|
| |
|
| the recovery of that tax by assessment or by deduction from subsequent |
| |
| |
Payment without deduction |
| |
101 | Payment of royalties without deduction at source |
| |
| 5 |
(a) | section 349(1) of the Taxes Act 1988 (certain payments to be made |
| |
subject to deduction of income tax) applies to a payment of a royalty, |
| |
| |
(b) | at the time the payment is made, the company making the payment |
| |
reasonably believes that section 98 applies to the payment, |
| 10 |
| the company may, if it thinks fit, make the payment without deduction of tax |
| |
| |
(2) | But if section 98 does not in fact apply to the payment, section 350 of, and |
| |
Schedule 16 to, the Taxes Act 1988 (charge to tax where payments are made |
| |
under section 349 etc) are to have effect as if subsection (1) never applied in |
| 15 |
| |
(3) | If the Board are not satisfied that section 98 will apply to one or more payments |
| |
of royalties to be made by a company, they may direct the company that |
| |
subsection (1) is not to apply to the payment or payments. |
| |
(4) | A direction under subsection (3) may be varied or revoked by a subsequent |
| 20 |
| |
(5) | If, before a payment of a royalty is made, the company beneficially entitled to |
| |
the income in respect of which the payment is to be made— |
| |
(a) | believed that section 98 would apply to the payment, but |
| |
(b) | has subsequently become aware that any of Conditions 1 to 3 in section |
| 25 |
98 has ceased to be satisfied, |
| |
| it must without delay notify the Board and the company which is to make the |
| |
| |
(6) | Paragraph 3(1) of Schedule 18 to the Finance Act 1998 (c. 36) (requirement to |
| |
make return in respect of information relevant to application of Corporation |
| 30 |
Tax Acts) has effect as if the reference to the Corporation Tax Acts included a |
| |
reference to subsections (1) to (4) of this section. |
| |
(7) | Paragraph 20 of that Schedule (penalties for incorrect returns), in its |
| |
application to an error relating to information required in a return by virtue of |
| |
subsection (6), has effect as if— |
| 35 |
(a) | the reference in sub-paragraph (1) to a tax-related penalty were a |
| |
reference to an amount not exceeding £3,000, and |
| |
(b) | sub-paragraphs (2) and (3) were omitted. |
| |
102 | Claim for tax deducted at source from exempt interest or royalty payments |
| |
A claim for relief under section 98 in respect of a payment which is made |
| 40 |
subject to deduction of tax under section 349 of the Taxes Act 1988 shall be |
| |
| |
|
| |
|
| |
|
Special relationships and anti-avoidance |
| |
103 | Special relationships |
| |
| |
(a) | apart from this section, section 98 would apply in relation to a payment |
| |
of interest or of a royalty, |
| 5 |
(b) | at the time the payment is made, there is a special relationship (within |
| |
the meaning of Article 4(2) of the Directive) between the company in |
| |
Condition 1 of section 98 and the company in Condition 2 of that |
| |
section or between one of those companies and another person, and |
| |
(c) | owing to the special relationship, the amount of the interest or royalty |
| 10 |
paid exceeds the amount (“the arm’s length amount”) which would |
| |
have been paid in the absence of the relationship, |
| |
| this Chapter, apart from this section, has effect in relation to only so much of |
| |
the payment as does not exceed the arm’s length amount (which may be nil). |
| |
(2) | The following provisions of the Taxes Act 1988 apply in relation to subsection |
| 15 |
(1) as if that subsection were a special relationship provision within the |
| |
meaning of those provisions— |
| |
(a) | in the case of a payment of interest, subsections (2) to (4) of section 808A |
| |
(interest: special relationship), and |
| |
(b) | in the case of a payment of a royalty, subsections (2) to (7) and (9) of |
| 20 |
section 808B (royalties: special relationship). |
| |
(3) | In those provisions of the Taxes Act 1988 as applied in relation to subsection |
| |
(1), expressions also used in this section or this Chapter have the same meaning |
| |
as in this section or this Chapter. |
| |
(4) | This section does not affect any relief which may be allowed under any |
| 25 |
arrangements having effect by virtue of section 788 of the Taxes Act 1988 |
| |
(double taxation relief by agreement with other territories). |
| |
| |
(1) | Section 98 does not apply in relation to a payment of interest or of a royalty if— |
| |
(a) | in the case of a payment of interest, Condition A is satisfied, or |
| 30 |
(b) | in the case of a payment of a royalty, Condition B is satisfied. |
| |
(2) | Condition A is satisfied if it was the main purpose or one of the main purposes |
| |
of any person concerned with the creation or assignment of the debt-claim in |
| |
respect of which the interest is paid to take advantage of this Chapter by means |
| |
of that creation or assignment. |
| 35 |
(3) | Condition B is satisfied if it was the main purpose or one of the main purposes |
| |
of any person concerned with the creation or assignment of the right in respect |
| |
of which the royalty is paid to take advantage of this Chapter by means of that |
| |
| |
|
| |
|
| |
|
| |
105 | Consequential amendments |
| |
(1) | Section 98 of the Taxes Management Act 1970 (c. 9) (special returns etc) is |
| |
| |
(2) | In subsection (4A)(b), after “(4D)” insert “, (4DA)”. |
| 5 |
(3) | After subsection (4D) insert— |
| |
“(4DA) | A payment is within this subsection if— |
| |
(a) | it is a payment to which section 349(1) of the principal Act |
| |
(requirement to deduct tax) applies, |
| |
(b) | a company, purporting to rely on section 101 of the Finance Act |
| 10 |
2004 (payment of royalties without deduction at source), makes |
| |
the payment without deduction of tax under section 349(1) of |
| |
| |
(c) | at the time the payment is made section 98 of the Finance Act |
| |
2004 does not apply to the payment and the company— |
| 15 |
(i) | does not believe that that section does so apply, or |
| |
(ii) | if it does so believe, cannot reasonably do so.”. |
| |
(4) | In section 18 of the Taxes Act 1988 (Schedule D) after subsection (5) insert— |
| |
“(6) | This section is subject to Chapter 6 of Part 3 of the Finance Act 2004 |
| |
(exemption from income tax for certain interest and royalty |
| 20 |
| |
(5) | In section 349 of the Taxes Act 1988 (certain payments to be made subject to |
| |
deduction of income tax) after subsection (6) insert— |
| |
“(7) | This section is subject to Chapter 6 of Part 3 of the Finance Act 2004 |
| |
(exemption from income tax for certain interest and royalty |
| 25 |
| |
106 | Transitional provision |
| |
(1) | This section has effect only in relation to— |
| |
(a) | payments of interest made on or after 1st January 2004 but before the |
| |
coming into force of the first regulations under section 100, and |
| 30 |
(b) | payments of royalties made on or after 1st January 2004 but before the |
| |
| |
(2) | Anything done by a person— |
| |
(a) | before 8th April 2004, and |
| |
(b) | in reliance on, and in accordance with, a provision of the published |
| 35 |
draft Chapter or the published draft regulations, |
| |
| is to be treated as if it had been done under, and in accordance with, the |
| |
corresponding provision of this Chapter or of regulations under section 100. |
| |
(3) | Anything done by a person— |
| |
(a) | on or after 8th April 2004 but before the passing of this Act, and |
| 40 |
(b) | in reliance on, and in accordance with, a provision of the published |
| |
Chapter or the published regulations, |
| |
|
| |
|
| |
|
| is to be treated as if it had been done under, and in accordance with, the |
| |
corresponding provision of this Chapter or of regulations under section 100. |
| |
(4) | During the period between the passing of this Act and the coming into force of |
| |
the first regulations under section 100, the published regulations shall have |
| |
effect as if they were regulations under that section. |
| 5 |
| |
| “the published draft Chapter” means the draft version of this Chapter |
| |
published by the Board on 10th December 2003; |
| |
| “the published draft regulations” means the draft version of regulations |
| |
under section 100 published by the Board on 10th December 2003; |
| 10 |
| “the published Chapter” means the version of this Chapter appearing in |
| |
the Finance Bill as introduced in the House of Commons and published |
| |
| |
| “the published regulations” means the draft version of regulations under |
| |
section 100 published by the Board on 8th April 2004. |
| 15 |
| |
Savings income: double taxation arising from withholding tax |
| |
| |
| |
(1) | This Chapter has effect for the purpose of giving relief from double taxation in |
| 20 |
respect of special withholding tax. |
| |
(2) | Such relief is given— |
| |
(a) | by set-off against income tax or capital gains tax; |
| |
(b) | to the extent that it cannot be so set off, by repayment. |
| |
(3) | “Special withholding tax” means a withholding tax (however described) levied |
| 25 |
under the law of a territory outside the United Kingdom implementing— |
| |
(a) | in the case of a member State, Article 11 of Council Directive 2003/48/ |
| |
EC of 3rd June 2003 on taxation of savings income in the form of interest |
| |
payments (“the Savings Directive”), or |
| |
(b) | in the case of a territory other than a member State, any corresponding |
| 30 |
provision of international arrangements (whatever the period for |
| |
which the provision is to have effect). |
| |
(4) | “International arrangements”, in relation to a territory, means arrangements |
| |
made in relation to that territory with a view to ensuring the effective taxation |
| |
| 35 |
(a) | the law of the United Kingdom, or |
| |
(b) | that law and the law of that territory. |
| |
(5) | For the purposes of Part 18 of the Taxes Act 1988 (double taxation relief)— |
| |
(a) | relief from double taxation in respect of special withholding tax is not |
| |
to be available under Chapters 1 and 2 of that Part; and |
| 40 |
(b) | special withholding tax is not to be regarded as foreign tax for the |
| |
purposes of Chapter 2 of that Part. |
| |
|
| |
|
| |
|
(6) | Sections 113 and 114 also make provision for implementing— |
| |
(a) | Article 13(2) of the Savings Directive (provision of certificate to avoid |
| |
levy of special withholding tax), and |
| |
(b) | any corresponding provision of international arrangements. |
| |
| 5 |
| “double taxation arrangements” means arrangements having effect by |
| |
virtue of section 788 of the Taxes Act 1988 (double taxation relief by |
| |
agreement with other territories); |
| |
| “international arrangements” has the meaning given by subsection (4); |
| |
| “the Savings Directive” has the meaning given by subsection (3)(a); |
| 10 |
| |
(a) | in the case of special withholding tax levied under the law of a |
| |
member State, has the same meaning as the expression “interest |
| |
payment” has for the purposes of the Savings Directive (see |
| |
Articles 6 and 15 of the Directive), and |
| 15 |
(b) | in the case of special withholding tax levied under the law of a |
| |
territory other than a member State, has the same meaning as |
| |
the corresponding expression has for the purposes of the |
| |
international arrangements concerned; |
| |
| “special withholding tax” has the meaning given by subsection (3). |
| 20 |
(8) | In the application of this Chapter in relation to capital gains tax, expressions |
| |
used in this Chapter and in the Taxation of Chargeable Gains Act 1992 (c. 12) |
| |
have the same meaning in this Chapter as in that Act. |
| |
Credit etc for special withholding tax |
| |
108 | Income tax credit etc for special withholding tax |
| 25 |
(1) | This section applies where— |
| |
(a) | a person is chargeable to income tax for a year of assessment in respect |
| |
of a payment of savings income or would be so chargeable but for any |
| |
exemption or relief which has effect in respect of that payment, |
| |
(b) | special withholding tax is levied in respect of the payment, and |
| 30 |
(c) | the person is resident in the United Kingdom for that year of |
| |
| |
(2) | On the making of a claim, income tax (“the deemed tax”) of an amount equal |
| |
to the amount of the special withholding tax levied is to be treated as having |
| |
| 35 |
(a) | paid by or on behalf of the person for that year of assessment, and |
| |
(b) | deducted at source for that year of assessment for the purposes of the |
| |
provisions in subsection (3). |
| |
| |
| section 7 of the Taxes Management Act 1970 (c. 9) (notice of liability to |
| 40 |
income tax and capital gains tax); |
| |
| section 8 of that Act (personal return); |
| |
| section 8A of that Act (trustee’s return); |
| |
| section 9 of that Act (returns to include self-assessment); |
| |
| section 59A of that Act (payments on account of income tax); |
| 45 |
|
| |
|
| |
|
| section 59B of that Act (payments of income tax and capital gains tax); |
| |
| section 824(3) of the Taxes Act 1988 (repayment supplements: |
| |
determination of relevant time). |
| |
(4) | Where the amount of the deemed tax exceeds the amount (which may be nil) |
| |
of income tax for which the person is liable for the year of assessment (before |
| 5 |
any set-off for the deemed tax), then, to the extent that it would not otherwise |
| |
| |
(a) | the excess is to be set against any capital gains tax for which he is liable |
| |
for the year of assessment, and |
| |
(b) | he is entitled to a repayment of income tax in respect of any remaining |
| 10 |
| |
(5) | But subsection (2) does not apply in relation to an amount of special |
| |
withholding tax levied if— |
| |
(a) | the person has obtained relief from double taxation in respect of that |
| |
special withholding tax under the law of a territory outside the United |
| 15 |
| |
(b) | the person was resident in that territory, or was treated as being so |
| |
resident under any double taxation arrangements, in the year of |
| |
| |
109 | Capital gains tax credit etc for special withholding tax |
| 20 |
(1) | This section applies where— |
| |
(a) | a person makes a disposal of assets in a year of assessment, |
| |
(b) | on the assumption that a chargeable gain were to accrue on the |
| |
| |
(i) | it would accrue to the person, and |
| 25 |
(ii) | he would be chargeable to capital gains tax in respect of it, |
| |
(c) | the consideration for the disposal consists of or includes an amount of |
| |
| |
(d) | special withholding tax is levied in respect of the whole or any part of |
| |
the consideration for the disposal, and |
| 30 |
(e) | the person is resident in the United Kingdom for that year of |
| |
| |
(2) | For the purposes of subsection (1)(b)(ii), there are to be disregarded— |
| |
(a) | any deductions that fall to be made from the total amount referred to in |
| |
section 2(2) of the Taxation of Chargeable Gains Act 1992 (c. 12) |
| 35 |
(deductions for allowable losses), |
| |
(b) | section 3 of that Act (annual exempt amount), and |
| |
(c) | section 77(1) of that Act (settlor with interest in settlement: trustees not |
| |
to be chargeable in certain circumstances). |
| |
(3) | On the making of a claim, capital gains tax (“the deemed tax”) of an amount |
| 40 |
equal to the amount of the special withholding tax levied is to be treated as |
| |
| |
(a) | by or on behalf of the person for that year of assessment, and |
| |
(b) | for the purposes of section 283(2) of the Taxation of Chargeable Gains |
| |
Act 1992 (repayment supplements: determination of relevant time), on |
| 45 |
31st January next following that year of assessment. |
| |
|
| |
|
| |
|
(4) | For the purposes of the application of the following provisions in relation to the |
| |
person for that year of assessment, references in those provisions to income tax |
| |
deducted at source for that year of assessment are to be taken to include the |
| |
amount of the deemed tax— |
| |
| section 7 of the Taxes Management Act 1970 (c. 9) (notice of liability to |
| 5 |
income tax and capital gains tax); |
| |
| section 8 of that Act (personal return); |
| |
| section 8A of that Act (trustee’s return); |
| |
| section 9 of that Act (returns to include self-assessment); |
| |
| section 59B of that Act (payments of income tax and capital gains tax). |
| 10 |
(5) | Where the amount of the deemed tax exceeds the amount (which may be nil) |
| |
of capital gains tax for which the person is liable for the year of assessment |
| |
(before any set-off for the deemed tax), then, to the extent that it would not |
| |
| |
(a) | the excess is to be set against any income tax for which he is liable for |
| 15 |
the year of assessment, and |
| |
(b) | he is entitled to a repayment of capital gains tax in respect of any |
| |
remaining balance of that excess. |
| |
(6) | But subsection (3) does not apply in relation to an amount of special |
| |
withholding tax levied if— |
| 20 |
(a) | the person has obtained relief from double taxation in respect of that |
| |
special withholding tax under the law of a territory outside the United |
| |
| |
(b) | he was resident in that territory, or was treated as being so resident |
| |
under any double taxation arrangements, in the year of assessment in |
| 25 |
| |
(7) | To the extent that section 108 of this Act applies in relation to an amount of |
| |
special withholding tax levied (or would so apply on the making of a claim), |
| |
this section does not apply in relation to that amount. |
| |
110 | Credit under Part 18 of Taxes Act 1988 to be allowed first |
| 30 |
(1) | Any credit for foreign tax that falls to be allowed under Chapters 1 and 2 of Part |
| |
18 of the Taxes Act 1988 (double taxation relief) against income tax or capital |
| |
gains tax is to be so allowed before effect is given to section 108 or 109. |
| |
(2) | In this section “foreign tax” has the same meaning as in Chapter 2 of Part 18 of |
| |
the Taxes Act 1988 (see section 792(1) of that Act). |
| 35 |
Computation of income etc |
| |
111 | Computation of income etc subject to special withholding tax only |
| |
(1) | This section applies where— |
| |
(a) | a person is chargeable to income tax in respect of a payment of savings |
| |
| 40 |
(b) | a chargeable gain accrues to a person on a disposal by him of assets in |
| |
circumstances where the consideration for the disposal consists of or |
| |
includes an amount of savings income, |
| |
| and the conditions in subsections (2) and (3) are satisfied. |
| |
|
| |
|