Finance (No. 3) Bill (HL Bill 304)

17 Non-UK resident companies carrying on UK property businesses etc

Schedule 5 contains provision for non-UK resident companies to be chargeable
to corporation tax on—

(a) profits of UK property businesses,

(b) 5profits consisting of other UK property income, and

(c) profits arising from certain loan relationships and derivative contracts.

18 Diverted profits tax

Schedule 6 contains provision about diverted profits tax.

19 Hybrid and other mismatches: scope of Chapter 8 and “financial instrument”

(1) 10Part 6A of TIOPA 2010 (hybrid and other mismatches) is amended as follows.

(2) In section 259HA (circumstances in which Chapter 8 applies)—

(a) for subsection (5) substitute—

“(5) Condition C is that—

(a) the payer is within the charge to corporation tax for the
15payment period, or

(b) the multinational company—

(i) is UK resident for the payment period, and

(ii) under the law of the parent jurisdiction, is
regarded as carrying on a business in the PE
20jurisdiction through a permanent establishment
in that territory but, under the law of the PE
jurisdiction, is not regarded as doing so.”, and”

(b) in subsection (9)(a), for “company” substitute “payee”.

259HC Counteraction of the multinational payee deduction/non-inclusion
mismatch

For corporation tax purposes—

(a) if paragraph (b) of Condition C in subsection (5) of section
30259HA is met, an amount equal to the multinational payee
deduction/non-inclusion mismatch mentioned in subsection
(6) of that section is to be treated as income arising to the
multinational company in the United Kingdom (and nowhere
else) for the payment period, and

(b) 35in any other case, the relevant deduction that may be deducted
from the payer’s income for that period is to be reduced by that
amount.”

(4) In section 259N (meaning of “financial instrument”)—

(a) in subsection (3), for paragraph (b) substitute—

“(b) 40anything of a description specified in regulations made
by the Treasury.”, and”

(b) omit subsection (4).

(5) The amendments made by subsections (2)(a) and (3) have effect in relation to—

(a) payments made on or after 1 January 2020, and

(b) quasi-payments in relation to which the payment period begins on or
after that date.

(6) For the purposes of subsection (5)(b), where a payment period begins before 1
5January 2020 and ends after that date (“the straddling period”)—

(a) so much of the straddling period as falls before that date, and so much
of it as falls on or after that date, are to be treated as separate taxable
periods, and

(b) if it is necessary to apportion an amount for the straddling period to the
10two separate taxable periods, it is to be apportioned—

(i) on a time basis according to the respective length of the separate
taxable periods, or

(ii) if that would produce a result that is unjust or unreasonable, on
a just and reasonable basis.

(7) 15The amendment made by subsection (2)(b) is to be regarded as always having
had effect.

(8) The first regulations under section 259N(3)(b) may have effect in relation to
times before they come into force, but not times before 1 January 2019.

(9) Until those regulations come into force section 259N continues to have effect
20(other than for the purposes of making those regulations) as if—

(a) the amendments made by subsection (4) had not been made, and

(b) the Taxation of Regulatory Capital Securities Regulations 2013 (S.I.
2013/3209) had not been revoked by paragraph 1 of Schedule 19 to this
Act.

20 25Controlled foreign companies: finance company exemption and control

(1) Part 9A of TIOPA 2010 (controlled foreign companies) is amended as follows.

(2) In section 371IA (exemptions for profits from qualifying loan relationships), in
subsection (4), for the words from “the profits” to the end substitute “so much
of the profits of all its qualifying loan relationships taken together as are non-
30trading finance profits which—

“(a) fall within section 371EC (capital investment from the UK), and

(b) do not fall within section 371EB (UK activities).”

(3) In section 371RA (overview of Chapter 18), in subsection (2), for “Section
371RC sets” substitute “Sections 371RC and 371RG set”.

(4) 35After section 371RF insert—

“371RG Companies in which a UK resident company has more than a 50%
investment

(1) If a UK resident company (whether alone or together with any
associated enterprises) directly or indirectly has more than a 50%
40investment in a non-UK resident company, the non-UK resident
company is to be taken to be a CFC (if it would not otherwise be).

(2) A person (“P”) is an “associated enterprise” in relation to a UK resident
company if—

(a) P directly or indirectly has a 25% investment in the company (or
45vice versa), or

(b) another person directly or indirectly has a 25% investment in
each of P and the company.

(3) Section 259ND (meaning of “50% investment” and “25% investment”)
applies for the purposes of determining for the purposes of this
5section—

(a) whether a person has “more than a 50% investment” in another
person, and

(b) whether a person has a “25% investment” in another person,

and, accordingly, references in section 259ND to “X%” are to be read as
10references to more than 50% or to 25% (as appropriate) and references
in that section to “X% or more” are to be read as references to more than
50% or to 25% or more (as appropriate).”

(5) The amendments made by this section have effect in relation to accounting
periods of CFCs beginning on or after 1 January 2019.

(6) 15For the purposes of subsection (5), if a CFC has an accounting period beginning
before, and ending on or after, that date (“the straddling period”)—

(a) so much of the straddling period as falls before that date, and so much
of it as falls on or after that date, are treated as separate accounting
periods, and

(b) 20if it is necessary to apportion an amount for the straddling period to the
two separate periods, it is to be apportioned—

(i) on a time basis according to the respective length of the separate
periods, or

(ii) if that would produce a result that is unjust or unreasonable, on
25a just and reasonable basis.

(7) In this section “CFC” has the same meaning as in Part 9A of TIOPA 2010.

21 Permanent establishments: preparatory or auxiliary activities

(1) Section 1143 of CTA 2010 (permanent establishments: preparatory or auxiliary
activities) is amended as follows.

(2) 30In subsection (2), at the end insert “and are not part of a fragmented business
operation”.

(3) After subsection (2) insert—

“(2A) Activities are “part of a fragmented business operation” if—

(a) they are carried on (whether at the same place or at different
35places in the same territory) by the company or a person closely
related to the company,

(b) they constitute complementary functions that are part of a
cohesive business operation, and

(c) subsection (2B) applies.

(2B) 40This subsection applies if—

(a) the overall activity resulting from the combination of the
functions mentioned in subsection (2A)(b) is not activity that is
only of a preparatory or auxiliary character, or

(b) the company or a person closely related to the company has a
45permanent establishment in the territory by reason of carrying
on any of those functions.

(2C) A person who is not a company is to be treated for the purposes of
subsection (2B)(b) as having a permanent establishment in a territory if,
were the person a company, the person would have a permanent
establishment in the territory.

(2D) 5For the purposes of this section, one person (“A”) is closely related to
another person (“B”) if—

(a) A is able to secure that B acts in accordance with A’s wishes (or
vice versa),

(b) B can reasonably be expected to act, or typically acts, in
10accordance with A’s wishes (or vice versa),

(c) a third person is able to secure that A and B act in accordance
with the third person’s wishes,

(d) A and B can reasonably be expected to act, or typically act, in
accordance with a third person’s wishes, or

(e) 15the 50% investment condition is met in relation to A and B.

(2E) The 50% investment condition is met in relation to A and B if—

(a) A has a 50% investment in B (or vice versa), or

(b) a third person has a 50% investment in each of A and B,

and section 259ND of TIOPA 2010 (meaning of “50% investment”)
20applies for the purposes of determining whether a person has a “50%
investment”.”

(4) In subsection (3), for “For this purpose” substitute “In this section”.

(5) The amendments made by this section have effect in relation to accounting
periods beginning on or after 1 January 2019.

(6) 25For the purposes of subsection (5), if a company has an accounting period
beginning before, and ending on or after, that date (“the straddling period”)—

(a) so much of the straddling period as falls before that date, and so much
of it as falls on or after that date, are treated as separate accounting
periods, and

(b) 30if it is necessary to apportion an amount for the straddling period to the
two separate periods, it is to be apportioned—

(i) on a time basis according to the respective length of the separate
periods, or

(ii) if that would produce a result that is unjust or unreasonable, on
35a just and reasonable basis.

22 Payment of CGT exit charges

Schedule 7 contains provision about CGT exit charge payment plans.

23 Corporation tax exit charges

Schedule 8—

(a) 40amends provisions concerning CT exit charge payment plans,

(b) repeals certain provisions that enable the postponement of exit charges,
and

(c) contains amendments concerning the treatment of assets that are the
subject of EU exit charges.

24 Group relief etc: meaning of “UK related” company

(1) In section 134 of CTA 2010 (group relief: meaning of “UK related” company) in
paragraph (b) for the words from “carrying on” to the end substitute “within
the charge to corporation tax”.

(2) 5In section 188CJ of CTA 2010 (group relief for carried-forward losses: meaning
of “UK related” company) in paragraph (b) for the words from “carrying on”
to the end substitute “within the charge to corporation tax”.

(3) The amendments made by this section have effect for the purpose of
determining whether a company is a UK related company at any time on or
10after 5 July 2016.

(4) In its application in relation to a claim for group relief or group relief for
carried-forward losses made in reliance on this section, paragraph 74 of
Schedule 18 to FA 1998 (time limit for claims) has effect as if the list of dates in
sub-paragraph (1) of that paragraph included 31 December 2019.

15Corporation tax: miscellaneous

25 Intangible fixed assets: exceptions to degrouping charges etc

(1) Part 8 of CTA 2009 (intangible fixed assets) is amended as follows.

(2) In section 780 (deemed realisation etc on company leaving group) in subsection
(5) (exceptions) after paragraph (a) insert—

“(aa) 20section 782A (company leaving group because of relevant share
disposal),”.

(3) After section 782 insert—

“782A Company leaving group because of relevant share disposal

(1) Section 780 does not apply if a company ceases to be a member of a
25group because of a relevant disposal of shares by another company.

(2) A disposal of shares by a company is “relevant” if—

(a) the company would not be chargeable to corporation tax in
respect of any gain accruing on the disposal by reason of
paragraph 1 of Schedule 7AC to TCGA 1992 (assuming the
30company was within the charge to corporation tax), and

(b) the disposal is not part of an arrangement under which the
recipient of the shares is to dispose of any of them to another
person.”

(4) In section 785 (principal company becoming member of another group)—

(a) 35in subsection (2)(b) for the words from “both” to “effective 51%”
substitute “a relevant”, and

(b) after subsection (2) insert—

“(2A) For the purposes of subsection (2)(b) the transferee is a “relevant
subsidiary” of a member of the second group (“A”) if, but for
40sections 767 to 770, the transferee would be a member of
another group of which A would be the principal company.

(2B) Subsection (2) does not apply if the transferee ceases to meet the
qualifying condition by reason of a relevant disposal of shares

by another company (within the meaning given by section
782A(2)).”

(5) The amendments made by this section have effect in relation to a company that
ceases to be a member of a group or ceases to meet the condition in section
5785(2)(b) of CTA 2009 (as amended by subsection (4)) on or after 7 November
2018.

26 Corporation tax relief for carried-forward losses

Schedule 9 makes provision about corporation tax relief for losses and other
amounts that are carried forward.

27 10Corporate interest restriction

Schedule 10 contains provision amending Part 10 of TIOPA 2010 (corporate
interest restriction).

28 Debtor relationships of company where money lent to connected companies

Schedule 11 makes provision for preventing a mismatch for corporation tax
15purposes in a case where—

(a) a company has a debtor relationship which is dealt with in its accounts
on the basis of fair value accounting, and

(b) the money it receives under that relationship is wholly or mainly used
to lend money to companies that are connected with it (and,
20accordingly, those creditor relationships are required to be dealt with
for corporation tax purposes on an amortised cost basis of accounting).

Capital allowances

29 Construction expenditure on buildings and structures

(1) The Treasury may by regulations amend CAA 2001 so as to provide for
25allowances under that Act to be available where—

(a) expenditure has been incurred, on or after 29 October 2018, on the
construction of a building,

(b) the building is in qualifying use, and

(c) the expenditure incurred on the construction of the building, or other
30expenditure, is qualifying expenditure.

(2) Regulations under this section (“the regulations”) must—

(a) specify what is qualifying use;

(b) specify what is qualifying expenditure;

(c) provide for a writing-down allowance to be available at an annual rate
35of 2% of the qualifying expenditure;

(d) specify the persons to whom allowances may be made;

(e) make provision about how effect is to be given to allowances.

(3) The regulations must secure that—

(a) allowances are not available for expenditure on the acquisition of land
40or rights in or over land;

(b) qualifying use is restricted to use for prescribed business purposes.

(4) The regulations may provide for allowances not to be available or to be
restricted—

(a) in the case of a building that is wholly or partly used as a dwelling-
house or for purposes that are ancillary to the purposes of a dwelling-
5house;

(b) in respect of a building that is used wholly or partly for holiday or
overnight accommodation of a prescribed kind;

(c) in respect of a building that is only partly in qualifying use or in respect
of periods when a building is not in qualifying use;

(d) 10in prescribed cases or circumstances.

(5) The regulations may provide that if a person incurs expenditure for the
purposes of a qualifying activity before (but not more than 7 years before) the
date on which the person starts to carry on that activity, the expenditure is to
be treated as if it were incurred by the person on that date.

(6) 15The regulations may provide that if—

(a) allowances have been available to a person (A) in respect of
expenditure on the construction of a building, and

(b) A sells A’s interest in the building to another person (B),

allowances are available to B in respect of the residue of the qualifying
20expenditure.

(7) The regulations may make provision about leases, including provision for the
grant of a lease to be treated in prescribed circumstances in the same way as the
sale of the grantor’s interest.

(8) The regulations may make—

(a) 25provision under which expenditure is apportioned;

(b) provision for balancing adjustments (and about how effect is to be
given to them);

(c) provision for qualifying expenditure to be written off;

(d) special provision about highway undertakings;

(e) 30provision about additional VAT liability and additional VAT rebate
(within the meaning given by section 547 of CAA 2001);

(f) anti-avoidance provision;

(g) supplementary or incidental provision;

(h) consequential provision (including provision amending enactments
35other than CAA 2001).

(9) The regulations may make transitional provision, including provision under
which expenditure incurred on or after 29 October 2018 is treated as incurred
before that date—

(a) where the expenditure is associated or connected with expenditure
40incurred before that date,

(b) where the expenditure relates to a contract entered into before that
date, or

(c) in other prescribed cases.

(10) Subsections (2) to (9) are not to be read as limiting subsection (1).

(11) 45A statutory instrument containing the regulations may not be made unless a
draft of the instrument has been laid before and approved by a resolution of
the House of Commons.

(12) A reference in this section to expenditure on the construction of a building
includes a reference to capital expenditure—

(a) on repairs to the building, or

(b) on the renovation or conversion of the building.

(13) 5In this section—

• “building” includes structure;

• “dwelling-house” has the meaning given by the regulations;

• “prescribed” means prescribed by the regulations.

30 Special rate expenditure on plant and machinery

(1) 10Part 2 of CAA 2001 (plant and machinery allowances) is amended as follows.

(2) In section 104D(1) (writing-down allowances in respect of special rate
expenditure) for “8%” substitute “6%”.

(3) Accordingly, in—

(a) section 56(2)(a),

(b) 15the heading of section 104D, and

(c) section 104E(1)(a),

for “8%” substitute “6%”.

(4) The amendments made by subsections (2) and (3) have effect in relation to
chargeable periods beginning on or after the relevant day.

(5) 20In relation to a chargeable period that begins before and ends on or after the
relevant day, section 104D(1) of CAA 2001 has effect as if the reference to 8%
was a reference to X%.

(6) For the purposes of subsection (5), X is—

(7) Where X would be a figure with more than 2 decimal places it is to be rounded
up to the nearest second decimal place.

(8) In this section “the relevant day” is—

(a) for corporation tax purposes, 1 April 2019, and

(b) 35for income tax purposes, 6 April 2019.

31 Temporary increase in annual investment allowance

(1) In relation to expenditure incurred during the period of two years beginning
with 1 January 2019, section 51A of CAA 2001 (entitlement to annual

investment allowance) has effect as if in subsection (5) the amount specified as
the maximum allowance were £1,000,000.

(2) Schedule 12 contains provision about chargeable periods which straddle 1
January 2019 or 1 January 2021.

32 5First-year allowances and first-year tax credits

(1) In Part 2 of CAA 2001 (plant and machinery allowances), the following
provisions are repealed—

(a) sections 45A to 45C (energy-saving plant or machinery),

(b) sections 45H to 45J (environmentally beneficial plant or machinery),
10and

(c) section 262A and Schedule A1 (first-year tax credits).

(2) In consequence of subsection (1)—

(a) in TMA 1970, in the second column of the Table in section 98, in the
entry relating to requirements imposed by provisions of CAA 2001,
15omit “45B(5) and (6),” and “, 45I(5) and (6)”,

(b) in CAA 2001—

(i) in section 2(3), for “262A” substitute “262”,

(ii) in section 3—

(a) in subsection (1), omit “, and no first-year tax credit is to
20be paid under Schedule A1,”, and

(b) omit subsection (2B),

(iii) in the list in section 39, omit—

(a) the entry relating to section 45A, and

(b) the entry relating to section 45H,

(iv) 25in section 46—

(a) in the list in subsection (1), omit the entry relating to
section 45A and the entry relating to section 45H, and

(b) omit subsections (5) and (6), and

(v) in the table in section 52(3), omit—

(a) 30the entry relating to expenditure qualifying under
section 45A, and

(b) the entry relating to expenditure qualifying under
section 45H, and

(c) the following provisions are repealed—

(i) 35in FA 2001, section 65 and Schedule 17,

(ii) in FA 2003, paragraphs 2(c), 3, 4(1)(c) and (2) and 5 to 7 of
Schedule 30,

(iii) in FA 2006, paragraph 11 of Schedule 9,

(iv) in FA 2008, section 79 and Schedule 25,

(v) 40in CTA 2009, paragraph 521 of Schedule 1,

(vi) in CTA 2010, paragraph 364 of Schedule 1,

(vii) in FA 2011, paragraph 12(16) of Schedule 14,

(viii) in the Welfare Reform Act 2012—

(a) paragraph 14 of Schedule 3, and

(b) 45in the table in Part 1 of Schedule 4, the entry relating to
CAA 2001,

(ix) in FA 2012—

(a) section 45(2) and (3), and

(b) paragraph 106 of Schedule 16,

(x) in FA 2013—

(a) section 67,

(b) 5section 68(2), and

(c) paragraph 6 of Schedule 18,

(xi) in FA 2014, paragraph 7 of Schedule 4,

(xii) in FA 2016, paragraph 7 of Schedule 8,

(xiii) in F(No.2)A 2017—

(a) 10paragraph 126 of Schedule 4, and

(b) paragraph 7 of Schedule 6, and

(xiv) in FA 2018, section 29.

(3) The following orders were made under powers contained in provisions
repealed by subsection (1) and are therefore revoked—

(a) 15the Capital Allowances (Environmentally Beneficial Plant and
Machinery) Order 2003 (S.I. 2003/2076S.I. 2003/2076), and

(b) any instrument amending that order.

(4) The Capital Allowances (Energy-saving Plant and Machinery) Order 2018 (S.I.
2018/268) is revoked.

(5) 20The amendments made by this section have effect in relation to expenditure
incurred on or after—

(a) for corporation tax purposes, 1 April 2020, and

(b) for income tax purposes, 6 April 2020.

33 First-year allowance: expenditure on electric vehicle charge points

25In section 45EA of CAA 2001 (expenditure on plant or machinery for electric
vehicle charging point), in subsection (3) (the relevant period) for “2019”, in
both places it occurs, substitute “2023”.

34 Qualifying expenditure: buildings, structures and land

(1) Chapter 3 of Part 2 of CAA 2001 (qualifying expenditure) is amended as
30follows.

(2) In each of sections 21 and 22 (buildings, structures, assets and works), at the
end of subsection (4) insert “(but any reference in list C in subsection (4) of that
section to “plant” does not include anything where expenditure on its
provision is excluded by this section)”.

(3) 35The amendments made by this section—

(a) are treated as always having had effect, but

(b) do not have effect in relation to claims for capital allowances made
before 29 October 2018.

Leases

35 40Changes to accounting standards etc

Schedule 13 contains provision relating to the taxation of leases.