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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. |
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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, |
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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), |
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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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