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

    345

 

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

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

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).

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

intermediary

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

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

resident company, and

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

intermediary.

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

principle—

                      (a)                     the profits attributable to the permanent establishment,

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and

                      (b)                     the capital attributable to the permanent establishment

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

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establishment.”.

Schedule 26

Section 151

 

Non-resident companies: transactions through broker, investment

manager or Lloyd’s agent

Introduction

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  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

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

Kingdom acting as—

              (a)             a broker (paragraph 2),

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

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

          (2)      The provisions of this Schedule supplement—

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

include independent agent), and

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

company: income arising from transactions carried out through

independent agent).

Brokers

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

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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.

 

 

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

    346

 

          (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;

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              (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

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out in the same accounting period.

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

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

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;

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

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);

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

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

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accounting period.

          (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,

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

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

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

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

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

money) in full settlement of all obligations.

 

 

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

    347

 

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

connected with him that the company’s relevant excluded income

5

(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

failure—

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                    (i)                   is attributable (directly or indirectly) to matters outside the

control of the investment manager and persons connected

with him, and

                    (ii)                  does not result from a failure by him or any of those persons

to take such steps as may be reasonable for mitigating the

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effect of those matters in relation to the fulfilment of that

intention.

          (2)      A “qualifying period” means—

              (a)             the accounting period in which the transaction in question is carried

out, or

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              (b)             a period of not more than five years comprising two or more

complete accounting periods including that one.

          (3)      The “relevant excluded income” of a non-resident company for a qualifying

period is the aggregate of such of the chargeable profits of the company for

the accounting periods comprised in the qualifying period as derive from

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transactions carried out by the investment manager on the company’s behalf

in relation to which the manager does not (apart from the requirements of

the 20% rule) fall to be treated as a permanent establishment of the company.

          (4)      A person has a “beneficial entitlement” to relevant excluded income if he has

or may acquire a beneficial entitlement by virtue of—

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              (a)             an interest of his (whether or not an interest giving a right to an

immediate payment of a share in the profits or gains) in property in

which the whole or any part of that income is represented, or

              (b)             an interest of his in or other rights in relation to the non-resident

company,

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                   that is or would be attributable to that income.

          (5)      In the case of a transaction in relation to which the conditions in paragraph

3 are met except for the requirements of the 20% rule, this Schedule has effect

as if the requirements of that rule were met in relation to so much of the

chargeable profits of the non-resident company deriving from the

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transaction as do not represent relevant excluded income of the company to

which the investment manager or a person connected with him has or has

had any beneficial entitlement.

Investment managers: application of 20% rule to collective investment schemes

  5       (1)      This paragraph applies where amounts arise or accrue to the non-resident

45

company as a participant in a collective investment scheme.

 

 

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

    348

 

          (2)      The requirements of the 20% rule need not be met in relation to a transaction

carried out for the purposes of the scheme if the scheme is such that, if the

following assumptions applied—

              (a)             that all transactions carried out for the purposes of the scheme were

carried out on behalf of a company constituted for the purposes of

5

the scheme and resident outside the United Kingdom, and

              (b)             that the participants did not have any rights in respect of the

amounts arising or accruing in respect of those transactions other

than the rights that, if they held shares in the company on whose

behalf the transactions are assumed to be carried out, would be their

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rights as shareholders,

                   the assumed company would not, in relation to the accounting period in

which the transaction was carried out, be regarded for tax purposes as

carrying on a trade in the United Kingdom.

          (3)      Where on those assumptions the assumed company would be regarded for

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tax purposes as carrying on a trade in the United Kingdom, paragraph 4 has

effect with the following modifications in relation to a transaction carried

out for the purposes of the scheme—

              (a)             for references to the non-resident company substitute references to

the assumed company;

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              (b)             for references to the non-resident company’s relevant excluded

income substitute references to the aggregate of the amounts that

would, for accounting periods comprised in the qualifying period, be

chargeable to tax on the assumed company as profits deriving from

the transactions carried out by the investment manager and assumed

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to be carried out on behalf of the company.

          (4)      In this paragraph “collective investment scheme” has the meaning given by

section 235 of the Financial Services and Markets Act 2000 (c. 8), and

“participant”, in relation to such a scheme, shall be construed in accordance

with that section.

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Lloyd’s agents

  6       (1)      Where a non-resident company is a member of Lloyd’s and the transaction

is carried out in the course of the company’s underwriting business, a

person who acts on behalf of the company in relation to the transaction is

regarded as an independent agent acting in the ordinary course of his

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business if he acts as members’ agent or as managing agent of the syndicate

in question.

          (2)      In sub-paragraph (1)—

              (a)             the reference to the non-resident company being a member of

Lloyd’s is to its being a corporate member within the meaning of

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Chapter 5 of Part 4 of the Finance Act 1994 (c. 9); and

              (b)             the references to a members’ agent and to a managing agent shall be

construed in accordance with section 230 of that Act.

General supplementary provisions

  7       (1)      For the purposes of this Schedule a person is regarded as carrying out a

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transaction on behalf of another where he undertakes the transaction

himself, whether on behalf of or to the account of that other, and also where

he gives instructions for it to be so carried out by another.

 

 

Finance Bill
Schedule 27 — Permanent establishment etc: consequential amendments

    349

 

          (2)      For the purposes of this Schedule a person is regarded as acting in an

independent capacity on behalf of a company only if the relationship

between them, having regard to its legal, financial and commercial

characteristics, is a relationship between persons carrying on independent

businesses that deal with each other at arm’s length.

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          (3)      Section 839 of the Taxes Act 1988 (connected persons) applies for the

purposes of this Schedule.

          (4)      This Schedule has effect in the case of a person who acts as a broker or

provides investment services as part only of a business as if that part were a

separate business.

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Schedule 27

Section 154

 

Permanent establishment etc: consequential amendments

Taxes Act 1988

  1       (1)      The Taxes Act 1988 is amended as follows.

          (2)      In section 606 (persons responsible in case of default of administrator of

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retirement benefits scheme), for subsection (13) substitute—

              “(13)                References in this section to the employer include, where the

employer is not resident in the United Kingdom, any person who is

treated as UK representative of the employer under section 126 of the

Finance Act 1995 or section 149 of the Finance Act 2003.”.

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          (3)      In section 806L (carry forward or carry back of unrelieved foreign tax), for

subsection (7) substitute—

              “(7)                In this section—

                                      “overseas permanent establishment” means a permanent

establishment through which a company carries on a trade in

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a territory outside the United Kingdom; and

                                      “permanent establishment”—

                           (a)                          if there are arrangements having effect under section

788 in relation to the territory concerned that define

the expression, has the meaning given by those

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arrangements, and

                           (b)                          if there are no such arrangements, or if they do not

define the expression, has the meaning given by

section 147 of the Finance Act 2003.”.

          (4)      In Schedule 15 (qualifying policies), in paragraph 24 (policies issued by non-

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resident companies), in sub-paragraph (3)(b) (twice) and (c) for “branch”

substitute “permanent establishment”.

Taxation of Chargeable Gains Act 1992

  2       (1)      The Taxation of Chargeable Gains Act 1992 (c. 12) is amended as follows.

          (2)      In section 10 (non-resident with United Kingdom branch or agency)—

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              (a)             omit subsection (3); and

 

 

Finance Bill
Schedule 27 — Permanent establishment etc: consequential amendments

    350

 

              (b)             in subsection (4), omit “or corporation tax”.

          (3)      In sections 13(5)(d), 25(7)(b), 106(10), 139(1A), 140A(2), 159(4)(b), 171(1A),

175(2AA), 179(1A), 190(2)(b) and (3)(b), 199(6)(b) and 228(6)(b), and in

Schedule 7A, paragraph 1(3A), for “10(3)” substitute “10B”.

Finance Act 1993

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  3       (1)      In sections 93 and 93A of the Finance Act 1993 (c. 34) (use of currency other

than sterling) for “branch”, wherever occurring, substitute “permanent

establishment”.

          (2)      The provisions in which the above amendment is to be made are—

              (a)             in section 93, subsection (2)(b) and the definition of “return of

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accounts” in subsection (7) (twice);

              (b)             in section 93A, subsections (2)(b), (3)(b) and (7)(b).

Finance Act 1995

  4       (1)      Section 126 of the Finance Act 1995 (c. 4) (UK representatives of non-

residents) is amended as follows.

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          (2)      In subsection (1), omit the words “, corporation tax”.

          (3)      In subsection (2)—

              (a)             after paragraph (b) insert “and”;

              (b)             in paragraph (c) omit the words from “or fall” to “non-resident”; and

              (c)             omit sub-paragraph (d) and the word “and” preceding it.

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          (4)      For subsection (8) substitute—

              “(8)                In this section, “branch or agency” means any factorship, agency,

receivership, branch or management.”.

          (5)      In subsection (9), omit paragraph (b) and the word “and” preceding it.

          (6)      After subsection (9) insert—

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              “(10)                This section does not apply in relation to income tax chargeable on

income of a company otherwise than as a trustee.”.

  5       (1)      Section 127 of the Finance Act 1995 (persons not treated as UK

representatives) is amended as follows.

          (2)      In subsection (1) for “(a) to (d)” substitute “(a) to (c)”.

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          (3)      In subsection (5)(b) omit “or 129”.

          (4)      In subsection (17), in the definition of “branch or agency” for “the

Management Act” substitute “section 126 above”.

          (5)      In subsection (19) omit paragraph (b) and the word “and” preceding it.

  6        In section 128 of the Finance Act 1995 (limit on income chargeable on non-

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residents: income tax), after subsection (11) insert—

              “(12)                This section does not apply in relation to income tax chargeable on

income of a company otherwise than as a trustee.”.

  7        Omit section 129 of the Finance Act 1995 (limit on income chargeable on non-

residents: corporation tax).

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Finance Bill
Schedule 28 — Capital gains tax: reporting limits and annual exempt amount
Part 1 — Reporting limits

    351

 

Finance Act 1996

  8        In Schedule 15 to the Finance Act 1996 (c. 8) (loan relationships: transitional

provisions), in paragraph 8(6)(c)—

              (a)             for “10(3)” substitute “10B”, and

              (b)             for “on a disposal by a branch or agency” substitute “attributable to

5

a permanent establishment”.

Finance Act 2000

  9                 In Schedule 15 to the Finance Act 2000 (c. 17) (corporate venturing scheme),

in paragraph 79(5) (gain accruing on chargeable event), for “section 10”

substitute “section 10B”.

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Schedule 28

Section 158

 

Capital gains tax: reporting limits and annual exempt amount

Part 1

Reporting limits

  1        After section 3 of the Taxation of Chargeable Gains Act 1992 (c. 12) insert—

15

       “3A     Reporting limits

              (1)             Where in the case of an individual—

                    (a)                   the amount of chargeable gains accruing to him in any year

of assessment does not exceed the exempt amount for that

year, and

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                    (b)                   the aggregate amount or value of the consideration for all

chargeable disposals of assets made by him in that year does

not exceed four times the exempt amount for that year,

                              a statement to that effect is sufficient compliance with so much of any

notice under section 8 of the Management Act as requires

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information for the purposes of establishing the amount in which he

is chargeable to capital gains tax for that year.

              (2)             For the purposes of subsection (1)(a) above—

                    (a)                   the amount of chargeable gains accruing to an individual in a

year of assessment for which no deduction falls to be made in

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respect of allowable losses is the amount after any reduction

for taper relief;

                    (b)                   the amount of chargeable gains accruing to an individual in a

year of assessment for which such a deduction does fall to be

made is the amount before deduction of losses or any

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reduction for taper relief.

              (3)             For the purposes of subsection (1)(b) above a “chargeable disposal”

is any disposal other than—

                    (a)                   a disposal on which any gain accruing is not a chargeable

gain, or

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