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Adjustment of disadvantaged person's double taxation relief |
| | 7. - (1) Subject to sub-paragraph (4) below, where-
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(a) a claim is made for the purposes of paragraph 6 above, and |
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(b) the disadvantaged person is entitled, on that claim, to make a computation, or to have an adjustment made in his case, on the basis that the arm's length provision was made or imposed instead of the actual provision,
the assumptions specified in sub-paragraph (2) below shall apply, in the disadvantaged person's case, as respects any credit for foreign tax which the disadvantaged person has been or may be given in pursuance of any double taxation arrangements or under section 790(1).
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(2) Those assumptions are-
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(a) that the foreign tax paid or payable by the disadvantaged person does not include any amount of foreign tax which would not be or have become payable were it to be assumed for the purposes of that tax that the arm's length provision had been made or imposed instead of the actual provision; and |
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(b) that the amount of the relevant profits of the disadvantaged person in respect of which he is given credit for foreign tax does not include the amount (if any) by which his relevant profits are treated as reduced in accordance with paragraph 6 above. |
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(3) Sub-paragraph (4) below applies if-
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(a) a claim is made for the purposes of paragraph 6 above; |
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(b) the disadvantaged person is entitled, on that claim, to make a computation, or to have an adjustment made in his case, on the basis that the arm's length provision was made or imposed instead of the actual provision; |
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(c) the application of that basis in the computation of the disadvantaged person's profits or losses for any chargeable period involves a reduction in the amount of any income; and |
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(d) that income is also income that falls to be treated as reduced in accordance with section 811(1). |
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(4) Where this sub-paragraph applies-
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(a) the reduction mentioned in sub-paragraph (3)(c) above shall be treated as made before any reduction under section 811(1); and |
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(b) tax paid, in the place in which any income arises, on so much of that income as is represented by the amount of the reduction mentioned in sub-paragraph (3)(c) above shall be disregarded for the purposes of section 811(1). |
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(5) Where, in a case in which a claim has been made for the purposes of paragraph 6 above, any adjustment is required to be made for the purpose of giving effect to any of the preceding provisions of this paragraph-
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(a) it may be made in any case by setting the amount of the adjustment against any relief or repayment to which the disadvantaged person is entitled in pursuance of that claim; and |
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(b) nothing in the Tax Acts limiting the time within which any assessment is to be or may be made or amended shall prevent that adjustment from being so made. |
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(6) References in this paragraph to relevant profits of the disadvantaged person are references to profits arising to the disadvantaged person from the carrying on of the relevant activities.
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Foreign exchange gains and losses and financial instruments |
| | 8. - (1) Subject to sub-paragraph (2) below, this Schedule shall not require the amounts brought into account in any person's case under-
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(a) Chapter II of Part II of the Finance Act 1993 (foreign exchange gains and losses), or |
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(b) Chapter II of Part IV of the Finance Act 1994 (financial instruments),
to be computed in that person's case on the assumption that the arm's length provision had been made or imposed instead of the actual provision.
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(2) Sub-paragraph (1) above-
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(a) shall not affect so much of sections 136 and 136A of the Finance Act 1993 (application of arm's length test) as has effect by reference to whether the whole or any part of a loan falls to be treated in accordance with this Schedule as an amount on which interest has been charged or, as the case may be, has been charged at a higher rate; and |
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(b) accordingly, shall not prevent the assumption mentioned in that sub-paragraph from determining for the purposes of sections 136(8) and (9) and 136A(6) and (7) of that Act how much (if any) of any loan falls to be so treated. |
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Special rules for sales etc. of oil |
| | 9. - (1) Subject to paragraph 10 below, this paragraph applies to provision made or imposed by or in relation to the terms of a sale of oil if-
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(a) the oil sold is oil which has been, or is to be, extracted under rights exercisable by a company ("the producer") which (although it may be the seller) is not the buyer; and |
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(b) at the time of the sale not less than 20 per cent. of the producer's ordinary share capital is owned directly or indirectly by one or more of the following, that is to say, the buyer and the companies (if any) that are linked to the buyer. |
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(2) Where this paragraph applies to provision made or imposed by or in relation to the terms of a sale of oil, this Schedule shall have effect as respects that provision as if the buyer, the seller and (if it is not the seller) the producer were all controlled by the same person at the time of the making or imposition of that provision.
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(3) For the purposes of this paragraph two companies are linked if-
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(a) one is under the control of the other; or |
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(b) both are under the control of the same person or persons. |
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(4) For the purposes of this paragraph-
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(a) any question whether ordinary share capital is owned directly or indirectly by a company shall be determined as for section 838; |
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(b) rights to extract oil shall be taken to be exercisable by a company even if they are exercisable by that company only jointly with one or more other companies; and |
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(c) a sale of oil shall be deemed to take place at the time of the completion of the sale or when possession of the oil passes, whichever is the earlier. |
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(5) In this paragraph "oil" includes any mineral oil or relative hydrocarbon, as well as natural gas.
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Transactions and deemed transactions involving oil |
| | 10. This Schedule does not apply in relation to provision made or imposed by means of any transaction or deemed transaction in the case of which the price or consideration is determined in accordance with any of subsections (1) to (4) of section 493 (transactions and deemed transactions involving oil treated as made at market value).
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Special provision for companies carrying on ring fence trades |
| | 11. - (1) This paragraph applies where any person ("the taxpayer") carries on as, or as part of, a trade any activities ("the ring fence trade") which, in accordance with section 492(1) either-
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(a) fall to be treated for any tax purposes as a separate trade, distinct from all other activities carried on by him as part of the trade; or |
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(b) would so fall if the taxpayer did carry on any other activities as part of that trade. |
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(2) Subject to paragraph 10 above and sub-paragraph (4) below, where provision made or imposed as between the taxpayer and another person by means of a transaction or series of transactions-
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(a) falls, in relation to the taxpayer, to be regarded as made or imposed in the course of, or with respect to, the ring fence trade; but |
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(b) falls, in relation to the other person, to be regarded as made or imposed in the course of, or with respect to, activities of that other person which do not fall within section 492(1),
this Schedule shall have effect in relation to that provision with the omission of paragraph 5(2) above.
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(3) Subject to paragraph 10 above and sub-paragraph (4) below, this Schedule shall have effect as respects any provision made or imposed by the taxpayer as between the ring fence trade and any other activities carried on by him as if-
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(a) that trade and those activities were carried on by two different persons; |
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(b) that provision were made or imposed as between those two persons by means of a transaction; |
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(c) a potential advantage in relation to United Kingdom taxation were conferred by that provision on each of those two persons; |
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(d) those two persons were both controlled by the same person at the time of the making or imposition of that provision; and |
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(e) paragraphs 5 to 7 above were omitted. |
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(4) This Schedule shall apply in accordance with this paragraph in relation to any provision mentioned in sub-paragraph (2) or (3) above only where the effect of its application in relation to that provision is either-
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(a) that a larger amount (including, if there would not otherwise have been profits, an amount of more than nil) is taken for tax purposes to be the amount of the profits of the ring fence trade for any chargeable period; or |
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(b) that a smaller amount (including nil) is taken for tax purposes to be the amount for any chargeable period of any losses of that trade. |
