House of Commons portcullis
House of Commons
Session 2003 - 04
Internet Publications
Other Bills before Parliament

Finance Bill


Finance Bill
Schedule 4 — Amendments relating to the rate applicable to trusts

270

 

subsection substitute “charged; or

(c)   

the amount of tax paid by the trustees on the grossed-up

amount of so much of the amount of income available up to

the end of the year, in relation to the capital sum, as is taken

into account under subsection (1) above in relation to that

5

sum in that year (see subsections (7A) to (7C) below),

whichever is the least.”.

      (4)  

After subsection (7) insert—

“(7A)   

For the purposes of subsection (7)(c) above—

(a)   

any reduction falling to be made under subsection (2)(h)

10

above shall be treated as made against income arising under

the settlement in an earlier year of assessment before income

arising under the settlement in a later year of assessment; and

(b)   

income arising under the settlement in an earlier year of

assessment shall be regarded as being taken into account

15

under subsection (1) above before income arising under the

settlement in a later year of assessment.

(7B)   

For the purposes of subsection (7)(c) above—

(a)   

the grossed-up amount of any sum is such amount as, after

the deduction of tax at the appropriate rate for each part of

20

that sum, would be equal to that sum; and

(b)   

the amount of tax paid by the trustees on that grossed-up

amount is the amount of tax falling to be deducted under

paragraph (a) above.

(7C)   

For the purposes of subsection (7B) above—

25

(a)   

the appropriate rate for any part of a sum is 0% if—

(i)   

the income that falls to be regarded in accordance

with subsection (7A) above as representing that part

of the sum is income from a source outside the United

Kingdom, and

30

(ii)   

the trustees were not resident in the United Kingdom

for the relevant year of assessment;

(b)   

the appropriate rate for any part of a sum in relation to which

paragraph (a) above does not apply is—

(i)   

34% if the relevant year of assessment is the year 2003-

35

04 or any earlier year of assessment,

(ii)   

40%, if the relevant year of assessment is the year

2004-05 or any subsequent year of assessment.

   

For the purposes of this subsection the relevant year of assessment in

relation to any part of a sum is the year of assessment in which the

40

income to be regarded in accordance with subsection (7A) above as

representing that part of the sum arose under the settlement.”.

Trustees chargeable to income tax at 30 per cent in certain cases

2          

The side-note to section 694 becomes “Trustees chargeable to income tax in

certain cases at higher rate reduced by rate applicable to trusts”.

45

 

 

Finance Bill
Schedule 5 — Provision not at arm’s length: related amendments

271

 

Commencement

3          

The amendments made by paragraph 1 have effect for the purpose of

determining the amount to be set off under section 677(7) of the Taxes Act

1988 in the year 2004-05 or any subsequent year of assessment (whenever the

undistributed income arose).

5

Schedule 5

Section 30

 

Provision not at arm’s length: related amendments

Taxes Management Act 1970

Notice of enquiry

1     (1)  

Section 9A of the Taxes Management Act 1970 (c. 9) is amended as follows.

10

      (2)  

For subsection (4) (scope of inquiry) substitute—

“(4)   

An enquiry extends to—

(a)   

anything contained in the return, or required to be contained

in the return, including any claim or election included in the

return,

15

(b)   

consideration of whether to give the taxpayer a transfer

pricing notice under paragraph 5C of Schedule 28AA to the

Taxes Act 1988 (provision not at arm’s length: medium-sized

enterprise),

   

but this is subject to the following limitation.”.

20

Income and Corporation Taxes Act 1988

Valuation of trading stock at discontinuance of trade

2     (1)  

Section 100 of the Taxes Act 1988 is amended as follows.

      (2)  

After subsection (1) insert—

“(1ZA)   

This section does not apply in relation to any trading stock if

25

paragraph 1(2) of Schedule 28AA (provision not at arm’s length) has

effect in relation to any provision made or imposed in relation to that

stock and having effect in connection with the discontinuance of the

trade.”.

Petroleum extraction activities: ring fence trade: charges on income

30

3     (1)  

Section 494 of the Taxes Act 1988 (charges on income) is amended as follows.

      (2)  

In subsection (2) (which restricts the loan relationship debits that may be

brought into account in a manner resulting in reduction of ring fence

profits)—

(a)   

at the end of paragraph (b) insert “and”;

35

(b)   

omit paragraph (d) (which imposes a restriction by reference to a

reasonable commercial rate of return and is superseded by the

application of paragraphs 1A and 1B of Schedule 28AA to the Taxes

Act 1988 by virtue of paragraph 11 of that Schedule);

 

 

Finance Bill
Schedule 5 — Provision not at arm’s length: related amendments

272

 

(c)   

omit the third sentence (which defines “net debit” for the purposes of

paragraph (d)).

      (3)  

Omit subsection (2B) (which relates to the net debit within the meaning of

subsection (2)(d)).

Assumptions for calculating chargeable profits etc: transfer pricing

5

4          

In Schedule 24 to the Taxes Act 1988, paragraph 20 shall cease to have effect.

Finance Act 1996

Loan relationships: introductory

5          

Schedule 9 to the Finance Act 1996 (c. 8) (loan relationships: special

computational provisions) is amended as follows.

10

Transactions not at arm’s length

6     (1)  

Paragraph 11 is amended as follows.

      (2)  

In sub-paragraph (1) (which is expressed to be subject to sub-paragraphs (2)

to (3A)) for “(2)” substitute “(1A)”.

      (3)  

After sub-paragraph (1) insert—

15

“(1A)   

Notwithstanding section 80(5) of this Act, sub-paragraph (1) above

shall not apply to debits or credits in respect of amounts which—

(a)   

fall to be adjusted for tax purposes under Schedule 28AA to

the Taxes Act 1988 (provision not at arm’s length), or

(b)   

fall within that Schedule without falling to be so adjusted.

20

(1B)   

For the purposes of sub-paragraph (1A) above, an amount falls

within Schedule 28AA to the Taxes Act 1988 without falling to be

adjusted under that Schedule in a case where—

(a)   

the conditions in paragraph 1(1) of that Schedule are met, and

(b)   

the actual provision does not differ from the arm’s length

25

provision.”.

Continuity of treatment: groups etc.

7     (1)  

Paragraph 12 is amended as follows.

      (2)  

After sub-paragraph (2) insert—

“(2ZA)   

Where the debits or credits to be brought into account for the

30

purposes of this Chapter in respect of any amounts fall to be

determined in accordance with sub-paragraph (2) above, Schedule

28AA to the Taxes Act 1988 (provision not at arm’s length) does not

apply in relation to those amounts.”.

 

 

Finance Bill
Schedule 5 — Provision not at arm’s length: related amendments

273

 

Amounts imputed under Schedule 28AA to the Taxes Act 1988

8          

For paragraph 16 (imputed interest) substitute—

“Amounts imputed under Schedule 28AA to the Taxes Act 1988

16    (1)  

This paragraph applies where, in pursuance of Schedule 28AA to

the Taxes Act 1988 (provision not at arm’s length), an amount falls

5

to be treated as any of the following—

(a)   

an amount of profits, gains or losses (whether or not of a

capital nature) arising to a company from any of its loan

relationships or related transactions;

(b)   

interest payable under any of a company’s loan

10

relationships;

(c)   

charges or expenses incurred by a company under or for

the purposes of any of its loan relationships or related

transactions.

      (2)  

That Schedule shall have effect, notwithstanding the provisions of

15

any authorised accounting method, so as to require credits or

debits relating to the amount so treated to be brought into account

for the purposes of this Chapter to the same extent as they would

be in the case of an actual amount of—

(a)   

profits, gains or losses (whether or not of a capital nature)

20

arising to the company from the loan relationship or

related transaction,

(b)   

interest accruing or becoming due and payable under the

loan relationship, or

(c)   

charges or expenses incurred under or for the purposes of

25

the loan relationship or related transaction,

           

as the case may be.”.

Finance Act 1998

Introductory

9          

The Finance Act 1998 (c. 36) is amended as follows.

30

Scope of enquiry

10    (1)  

In Schedule 18 (company tax returns, assessments and related matters)

paragraph 25 is amended as follows.

      (2)  

In sub-paragraph (1), for the words following paragraph (b) substitute—

   

“and also extends to consideration of whether to give the company a

35

transfer pricing notice under paragraph 5C of Schedule 28AA to the

Taxes Act 1988 (provision not at arm’s length: medium-sized

enterprise).

   

But this is subject to the following limitation.”.

 

 

Finance Bill
Schedule 5 — Provision not at arm’s length: related amendments

274

 

Finance Act 2000

Introductory: tonnage tax: transactions not at arm’s length

11         

Schedule 22 to the Finance Act 2000 (c. 17) (tonnage tax) is amended as

follows.

Transactions between tonnage tax company and another person

5

12    (1)  

Paragraph 58 is amended as follows.

      (2)  

In sub-paragraph (1) (Schedule 28AA to the Taxes Act 1988 to apply with

certain omissions) for the words following paragraph (b) substitute—

   

“Schedule 28AA to the Taxes Act 1988 (transactions not at arm’s

length) has effect with the omission of paragraphs 6 to 7A

10

(elimination of double counting etc).”.

Transactions between tonnage tax trade and other activities of same company

13    (1)  

Paragraph 59 is amended as follows.

      (2)  

For sub-paragraph (2) (Schedule 28AA to the Taxes Act 1988 to apply with

certain omissions) substitute—

15

“(2)   

As applied by sub-paragraph (1), Schedule 28AA has effect with the

omission of paragraphs 6 to 7A (elimination of double counting

etc).”.

Finance Act 2002

Introductory

20

14         

The Finance Act 2002 (c. 23) is amended as follows.

Derivative contracts

15    (1)  

Schedule 26 (derivative contracts) is amended as follows.

      (2)  

In Part 6 (special computational provisions) in paragraph 28 (transactions

within groups) after sub-paragraph (3) insert—

25

    “(3A)  

Where the debits or credits to be brought into account for the

purposes of this Schedule in respect of any amounts fall to be

determined in accordance with sub-paragraph (3), Schedule 28AA

to the Taxes Act 1988 (provision not at arm’s length) does not

apply in relation to those amounts.”.

30

      (3)  

After paragraph 31 insert—

“Amounts imputed under Schedule 28AA to the Taxes Act 1988

31A   (1)  

This paragraph applies where, in pursuance of Schedule 28AA to

the Taxes Act 1988 (provision not at arm’s length), an amount falls

to be treated as any of the following—

35

(a)   

an amount of profits or losses (disregarding any charges or

expenses) arising to a company from any of its derivative

contracts or related transactions;

 

 

Finance Bill
Schedule 6 — Expenses of companies with investment business and insurance companies

275

 

(b)   

charges or expenses incurred by a company under or for

the purposes of any of its derivative contracts or related

transactions.

      (2)  

That Schedule shall have effect, notwithstanding the provisions of

any authorised accounting method, so as to require credits or

5

debits relating to the amount so treated to be brought into account

for the purposes of this Chapter to the same extent as they would

be in the case of an actual amount of—

(a)   

profits or losses (disregarding any charges or expenses)

arising to the company from the derivative contract or

10

related transaction, or

(b)   

charges or expenses incurred under or for the purposes of

the derivative contract or related transaction,

           

as the case may be.”.

Intangible fixed assets

15

16    (1)  

Schedule 29 (gains and losses of a company from intangible fixed assets) is

amended as follows.

      (2)  

In paragraph 55 (transfers within a group), after sub-paragraph (1) insert—

“(1A)   

Where this paragraph applies in relation to the transfer of an asset,

Schedule 28AA to the Taxes Act 1988 (provision not at arm’s length)

20

does not apply in relation to the transfer.”.

      (3)  

In paragraph 92 (transfer between company and related party treated as

being at market value) in sub-paragraph (3) (cases where consideration for

transfer falls within Schedule 28AA without falling to be adjusted)—

(a)   

at the end of paragraph (a) insert “, but”,

25

(b)   

at the end of paragraph (b) omit “, and”,

(c)   

omit paragraph (c) (which refers to paragraph 5(2) of Schedule 28AA

to the Taxes Act 1988).

Schedule 6

Section 41

 

Expenses of companies with investment business and insurance companies

30

Income and Corporation Taxes Act 1988

Levies and repayments under Financial Services and Markets Act 2000: insurance companies

1     (1)  

Section 76B of the Taxes Act 1988 is amended as follows.

      (2)  

In subsection (1) (certain sums paid by an investment company to be treated

as expenses of management) for “an investment company” substitute “a

35

company with investment business”.

      (3)  

In subsection (2) (repayment to investment company to be charged under

Case VI of Schedule D)—

(a)   

at the beginning, insert “For the purposes of corporation tax,”, and

(b)   

for “an investment company” substitute “a company with

40

investment business”.

 

 

Finance Bill
Schedule 6 — Expenses of companies with investment business and insurance companies

276

 

Incidental costs of obtaining loan finance

2     (1)  

Section 77 of the Taxes Act 1988 is amended as follows.

      (2)  

In subsection (1) (which does not apply for the purposes of corporation tax

but which includes provision for the costs in question to be treated as

expenses of management) omit the words from “and the incidental costs” to

5

the end of the subsection.

Change in ownership of investment company: deductions generally.

3     (1)  

Section 768B of the Taxes Act 1988 is amended as follows.

      (2)  

In subsection (1) (case where section applies) for “an investment company”

substitute “a company with investment business”.

10

      (3)  

In subsection (6) (treatment of expenses of management disbursed in the

accounting period)—

(a)   

for “are disbursed or treated as disbursed as expenses of

management in the accounting period” substitute “are, or are treated

as, expenses of management referable to the accounting period”;

15

(b)   

in the words following paragraph (b), for “as disbursed in that part”

substitute “expenses of management referable to that part”.

      (4)  

In subsection (8) (treatment of capital allowances apportioned to either part

of the accounting period) for “75(4)” substitute “75(7)”.

      (5)  

In subsection (9) (which prevents certain sums being deducted under section

20

75 of the Taxes Act 1988) in paragraph (a) for “sums disbursed” substitute

“expenses of management deductible”.

      (6)  

In subsection (14) (meaning of “investment company”) for “ “investment

company” ” substitute “ “company with investment business” ”.

      (7)  

The sidenote to the section accordingly becomes “Change in ownership of

25

company with investment business: deductions generally”.

Deductions: assets transferred within group

4     (1)  

Section 768C of the Taxes Act 1988 is amended as follows.

      (2)  

In subsection (1) (case where section applies) in paragraph (a) for “an

investment company” substitute “a company with investment business”.

30

      (3)  

In subsection (7) (no deduction under section 75 from an amount of total

profits equal to the amount of the relevant gain) in paragraph (a) for “sums

disbursed” substitute “expenses of management deductible”.

      (4)  

In subsection (12), for the definition of “investment company” substitute—

   

““company with investment business” has the same meaning as

35

in Part 4.”.

Change in ownership of company carrying on property business

5     (1)  

Section 768D of the Taxes Act 1988 is amended as follows.

      (2)  

In subsection (1) (case where section applies)—

(a)   

in paragraph (a) (investment company) for “an investment

40

company” substitute “a company with investment business”, and

 

 

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

© Parliamentary copyright 2004
Revised 6 April 2004