|
| |
|
(2) | In making the computations required by section 796(1)(a) and (b) there |
| |
shall be deducted from the amount of the income in respect of which |
| |
the credit is to be allowed deductions, charges or expenses which |
| |
would be allowable in a computation of the taxpayer’s liability in |
| |
| 5 |
(3) | The reference in subsection (2) to allowable deductions, charges or |
| |
expenses includes a reference to a reasonable apportionment of |
| |
allowable deductions or expenses which relate partly to the income and |
| |
| |
(4) | Where royalties (as defined in arrangements having effect by virtue of |
| 10 |
section 788) are paid in respect of an asset in more than one jurisdiction |
| |
outside the United Kingdom, for the purposes of section 796(1)— |
| |
(a) | royalty income arising in different jurisdictions (other than the |
| |
United Kingdom) in a year of assessment in respect of that asset |
| |
shall be treated as a single item of income, and |
| 15 |
(b) | credits available for foreign tax in respect of the royalty income |
| |
shall be aggregated accordingly. |
| |
(5) | In this section “trade income” means income chargeable to tax under— |
| |
(a) | Chapter 2 or 18 of Part 2 of ITTOIA 2005 (trade profits and post- |
| |
| 20 |
(b) | Chapter 3 or 10 of Part 3 of ITTOIA 2005 (profits of property |
| |
businesses and post-cessation receipts), or |
| |
(c) | Chapter 11 of Part 3 of ITTOIA 2005 (overseas property |
| |
| |
798A | Section 797: trade income |
| 25 |
(1) | This section has effect in relation to the application of section 797(1) to |
| |
the allowance of credit for foreign tax against corporation tax in respect |
| |
| |
(2) | The reference in section 797(1) to the relevant income or gain shall be |
| |
treated as referring only to income arising or gains accruing out of the |
| 30 |
transaction, arrangement or asset in connection with which the credit |
| |
| |
(3) | In determining for the purposes of section 797(1) the amount of |
| |
corporation tax attributable to any income or gain, there shall be taken |
| |
| 35 |
(a) | deductions or expenses which would be allowable in the |
| |
computation of the taxpayer’s liability, |
| |
(b) | a reasonable apportionment of allowable deductions or |
| |
expenses which relate partly to the transaction, arrangement or |
| |
asset from which the income or gain arises and partly to other |
| 40 |
| |
(c) | expenses of a company connected (within the meaning given by |
| |
section 839) with the taxpayer, in so far as reasonably |
| |
attributable to the income or gain. |
| |
(4) | In this section and section 798B “trade income” means— |
| 45 |
(a) | income or profits chargeable to tax under Case I, II or V of |
| |
| |
|
| |
|
| |
|
(b) | profits of a Schedule A business computed in same way as the |
| |
profits of a trade in accordance with section 21A of ICTA, |
| |
(c) | sums charged to tax under Case VI of Schedule D in accordance |
| |
with section 104 of ICTA, and |
| |
(d) | any other income or profits which by a provision of ICTA is |
| 5 |
chargeable to tax under, or computed in accordance with, Case |
| |
| |
| but this section shall not apply in relation to income to which section |
| |
| |
798B | Section 798A: special cases |
| 10 |
| |
(a) | a credit for foreign tax arises in connection with an asset, and |
| |
(b) | the asset is in a hedging relationship with a derivative contract, |
| |
| in the application of section 798A(2) the reference to the income arising |
| |
out of the asset shall be taken as a reference to the income arising out of |
| 15 |
the asset and the derivative contract taken together (but taking account |
| |
of the income or loss from the derivative contract only in so far as |
| |
reasonably attributable to the hedging relationship). |
| |
(2) | For the purposes of subsection (1)(b) an asset is in a hedging |
| |
relationship with a derivative contract if— |
| 20 |
(a) | the asset is acquired as a hedge of risk in connection with the |
| |
| |
(b) | the contract is entered into as a hedge of risk in connection with |
| |
| |
| and if an asset or a contract is wholly or partly designated as a hedge |
| 25 |
for the purposes of a person’s accounts, that shall be conclusive for the |
| |
purpose of this subsection. |
| |
(3) | Where royalties (as defined in arrangements having effect by virtue of |
| |
section 788) are paid in respect of an asset in more than one jurisdiction |
| |
outside the United Kingdom, for the purposes of section 798A(2)— |
| 30 |
(a) | royalty income arising in more than one jurisdiction (other than |
| |
the United Kingdom) in a year of assessment in respect of that |
| |
asset shall be treated as income arising from a single |
| |
transaction, arrangement or asset, and |
| |
(b) | credits available for foreign tax in respect of the royalty income |
| 35 |
shall be aggregated accordingly. |
| |
(4) | If a person (“A”) carrying on a trade giving rise to trade income enters |
| |
into a scheme or arrangement with another person (“B”) a main |
| |
purpose of which is to alter the effect of section 798A in relation to A, |
| |
income received in pursuance of the scheme or arrangement shall be |
| 40 |
treated for the purposes of section 798A as trade income of B (and not |
| |
| |
| |
(a) | transactions, arrangements or assets are treated by a taxpayer as |
| |
a series or group (the “portfolio”), |
| 45 |
(b) | a number of credits for foreign tax arise in respect of the |
| |
| |
| |
|
| |
|
| |
|
(i) | it is not reasonably practicable to prepare a separate |
| |
computation of income or gain for the purposes of |
| |
section 798A(2) in respect of each transaction, |
| |
| |
(ii) | a separate computation of income or gain in respect of |
| 5 |
each transaction, arrangement or asset for the purposes |
| |
of section 798A(2) would not, compared with an |
| |
aggregated computation, make a material difference to |
| |
the amount of credit for foreign tax which is allowable, |
| |
| the income or gains arising from the portfolio, or part of the portfolio, |
| 10 |
may be aggregated and apportioned for the purposes of section 798A(2) |
| |
in a fair and reasonable manner. |
| |
798C | Disallowed credit: use as deduction |
| |
(1) | This section applies where the application of section 796(1) or 797(1) |
| |
prevents an amount of credit for foreign tax from being allowable |
| 15 |
against income tax or corporation tax. |
| |
(2) | The amount of disallowed credit may be taken into account as a |
| |
deduction in computing the taxpayer’s liability for income tax or |
| |
corporation tax, but only in so far as it does not exceed the amount of |
| |
any loss attributable to the income or gain in respect of which the |
| 20 |
foreign tax was paid (for which purpose payment of the foreign tax is |
| |
to be taken into account, despite section 795(2)).” |
| |
(2) | In section 803 of ICTA (underlying tax reflecting interest on loans)— |
| |
(a) | in subsection (1)(d) for “section 798” substitute “section 798A”, and |
| |
(b) | subsections (4) to (9) shall cease to have effect. |
| 25 |
(3) | Subsections (1) and (2) shall have effect— |
| |
(a) | for the purposes of corporation tax, in relation to a credit for foreign tax |
| |
| |
(i) | a payment of foreign tax on or after 16th March 2005, or |
| |
(ii) | income received on or after that date in respect of which foreign |
| 30 |
tax has been deducted at source, and |
| |
(b) | for the purposes of income tax, in relation to a credit for foreign tax |
| |
| |
(i) | a payment of foreign tax on or after 6th April 2005, or |
| |
(ii) | income received on or after that date in respect of which foreign |
| 35 |
tax has been deducted at source. |
| |
(4) | In subsection (3) a reference to tax deducted at source is a reference to tax |
| |
deducted or treated as deducted from income, or treated as paid in respect of |
| |
| |
(5) | In respect of dividends paid before 1st January 2006, the effect of section 798 or |
| 40 |
798A in respect of credit for foreign tax shall be disregarded to the extent that |
| |
it would otherwise reduce the allowable credit to less than 50% of the foreign |
| |
tax; but this subsection shall not apply to tax paid as part of a scheme or |
| |
arrangement designed or entered into for the purposes of causing this |
| |
| 45 |
|
| |
|
| |
|
119 | Schemes and arrangements designed to increase relief |
| |
(1) | After section 804 of ICTA insert— |
| |
“804ZA | Schemes and arrangements designed to increase relief |
| |
(1) | If the Board consider, on reasonable grounds, that conditions A to D are |
| |
or may be satisfied in relation to any income or chargeable gain taken |
| 5 |
or to be taken into account for the purposes of determining a person’s |
| |
liability to tax in a chargeable period, they may give the person a notice |
| |
| |
(2) | Condition A is that, in the case of the person, there is in respect of the |
| |
income or gain an amount of foreign tax for which, under any |
| 10 |
arrangements, credit is allowable against United Kingdom tax for that |
| |
| |
(3) | Condition B is that there is a scheme or arrangement the main purpose, |
| |
or one of the main purposes, of which is to cause an amount of foreign |
| |
tax to be taken into account in the case of the person for that chargeable |
| 15 |
| |
(4) | Condition C is that the scheme or arrangement is a prescribed scheme |
| |
| |
(5) | Condition D is that the amount referred to in subsection (6) is more than |
| |
| 20 |
(6) | The amount is the aggregate of— |
| |
(a) | the aggregate amount of the claims for credit that the person has |
| |
made, or is in a position to make, for the chargeable period; and |
| |
(b) | for all the persons connected to that person, the aggregate |
| |
amount of the claims for credit that the connected person has |
| 25 |
made, or is in a position to make, for a corresponding |
| |
| |
(7) | A chargeable period of person (“A”) corresponds to a chargeable period |
| |
of another person (“B”) if at least one day of A’s chargeable period falls |
| |
within B’s chargeable period. |
| 30 |
(8) | A notice under this section is a notice— |
| |
(a) | informing the person of the Board’s view under subsection (1), |
| |
(b) | specifying the chargeable period in relation to which the Board |
| |
| |
(c) | if the amount of foreign tax considered by the Board to satisfy |
| 35 |
condition B is an amount of underlying tax, specifying the body |
| |
corporate resident in a territory outside the United Kingdom |
| |
whose payment of foreign tax is relevant to that underlying tax, |
| |
| |
(d) | informing the person that as a consequence section 804ZB has |
| 40 |
effect in relation to him. |
| |
(9) | A notice under this section may specify the adjustments of a person’s |
| |
tax return that, in the view of the Board, fall to be made by him under |
| |
| |
(10) | The adjustments specified may, in a case where the notice given to a |
| 45 |
person specifies a body corporate resident outside the United |
| |
|
| |
|
| |
|
Kingdom, include treating the body corporate as having paid or being |
| |
liable to pay only so much foreign tax as would have been allowed to it |
| |
as a credit if it were resident in the United Kingdom and a notice under |
| |
this section had been given to it as regards an amount of foreign tax. |
| |
(11) | Schedule 28AB makes provision about what constitutes a prescribed |
| 5 |
| |
(12) | In this section and sections 804ZB and 804ZC “tax return” means— |
| |
(a) | a return under section 8, 8A or 12AA of the Management Act, or |
| |
(b) | a company tax return; |
| |
| and “company tax return” means the return required to be delivered |
| 10 |
pursuant to a notice under paragraph 3 of Schedule 18 to the Finance |
| |
Act 1998, as read with paragraph 4 of that Schedule. |
| |
804ZB | Effect of notice under section 804ZA |
| |
(1) | The following provisions of this section apply in relation to a person |
| |
| 15 |
(a) | a notice under section 804ZA has been given to the person in |
| |
respect of a chargeable period specified in the notice, and |
| |
(b) | the chargeable period specified is a chargeable period in |
| |
relation to which conditions A to D of section 804ZA are |
| |
| 20 |
(2) | The person must in his tax return for the period make (or must amend |
| |
his return for the period so as to make) such adjustments as are |
| |
necessary for counteracting the effects of the scheme or arrangement in |
| |
that period that are referable to the purpose referred to in condition B |
| |
| 25 |
804ZC | Notices under section 804ZA: further provision |
| |
(1) | Subsection (2) applies if the Board give a notice to a person under |
| |
section 804ZA before the person has made his tax return for the |
| |
chargeable period specified in the notice. |
| |
(2) | If the person makes a tax return for that period before the end of the |
| 30 |
period of 90 days beginning with the day on which the notice is given, |
| |
| |
(a) | make a tax return that disregards the notice, and |
| |
(b) | at any time after making the return and before the end of the |
| |
period of 90 days, amend the return for the purpose of |
| 35 |
complying with the notice. |
| |
(3) | If a person has made a tax return for a chargeable period, the Board |
| |
may only give him a notice under section 804ZA in relation to that |
| |
period if a notice of enquiry has been given to him in respect of his tax |
| |
| 40 |
(4) | After any enquiries into the person’s tax return for that period have |
| |
been completed, the Board may only give him a notice under section |
| |
804ZA in relation to that period if the requirements in subsections (5) |
| |
| |
(5) | The first requirement is that at the time the enquiries were completed, |
| 45 |
the Board could not have been reasonably expected, on the basis of the |
| |
information made available to them or to an officer of theirs before that |
| |
|
| |
|
| |
|
time, to have been aware that the circumstances were such that a notice |
| |
under section 804ZA could have been given to the person in relation to |
| |
| |
(6) | For the purposes of subsection (5)— |
| |
(a) | section 29(6) and (7) of the Management Act (information made |
| 5 |
available) applies as it applies for the purposes of section 29(5), |
| |
| |
(b) | paragraph 44(2) and (3) of Schedule 18 to the Finance Act 1998 |
| |
applies as it applies for the purposes of paragraph 44(1). |
| |
(7) | The second requirement is that— |
| 10 |
(a) | the person was requested to produce, provide or furnish |
| |
information during an enquiry into the return for that period, |
| |
| |
(b) | if the person had duly complied with the request, the Board |
| |
could have been reasonably expected to give the person a notice |
| 15 |
under section 804ZA in relation to that period. |
| |
(8) | If a person is given a notice under section 804ZA in relation to a |
| |
chargeable period after having made a tax return for that period, the |
| |
person may amend the return for the purpose of complying with the |
| |
notice at any time before the end of the period of 90 days beginning |
| 20 |
with the day on which the notice is given. |
| |
(9) | If the notice under section 804ZA is given to the person after he has |
| |
been given a notice of enquiry in respect of his tax return for the period, |
| |
no closure notice may be given in relation to his tax return until— |
| |
(a) | the end of the period of 90 days beginning with the day on |
| 25 |
which the notice under section 804ZA is given, or |
| |
(b) | the earlier amendment of the return for the purpose of |
| |
complying with the notice. |
| |
(10) | If the notice under section 804ZA is given to the person after any |
| |
enquiries into the return for the period are completed, no discovery |
| 30 |
assessment may be made as regards the income or chargeable gain to |
| |
which the notice relates until— |
| |
(a) | the end of the period of 90 days beginning with the day on |
| |
which the notice under section 804ZA is given, or |
| |
(b) | the earlier amendment of the return for the purpose of |
| 35 |
complying with the notice. |
| |
(11) | Subsections (2)(b) and (8) do not prevent a person’s tax return for a |
| |
chargeable period becoming incorrect if— |
| |
(a) | a notice under section 804ZA is given to the person in relation |
| |
| 40 |
(b) | the return is not amended in accordance with subsection (2)(b) |
| |
or (8) for the purpose of complying with the notice, and |
| |
(c) | the return ought to have been so amended. |
| |
| |
“closure notice” means a notice under— |
| 45 |
(a) | section 28A or 28B of the Management Act, or |
| |
(b) | paragraph 32 of Schedule 18 to the Finance Act 1998; |
| |
“discovery assessment” means an assessment under— |
| |
|
| |
|
| |
|
(a) | section 29 of the Management Act, or |
| |
(b) | paragraph 41 of Schedule 18 to the Finance Act 1998; |
| |
“notice of enquiry” means a notice under— |
| |
(a) | section 9A or 12AC of the Management Act, or |
| |
(b) | paragraph 24 of Schedule 18 to the Finance Act 1998.” |
| 5 |
(2) | Schedule 8 (which contains a Schedule to be inserted after Schedule 28AA to |
| |
| |
(3) | This section and Schedule 8 have effect in relation to a credit for foreign tax |
| |
| |
(a) | a payment of foreign tax on or after the commencement date, or |
| 10 |
(b) | income received on or after the commencement date in respect of which |
| |
foreign tax has been deducted at source. |
| |
(4) | In subsection (3) a reference to tax deducted at source is a reference to tax |
| |
deducted or treated as deducted from income, or treated as paid in respect of |
| |
| 15 |
(5) | In subsection (3) “the commencement date” means— |
| |
(a) | so far as the amount of the credit for foreign tax is affected by a scheme |
| |
or arrangement to which paragraph 5 of Schedule 28AB to ICTA (as |
| |
inserted by Schedule 8) applies, 10th February 2005, and |
| |
(b) | so far as the amount of the credit for foreign tax is affected by any other |
| 20 |
prescribed scheme or arrangement (within the meaning of Schedule |
| |
| |
Controlled foreign companies |
| |
120 | Territories with a lower level of taxation: reduction of amount of local tax |
| |
(1) | Section 750 of ICTA (controlled foreign companies: territories with a lower |
| 25 |
level of taxation) is amended as follows. |
| |
(2) | In subsection (1) after “if” insert “, after giving effect to subsections (1A) and |
| |
| |
(3) | After subsection (1) insert— |
| |
“(1A) | If in the case of that accounting period there is any income, or any |
| 30 |
income and any expenditure, of the company— |
| |
(a) | which is brought into account in determining the profits of the |
| |
company in respect of which tax is paid under the law of that |
| |
| |
(b) | which does not also fall to be brought into account in |
| 35 |
determining the chargeable profits of the company, |
| |
| the local tax shall be treated for the purposes of this Chapter as reduced |
| |
to what it would have been had that income and any such expenditure |
| |
not been so brought into account. |
| |
| 40 |
(a) | under the law of that territory any tax (“the company’s tax”) |
| |
falls to be paid by the company in respect of profits of the |
| |
company arising in that accounting period, |
| |
|
| |
|