House of Commons portcullis
House of Commons
Session 2002 - 03
Internet Publications
Other Bills before Parliament

Finance Bill


Finance Bill
Schedule 24 — Restriction of deductions for employee benefit contributions

    339

 

              (a)             for the purposes of making the calculation, paragraph 1(3) shall be

read as if the reference to that nine-month period were a reference to

the period ending at the time when the calculation is made, but

              (b)             after the end of the nine-month period the calculation shall if

necessary be adjusted to take account of any benefits provided,

5

expenses paid or contributions made within that period but after the

time of the calculation.

Life assurance business

  7       (1)      In the case of an insurance company carrying on life assurance business, the

effect of section 86 of the Finance Act 1989 (c. 26) (spreading of relief for

10

acquisition expenses) shall be ignored in determining for the purposes of

paragraph 1(1) whether a deduction would (apart from this Schedule) be

allowed for a particular period.

          (2)      But paragraph 1(4) has effect subject to that section where, in accordance

with sub-paragraph (1) above, an amount is allowed as a deduction for a

15

particular period under paragraph 1(4).

Deductions to which Schedule does not apply

  8        This Schedule does not apply to any deduction that is allowable—

              (a)             in respect of anything given as consideration for goods or services

provided in the course of a trade or profession,

20

              (b)             in respect of contributions under a retirement benefits scheme within

the meaning of Chapter 1 of Part 14 of the Taxes Act 1988 (see section

611 of that Act),

              (c)             in respect of contributions under a personal pension scheme

approved under Chapter 4 of that Part (see section 630 of that Act),

25

              (d)             in respect of contributions under an accident benefit scheme,

              (e)             under Schedule 4AA to that Act (approved share incentive plans),

              (f)             under section 67 of the Finance Act 1989 (qualifying share ownership

trusts), or

              (g)             under Schedule 23 to this Act (relief for employee share acquisition).

30

Interpretation

  9       (1)      In this Schedule—

               “accident benefit scheme” means an employee benefit scheme under

which benefits may be provided only by reason of a person’s

disablement, or death, caused by an accident occurring during his

35

service as an employee of the employer;

               “employee benefit contribution” shall be read in accordance with

paragraph 1(2);

               “employee benefit scheme” means a trust, scheme or other

arrangement for the benefit of persons who are, or include,

40

employees of the employer;

               “the employer” shall be read in accordance with paragraph 1(1);

               “for tax purposes” means for any purposes of income tax or

corporation tax;

               “qualifying benefits” shall be read in accordance with paragraph 2;

45

 

 

Finance Bill
Schedule 24 — Restriction of deductions for employee benefit contributions

    340

 

               “qualifying expenses” has the meaning given by paragraph 3;

               “the third party” shall be read in accordance with paragraph 1(2).

          (2)      A reference in this Schedule to a person’s employee includes a reference to

the holder of an office under that person, and “employment” shall be read

accordingly.

5

Consequential amendments

  10      (1)      In section 43 (Schedule D) and section 44 (investment and insurance

companies) of the Finance Act 1989 (c. 26), in subsection (2) (amounts

charged in accounts in respect of employees’ remuneration) for paragraphs

(a) and (b) substitute “for which provision is made in the accounts”.

10

          (2)      In Schedule 29 to the Finance Act 2002 (c. 23) (intangible fixed assets), in

paragraph 113(3)(a) (meaning of “potential emoluments”) omit the words

“or benefits” and “, or held by an intermediary,”.

Commencement and transitory provisions

  11      (1)      This Schedule has effect in relation to deductions that would (but for this

15

Schedule) be allowed for a period ending on or after 27th November 2002 in

respect of employee benefit contributions made on or after that date.

          (2)      In relation to any time before the coming into force of the Income Tax

(Earnings and Pensions) Act 2003 (c. 1), this Schedule has effect as if—

              (a)             the references to tax under that Act were to income tax under

20

Schedule E;

              (b)             the reference in paragraph 8(e) to Schedule 4AA to the Taxes Act

1988 (approved share incentive plans) were to Part 12 of Schedule 8

to the Finance Act 2000 (c. 17) (employee share ownership plans);

              (c)             for the words in paragraph 2(5) from “treated as received” to the end

25

there were substituted “treated as received for the purposes of

section 202A(1)(a) of the Taxes Act 1988, applying the rules in section

202B(1) to (6) of that Act (receipts basis of assessment for Schedule

E)”.

          (3)      In relation to any such time, sections 43(11)(a) and 44(9)(a) of the Finance Act

30

1989 have effect with the omission of the words “or benefits” and “, or held

by an intermediary,”.

          (4)      In relation to a period beginning before 1st January 2003, the reference in

paragraph 8(g) to a deduction allowable under Schedule 23 to this Act shall

be read as a reference to a deduction allowable to a company for that period

35

in respect of a person—

              (a)             acquiring shares that are qualifying shares within the meaning of

that Schedule, or

              (b)             having a right to acquire such shares,

                   whether in that period or subsequently, by reason of his or another’s

40

employment with the company.

 

 

Finance Bill
Schedule 25 — Determination of profits attributable to permanent establishment: supplementary provisions

    341

 

Schedule 25

Section 148(3)

 

Determination of profits attributable to permanent establishment:

supplementary provisions

                                                                 The Schedule inserted in the Taxes Act 1988 as Schedule A1 is as follows—

“Schedule A1

5

Determination of profits attributable to permanent establishment:

supplementary provisions

Part 1

Introduction

Introduction

10

          1                (1)               The provisions of this Schedule have effect for supplementing

section 11AA as regards the determination of the profits

attributable to a permanent establishment in the United Kingdom

of a company that is not resident in the United Kingdom (“the

non-resident company”).

15

                           (2)               In this Schedule “the separate enterprise principle” means the

principle in section 11AA(2) (read with subsection (3) of that

section).

Part 2

General provisions

20

Transactions treated as taking place at arm’s length

          2                 In accordance with the separate enterprise principle, transactions

between the permanent establishment and any other part of the

non-resident company are treated as taking place on such terms as

would have been agreed between parties dealing at arm’s length.

25

Application of general provision as to allowable deductions

          3                (1)               Section 11AA(4) (general provision as to allowable deductions)

applies whether or not the expenses are incurred by, or

reimbursed by, the permanent establishment.

                           (2)               The amount of expenses to be taken into account under section

30

11AA(4) is the actual cost to the non-resident company.

Prohibition of deductions for payments in respect of intangible assets

          4                (1)               No deduction is allowed in respect of royalties paid, or other

similar payments made, by the permanent establishment to any

other part of the non-resident company in respect of the use of

35

intangible assets held by the company.

 

 

Finance Bill
Schedule 25 — Determination of profits attributable to permanent establishment: supplementary provisions

    342

 

                           (2)               This does not prevent a deduction in respect of any contribution

by the permanent establishment to the costs of creation of an

intangible asset.

                           (3)               In this paragraph “intangible asset” has the meaning it has for

accounting purposes, and includes any intellectual property (as

5

defined in paragraph 2(2) of Schedule 29 to the Finance Act 2002).

Prohibition of deductions for interest or other financing costs

          5                (1)               No deduction is allowed in respect of payments of interest or other

financing costs by the permanent establishment to any other part

of the non-resident company, except as provided by sub-

10

paragraph (2).

                           (2)               The restriction in sub-paragraph (1) above does not apply to

interest or other costs of financing that are payable in respect of

borrowing by the permanent establishment in the ordinary course

of a financial business carried on by it.

15

                           (3)               In sub-paragraph (2) “financial business” means any of the

following—

                      (a)                     banking, deposit-taking, money-lending or debt-factoring,

or a business similar to any of those;

                      (b)                     dealing in commodity or financial futures.

20

Provision of goods or services for permanent establishment

          6                (1)               This paragraph applies where the non-resident company provides

the permanent establishment with goods or services.

                           (2)               If the goods or services are of a kind that the company supplies, in

the ordinary course of its business, to third parties dealing with it

25

at arm’s length, the matter is dealt with as a transaction to which

the separate enterprise principle applies.

                           (3)               If not, the matter is dealt with as an expense incurred by the non-

resident company for the purposes of the permanent

establishment.

30

Part 3

Provisions applicable to non-resident banks

Application of this Part

          7                (1)               The provisions of this Part of this Schedule have effect where the

non-resident company is a bank.

35

                                             “Bank” for this purpose has the meaning given by section 840A.

                           (2)               Nothing in this Part of this Schedule shall be read as preventing

the application of principles similar to those provided for in this

Part in applying the separate enterprise principle to a non-resident

company that is not a bank.

40

 

 

Finance Bill
Schedule 25 — Determination of profits attributable to permanent establishment: supplementary provisions

    343

 

Non-resident banks: transfer of financial assets

          8                (1)               In accordance with the separate enterprise principle, transfers of

loans and other financial assets between the permanent

establishment and any other part of the company are recognised

only if they would have taken place between independent

5

enterprises.

                           (2)               Such a transfer is not recognised where it cannot reasonably be

considered that it is carried out for valid commercial reasons.

                                             For this purpose the obtaining of a tax advantage is not a valid

commercial reason.

10

Loans by non-resident banks: attribution of financial assets and profits arising

          9                (1)               In accordance with the separate enterprise principle, loans and

other financial assets, and profits arising from them, are attributed

to a permanent establishment to the extent that they can

reasonably be regarded as having been generated by the activities

15

of the permanent establishment.

                           (2)               The following provisions have effect as regards the factors to be

taken into account.

                           (3)               Particular account shall be taken of the extent to which the

permanent establishment is responsible for—

20

                      (a)                     obtaining the offer of new business;

                      (b)                     establishing the potential borrower’s credit rating and the

risk involved in providing credit;

                      (c)                     negotiating the terms of the loan with the borrower;

                      (d)                     deciding whether, and if so on what conditions, to make or

25

extend the loan.

                           (4)               Account may also be taken of the extent to which the permanent

establishment is responsible for—

                      (a)                     concluding the loan agreement and disbursing the

proceeds of the loan;

30

                      (b)                     administering the loan (including handling and

monitoring the service of it) and holding and controlling

any securities pledged.

                           (5)               References in this paragraph to a financial asset include any

financial risk in relation to a loan, or potential loan, that is capable

35

of giving rise to fees or other receipts and for which the holding of

capital is required (or would be required if the transaction were

between parties at arm’s length).

Borrowing by non-resident banks: permanent establishment acting as agent or

intermediary

40

          10               (1)               This paragraph applies where a permanent establishment—

                      (a)                     borrows funds for the purposes of another part of the non-

resident company, and

                      (b)                     in relation to that borrowing acts only as an agent or

intermediary.

45

 

 

Finance Bill
Schedule 26 — Non-resident companies: transactions through broker, investment manager or Lloyd’s agent

    344

 

                           (2)               In such a case, in accordance with the separate enterprise

principle—

                      (a)                     the profits attributable to the permanent establishment,

and

                      (b)                     the capital attributable to the permanent establishment

5

under section 11AA(3),

                                             shall be that appropriate in the case of an agent acting at arm’s

length, taking into account the risks and costs borne by the

establishment.”.

Schedule 26

10

Section 151

 

Non-resident companies: transactions through broker, investment

manager or Lloyd’s agent

Introduction

  1       (1)      This Schedule makes provision about transactions carried out on behalf of a

company that is not resident in the United Kingdom (a “non-resident

15

company”), in the course of that company’s trade, by a person in the United

Kingdom acting as—

              (a)             a broker (paragraph 2),

              (b)             an investment manager (paragraphs 3 to 5), or

              (c)             a members’ or managing agent at Lloyd’s (paragraph 6).

20

          (2)      The provisions of this Schedule supplement—

              (a)             section 147(3) (meaning of “permanent establishment”: not to

include independent agent), and

              (b)             section 150(2)(c) (limit on income tax chargeable on non-resident

company: income arising from transactions carried out through

25

independent agent).

Brokers

  2       (1)      In relation to a transaction carried out on behalf of a non-resident company,

a broker is regarded as an agent of independent status acting in the ordinary

course of his business if, and only if, the following conditions are met.

30

          (2)      The conditions are—

              (a)             that at the time of the transaction he is carrying on the business of a

broker;

              (b)             that the transaction is carried out by him in the ordinary course of

that business;

35

              (c)             that the remuneration he receives in respect of the transaction for the

provision of the services of a broker to the non-resident company is

not less than is customary for that class of business; and

              (d)             that he does not fall to be treated as a permanent establishment of the

non-resident company in relation to any other transaction carried

40

out in the same accounting period.

 

 

Finance Bill
Schedule 26 — Non-resident companies: transactions through broker, investment manager or Lloyd’s agent

    345

 

Investment managers

  3       (1)      In relation to an investment transaction carried out on behalf of a non-

resident company by a person providing investment management services

(an “investment manager”), the investment manager is regarded as an agent

of independent status acting in the ordinary course of his business if, and

5

only if, the following conditions are met.

          (2)      The conditions are—

              (a)             that at the time of the transaction he is carrying on a business of

providing investment management services;

              (b)             that the transaction is carried out in the ordinary course of that

10

business;

              (c)             that he acts on behalf of the non-resident company in relation to the

transaction in an independent capacity;

              (d)             that the requirements of the 20% rule are met (see paragraph 4);

              (e)             that the remuneration he receives in respect of the transaction for the

15

provision to the non-resident company of investment management

services is not less than is customary for that class of business; and

              (f)             that he does not fall to be treated as a permanent establishment of the

company in relation to any other transaction carried out in the same

accounting period.

20

          (3)      In sub-paragraph (1) “investment transaction” means—

              (a)             transactions in shares, stock, futures contracts, options contracts or

securities of any description not mentioned in this paragraph, but

excluding futures contracts or options contracts relating to land,

              (b)             transactions consisting in the buying or selling of any foreign

25

currency or in the placing of money at interest, and

              (c)             such other transactions as the Treasury may by regulations designate

for the purposes of this Schedule.

                   Regulations for the purposes of paragraph (c) shall be made by statutory

instrument which shall be subject to annulment in pursuance of a resolution

30

of the House of Commons.

          (4)      For the purposes of sub-paragraph (3) a contract is not prevented from being

a futures contract or an options contract by the fact that any party is or may

be entitled to receive or liable to make, or entitled to receive and liable to

make, only a payment of a sum (as opposed to a transfer of assets other than

35

money) in full settlement of all obligations.

Investment managers: the 20% rule

  4       (1)      The requirements of the 20% rule are—

              (a)             that in relation to a qualifying period (see sub-paragraph (2)) it has

been or is the intention of the investment manager and the persons

40

connected with him that the company’s relevant excluded income

(see sub-paragraph (3)) should, as to at least 80%, consist of amounts

to which neither he nor any such person has a beneficial entitlement

(see sub-paragraph (4)), and

              (b)             to the extent that there is a failure to fulfil that intention, that

45

failure—

 

 

 
previous section contents continue
 
House of Commons home page Houses of Parliament home page House of Lords home page search page enquiries

© Parliamentary copyright 2003
Revised 16 April 2003