(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).
Borrowing by non-resident banks: permanent establishment acting as agent or
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
(2) In such a case, in accordance with the separate enterprise
(a) the profits attributable to the permanent establishment,
(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
Non-resident companies: transactions through broker, investment
manager or Lloyd’s agent
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),
(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
(b) section 150(2)(c) (limit on income tax chargeable on non-resident
company: income arising from transactions carried out through
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.
(2) The conditions are—
(a) that at the time of the transaction he is carrying on the business of a
(b) that the transaction is carried out by him in the ordinary course of
(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
out in the same accounting period.
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
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
(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
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
(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
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
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
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
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
(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
effect of those matters in relation to the fulfilment of that
(2) A “qualifying period” means—
(a) the accounting period in which the transaction in question is carried
(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
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—
(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
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
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
company as a participant in a collective investment scheme.
(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
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
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
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;
(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
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.
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
business if he acts as members’ agent or as managing agent of the syndicate
(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
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
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.
(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.
(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
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
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.”.
(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
a territory outside the United Kingdom; and
(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
(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-
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)—
(a) omit subsection (3); and
(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
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
(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
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.
(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.
(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—
“(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)”.
(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-
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).
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
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”.
Capital gains tax: reporting limits and annual exempt amount
1 After section 3 of the Taxation of Chargeable Gains Act 1992 (c. 12) insert—
“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
(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
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
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
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