Finance Bill

House of Commons

Session 2004 - 05
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Finance Bill

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 12 — International matters
101

(b)
under that law, any repayment of tax, or any payment in respect
of a credit for tax, is made to a person other than the company,
and
(c)
that payment or repayment is directly or indirectly in respect of
the company’s tax,
5

the local tax shall be treated for the purposes of this Chapter as reduced
(or further reduced) by the amount of that payment or repayment.”.
(4)
The amendments made by this section have effect in relation to accounting
periods of companies resident outside the United Kingdom beginning on or
after 2nd December 2004.
10
(5)
Where an accounting period of a company resident outside the United
Kingdom—
(a)
would, without amendment, have ended on or after 2nd December
2004, but
(b)
is amended on or after that date so as to end before that date,
15

an accounting period of the company shall be deemed for the purposes of
Chapter 4 of Part 17 of ICTA to have ended with 1st December 2004.
(6)
In this section “accounting period” has the same meaning as in Chapter 4 of
Part 17 of ICTA (see section 751).
121
ADP dividends and double taxation relief
20
(1)
Section 801 of ICTA (dividends paid between related companies: relief for UK
and third country taxes) is amended as follows.
(2)
In subsection (2A) (restriction on cases where section 799(1)(b) applies for the
purposes of section 801(2)) after paragraph (a) insert—
“(aa)
if the overseas company is an ADP controlled foreign company
25
as respects any of its accounting periods and the dividend
mentioned in subsection (1) above is an ADP dividend of that
company (in which case see also subsection (2B)); or”.
(3)
After subsection (2A) insert—
“(2B)
In any case falling within subsection (2A)(aa) above, section 799(1)(b)
30
applies for the purposes of subsection (2) above as if for section 799(1A)
there were substituted—
  “(1A) The formula is—

where—

D is the amount of the dividend; and
35

X is the maximum relievable rate, expressed as a decimal
fraction;

and for the purposes of this subsection the maximum relievable rate is
the rate of corporation tax in force when the dividend was paid.”.”.
(4)
After subsection (5) insert—
40
“(6)
For the purposes of this section—
(a)
a controlled foreign company is an “ADP controlled foreign
company” as respects any of its accounting periods if, by virtue

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 12 — International matters
102

only of section 748(1)(a), no apportionment under section 747(3)
falls to be made as respects that accounting period;
(b)
an “ADP dividend” of a controlled foreign company is a
dividend by virtue of which the controlled foreign company is
an ADP controlled foreign company as respects any of its
5
accounting periods.
(7)
In this section—
“accounting period”, in relation to a controlled foreign company,
has the same meaning as in Chapter 4 of Part 17 (see section
751);
10
“controlled foreign company” has the same meaning as in Chapter
4 of Part 17 (see section 747(2)).”.
(5)
The amendments made by this section have effect where the dividend
mentioned in section 799(1) of ICTA is paid on or after 2nd December 2004 and
is, or represents, in whole or in part an ADP dividend of an ADP controlled
15
foreign company.
122
Foreign taxation of group as single entity: exclusion of ADP CFCs
(1)
Section 803A of ICTA is amended as follows.
(2)
After subsection (1) (company resident in territory outside the UK paying tax
in respect of one or more other companies resident in that territory) insert—
20
“(1A)
Where—
(a)
a company is (within the meaning of section 801) an ADP
controlled foreign company as respects any of its accounting
periods, and
(b)
the whole or any part of the profits or gains of that accounting
25
period are included in the aggregate profits, or aggregate
profits or gains, mentioned in subsection (1) above,

subsection (2) below shall have effect as if the companies mentioned in
subsection (1) above did not include that company.”.
(3)
The amendment made by this section has effect in relation to dividends paid
30
on or after 16th March 2005.
Annual payments and double taxation relief
123
Tax avoidance involving annual payments and double taxation relief
(1)
ICTA is amended as follows.
(2)
In section 125 (annual payments for non-taxable consideration) in subsection
35
(2) (payments to which the section applies) for paragraph (b) substitute—
“(b)
is made under a liability incurred for consideration in money or
money’s worth all or any of which—
(i)
consists of, or of the right to receive, a dividend, or
(ii)
is not required to be brought into account in computing
40
for the purposes of income tax or corporation tax the
income of the person making the payment.”.

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 13 — Corporation tax: miscellaneous
103

(3)
As from 2nd December 2004, the title of that section accordingly becomes
“Annual payments for dividends or non-taxable consideration”.
(4)
Section 801 (dividends paid between related companies: relief for UK and third
country taxes) is amended as follows.
(5)
In subsection (2) (case where overseas company has received a dividend from
5
a third company) for “subject to subsections (4) to (4D)” substitute “subject to
subsection (4)”.
(6)
Subsections (4A) to (4D) (which relate to cases where the amount given by the
formula in section 799(1) exceeds U in that formula) shall cease to have effect.
(7)
The amendment made by subsection (2) has effect in relation to any annual
10
payment made on or after 2nd December 2004 (whether the contract or other
arrangement is one made before, on or after that date).
(8)
The amendments made by subsections (4) to (6) have effect in relation to
dividends paid on or after 2nd December 2004.
Chapter 13
15
Corporation tax: miscellaneous
124
Intangible fixed assets
(1)
Schedule 29 to FA 2002 (gains and losses of a company from intangible fixed
assets) is amended as set out in subsections (2) to (4).
(2)
In paragraph 92 (transfer between company and related party treated as being
20
at market value)—
(a)
in sub-paragraph (1), for “the following two exceptions” substitute “the
following four exceptions”;
(b)
after sub-paragraph (4) insert—
   “(4A)
The third exception is where—
25
(a)
the asset is transferred from the company at less than
its market value, or to the company at more than its
market value,
(b)
the related party—
(i)
is not a company, or
30
(ii)
is a company in relation to which the asset is
not a chargeable intangible asset immediately
after the transfer to it or (as the case may be)
immediately before the transfer from it,

and
35
(c)
by virtue of any provision of—
(i)
section 209 of the Taxes Act 1988 (meaning of
“distribution”), or
(ii)
Part 3 of the Income Tax (Earnings and
Pensions) Act 2003 (employment income:
40
earnings and benefits etc treated as earnings),

the transfer gives rise (or would give rise but for sub-
paragraph (1)) to an amount to be taken into account

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 13 — Corporation tax: miscellaneous
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in computing any person’s income, profits or losses
for tax purposes.
     (4B)
Where the third exception applies, sub-paragraph (1) does
not apply, in relation to the computation mentioned in sub-
paragraph (4A)(c), for the purposes of any such provision as
5
is mentioned there.
     (4C)
The fourth exception is where—
(a)
the asset is transferred to the company, and
(b)
on a claim for relief under section 165 of the Taxation
of Chargeable Gains Act 1992 (relief for gifts of
10
business assets) in respect of the transfer, a reduction
is made under subsection (4)(a) of that section.
     (4D)
Where the fourth exception applies—
(a)
the transfer is treated for the purposes of this
Schedule as being at market value less the amount of
15
the reduction;
(b)
all such adjustments as may be required, by way of
assessment, amendment of returns or otherwise, may
be made (notwithstanding any time limit on the
making of an assessment or the amendment of a
20
return).”.
(3)
In paragraph 95 (meaning of “related party”) for Case Three substitute—

“Case Three

C is a close company and P is, or is an associate of—
(a)
a participator in C, or
25
(b)
a participator in a company that has control of, or holds a
major interest in, C.”.
(4)
In paragraph 132 (roll-over relief: transitory interaction with relief on
replacement of business asset), in sub-paragraph (5) (disapplication for certain
corporation tax purposes of Classes 4 to 7 in section 155 of TCGA 1992)—
30
(a)
for “4 to 7” substitute “4 to 7A”;
(b)
for “(goodwill and various types of quota)” substitute “(goodwill and
certain other intangible assets)”.
(5)
In section 86(2) of FA 1993 (roll-over relief: power to amend section 155 of
TCGA 1992 by order) for the words after “may make such consequential
35
amendments” substitute “of—
(c)
Schedule 7AB to the Taxation of Chargeable Gains Act 1992, or
(d)
paragraph 132 of Schedule 29 to the Finance Act 2002,

as appear to the Treasury to be appropriate.”.
(6)
The amendments made by subsection (2) have effect in relation to any transfer
40
of an asset made on or after 16th March 2005.
(7)
The amendment made by subsection (3) has effect, for the purposes of
paragraph 92 of Schedule 29 to FA 2002 as it applies otherwise than for
determining the debits or credits to be brought into account under that
Schedule, in relation to any transfer of an asset made on or after 16th March
45
2005.

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 14 — Chargeable gains
105

(8)
That amendment has effect, for all other purposes of that Schedule, in relation
to the debits or credits to be brought into account for accounting periods
beginning on or after 16th March 2005 (and, in relation to the debits or credits
to be brought into account for any such period, shall be deemed always to have
had effect).
5
(9)
An accounting period beginning before, and ending on or after, that date is
treated for the purposes of subsection (8) as if so much of that period as falls
before that date, and so much of that period as falls on or after that date, were
separate accounting periods.
(10)
The amendments made by subsection (4) have effect in relation to any such
10
acquisition as is referred to in paragraph 132(5) of Schedule 29 to FA 2002 made
on or after 22nd March 2005.
125
Insurance companies
Schedule 9 (which makes provision about insurance companies) has effect.
Chapter 14
15
Chargeable gains
Residence, location of assets etc
126
Temporary non-residents
(1)
Section 10A of TCGA 1992 is amended as follows.
(2)
In subsection (3) (certain gains or losses to be excluded from being treated by
20
virtue of subsection (2) as accruing to the taxpayer in year of return)—
(a)
in paragraph (a), for “he was neither resident nor ordinarily resident in
the United Kingdom” substitute—
“(i)
he was neither resident nor ordinarily resident in
the United Kingdom, or
25
(ii)
he was resident or ordinarily resident in the
United Kingdom but was Treaty non-resident;”;
(b)
in paragraph (d), after “152(1)(b)” insert “, 153(1)(b)”.
(3)
In subsection (8) (definitions) in the definition of “relevant disposal”, after
“United Kingdom” insert “and was not Treaty non-resident”.
30
(4)
For subsection (9) substitute—
“(9)
For the purposes of this section an individual satisfies the residence
requirements for a year of assessment if that year of assessment is one—
(a)
during any part of which he is—
(i)
resident in the United Kingdom, and
35
(ii)
not Treaty non-resident, or
(b)
during which he is—
(i)
ordinarily resident in the United Kingdom, and
(ii)
not Treaty non-resident.

Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 14 — Chargeable gains
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(9A)
For the purposes of this section an individual is Treaty non-resident at
any time if, at that time, he falls to be regarded as resident in a territory
outside the United Kingdom for the purposes of double taxation relief
arrangements having effect at that time.
(9B)
Where this section applies in the case of any individual in
5
circumstances in which one or more intervening years would, but for
paragraph (a)(ii) or (b)(ii) of subsection (9) above, not be an intervening
year, this section shall have effect in the taxpayer’s case—
(a)
as if subsection (2)(a) above did not apply in the case of any
amount treated by virtue of section 87 or 89(2) as an amount of
10
chargeable gains accruing to the taxpayer in any such
intervening year, and
(b)
as if any such intervening year were not an intervening year for
the purposes of subsections (2)(b) and (c) and (6) above.”.
(5)
After subsection (9B) (as inserted by subsection (4) above) insert—
15
“(9C)
Nothing in any double taxation relief arrangements shall be read as
preventing the taxpayer from being chargeable to capital gains tax in
respect of any of the chargeable gains treated by virtue of subsection
(2)(a) above as accruing to the taxpayer in the year of return (or as
preventing a charge to that tax from arising as a result).”.
20
(6)
Omit subsection (10) (section to be without prejudice to right to claim relief
under double taxation relief agreements).
(7)
The amendments in subsections (2)(a), (4), (5) and (6) have effect—
(a)
in any case in which the year of departure is, or (on the assumption that
the amendment in subsection (4) had always had effect) would be, the
25
year 2005-06 or a subsequent year of assessment; and
(b)
in any case in which—
(i)
the year of departure is, or (on that assumption) would be, the
year 2004-05, and
(ii)
at a time in that year on or after 16th March 2005, the taxpayer
30
was resident or ordinarily resident in the United Kingdom and
was not Treaty non-resident (within the meaning given by
section 10A(9A) of TCGA 1992, as inserted by subsection (4)).
(8)
The amendment in subsection (2)(b) has effect in relation to relevant disposals
made on or after 16th March 2005.
35
(9)
The amendment in subsection (3) has effect for determining whether a disposal
of an asset is a relevant disposal for the purposes of section 10A of TCGA 1992
in any case in which the person making the disposal acquired the asset on or
after 16th March 2005.
127
Trustees both resident and non-resident in a year
40
(1)
After section 83 of TCGA 1992 insert—
“83A
Trustees both resident and non-resident in a year of assessment
(1)
This section applies if a chargeable gain accrues to the trustees of a
settlement on the disposal by them of an asset in a year of assessment
and the trustees—
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Finance Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 14 — Chargeable gains
107

(a)
are within the charge to capital gains tax in that year of
assessment, but
(b)
are non-UK resident at the time of the disposal.
(2)
Where this section applies, nothing in any double taxation relief
arrangements shall be read as preventing the trustees from being
5
chargeable to capital gains tax (or as preventing a charge to tax arising,
whether or not on the trustees) by virtue of the accrual of that gain.
(3)
For the purposes of this section the trustees of a settlement are within
the charge to capital gains tax in a year of assessment if that year of
assessment is one—
10
(a)
during any part of which they are—
(i)
resident in the United Kingdom, and
(ii)
not Treaty non-resident, or
(b)
during which they are—
(i)
ordinarily resident in the United Kingdom, and
15
(ii)
not Treaty non-resident.
(4)
For the purposes of this section the trustees of a settlement are non-UK
resident at a particular time if, at that time,—
(a)
they are neither resident nor ordinarily resident in the United
Kingdom, or
20
(b)
they are resident or ordinarily resident in the United Kingdom
but are Treaty non-resident.
(5)
For the purposes of this section the trustees of a settlement are Treaty
non-resident at any time if, at that time, they fall to be regarded as
resident in a territory outside the United Kingdom for the purposes of
25
double taxation relief arrangements having effect at that time.”.
(2)
The amendment made by this section has effect in relation to disposals made
on or after 16th March 2005.
128
Location of assets etc
Schedule 10 (which makes provision in relation to the situation of assets for the
30
purposes of TCGA 1992 and which makes minor amendments in that Act in
relation to non-resident companies with United Kingdom permanent
establishments) has effect.
Miscellaneous
129
Exercise of options etc
35
Schedule 11 (which makes provision, for the purposes of the taxation of
chargeable gains, in relation to options) has effect.
130
Notional transfers within a group
(1)
Section 171A of TCGA 1992 (notional transfers within a group) is amended as
follows.
40