Finance (No.2) Bill - continued        House of Commons
SCHEDULE 17, CONTROLLED FOREIGN COMPANIES - continued
Section 749 - continued

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Elections and designations under section 749: supplementary provisions.     749A. - (1) An election under paragraph (d) or a designation under paragraph (e) of section 749(3) shall have effect in relation to-
 
 
    (a) the accounting period in relation to which it is made ("the original accounting period"), and
 
    (b) each successive accounting period of the controlled foreign company in question which precedes the next one in which the eligible territories are different,
  and shall so have effect notwithstanding any change in the persons who have interests in the company or any change in the interests which those persons have in the company.
 
      (2) For the purposes of subsection (1)(b) above, an accounting period of the controlled foreign company is one in which the eligible territories are different if in the case of that accounting period-
 
 
    (a) at least one of the two or more territories which fell within subsection (1) of section 749 in the original accounting period does not fall within that subsection; or
 
    (b) some other territory also falls within that subsection.
      (3) Any election under section 749(3)(d)-
 
 
    (a) must be made by notice given to an officer of the Board;
 
    (b) must be made no later than twelve months after the end of the controlled foreign company's accounting period in relation to which it is made;
 
    (c) must state, as respects each of the persons making it, the percentage of the chargeable profits and creditable tax (if any) of the controlled foreign company for that accounting period which it is likely would be apportioned to him on an apportionment under section 747(3) if one were made;
 
    (d) must be signed by the persons making it; and
 
    (e) is irrevocable.
      (4) Nothing in-
 
 
    (a) paragraph 10 of Schedule 18 to the Finance Act 1998 (claims or elections in company tax returns), or
 
    (b) Schedule 1A to the Management Act (claims or elections not included in returns),
  shall apply, whether by virtue of section 754 or otherwise, to an election under section 749(3)(d).
 
      (5) A designation under section 749(3)(e) is irrevocable.
 
      (6) Where the Board make a designation under section 749(3)(e), notice of the making of the designation shall be given to every company resident in the United Kingdom which appears to the Board to have had an assessable interest in the controlled foreign company at any time during the accounting period of the controlled foreign company in relation to which the designation is made.
 
      (7) A notice under subsection (6) above shall specify-
 
 
    (a) the date on which the designation was made;
 
    (b) the controlled foreign company to which the designation relates;
 
    (c) the accounting period of the controlled foreign company in relation to which the designation is made; and
 
    (d) the territory designated.
      (8) Subsection (9) of section 749 has effect for the purposes of subsection (6) above as it has effect for the purposes of subsection (8) of that section.
 
Interests in companies.     749B. - (1) For the purposes of this Chapter, the following persons have an interest in a company-
 
 
    (a) any person who possesses, or is entitled to acquire, share capital or voting rights in the company;
 
    (b) any person who possesses, or is entitled to acquire, a right to receive or participate in distributions of the company;
 
    (c) any person who is entitled to secure that income or assets (whether present or future) of the company will be applied directly or indirectly for his benefit; and
 
    (d) any other person who, either alone or together with other persons, has control of the company.
      (2) Rights which a person has as a loan creditor of a company do not constitute an interest in the company for the purposes of this Chapter.
 
      (3) For the purposes of subsection (1)(b) above, the definition of "distribution" in Part VI shall be construed without any limitation to companies resident in the United Kingdom.
 
      (4) References in subsection (1) above to being entitled to do anything apply where a person-
 
 
    (a) is presently entitled to do it at a future date, or
 
    (b) will at a future date be entitled to do it;
  but a person whose entitlement to secure that any income or assets of the company will be applied as mentioned in paragraph (c) of that subsection is contingent upon a default of the company or any other person under any agreement shall not be treated as falling within that paragraph unless the default has occurred.
 
      (5) Where a company has an interest in another company and a third person has, or two or more persons together have, an interest in the first company (as in a case where one company has a shareholding in a controlled foreign company and the first company is controlled by a third company or by two or more persons together) subsections (6) and (7) below apply.
 
      (6) Where this subsection applies, the person who has, or each of the persons who together have, the interest in the first company shall be regarded for the purposes of this Chapter as thereby having an interest in the second company.
 
      (7) In any case where this subsection applies, in construing references in this Chapter to one person having the same interest as another, the person or, as the case may be, each of the persons who together have, the interest in the first company shall be treated as having, to the extent of that person's interest in that company, the same interest as the first company has in the second company.
 
      (8) Where two or more persons jointly have an interest in a company otherwise than in a fiduciary or representative capacity, they shall be treated for the purposes of this Chapter as having the interest in equal shares."
 
 
Section 750
      5. - (1) Section 750 of the Taxes Act 1988 (territories with a lower level of taxation) shall be amended as follows.
 
      (2) In subsection (1) (which refers to certain provisions of section 749)-
 
 
    (a) for "subsection (3)" there shall be substituted "subsection (5)"; and
 
    (b) for "subsection (1) or subsection (2)" there shall be substituted "any of subsections (1) to (4)".
      (3) In subsection (3), for paragraph (a) (which refers to a direction under section 747(1) and a declaration under paragraph 11(3) of Schedule 24) there shall be substituted-
 
 
    "(a) it shall be assumed for the purposes of Schedule 24 that an apportionment under section 747(3) falls to be made as regards that period; and".
 
Section 751
      6. - (1) Section 751 of the Taxes Act 1988 (accounting periods and creditable tax) shall be amended as follows.
 
      (2) In subsection (1) (occasions on which an accounting period begins) in paragraph (b) (company commencing to carry on business)-
 
 
    (a) the words "not being the subject of an earlier direction under section 747(1)" shall cease to have effect; and
 
    (b) after "commences to carry on business" there shall be inserted "unless an accounting period of the company has previously begun as respects which an apportionment under section 747(3) falls or has fallen to be made".
      (3) In subsection (5) (direction may specify accounting period where beginning or end appears uncertain)-
 
 
    (a) for "a direction under section 747(1) may" there shall be substituted "the Board may by notice"; and
 
    (b) for "the direction" there shall be substituted "the notice".
      (4) In subsection (5) (power to amend so as to specify true accounting period where further facts come to the knowledge of the Board after making a direction)-
 
 
    (a) for "making of a direction (including facts emerging on an appeal against notice of the making of the direction)" there shall be substituted "giving of a notice under subsection (4) above"; and
 
    (b) for "direction", in the third and fourth places where it occurs, there shall be substituted "notice".
      (5) After subsection (5) there shall be inserted-
 
 
    "(5A) Any notice under subsection (4) above, and notice of any amendment of such a notice under subsection (5) above, shall be given to every person who has an assessable interest (as defined in section 749(9)) in the company in the accounting period in question."
 
      (6) In subsection (6) (meaning of "creditable tax") for "in respect of which a direction is given under section 747(1)" there shall be substituted "as regards which an apportionment under section 747(3) falls to be made".
 
 
Section 752
      7. For section 752 of the Taxes Act 1988 (apportionment of chargeable profits and creditable tax) there shall be substituted-
 
"Apportionment of chargeable profits and creditable tax.     752. - (1) This section applies in any case where an apportionment under section 747(3) falls to be made as regards an accounting period of a controlled foreign company.
 
      (2) Where-
 
 
    (a) the persons who have relevant interests in the controlled foreign company at any time in the relevant accounting period have those interests by virtue only of directly or indirectly holding ordinary shares of the company,
 
    (b) each of those persons satisfies the condition that he is either-
 
      (i) resident in the United Kingdom throughout that accounting period, or
 
      (ii) resident in the United Kingdom at no time in that accounting period, and
 
    (c) no company which has an intermediate interest in the controlled foreign company at any time in the relevant accounting period has that interest otherwise than by virtue of directly or indirectly holding ordinary shares of the controlled foreign company,
  subsection (3) below shall apply.
 
      (3) Where this subsection applies, the apportionment of the controlled foreign company's chargeable profits and creditable tax (if any) for the relevant accounting period shall be made among the persons who have relevant interests in the company at any time in that period in direct proportion to the percentage of the issued ordinary shares of the controlled foreign company which, in accordance with section 752B, each of those relevant interests represents.
 
      (4) Where subsection (3) above does not apply, the apportionment of the controlled foreign company's chargeable profits and creditable tax (if any) for the relevant accounting period shall be made on a just and reasonable basis among the persons who have relevant interests in the company at any time in that period.
 
Relevant interests.     752A. - (1) This section has effect for the purpose of determining for the purposes of this Chapter who has a relevant interest in a controlled foreign company at any time; and references in this Chapter to relevant interests shall be construed accordingly.
 
      (2) A UK resident company which has a direct or indirect interest in a controlled foreign company has a relevant interest in the company by virtue of that interest unless subsection (3) below otherwise provides.
 
      (3) A UK resident company which has an indirect interest in a controlled foreign company does not have a relevant interest in the company by virtue of that interest if it has the interest by virtue of having a direct or indirect interest in another UK resident company.
 
      (4) A related person who has a direct or indirect interest in a controlled foreign company has a relevant interest in the company by virtue of that interest unless subsection (5) or (6) below otherwise provides.
 
      (5) A related person who has an indirect interest in a controlled foreign company does not have a relevant interest in the company by virtue of that interest if he has the interest by virtue of having a direct or indirect interest in-
 
 
    (a) a UK resident company; or
 
    (b) another related person.
      (6) A related person who has a direct or indirect interest in a controlled foreign company does not have a relevant interest in the company by virtue of that interest to the extent that a UK resident company-
 
 
    (a) has the whole or any part of the same interest indirectly, by virtue of having a direct or indirect interest in the related person, and
 
    (b) by virtue of that indirect interest in the controlled foreign company, has a relevant interest in the company by virtue of subsection (2) above.
      (7) A person who-
 
 
    (a) has a direct interest in a controlled foreign company, but
 
    (b) does not by virtue of subsections (2) to (6) above have a relevant interest in the company by virtue of that interest,
  has a relevant interest in the company by virtue of that interest unless subsection (8) below otherwise provides.
 
      (8) A person does not by virtue of subsection (7) above have a relevant interest in a controlled foreign company by virtue of having a direct interest in the company to the extent that another person-
 
 
    (a) has the whole or any part of the same interest indirectly, and
 
    (b) by virtue of that indirect interest, has a relevant interest in the company by virtue of subsections (2) to (6) above.
      (9) No person has a relevant interest in a controlled foreign company otherwise than as provided by subsections (2) to (8) above.
 
      (10) In this section-
 
 
    "related person" means a person who-
 
      (a) is not a UK resident company, but
 
      (b) is connected or associated with a UK resident company which has by virtue of subsection (2) above a relevant interest in the controlled foreign company in question;
 
    "UK resident company" means a company resident in the United Kingdom.
 
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