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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—equation: cross[over[char[D],plus[num[1.0000000000000000,"1"],minus[char[X]]]],char[X]]

   

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

104

 

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

106

 

(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—

45

 
 

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

 
 

 
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