Income Tax (Trading and Other Income) Bill

House of Commons

Session 2004 - 05
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Income Tax (Trading and Other Income) Bill

Income Tax (Trading and Other Income) Bill
Part 6 — Exempt income
Chapter 9 — Other income
331

760
The person beneficially entitled to the payment
(1)
This section supplements condition B in section 758.
(2)
It applies in a case where an EU company has a UK permanent establishment
or a non-EU permanent establishment.
(3)
The permanent establishment (and not the company) is to be treated as the
5
person beneficially entitled to the income in respect of which the payment is
made so far as subsections (4) and (5) apply to the payment.
(4)
This subsection applies to the payment if (within the meaning of Article 1(5) of
the Directive) it arises in respect of a debt-claim, right or use of information
which is effectively connected with the permanent establishment.
10
(5)
This subsection applies to the payment if (within the meaning of Article 1(5) of
the Directive) it represents income in respect of which the permanent
establishment is subject in the territory in which it is situated to United
Kingdom corporation tax or a tax corresponding to that tax.
761
Meaning of “25% associates”
15
For the purposes of condition C in section 758, two companies are 25%
associates if—
(a)
one holds directly—
(i)
25% or more of the capital in the other, or
(ii)
25% or more of the voting rights in the other, or
20
(b)
a third company holds directly—
(i)
25% or more of the capital in each of them, or
(ii)
25% or more of the voting rights in each of them.
762
Interest payments: exemption notices
(1)
The Board of Inland Revenue may make regulations about exemption notices
25
under section 758(5).
(2)
The regulations may in particular make provision for or in connection with—
(a)
enabling an exemption notice to be issued only on the request of a
person of a prescribed description,
(b)
requiring a person requesting the issue of an exemption notice to certify
30
that conditions A to C in section 758 are met and that section 765 (anti-
avoidance) does not apply,
(c)
the information to be provided in the certificate,
(d)
the person to whom an exemption notice is to be given,
(e)
in a case where section 763 (special relationships) applies or may apply
35
to a payment of interest, requiring an exemption notice to specify—
(i)
the amount of the payment in relation to which the notice has
effect, or
(ii)
the method to be used for determining that amount,
(f)
imposing a time limit for the issue of an exemption notice,
40
(g)
imposing notification requirements,
(h)
the cancellation of exemption notices by the Board,
(i)
prescribing circumstances in which exemption notices are to become
ineffective,

Income Tax (Trading and Other Income) Bill
Part 6 — Exempt income
Chapter 9 — Other income
332

(j)
the making of appeals (for example, against a refusal to grant, or the
cancellation of, an exemption notice),
(k)
authorising, in cases where—
(i)
an exemption notice has been issued,
(ii)
tax has not been deducted from a payment of interest, and
5
(iii)
any of the conditions in section 758 were not met in the case of
the payment,

the recovery of that tax by assessment or by deduction from subsequent
payments.
763
Special relationships
10
(1)
This section applies if—
(a)
apart from this section, section 758 would apply in relation to a
payment of interest or of a royalty,
(b)
at the time the payment is made there is a special relationship (within
the meaning of Article 4(2) of the Directive)—
15
(i)
between the company in condition A of section 758 and the
company in condition B of that section, or
(ii)
between one of those companies and another person, and
(c)
owing to the special relationship, the amount of the payment exceeds
the amount which would have been paid in the absence of the
20
relationship (“the arm’s length amount”).
(2)
Sections 757 to 767, apart from this section and section 764, have effect in
relation to only so much of the payment as does not exceed the arm’s length
amount (which may be nil).
(3)
Nothing in this section or section 764 affects any relief which may be allowed
25
under any arrangements having effect under section 788 of ICTA (double
taxation relief by agreement with other territories).
764
Application of ICTA provisions about special relationships
(1)
The provisions in ICTA mentioned in subsections (2) and (3) apply in relation
to section 763 as if that section were a special relationship provision within the
30
meaning of those provisions.
(2)
In the case of a payment of interest, those provisions are subsections (2) to (4)
of section 808A of ICTA (interest: special relationship).
(3)
In the case of a payment of a royalty, those provisions are subsections (2) to (7)
and (9) of section 808B of ICTA (royalties: special relationship).
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(4)
In those provisions as applied in relation to section 763, expressions also used
in sections 757 to 767 have the same meaning as in those sections.
765
Anti-avoidance
(1)
Section 758 does not apply in relation to a payment of interest if it was the main
purpose or one of the main purposes of any person concerned with the creation
40
or assignment of the debt-claim in respect of which the interest is paid to take
advantage of that section by means of that creation or assignment.

Income Tax (Trading and Other Income) Bill
Part 6 — Exempt income
Chapter 9 — Other income
333

(2)
Section 758 does not apply in relation to a payment of a royalty 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 that section by means of that creation or assignment.
766
Interest and royalty payments: interpretation
5
In sections 757 to 767—
“company” has the same meaning as the expression “company of a
member State” has for the purposes of the Directive (see Article 3(a) of
the Directive),
“debt-claim” has the same meaning as in the Directive,
10
“the Directive” has the meaning given by section 757(2),
“EU company” means a company resident in a member State other than
the United Kingdom,
“interest” and “royalties” have the meaning given by Article 2 of the
Directive,
15
“non-EU permanent establishment” means a permanent establishment in
a territory other than a member State,
“UK company” means a company resident in the United Kingdom, and
“UK permanent establishment” means a permanent establishment in the
United Kingdom.
20
767
Power to amend references to the Directive by Order
(1)
The Treasury may by order make such provision amending any reference in
sections 757 to 766 to, or to a provision of,—
(a)
the Directive, or
(b)
any instrument referred to in those sections by virtue of an order made
25
under this section,

as appears to them appropriate for the purpose of giving effect to any Council
Directive adopted after 8th April 2004 amending or replacing the Directive.
(2)
This includes a power to make provision amending any such reference as it
applies to section 101 of FA 2004 (payment of royalties without deduction of
30
tax) as a result of subsection (9) of that section.
Income from commercial occupation of woodlands
768
Commercial occupation of woodlands
(1)
No liability to income tax arises under Chapter 8 of Part 5 (income not
otherwise charged) in respect of income arising from the commercial
35
occupation of woodlands in the United Kingdom.
(2)
For this purpose the occupation of woodlands is commercial if the woodlands
are managed—
(a)
on a commercial basis, and
(b)
with a view to the realisation of profits.
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Income Tax (Trading and Other Income) Bill
Part 6 — Exempt income
Chapter 9 — Other income
334

Housing grants
769
Housing grants
(1)
No liability to income tax arises in respect of a payment if it is made—
(a)
under an enactment relating to the giving of financial assistance for the
provision, maintenance or improvement of housing accommodation or
5
other residential accommodation, and
(b)
by way of grant or other contribution towards expenses.
(2)
It does not matter whether—
(a)
the payment is made to the person who incurs the expenses, or
(b)
the expenses have been, or are to be, incurred.
10
(3)
Subsection (1) does not apply so far as the payment is made towards an
expense which is deductible in calculating income for any income or
corporation tax purpose.
Approved share incentive plan distributions
770
Amounts applied by SIP trustees acquiring dividend shares or retained for
15
reinvestment
(1)
This section applies if—
(a)
shares are awarded to a participant under an approved share incentive
plan, and
(b)
the condition in section 392(3) or (5) is met at the time the shares in
20
question are so awarded (earnings within ITEPA 2003).

This is subject to subsection (4).
(2)
No liability to income tax arises for the participant in respect of—
(a)
the amount applied by the trustees in acquiring dividend shares on
behalf of the participant, or
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(b)
any amount retained under paragraph 68(2) of Schedule 2 to ITEPA
2003 (amount of cash dividend not reinvested).
(3)
Subsection (2) does not affect any liability arising as a result of—
(a)
the retained amount later being paid out (see sections 393 and 406), or
(b)
the dividend shares ceasing to be subject to the plan (see sections 394
30
and 407).
(4)
This section does not apply if the main purpose or one of the main purposes of
the arrangements under which the shares are awarded or acquired is the
avoidance of tax or national insurance contributions.
(5)
This section forms part of the SIP code (see section 488 of ITEPA 2003:
35
approved share incentive plans).
(6)
Accordingly, expressions used in this section and contained in the index in
paragraph 100 of Schedule 2 to that Act (approved share incentive plans) have
the meaning indicated by that index.
(7)
In particular—
40
(a)
for the meaning of “dividend shares” see paragraph 62(3)(b) of that
Schedule,

Income Tax (Trading and Other Income) Bill
Part 6 — Exempt income
Chapter 9 — Other income
335

(b)
for the meaning of “participant” see paragraph 5(4) of that Schedule,
and
(c)
for the meaning of “the trustees” see paragraphs 2(2) and 71(1) of that
Schedule.
Foreign income of consular officers and employees
5
771
Relevant foreign income of consular officers and employees
(1)
No liability to income tax arises in respect of relevant foreign income of a
consular officer or employee in the United Kingdom for a foreign state if—
(a)
Her Majesty by Order in Council directs that this section applies to the
foreign state for the purpose of giving effect to a reciprocal
10
arrangement with that state, and
(b)
the officer or employee meets conditions A to C.
(2)
Condition A is that the officer or employee is not—
(a)
a British citizen,
(b)
a British overseas territories citizen,
15
(c)
a British National (Overseas), or
(d)
a British Overseas citizen.
(3)
Condition B is that the officer or employee is not engaged in any trade,
profession, vocation or employment in the United Kingdom, otherwise than as
a consular officer or employee of the state in question.
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(4)
Condition C is that the officer or employee—
(a)
is a permanent employee of that state, or
(b)
was not ordinarily UK resident immediately before becoming a
consular officer or employee in the United Kingdom of that state.
(5)
In this section and section 772—
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“consular officer or employee” includes any person employed for the
purposes of the official business of a consular officer at—
(a)
any consulate,
(b)
any consular establishment, or
(c)
any other premises used for those purposes, and
30
“reciprocal arrangement” means a consular convention or other
arrangement with a foreign state, making similar provision to that
made by this section and sections 302, 646A and 681A of ITEPA 2003 in
the case of Her Majesty’s consular officers or employees in that state.
772
Further provisions about Orders under section 771
35
(1)
An Order in Council under section 771 may limit the operation of that section
in relation to a state in any way appearing to Her Majesty appropriate having
regard to the reciprocal arrangement with the state.
(2)
An Order under that section may be made so as to have effect from a date
earlier than that on which it is made, but not earlier than the reciprocal
40
arrangement in question comes into force.
(3)
An Order under that section may contain such transitional provisions as
appear to Her Majesty appropriate.

Income Tax (Trading and Other Income) Bill
Part 6 — Exempt income
Chapter 9 — Other income
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(4)
A statutory instrument containing an Order under that section is subject to
annulment in pursuance of a resolution of the House of Commons.
Income of non-UK residents from certain securities
773
Income from Inter-American Development Bank securities
(1)
No liability to income tax arises for a non-UK resident in respect of income
5
from a security issued by the Inter-American Development Bank if the liability
only arises because one or more of circumstances A to C apply.
(2)
Circumstance A is that the security is issued in the United Kingdom or in
sterling.
(3)
Circumstance B is that the income is made payable or paid in the United
10
Kingdom or in sterling.
(4)
Circumstance C is that the Bank maintains an office or other place of business
in the United Kingdom.
774
Income from securities issued by designated international organisations
(1)
No liability to income tax arises for a non-UK resident in respect of income
15
from a security issued by an organisation if—
(a)
the organisation has been designated by the Treasury for the purposes
of this section, and
(b)
the liability only arises because one or more of circumstances A to C
apply.
20
(2)
Circumstance A is that the security is issued in the United Kingdom or in
sterling.
(3)
Circumstance B is that the income is made payable or paid in the United
Kingdom or in sterling.
(4)
Circumstance C is that the organisation maintains an office or other place of
25
business in the United Kingdom.
(5)
The Treasury may by order designate for the purposes of this section—
(a)
any of the Communities,
(b)
the European Investment Bank,
(c)
any international organisation that meets conditions A and B.
30
(6)
Condition A is that one of its members is the United Kingdom or any of the
Communities.
(7)
Condition B is that the agreement under which that member became a member
provides for the same kind of exemption from tax for income from securities
issued by the organisation as this section provides.
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Other
775
Income towards reducing the national debt
(1)
This section applies if property is held on trust in accordance with directions
which are valid and effective under section 9 of the Superannuation and other

Income Tax (Trading and Other Income) Bill
Part 6 — Exempt income
Chapter 9 — Other income
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Trust Funds (Validation) Act 1927 (c. 41) (validation of trust funds for the
reduction of the national debt).
(2)
No liability to income tax arises in respect of any of the following—
(a)
income arising from the property,
(b)
income arising from the accumulation of that income, and
5
(c)
profits of any description otherwise accruing to the property and liable
to be accumulated under the trust.
776
Scholarship income
(1)
No liability to income tax arises in respect of income from a scholarship held
by an individual in full-time education at a university, college, school or other
10
educational establishment.
(2)
This exemption is subject to section 215 of ITEPA 2003 (under which only the
scholarship holder is entitled to the exemption if the scholarship is provided by
reason of another person’s employment).
(3)
In this section “scholarship” includes a bursary, exhibition or other similar
15
educational endowment.
777
VAT repayment supplements
No liability to income tax arises in respect of a sum paid by way of supplement
under section 79 of VATA 1994 (VAT repayment supplements).
778
Incentives to use electronic communications
20
No liability to income tax arises in respect of anything received by way of
incentive under any regulations made in accordance with Schedule 38 to FA
2000 (regulations for providing incentives for electronic communications).
779
Gains on commodity and financial futures
(1)
No liability to income tax arises as a result of Chapter 8 of Part 5 (income not
25
otherwise charged) in respect of a gain arising to a person in the course of
dealing in—
(a)
commodity or financial futures,
(b)
traded options, or
(c)
financial options.
30
(2)
The reference in subsection (1) to a gain arising in the course of dealing in
commodity or financial futures includes a gain regarded as so arising under
section 143(3) of TCGA 1992 (gains arising from transactions otherwise than in
the course of dealing on a recognised futures exchange, involving authorised
persons).
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(3)
In this section—
“commodity or financial futures” means commodity futures or financial
futures that are for the time being dealt in on a recognised futures
exchange,
“financial option” has the meaning given by section 144(8)(c) of TCGA
40
1992, and
“traded option” has the meaning given by section 144(8)(b) of that Act.