Finance Bill

House of Commons

Session 2005 - 06
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Other Bills before Parliament

Finance Bill

Finance Bill
Part 2 — Income tax, corporation tax and capital gains tax
Chapter 6 — Miscellaneous
33

(a)
a payment in respect of an annuity or other annual payment is made by
a company on or after the commencement date, and
(b)
the condition in subsection (11) is satisfied.
(11)
The condition is that the payment represents an amount which (apart from
subsection (12))—
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(a)
would not be deductible under section 75 of ICTA, or
(b)
would not fall to be brought into account under section 76 of that Act,

by reason only of section 337A(1)(b) of that Act ( company’s income from any
source to be computed without any deduction in respect of charges on income)
as it applies by virtue of section 338A(2)(a) of that Act.
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(12)
In any such case, the amount represented by the payment—
(a)
is deductible under section 75 of ICTA, or
(b)
falls to be brought into account under section 76 of that Act as expenses
payable,

for the accounting period in which the payment is made.
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(13)
In this section “the commencement date” means 16th March 2005.
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Avoidance involving financial arrangements

Schedule 7 (which makes provision in relation to tax avoidance involving
financial arrangements) has effect.
Financing of companies etc
20
40
Transfer pricing and loan relationships
Schedule 8 (which amends Schedule 28AA to ICTA and Schedule 9 to FA 1996)
has effect.
Intangible fixed assets
41
Intangible fixed assets
25
(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
at market value)—
(a)
in sub-paragraph (1), for “the following two exceptions” substitute “the
30
following four exceptions”;
(b)
after sub-paragraph (4) insert—
   “(4A)
The third exception is where—
(a)
the asset is transferred from the company at less than
its market value, or to the company at more than its
35
market value,
(b)
the related party—
(i)
is not a company, or
(ii)
is a company in relation to which the asset is
not a chargeable intangible asset immediately
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Finance Bill
Part 2 — Income tax, corporation tax and capital gains tax
Chapter 6 — Miscellaneous
34

after the transfer to it or (as the case may be)
immediately before the transfer from it,

and
(c)
by virtue of any provision of—
(i)
section 209 of the Taxes Act 1988 (meaning of
5
“distribution”), or
(ii)
Part 3 of the Income Tax (Earnings and
Pensions) Act 2003 (employment income:
earnings and benefits etc treated as earnings),

the transfer gives rise (or would give rise but for sub-
10
paragraph (1)) to an amount to be taken into account
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-
15
paragraph (4A)(c), for the purposes of any such provision as
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
20
of Chargeable Gains Act 1992 (relief for gifts of
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
25
Schedule as being at market value less the amount of
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
30
making of an assessment or the amendment of a
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—
35
(a)
a participator in C, or
(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
40
corporation tax purposes of Classes 4 to 7 in section 155 of TCGA 1992)—
(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
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TCGA 1992 by order) for the words after “may make such consequential

Finance Bill
Part 2 — Income tax, corporation tax and capital gains tax
Chapter 6 — Miscellaneous
35

amendments” substitute “of—
(a)
Schedule 7AB to the Taxation of Chargeable Gains Act 1992, or
(b)
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
5
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
10
2005.
(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
15
had effect).
(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.
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(10)
The amendments made by subsection (4) have effect in relation to any such
acquisition as is referred to in paragraph 132(5) of Schedule 29 to FA 2002 made
on or after 22nd March 2005.
Insurance companies etc
42
Insurance companies etc
25
Schedule 9 (which makes provision about insurance companies etc) has effect.
International matters
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Implementation of the amended Parent/Subsidiary Directive
(1)
Section 801 of ICTA (dividends paid between related companies: relief for UK
and third country taxes) is amended as follows.
30
(2)
After subsection (5) (meaning of one company being related to another)
insert—
“(5A)
For the purposes of subsections (2) and (3) above (including any
determination of the extent to which underlying tax paid by the third,
fourth or subsequent company in question would be taken into account
35
under this Part if the conditions specified for the purpose in subsection
(2) above were satisfied) a company is also related to another company
if that other company—
(a)
controls directly or indirectly, or
(b)
is a subsidiary of a company which controls directly or
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indirectly,

Finance Bill
Part 2 — Income tax, corporation tax and capital gains tax
Chapter 6 — Miscellaneous
36


not less than 10% of the ordinary share capital of the first-mentioned
company.”.
(3)
The amendment made by this section has effect where the dividend mentioned
in section 799(1) of ICTA is paid on or after 1st January 2005.
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Territories with a lower level of taxation: reduction of amount of local tax
5
(1)
Section 750 of ICTA (controlled foreign companies: territories with a lower
level of taxation) is amended as follows.
(2)
In subsection (1), after “if” insert “, after giving effect to subsections (1A) and
(1B) below,”.
(3)
After subsection (1) insert—
10
“(1A)
If in the case of that accounting period there is any income, or any
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
territory, but
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(b)
which does not also fall to be brought into account in
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.
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(1B)
If—
(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,
(b)
under that law, any repayment of tax, or any payment in respect
25
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,

the local tax shall be treated for the purposes of this Chapter as reduced
30
(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.
(5)
Where an accounting period of a company resident outside the United
35
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,

an accounting period of the company shall be deemed for the purposes of
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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).