an individual and the value transferred as a result of the material
provision, all benefits which may at any time accrue to a person as a result
of the value being transferred must be taken into account, irrespective of—

(a) the nature or form of the benefits, or

(b) whether the person has legal or equitable rights in respect of the
30benefits.

(4) For the purposes of sub-paragraphs (2) and (3), references to an individual
include a reference to any person connected with that individual and, for the
purposes of this paragraph, section 993 of ITA 2007 (meaning of
“connected”) has effect but as if—

(a) 35subsection (4) of that section were omitted, and

(b) members of a partnership in which the individual is also a member
were not “associates” of the individual for the purposes of sections
450 and 451 of CTA 2010 (“control”).

(5) For the purposes of sub-paragraph (4), an individual is treated as connected
40with a person or entity if—

(a) the individual or a person connected with the individual (whether
acting alone or with any other person)—

(i) is able to secure that the person or entity acts in accordance
with the wishes of the individual or any person connected
45with the individual,

(ii) is able to acquire rights which would enable the individual or
any person connected with the individual to secure that the
person or entity acts in accordance with the wishes of the
individual or any person connected with the individual, or

(iii) is able to exercise significant influence over the person or
entity (whether or not as a result of a legal entitlement of the
individual or any person connected with the individual), or

(b) the person or entity can reasonably be expected to act, or typically
5acts, in accordance with the wishes of the individual or a person
connected with the individual.

Tax mismatch

5 (1) The material provision results in a tax mismatch for a tax period of the
resident party if—

(a) 10in that period, in relation to a relevant tax, it results in one or both
of—

(i) an increase in the expenses of the resident party for which a
deduction is taken into account in calculating the amount of
the relevant tax payable by the resident party, or

(ii) 15a reduction in the income of the resident party which would
otherwise have been taken into account in calculating the
amount of the relevant tax payable by the resident party,

(b) it is reasonable to conclude that—

(i) the resulting reduction in the amount of the relevant tax
20which is payable by the resident party exceeds the resulting
increase in relevant taxes payable by the overseas party for
the period corresponding to the tax period, and

(ii) the overseas party does not meet the 80% payment test, and

(c) the results described in paragraphs (a) and (b)(i) are not exempted by
25sub-paragraph (5).

(2) In this Schedule references to “the tax reduction” are to the amount of the
excess mentioned in sub-paragraph (1)(b)(i).

(3) It does not matter whether the tax reduction results from the application of
different rates of tax, the operation of a relief, the exclusion of any amount
30from a charge to tax, or otherwise.

(4) “The 80% payment test” is met by the overseas party if the resulting increase
in relevant taxes paid by that party as mentioned in sub-paragraph (1)(b)(i)
is at least 80% of the amount of the resulting reduction in the amount of the
relevant tax payable by the resident party.

(5) 35The results described in sub-paragraph (1)(a) and (b)(i) are exempted if they
arise solely by reason of—

(a) contributions paid by an employer under a registered pension
scheme, or overseas pension scheme, in respect of any individual,

(b) a payment to a charity,

(c) 40a payment to a person who, on the ground of sovereign immunity,
cannot be liable for any relevant tax, or

(d) a payment to an offshore fund or authorised investment fund—

(i) which meets the genuine diversity of ownership condition
(whether or not a clearance has been given to that effect), or

(ii) 45at least 75% of the investors in which are, throughout the
accounting period, registered pension schemes, overseas
pension schemes, charities or persons who cannot be liable
for any relevant tax on the ground of sovereign immunity.

(6) In this paragraph and paragraph 6, where the overseas party does not have
an actual period for the purposes of relevant taxes which coincides with the
tax period of the resident party—

(a) references to the corresponding period of the overseas party in
5relation to that tax period are to a notional period of that party for the
purposes of relevant taxes that would coincide with that tax period,
and

(b) such apportionments as are just and reasonable are to be made to
determine the income or tax liability of that party for that
10corresponding period.

(7) In this paragraph—

• “relevant tax” means—

  (a)

  income tax,

  (b)

  corporation tax on income,

  (c)

  15a sum chargeable under section 269DA of CTA 2010
  (surcharge on banking companies) as if it were an amount of
  corporation tax,

  (d)

  a sum chargeable under section 330(1) of CTA 2010
  (supplementary charge in respect of ring fence trades as if it
  20were an amount of corporation tax), or

  (e)

  any non-UK tax on income, and

• “tax period”, in relation to a resident party, means—

  (a)

  a tax year, or

  (b)

  if the resident party is a company, an accounting period of
  25that party.

Tax mismatch: resulting reduction and resulting increase

6 (1) For the purposes of paragraph 5, the resulting reduction in the resident
party’s liability to a relevant tax for a tax period is—

40For this purpose, the rate at which those profits would be chargeable to that
tax for that period is the highest rate at which that tax would be chargeable
for that period if those profits were added to the resident party’s total
income.

(2) For the purposes of paragraph 5(1)(b) and (5), the resulting increase in
45relevant taxes payable by the overseas party for the period corresponding to
the tax period is any increase in the total amount of relevant taxes that would
fall to be paid by that party (and not refunded) assuming that—