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

(a) the overseas party’s income for that period, in consequence of the
material provision were an amount equal to A,

(b) account were taken of any deduction or relief (other than any
qualifying deduction or qualifying loss relief) taken into account by
5the overseas party in determining that party’s actual liability to any
relevant taxes in consequence of the material provision, and

(c) all further reasonable steps were taken—

(i) under the law of any part of the United Kingdom or any
country or territory outside the United Kingdom, and

(ii) 10under double taxation arrangements made in relation to any
country or territory,

to minimise the amount of tax which would fall to be paid by the
overseas party in the country or territory in question (other than
steps to secure the benefit of any qualifying deduction or qualifying
15loss relief).

(3) The steps mentioned in sub-paragraph (2)(c) include—

(a) claiming, or otherwise securing the benefit of, reliefs, deductions,
reductions or allowances, and

(b) making elections for tax purposes.

(4) 20For the purposes of this paragraph, any withholding tax which falls to be
paid on payments made to the overseas party is (unless it is refunded) to be
treated as tax which falls to be paid by that party (and not the person making
the payment).

(5) For the purposes of this paragraph, an amount of tax payable by the overseas
25party is refunded if and to the extent that—

(a) any repayment of tax, or any payment in respect of a credit for tax, is
made to any person, and

(b) that repayment or payment is directly or indirectly in respect of the
whole or part of the amount of tax payable by the overseas party,

30but an amount refunded is to be ignored if and to the extent that it results
from qualifying loss relief obtained by that party.

(6) Where some or all of the overseas party’s income is treated for the purposes
of a relevant tax charged under the law of a country or territory outside the
United Kingdom as the income of a person or persons other than the
35overseas party, in paragraph 5 and this paragraph—

(a) references to that party’s liability to any tax (however expressed)
include a reference to the liabilities of that person or those persons to
the relevant tax,

(b) references to any tax being payable by that party (however
40expressed) include a reference to the relevant tax being payable by
that person or those persons, and

(c) references to loss relief obtained by that party include a reference to
loss relief obtained by that person or those persons,

and sub-paragraph (4) applies to that person or any of those persons as it
45applies to that party.

(7) In this paragraph—

• “qualifying deduction” means a deduction which—

  (a)

  is made in respect of actual expenditure of the overseas party,

  (b)

  does not arise directly from the arrangements,

  Finance (No. 3) BillPage 201

  (c)

  is of a kind for which the resident party would have obtained
  a deduction in calculating that party’s liability to any income
  tax or corporation tax had that party incurred the
  expenditure in respect of which the deduction is given, and

  (d)

  5does not exceed the amount of the deduction that the resident
  party would have so obtained,

• “qualifying loss relief” means any means by which a loss might be used
  for tax purposes to reduce the amount in respect of which the
  overseas party is liable to tax on the profits of a business, and

• 10“relevant tax” has the same meaning as in paragraph 5.

Adjustments required to be made in relation to arrangements

7 (1) Adjustments must be made so as to counteract the tax advantages that
would (ignoring this Schedule) arise from profit fragmentation
arrangements.

(2) 15The adjustments—

(a) must relate to the expenses, income, profits or losses of the resident
party for the tax period in which value is transferred as a result of the
material provision,

(b) must be based on what the value transferred would have been if it
20had resulted from a provision made or imposed as between
independent parties acting at arm’s length, and

(c) must be just and reasonable.

(3) References in this paragraph to “the resident party” are references to the
resident party at the time at which the material provision is made or
25imposed.

Double taxation

8 (1) This paragraph applies where—

(a) the resident party has paid a relevant tax by virtue of the application
of paragraph 7,

(b) 30at any time, the resident party or another person pays—

(i) a further amount of the relevant tax, or

(ii) an amount of non-UK tax corresponding to the relevant tax,
and

(c) the result is a double payment of tax calculated by reference to the
35same income or profits.

(2) In order to avoid the double payment of tax, the resident party may make a
claim in writing for one or more consequential adjustments to be made in
respect of the tax paid mentioned in sub-paragraph (1)(a).

(3) On a claim under this paragraph an officer of Revenue and Customs must
40make such of the consequential adjustments claimed (if any) as are just and
reasonable.

(4) The amount of any consequential adjustments must not exceed the lesser
of—

(a) the tax paid by the resident party as mentioned in sub-paragraph
45(1)(a), and

(f) the tax paid as mentioned in sub-paragraph (1)(b).

(5) Consequential adjustments may be made—

(a) in respect of any tax period,

(f) by way of an assessment, the modification of an assessment, the amendment of a claim or otherwise, and

(f) despite any time limit imposed by or under any enactment.

5Reimbursement payments ignored for tax purposes

9 In calculating income, profits or losses for any tax purposes, no account is to
be taken of any amount which is paid (directly or indirectly) by a person for
the purposes of meeting or reimbursing the cost of tax charged on the
resident party by virtue of the application of paragraph 7.

10Treatment of a person who is a member of a partnership

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

(2) Any references in this Schedule to the expenses, income, profits or losses of,
or to the adjustment of the expenses, income, profits or losses of, the person
includes a reference to the person’s share of the expenses, income, profits or
15losses of, or adjustment of the expenses, income, profits or losses of, the
partnership.

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

20Other defined terms

11 In this Schedule—

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

• 25“authorised investment fund” means—

  (a)

  an open-ended investment company within the meaning of
  section 613 of CTA 2010, or

  (b)

  an authorised unit trust within the meaning of section 616 of
  that Act,

• 30“business” includes any trade, profession or vocation,

• “employer” has the same meaning as in Part 4 of FA 2004 (see section
  279(1) of that Act),

• “genuine diversity of ownership condition” means—

  (a)

  in the case of an offshore fund, the genuine diversity of
  35ownership condition in regulation 75 of the Offshore Funds
  (Tax) Regulations 2009 (S.I. 2009/3001S.I. 2009/3001), and

  (b)

  in the case of an authorised investment fund, the genuine
  diversity of ownership condition in regulation 9A of the
  Authorised Investment Fund (Tax) Regulations 2006 (S.I.
  402006/964),

• “material provision” has the same meaning as in paragraph 2,

• “non-UK tax” has the meaning given by section 187 of CTA 2010,

• “offshore fund” has the same meaning as in section 354 of TIOPA 2010
  (see section 355 of that Act),

Finance (No. 3) BillPage 203

• “the overseas party” has the meaning given by paragraph 1(2),

• “overseas pension scheme” has the same meaning as in Part 4 of FA
  2004 (see section 150(7) of that Act),

• “participator” has the same meaning as in Part 10 of CTA 2010 (see
  5section 454 of that Act),

• “partnership” includes an entity established under the law of a country
  or territory outside the United Kingdom of a similar character to a
  partnership, and “member” of a partnership is to be construed
  accordingly,

• 10“related individual” and “the resident party” have the meanings given
  by paragraph 1(2),

• “tax advantage” includes—

  (a)

  relief or increased relief from income tax or corporation tax,

  (b)

  repayment or increased repayment of income tax or
  15corporation tax,

  (c)

  avoidance or reduction of a charge or an assessment to
  income tax or corporation tax,

  (d)

  avoidance of a possible assessment to income tax or
  corporation tax,

  (e)

  20deferral of a payment of tax or advancement of a repayment
  of tax, and

  (f)

  avoidance of an obligation to deduct or account for tax,

• “tax period” has the meaning given by paragraph 5(7),

• “the tax reduction” has the meaning given by paragraph 5(2), and

• 25“trust” includes arrangements—

  (a)

  which have effect under the law of a country or territory
  outside the United Kingdom, and

  (b)

  under which persons acting in a fiduciary capacity hold and
  administer property on behalf of other persons,

  30and “beneficiaries”, in relation to such arrangements, is to be
  construed accordingly.

Commencement

12 This Schedule has effect—

(a) for income tax purposes, in relation to any value transferred on or
35after 6 April 2019 as a result of a material provision, and

(b) for corporation tax purposes, in relation to any value transferred on
or after 1 April 2019 as a result of a material provision.

Section 17

SCHEDULE 5 Non-UK resident companies carrying on UK property businesses etc

40Part 1 Extension of scope of charge

1 Section 5 of CTA 2009 (territorial scope of charge to corporation tax) is
amended as follows.

2 In subsection (2) (circumstances in which non-UK resident company is
within the charge)—

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

(b) after paragraph (b) insert “,

(c) 5it carries on a UK property business, or

(d) it has other UK property income.”

3 After subsection (3) insert—

“(3A) A non-UK resident company which carries on a UK property
business is chargeable to corporation tax on income on all its profits
10that are—

(a) profits of that business, or

(b) profits arising from loan relationships or derivative contracts
that the company is a party to for the purposes of that
business.

(3B) 15A non-UK resident company which has other UK property income is
chargeable to corporation tax on income on all its profits that—

(a) consist of that income, or

(b) are profits arising from loan relationships or derivative
contracts that the company is a party to for the purposes of
20enabling it to generate that income.”

4 In subsection (4) for “(2A) and (3)” substitute “and (2A) to (3B)”.

5 After subsection (4) insert—

“(5) In this Part “other UK property income” means income dealt with by
any of the following Chapters of Part 4—

(a) 25Chapter 7 (rent receivable in connection with a UK section
39(4) concern);

(b) Chapter 8 (rent receivable for UK electric-line wayleaves);

(c) Chapter 9 (post-cessation receipts arising from a UK property
business).”

30Part 2 Supplementary & Consequential amendments

FA 1998

6 (1) Paragraph 2 of Schedule 18 to FA 1998 (duty to give notice of chargeability)
is amended as follows.

(2) 35After sub-paragraph (1) insert—

“(1A) But a company is not required to give notice under sub-paragraph
(1) in respect of an accounting period if for the period —

(a) all the income on which it is chargeable to tax consists of
payments on which it bears income tax by deduction, and

(b) 40the company has no chargeable gains.”

(3) In sub-paragraph (2) for “The notice” substitute “A notice required to be
given under this paragraph”.

FA 2004

7 After section 55 of FA 2004 insert—

“55A Section 55: exception to duty to give notice

(1) A company is not required to give notice under section 55 of the
5beginning of an accounting period if it reasonably expects that—

(a) all the income on which it will be chargeable to corporation
tax for the period will consist of payments on which it bears
income tax by deduction, and

(b) it will have no chargeable gains for the period.

(2) 10Subsection (3) applies if—

(a) by reason of subsection (1) a company is not required to give
notice under section 55 of the beginning of an accounting
period (“the unreported period”), and

(b) a subsequent accounting period immediately follows the end
15of the unreported period.

(3) The subsequent accounting period is to be treated for the purposes
of section 55 as if it does not immediately follow the end of a
previous accounting period.

(4) If by reason of subsection (1) ceasing to apply a company becomes
20subject to the duty to give notice under section 55 of the beginning of
an accounting period the notice must be given not later than three
months after the date on which it becomes subject to that duty.”

ITTOIA 2005

8 In Part 3 of ITTOIA 2005 (property businesses), omit section 362 (effect of
25company starting or ceasing to be within charge to income tax in respect of
UK property business).

ITA 2007

9 In section 5 of ITA 2007 (income tax and companies) in paragraph (b) for the
words from “the income” to the end substitute “it is chargeable to
30corporation tax in respect of the income, or would be so chargeable but for
an exemption.”

CTA 2009

10 CTA 2009 is amended as follows.

11 In section 3 (exclusion of charge to income tax) in subsection (1)(b) (non-UK
35resident companies) for the words from “and—” to the end substitute “and
it is chargeable to corporation tax in respect of the income, or would be so
chargeable but for an exemption”.

12 In section 18A (exemption for profits or losses of foreign permanent
establishments) in subsection (2A) for the words from “, or would” to the
40end substitute “or, if the company were non-UK resident, would be—

(a) profits or losses of the company’s trade of dealing in or
developing UK land (see section 5B),

(b) profits or losses of the company’s UK property business,

(c) profits consisting of the company’s other UK property
income, or

(d) profits or losses arising from loan relationships or derivative
5contracts that the company is a party to for the purposes of its
UK property business or for the purposes of enabling it to
generate other UK property income.”

13 In section 19 (chargeable profits) for subsection (2A) substitute—

“(2A) But the company’s “chargeable profits” do not include—

(a) 10profits of a trade of dealing in or developing UK land (see
section 5B),

(b) profits of a UK property business,

(c) profits consisting of other UK property income, or

(d) profits arising from loan relationships or derivative contracts
15that the company is a party to for the purposes of its UK
property business or for the purposes of enabling it to
generate other UK property income.”

14 In section 289 (effect of company starting or ceasing to be within charge to
corporation tax) in subsection (1) for “a property business” substitute “an
20overseas property business”.

15 (1) Section 301 (calculation of non-trading profits and deficits from loan
relationships: non-trading credits and debits) is amended as follows.

(2) In subsection (1) for “as follows” substitute “in accordance with subsections
(4) to (7)”.

(3) 25After subsection (1) insert—

“(1A) But in the case of a non-UK resident company the only non-trading
credits and non-trading debits to be used are those in respect of loan
relationships that the company is a party to for a purpose mentioned
in section 5(3A)(b) or (3B)(b).”

16 30In section 333 (company with loan relationship ceasing to be UK resident) in
subsection (2)—

(a) after “owed” insert “—

(a) ”, and”

(b) at the end insert “,

(b) 35for the purposes of the company’s trade of dealing in
or developing UK land,

(c) for the purposes of the company’s UK property
business, or

(d) for the purposes of enabling the company to generate
40other UK property income (within the meaning given
by section 5(5)).”

17 (1) Section 334 (non-UK resident company ceasing to hold loan relationship for
UK permanent establishment) is amended as follows.

(2) In the heading, for “UK permanent establishment” substitute “section 333(2)
45purposes”.

(3) In subsection (1) for the words from “the purposes” to “United Kingdom”
substitute “section 333(2) purposes”.

(4) In subsection (3)(b) for “the purposes of the permanent establishment”
substitute “section 333(2) purposes”.

(5) 5After subsection (4) insert—

“(5) An asset or liability ceases to be held or owed for section 333(2)
purposes if and in so far as—

(a) it ceases to be held or owed for any purposes mentioned in
section 333(2), and

(b) 10on doing so, it does not begin or continue to be held or owed
for any of the other purposes so mentioned.”

18 In section 574 (non-trading credits and debits to be brought into account
under Part 5) after subsection (2) insert—

“(2A) But in the case of a non-UK resident company subsection (2) applies
15only in relation to those credits or debits in respect of derivative
contracts that the company is a party to for a purpose mentioned in
section 5(3A)(b) or (3B)(b)”.

19 In section 609 (company with derivative contract ceasing to be UK resident)
in subsection (2)—

(a) 20after “owed” insert “—

(a) ”, and”

(b) at the end insert “,

(b) for the purposes of the company’s trade of dealing in
or developing UK land,

(c) 25for the purposes of the company’s UK property
business, or

(d) for the purposes of enabling the company to generate
other UK property income (within the meaning given
by section 5(5)).”

20 (1) 30Section 610 (non-UK resident company ceasing to hold derivative contract
for UK permanent establishment) is amended as follows.

(2) In the heading, for “UK permanent establishment” substitute “section 609(2)
purposes”.

(3) In subsection (1) for the words from “the purposes” to “United Kingdom”
35substitute “section 609(2) purposes”.

(4) In subsection (3)(b) for “the purposes of the permanent establishment”
substitute “section 609(2) purposes”.

(5) After subsection (4) insert—

“(5) A right or liability ceases to be held or owed for section 609(2)
40purposes if and in so far as—

(a) it ceases to be held or owed for any purposes mentioned in
section 609(2), and

(b) on doing so, it does not begin or continue to be held or owed
for any of the other purposes so mentioned.”

21 (1) Section 697 (derivative contracts with non-UK residents: exceptions) is
amended as follows.

(2) For subsection (2) substitute—

“(2) Section 696 does not apply if NR—

(a) 5is chargeable to corporation tax or income tax in respect of
income arising from the derivative contract (or would be if
there were any such income), and

(b) is a party to the derivative contract otherwise than as agent or
nominee of another person.”

(3)
10In subsection (6) omit the definition of “relevant entity” and “, and”
immediately before it.

22 In section 746 (“non-trading credits” and “non-trading debits”) in subsection
(2) for paragraph (b) substitute—

“(b) section 793A (effect of election to reallocate charge within
15group),”.

23 (1) Section 792 (reallocation of charge within group) is amended as follows.

(2) Omit subsection (5).

(3) In subsection (6) for “makes further provision” substitute “sets out further
requirements”.

(4) 20After subsection (6) insert—

“(6A) Section 793A makes provision about the effect of elections under this
section.”

(5) In subsection (8) after “793” insert “, 793A”.

24 (1) Section 793 (further requirements about elections under section 792) is
25amended as follows.

(2) In subsection (1) for “or (3)” substitute “, (3), (3A) or (3B)”.

(3) In subsection (3), in the words before paragraph (a), after “if” insert
“subsection (2) does not apply and”

(4) After subsection (3) insert—

“(3A) 30This subsection applies if neither of subsections (2) and (3) apply and
at the relevant time—

(a) B carried on a trade of dealing in or developing UK land, and

(b) B was not exempt from corporation tax in respect of profits of
that trade because of arrangements that have effect under
35section 2(1) of TIOPA 2010.

(3B) This subsection applies if none of subsections (2), (3) and (3A) apply
and at the relevant time—

(a) B carried on a UK property business, and

(b) B was not exempt from corporation tax in respect of the
40income of its UK property business because of arrangements
that have effect under section 2(1) of TIOPA 2010.”

25 After section 793 insert—

“793A Effect of election under section 792

(1) This section applies if an election is made under section 792.

(2) If subsection (2) of section 793 applies to B the gain, or the part
5specified in the election, is treated as if it had accrued to B at the
relevant time as a non-trading credit for the purposes of Chapter 6
(how credits and debits are given effect).

(3) If subsection (3) of section 793 applies to B the gain, or the part
specified in the election, is treated—

(a) 10as if it had accrued to B at the relevant time as a non-trading
credit for the purposes of Chapter 6, and

(b) as if it had accrued in respect of an asset held for the purposes
of a permanent establishment of B in the United Kingdom.

(4) If subsection (3A) of section 793 applies to B the gain, or the part
15specified in the election, is treated for the purposes of Chapter 6 as if
it had accrued to B at the relevant time as a credit in respect of an
asset held for the purposes of B’s trade of dealing in or developing
UK land.

(5) If subsection (3B) of section 793 applies to B the gain, or the part
20specified in the election, is treated for the purposes of Chapter 6 as if
it had accrued to B at the relevant time as a credit in respect of an
asset held for the purposes of B’s UK property business.”

26 In section 795 (recovery of charge from another group company or
controlling director) in subsection (4) omit the words from “but” to
25“establishment”.

27 In section 863 (asset becoming chargeable intangible asset), in subsection
(1)(b)—

(a) after “held” insert “—

(i) ”, and”

(b) 30after “establishment,” insert—

“(“ii) for the purposes of a trade carried on by the
company of dealing in or developing UK land,

(iii) for the purposes of a UK property business
carried on by the company, or

(iv) 35for the purposes of enabling the company to
generate other UK property income (within
the meaning given by section 5(5)),”.

CTA 2010

28 CTA 2010 is amended as follows.

29 (1) 40Section 9 (non-UK resident company preparing return of accounts in
currency other than sterling) is amended as follows.