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Advantage in relation to United Kingdom taxation |
| | 5. - (1) For the purposes of this Schedule (but subject to sub-paragraph (2) below) the actual provision confers a potential advantage on a person in relation to United Kingdom taxation wherever, disregarding this Schedule, the effect of making or imposing the actual provision, instead of the arm's length provision, would be one or both of the following, that is to say-
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(a) that a smaller amount (which may be nil) would be taken for tax purposes to be the amount of that person's profits for any chargeable period; or |
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(b) that a larger amount (or, if there would not otherwise have been losses, any amount of more than nil) would be taken for tax purposes to be the amount for any chargeable period of any losses of that person. |
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(2) Subject to paragraph 11(2) below, the actual provision shall not be taken for the purposes of this Schedule to confer a potential advantage in relation to United Kingdom taxation on either of the persons as between whom it is made or imposed if-
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(a) the three conditions set out in sub-paragraphs (3) to (5) below are all satisfied in the case of each of those two persons; and |
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(b) the further condition set out in sub-paragraph (6) below is satisfied in the case of each of those persons who is an insurance company. |
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(3) The first condition is satisfied in the case of any person if-
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(a) that person is within the charge to income tax or corporation tax in respect of profits arising from the relevant activities; |
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(b) that person is not entitled to exemption from income tax or corporation tax in respect of the profits arising from the relevant activities in respect of which he is within that charge; and |
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(c) where that person is within the charge to income tax in respect of the profits arising from those activities, he is resident in the United Kingdom in the chargeable periods in which he is so within that charge. |
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(4) The second condition is satisfied in the case of any person if he is neither-
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(a) a person with an entitlement, in pursuance of any double taxation arrangements or under section 790(1), to be given credit in any chargeable period for any foreign tax on or in respect of profits arising from the relevant activities; nor |
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(b) a person who would have such an entitlement in any such period if there were any such profits or if they exceeded a certain amount. |
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(5) The third condition is satisfied in the case of any person if the amounts taken into account in computing the profits or losses arising from the relevant activities to that person in any chargeable period in which he is within the charge to income tax or corporation tax in respect of profits arising from those activities do not include any income the amount of which is reduced in accordance with section 811(1) (deduction for foreign tax where no credit allowable).
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(6) The further condition is satisfied in the case of an insurance company if the profits arising from the relevant activities in respect of which the company is within the charge to corporation tax do not include-
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(a) any profits in the computation of which acquisition expenses have been brought into account in accordance with section 86 of the Finance Act 1989 (expenses of acquiring insurance business); or |
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(b) any profits in relation to which the rate of corporation tax is fixed by section 88 or 88A of that Act (lower rate on certain profits of insurance companies). |
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Elimination of double counting |
| | 6. - (1) This paragraph applies where-
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(a) only one of the affected persons ("the advantaged person") is a person on whom a potential advantage in relation to United Kingdom taxation is conferred by the actual provision; but |
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(b) the other affected person ("the disadvantaged person") is a person in relation to whom the condition set out in paragraph 5(3) above is satisfied. |
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(2) Subject to sub-paragraphs (3) to (6) and paragraph 7 below, on the making of a claim by the disadvantaged person for the purposes of this paragraph-
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(a) the disadvantaged person shall be entitled to have his profits and losses computed for tax purposes as if the arm's length provision had been made or imposed instead of the actual provision; and |
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(b) notwithstanding any limit in the Tax Acts on the time within which any adjustment may be made, all such adjustments shall be made in his case as may be required to give effect to the assumption that the arm's length provision was made or imposed instead of the actual provision. |
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(3) A claim made by the disadvantaged person for the purposes of this paragraph-
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(a) shall not be made unless a computation has been made in the case of the advantaged person on the basis that the arm's length provision was made or imposed instead of the actual provision; and |
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(b) must be consistent with the computation made on that basis in the case of the advantaged person. |
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(4) For the purposes of sub-paragraph (3) above a computation shall be taken to have been made in the case of the advantaged person on the basis that the arm's length provision was made or imposed instead of the actual provision if, and only if-
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(a) the computations made for the purposes of any return by the advantaged person have been made on that basis by virtue of this Schedule; or |
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(b) a relevant notice given to the advantaged person takes account of a determination in pursuance of this Schedule of an amount falling to be brought into account for tax purposes on that basis. |
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(5) Subject to section 109(3)(b) of the Finance Act 1998 (which provides for the extension of the period for making a claim), a claim for the purposes of this paragraph shall not be made except within one of the following periods-
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(a) in a case where a return has been made by the advantaged person on the basis mentioned in sub-paragraph (3)(a) above, the period of two years beginning with the day of the making of the return; and |
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(b) in any case where a relevant notice taking account of such a determination as is mentioned in sub-paragraph (4)(b) above has been given to the advantaged person, the period of two years beginning with the day on which that notice was given. |
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(6) Subject to section 109(3)(b) of the Finance Act 1998, where-
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(a) a claim for the purposes of this paragraph is made by the disadvantaged person in relation to a return made on the basis mentioned in sub-paragraph (3)(a) above, and |
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(b) a relevant notice taking account of such a determination as is mentioned in sub-paragraph (4)(b) above is subsequently given to the advantaged person, |
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the disadvantaged person shall be entitled, within the period mentioned in sub-paragraph (5)(b) above, to make any such amendment of the claim as may be appropriate in consequence of the determination contained in that notice. |
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(7) In this paragraph-
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(a) a notice under section 28A(5) or 28B(5) of the Management Act stating the conclusions of an officer of the Board in relation to any self-assessment, partnership statement, claim or election;
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(b) a closure notice under paragraph 32 of Schedule 18 to the Finance Act 1998 in relation to an enquiry into a company tax return;
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(c) a notice of an assessment under section 29 of the Management Act;
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(d) a notice of any discovery assessment or discovery determination under paragraph 41 of Schedule 18 to the Finance Act 1998 (including any notice of an assessment by virtue of paragraph 52 of that Schedule);
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(e) a notice under section 30B(1) of the Management Act amending a partnership statement;
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"return" means any return required to be made under the Management Act or Schedule 18 to the Finance Act 1998 for income tax or corporation tax purposes or any voluntary amendment of such a return; and |
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"voluntary amendment", in relation to a return, means any amendment in accordance with the Management Act or Schedule 18 to the Finance Act 1998, other than one made in response to the giving of a relevant notice. |
