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Finance Bill
Part 2 — Income tax, corporation tax and capital gains tax
Chapter 4 — Avoidance involving tax arbitrage

26

 

28      

Notices under sections 24 and 26

(1)   

Subsection (2) applies if the Commissioners for Her Majesty’s Revenue and

Customs give a notice to a company under section 24 or 26 before the company

has made its company tax return for the accounting period specified in the

notice.

5

(2)   

If the company makes its return for that period before the end of the period of

90 days beginning with the day on which the notice is given, it may—

(a)   

make a 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 complying with the

10

provision referred to in the notice.

(3)   

If a company has made a company tax return for an accounting period, the

Commissioners may only give the company a notice under section 24 or 26 in

relation to that period if a notice of enquiry has been given to the company in

respect of its return for that period.

15

(4)   

After any enquiries into the return for that period have been completed, the

Commissioners may only give the company a notice under section 24 or 26 if

the requirements in subsections (5) and (7) are satisfied.

(5)   

The first requirement is that at the time the enquiries into the return were

completed, the Commissioners could not have been reasonably expected, on

20

the basis of information made available to them or to an officer of Revenue and

Customs before that time, to have been aware that the circumstances were such

that a notice under section 24 or 26 could have been given to the company in

relation to that period.

(6)   

Paragraph 44(2) and (3) of Schedule 18 to FA 1998 (information made available)

25

applies for the purposes of subsection (5) as it applies for the purposes of

paragraph 44(1).

(7)   

The second requirement is that—

(a)   

the company was requested to produce or provide information during

an enquiry into the return for that period, and

30

(b)   

if the company had duly complied with the request, the Commissioners

could reasonably have been expected to give the company a notice

under section 24 or 26 in relation to that period.

(8)   

If a company is given a notice under section 24 or 26 in relation to an

accounting period after having made a company tax return for that period, the

35

company may amend the return for the purpose of complying with the

provision referred to in the notice at any time before the end of the period of 90

days beginning with the day on which the notice is given.

(9)   

If the notice under section 24 or 26 is given to the company after it has been

given a notice of enquiry in respect of its return for the period, no closure notice

40

may be given in relation to the company’s tax return until—

(a)   

the end of the period of 90 days beginning with the day on which the

notice under section 24 or 26 is given, or

(b)   

the earlier amendment of the company tax return for the purpose of

complying with the provision referred to in the notice.

45

(10)   

If the notice under section 24 or 26 is given to the company after any enquiries

into the return for the period are completed, no discovery assessment may be

 
 

Finance Bill
Part 2 — Income tax, corporation tax and capital gains tax
Chapter 4 — Avoidance involving tax arbitrage

27

 

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 24 or 26 is given, or

(b)   

the earlier amendment of the company tax return for the purpose of

5

complying with the provision referred to in the notice.

(11)   

Subsections (2)(b) and (8) do not prevent a company tax return for a period

becoming incorrect if—

(a)   

a notice under section 24 or 26 is given to the company in relation to

that period,

10

(b)   

the return is not amended in accordance with subsection (2)(b) or (8) for

the purpose of complying with the provision referred to in the notice,

and

(c)   

the return ought to have been so amended.

(12)   

In this section—

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“closure notice” means a notice under paragraph 32 of Schedule 18 to FA

1998;

“company tax return” means the return required to be delivered pursuant

to a notice under paragraph 3 of Schedule 18 to FA 1998, as read with

paragraph 4 of that Schedule;

20

“discovery assessment” means an assessment under paragraph 41 of

Schedule 18 to FA 1998;

“notice of enquiry” means a notice under paragraph 24 of Schedule 18 to

FA 1998.

29      

Amendments relating to company tax returns

25

(1)   

In Schedule 18 to FA 1998 (company tax returns, assessments, etc), in

paragraph 25(1) (scope of enquiry) after “relief)” insert “or a notice under

section 24 or 26 of the Finance (No. 2) Act 2005 (avoidance involving tax

arbitrage)”.

(2)   

In paragraph 42 of that Schedule (restrictions on power to make discovery

30

assessment etc), in sub-paragraph (2A), after “1988” insert “or section 24 or 26

of the Finance (No. 2) Act 2005”.

30      

Interpretation

(1)   

For the purposes of this Chapter—

(a)   

references to a scheme are references to any scheme, arrangements or

35

understanding of any kind whatever, whether or not legally

enforceable, involving a single transaction or two or more transactions;

(b)   

it shall be immaterial in determining whether any transactions have

formed or will form part of a series of transactions or scheme that the

parties to any of the transactions are different from the parties to

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another of the transactions; and

(c)   

the cases in which any two or more transactions are to be taken as

forming part of a series of transactions or scheme shall include any case

in which it would be reasonable to assume that one or more of them—

(i)   

would not have been entered into independently of the other or

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others, or

 
 

Finance Bill
Part 2 — Income tax, corporation tax and capital gains tax
Chapter 4 — Avoidance involving tax arbitrage

28

 

(ii)   

if entered into independently of the other or others, would not

have taken the same form or been on the same terms.

(2)   

For the purposes of this Chapter, a scheme achieves a UK tax advantage for a

person if in consequence of the scheme the person is in a position to obtain, or

has obtained—

5

(a)   

a relief or increased relief from income tax or corporation tax,

(b)   

a repayment or increased repayment of income tax or corporation tax,

or

(c)   

the avoidance or reduction of a charge to income tax or corporation tax.

(3)   

In subsection (2)(a) the reference to relief includes a reference to a tax credit.

10

(4)   

For the purposes of subsection (2)(c) avoidance or reduction may in particular

be effected by—

(a)   

receipts accruing in such a way that the recipient does not pay or bear

tax on them, or

(b)   

a deduction in computing profits or gains.

15

31      

Commencement

(1)   

The deduction cases provisions have effect in relation to accounting periods of

a company beginning on or after 16th March 2005.

(2)   

Where an accounting period of a company begins before, and ends on or after

16th March 2005, it shall be assumed for the purposes of the deduction cases

20

provisions (and subsection (1) of this section) that that accounting period (“the

straddling period”) consists of two separate accounting periods—

(a)   

the first beginning with the straddling period and ending with the 15th

March 2005, and

(b)   

the second beginning with 16th March 2005 and ending with the

25

straddling period,

   

and the company’s profits and losses shall be computed accordingly for tax

purposes.

(3)   

The deduction cases provisions do not have effect so far as regards a

transaction to which a company is party on 16th March 2005 and which on that

30

date forms part of a scheme, if—

(a)   

the company is not on 16th March 2005 connected with a person who is

on that date also party to, or concerned in, the scheme, and

(b)   

the scheme ceases to exist before 31st August 2005.

   

Section 839 of ICTA applies for the purposes of this subsection.

35

(4)   

The receipts cases provisions have effect in relation to any contribution to the

capital of a company resident in the United Kingdom that is made on or after

16th March 2005.

(5)   

In this section—

“the deduction cases provisions” means—

40

(a)   

sections 24 and 25 and Schedule 3, and

(b)   

sections 28 to 30 so far as relating to the provisions in paragraph

(a);

“the receipts cases provisions” means—

(a)   

sections 26 and 27, and

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Finance Bill
Part 2 — Income tax, corporation tax and capital gains tax
Chapter 5 — Chargeable gains

29

 

(b)   

sections 28 to 30 so far as relating to the provisions in paragraph

(a).

Chapter 5

Chargeable gains

Residence, location of assets etc

5

32      

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

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

10

the United Kingdom” substitute—

“(i)   

he was neither resident nor ordinarily resident in

the United Kingdom, or

(ii)   

he was resident or ordinarily resident in the

United Kingdom but was Treaty non-resident;”;

15

(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”.

(4)   

For subsection (9) substitute—

“(9)   

For the purposes of this section an individual satisfies the residence

20

requirements for a year of assessment—

(a)   

if, during any part of that year of assessment, he is resident in

the United Kingdom and not Treaty non-resident, or

(b)   

if he is ordinarily resident in the United Kingdom during that

year of assessment, unless he is Treaty non-resident during that

25

year of assessment.

(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.

30

(9B)   

Where this section applies in the case of any individual in

circumstances in which one or more intervening years would, but for

his being Treaty non-resident during some or all of that year or those

years, not be an intervening year, this section shall have effect in the

taxpayer’s case—

35

(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

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

40

the purposes of subsections (2)(b) and (c) and (6) above.”.

 
 

Finance Bill
Part 2 — Income tax, corporation tax and capital gains tax
Chapter 5 — Chargeable gains

30

 

(5)   

After subsection (9B) (as inserted by subsection (4) above) insert—

“(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

5

preventing a charge to that tax from arising as a result).”.

(6)   

Omit subsection (10) (section to be without prejudice to right to claim relief

under double taxation relief arrangements).

(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

10

the amendment in subsection (4) had always had effect) would be, the

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

15

(ii)   

at a time in that year on or after 16th March 2005, the taxpayer

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

20

made on or after 16th March 2005.

(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.

25

33      

Trustees both resident and non-resident in a year of assessment

(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

30

and the trustees—

(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

35

arrangements shall be read as preventing the trustees from being

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—

40

(a)   

if, during any part of that year of assessment, they are resident

in the United Kingdom and not Treaty non-resident, or

(b)   

if they are ordinarily resident in the United Kingdom during

that year of assessment, unless they are Treaty non-resident

during that year of assessment.

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Finance Bill
Part 2 — Income tax, corporation tax and capital gains tax
Chapter 5 — Chargeable gains

31

 

(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

(b)   

they are resident or ordinarily resident in the United Kingdom

5

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

double taxation relief arrangements having effect at that time.”.

10

(2)   

The amendment made by this section has effect in relation to disposals made

on or after 16th March 2005.

34      

Location of assets etc

Schedule 4 (which makes provision in relation to the situation of assets for the

purposes of TCGA 1992 and which makes minor amendments in that Act in

15

relation to non-resident companies with United Kingdom permanent

establishments) has effect.

Miscellaneous

35      

Exercise of options etc

Schedule 5 (which makes provision, for the purposes of the taxation of

20

chargeable gains, in relation to options) has effect.

36      

Notional transfers within a group

(1)   

Section 171A of TCGA 1992 (notional transfers within a group) is amended as

follows.

(2)   

After subsection (3) insert—

25

“(3ZA)   

In a case where B—

(a)   

is not resident in the United Kingdom, but

(b)   

is carrying on a trade in the United Kingdom through a

permanent establishment there,

   

the asset or part deemed to be transferred to B by A is to be treated for

30

the purposes of subsections (2)(c) and (3) above as having been

acquired by B for use by or for the purposes of the permanent

establishment; but that shall not be taken to affect the question whether

or not the asset or part is situated in the United Kingdom at any time.”.

(3)   

The amendment made by this section has effect in relation to disposals made

35

on or after 16th March 2005.

 
 

Finance Bill
Part 2 — Income tax, corporation tax and capital gains tax
Chapter 6 — Miscellaneous

32

 

Chapter 6

Miscellaneous

Accounting practice and related matters

37      

Accounting practice and related matters

   

Schedule 6 (accounting practice and related matters) has effect.

5

Financial avoidance etc

38      

Charges on income for the purposes of corporation tax

(1)   

Section 338A of ICTA (meaning of “charges on income” for the purposes of

corporation tax) is amended as follows.

(2)   

In subsection (2) (what are charges on income) paragraph (a) (annuities or

10

other annual payments that meet the conditions in section 338B) shall cease to

have effect.

(3)   

In section 125(1) of ICTA (annual payments for non-taxable consideration) for

“income tax,” substitute “income tax and”.

(4)   

In section 434A(2)(a) of ICTA (loss resulting to insurance company from

15

computation in accordance with Case I of Schedule D: reduction by specified

amounts) omit sub-paragraph (i) (which relates to charges on income).

(5)   

The side-note to section 494 of ICTA (charges on income) becomes “Loan

relationships etc.”.

(6)   

The amendment made by subsection (4) has effect for accounting periods

20

beginning on or after 1st April 2004.

(7)   

The other amendments made by this section have effect in relation to payments

made on or after the commencement date in respect of annuities or other

annual payments.

(8)   

Where—

25

(a)   

an accounting period of a company begins before, and ends on or after,

the commencement date,

(b)   

a payment in respect of an annuity or other annual payment is made by

the company in that period but before the commencement date, and

(c)   

the payment is deductible as a charge on income for the purposes of

30

corporation tax,

   

subsection (9) applies.

(9)   

In any such case, so much of any amount as represents that payment—

(a)   

is not deductible under section 75 of ICTA (expenses of management),

and

35

(b)   

is not to be brought into account under section 76 of that Act (expenses

of insurance companies) as expenses payable,

   

for that or any subsequent accounting period.

(10)   

Subsection (12) applies in any case where—

 
 

 
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