Finance (No.2) Bill - continued        House of Commons
SCHEDULE 28AA, PROVISION NOT AT ARM'S LENGTH - continued

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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-
 
 
    (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
 
    (b) would so fall if the taxpayer did carry on any other activities as part of that trade.
      (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-
 
 
    (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
 
    (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.
 
      (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-
 
 
    (a) that trade and those activities were carried on by two different persons;
 
    (b) that provision were made or imposed as between those two persons by means of a transaction;
 
    (c) a potential advantage in relation to United Kingdom taxation were conferred by that provision on each of those two persons;
 
    (d) those two persons were both controlled by the same person at the time of the making or imposition of that provision; and
 
    (e) paragraphs 5 to 7 above were omitted.
      (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-
 
 
    (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
 
    (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.
 
Appeals
     12. - (1) In so far as the question in dispute on any appeal falling within sub-paragraph (2) below-
 
 
    (a) is or involves a determination of whether this Schedule has effect as respects any provision made or imposed as between any two persons, or of how it so has effect, and
 
    (b) is not a question that would fall to be determined by the Special Commissioners apart from this sub-paragraph,
  that question shall be determined by them.
 
      (2) The appeals falling within this sub-paragraph are-
 
 
    (a) any appeal under section 31 of, or Schedule 1A to, the Management Act;
 
    (b) any appeal under paragraph 34(3) of Schedule 18 to the Finance Act 1998 against an amendment of a company's return; and
 
    (c) any appeal under paragraph 48 of that Schedule against a discovery assessment or a discovery determination.
      (3) Sub-paragraph (4) below applies where-
 
 
    (a) any such question as is mentioned in sub-paragraph (1) above falls to be determined by the Special Commissioners for the purposes of any proceedings before them; and
 
    (b) that question relates to any provision made or imposed as between two persons each of whom is a person in relation to whom the condition set out in paragraph 5(3) above is satisfied.
      (4) Where this sub-paragraph applies-
 
 
    (a) each of the persons as between whom the actual provision was made or imposed shall be entitled to appear and be heard by the Special Commissioners, or to make representations to them in writing;
 
    (b) the Special Commissioners shall determine that question separately from any other questions in those proceedings; and
 
    (c) their determination on that question shall have effect as if made in an appeal to which each of those persons was a party.
      (5) In this paragraph-
 
 
    "discovery assessment" means a discovery assessment under paragraph 41 of Schedule 18 to the Finance Act 1998 (including one by virtue of paragraph 52 of that Schedule); and
 
    "discovery determination" means a discovery determination under paragraph 41 of that Schedule.
 
Saving for the provisions relating to capital allowances and capital gains
     13. Nothing in this Schedule shall be construed as affecting-
 
 
    (a) the computation of the amount of any capital allowance or balancing charge made under the 1990 Act; or
 
    (b) the computation in accordance with the 1992 Act of the amount of any chargeable gain or allowable loss;
  and nothing in this Schedule shall require the profits or losses of any person to be computed for tax purposes as if, in his case, instead of income or losses falling to be brought into account in connection with the taxation of income, there were gains or losses falling to be brought into account in accordance with the 1992 Act.
 
 
General interpretation etc.
     14. - (1) In this Schedule-
 
 
    "the actual provision" and "the affected persons" shall be construed in accordance with paragraph 1(1) above;
  `the arm's length provision' shall be construed in accordance with paragraph 1(2) and (3) above;
 
    "double taxation arrangements" means arrangements having effect by virtue of section 788;
 
    "foreign tax" means any tax under the law of a territory outside the United Kingdom or any amount which falls for the purposes of any double taxation arrangements to be treated as if it were such tax;
 
    "insurance company" has the same meaning as in Chapter I of Part XII;
 
    "losses" includes amounts which are not losses but in respect of which relief may be given in accordance with any of the following enactments-
 
      (a) section 75(3) (excess of management expenses);
 
      (b) section 468L(5) (allowance for interest distributions of a unit trust);
 
      (c) Part X (loss relief and group relief);
 
      (d) section 83 of and Schedule 8 to the Finance Act 1996 or paragraph 4 of Schedule 11 to that Act (deficits on loan relationships);
 
    "profits" includes income;
 
    "the relevant activities", in relation to a person who is one of the persons as between whom any provision is made or imposed, means such of his activities as-
 
      (i) comprise the activities in the course of which, or with respect to which, that provision is made or imposed; and
 
      (ii) are not activities carried on either separately from those activities or for the purposes of a different part of that person's business;
 
    "transaction" and "series of transactions" shall be construed in accordance with paragraph 3 above.
      (2) Without prejudice to paragraphs 9(2) and 11(3) above, references in this Schedule to a person controlling a body corporate or a partnership shall be construed in accordance with section 840.
 
      (3) In determining for the purposes of this Schedule whether a person has an entitlement, in pursuance of any double taxation arrangements or under section 790(1), to be given credit for foreign tax, any requirement that a claim is made before such a credit is given shall be disregarded.
 
      (4) Any adjustments required to be made by virtue of this Schedule may be made by way of discharge or repayment of tax, by the modification of any assessment or otherwise.
 
      (5) This Schedule shall have effect as if-
 
 
    (a) a unit trust scheme were a company that is a body corporate;
 
    (b) the rights of the unit holders under such a scheme were shares in the company that the scheme is deemed to be;
 
    (c) rights and powers of a person in the capacity of a person entitled to act for the purposes of the scheme were rights and powers of the scheme; and
 
    (d) provision made or imposed as between any person in such a capacity and another person were made or imposed as between the scheme and that other person."
 
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