Finance (No.2) Bill

House of Commons

Session 2005 - 06
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Other Bills before Parliament

Finance (No.2) Bill

Finance (No.2) Bill
Schedule 1 — Group relief where surrendering company not resident in UK
Part 1 — Amendments of Chapter 4 of Part 10 of ICTA
151

      (3)
In paragraph 7 (supplemental matters), in sub-paragraph (1) (definition of
“the relevant accounting period”), in the opening words, after “means”
insert “(subject to sub-paragraphs (1A) to (1C) below)”.
      (4)
After that sub-paragraph insert—
   “(1A)
In this Schedule “the relevant accounting period” means, in the
5
case of a non-resident company which is not within the charge to
corporation tax, the accounting period which the company would
have on the following assumption.
     (1B)
The assumption is that the company became resident in the United
Kingdom (and, accordingly, within the charge to corporation tax)
10
at the time when it became a 75 per cent. subsidiary as mentioned
in section 402(2A).
     (1C)
For the purposes of sub-paragraph (1B) above the reference to the
company’s being a 75 per cent. subsidiary is to its being such a
subsidiary disregarding section 413(7).”.
15
Meaning of conditions in section 403F etc
7
After Schedule 18 to ICTA (group relief: equity holders and profits or assets
available for distribution) insert—
“Schedule 18A
Section 403F

Group relief: overseas losses of non-resident companies
20
Part 1
Meaning of conditions for the purposes of section 403F
Introduction
1
This Part of this Schedule applies, in the case of any non-resident
company, for the purposes of section 403F (relief in respect of
25
overseas losses of non-resident companies).
The equivalence condition
2
An amount meets the equivalence condition if it corresponds (in
all material respects) to an amount of a kind that, for the purposes
of section 403, could be available for surrender by way of group
30
relief by a company resident in the United Kingdom.
The EEA tax loss condition: companies resident in EEA territory
3     (1)
In the case of a non-resident company which is resident in an EEA
territory (“the relevant territory”), an amount meets the EEA tax
loss condition in relation to the relevant territory in so far as
35
conditions A and B are met.
      (2)
Condition A is that the amount is calculated in accordance with
the applicable rules under the law of the relevant territory for
determining, in the case of the company, the amount of any loss or

Finance (No.2) Bill
Schedule 1 — Group relief where surrendering company not resident in UK
Part 1 — Amendments of Chapter 4 of Part 10 of ICTA
152

other amount eligible for relief from any tax under the relevant
territory.
      (3)
Condition B is that, for the purposes of corporation tax, the
amount is not attributable to a UK permanent establishment of the
company.
5
      (4)
“UK permanent establishment”, in relation to the company, means
any permanent establishment through which it carries on a trade
in the United Kingdom.
      (5)
For the meaning of tax under any territory outside the United
Kingdom, see paragraph 17.
10
The EEA tax loss condition: companies not resident in EEA territory
4     (1)
In the case of a non-resident company which is not resident in any
EEA territory but which carries on a trade in an EEA territory (“the
relevant territory”) through a permanent establishment, an
amount meets the EEA tax loss condition for any period in relation
15
to the relevant territory in so far as conditions A and B are met.
      (2)
Condition A is that the amount is calculated in accordance with
the applicable rules under the law of the relevant territory for
determining, in the case of the company, the amount of any loss or
other amount eligible for relief from any tax under the relevant
20
territory.
      (3)
Condition B is that the amount is not attributable to activities of
the company which are made exempt from tax under the relevant
territory for the period by any double taxation arrangements.
      (4)
For this purpose, activities of the company are made exempt from
25
tax under the relevant territory for the period by any double
taxation arrangements if those arrangements—
(a)
have the following effect, or
(b)
would have the following effect if a claim were made.
      (5)
The effect is that the income and gains (if any) arising for the
30
period from those activities are ignored in calculating the
company’s profits, income or gains chargeable to tax under the
relevant territory for the period.
      (6)
For the purposes of this paragraph, arrangements are double
taxation arrangements if they are made with a view to affording
35
relief from double taxation in relation to—
(a)
any tax under the relevant territory and any other territory
outside the United Kingdom, or
(b)
any tax under the relevant territory and United Kingdom
income or corporation tax.
40
The qualifying loss condition
5     (1)
This paragraph applies in the case of a non-resident company—
(a)
which is resident in any EEA territory, or
(b)
which is not so resident but which carries on a trade in an
EEA territory through a permanent establishment,
45

Finance (No.2) Bill
Schedule 1 — Group relief where surrendering company not resident in UK
Part 1 — Amendments of Chapter 4 of Part 10 of ICTA
153


and for the purposes of this paragraph “the EEA territory
concerned” means the EEA territory in which the company is
resident or (as the case may be) in which it carries on a trade
through a permanent establishment.
      (2)
An amount meets the qualifying loss condition in so far as the
5
amount—
(a)
cannot be given qualifying relief for any period (“the
current period”) or any other period, and
(b)
has not been given any other qualifying relief under the
law of any territory outside the United Kingdom (other
10
than the EEA territory concerned).
      (3)
Paragraph 6 determines whether the amount cannot be given
qualifying relief for the current period or any previous period.
      (4)
Paragraph 7 determines whether the amount cannot be given
qualifying relief for any period after the current period.
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      (5)
Paragraph 8 determines whether the amount has not been given
qualifying relief under the law of any territory outside the United
Kingdom (other than the EEA territory concerned).
Qualifying relief for current period and previous periods
6     (1)
For the purposes of paragraph 5, an amount cannot be given
20
qualifying relief for the current period or any previous period if
conditions A and B are met.
      (2)
Condition A is that, for the purposes of any tax under the EEA
territory concerned or under any relevant territory, the amount
cannot be taken into account in calculating any profits, income or
25
gains which—
(a)
arise to the company or any other person in the current
period or any previous period, and
(b)
are chargeable to that tax for the current period or any
previous period.
30
      (3)
Condition B is that, for the purposes of any tax under the EEA
territory concerned or under any relevant territory, the amount
cannot be relieved in the current period or any previous period—
(a)
by the payment of a credit,
(b)
by the elimination or reduction of a tax liability, or
35
(c)
by any other means of any kind.
      (4)
An amount is to be regarded for the purposes of this paragraph as
meeting conditions A and B if (but only if) every step to secure that
the amount is so taken into account or relieved is taken (whether
by the company or any other person).
40
      (5)
In this paragraph “relevant territory” means—
(a)
if the company is resident in any EEA territory and is also
resident in any other territory outside the United
Kingdom, that other territory,
(b)
if the company is not resident in any EEA territory but
45
carries on a trade in an EEA territory through a permanent

Finance (No.2) Bill
Schedule 1 — Group relief where surrendering company not resident in UK
Part 1 — Amendments of Chapter 4 of Part 10 of ICTA
154

establishment, the territory (or territories) in which it is
resident.
Qualifying relief for future periods
7     (1)
For the purposes of paragraph 5, an amount cannot be given
qualifying relief for any period after the current period if
5
conditions A and B are met.
      (2)
Condition A is that, for the purposes of any tax under the EEA
territory concerned or under any relevant territory, the amount
cannot be taken into account in calculating any profits, income or
gains which—
10
(a)
might arise to the company or any other person in any
period after the current period, and
(b)
(if there were any) would be chargeable to that tax for any
period after the current period.
      (3)
Condition B is that, for the purposes of any tax under the EEA
15
territory concerned or under any relevant territory, the amount
cannot be relieved in any period after the current period—
(a)
by the payment of a credit,
(b)
by the elimination or reduction of a tax liability, or
(c)
by any other means of any kind.
20
      (4)
In determining for the purposes of conditions A and B whether an
amount can be so taken into account or relieved, the time at which
the determination is to be made is the time immediately after the
end of the current period.
      (5)
In this paragraph “relevant territory” means—
25
(a)
if the company is resident in any EEA territory and is also
resident in any other territory outside the United
Kingdom, that other territory,
(b)
if the company is not resident in any EEA territory but
carries on a trade in an EEA territory through a permanent
30
establishment, the territory (or territories) in which it is
resident.
Amount not given other qualifying relief under law of territory outside UK
8     (1)
For the purposes of paragraph 5, an amount has not been given
qualifying relief under the law of any territory outside the United
35
Kingdom (other than the EEA territory concerned) if conditions A
and B are met.
      (2)
Condition A is that, for the purposes of any tax under any territory
outside the United Kingdom (other than the EEA territory
concerned), the amount has not been taken into account in
40
calculating any profits, income or gains which—
(a)
have arisen to the company or any other person in any
period, and
(b)
were chargeable to that tax for the period (or, but for so
taking the amount into account, would have been so
45
chargeable).

Finance (No.2) Bill
Schedule 1 — Group relief where surrendering company not resident in UK
Part 1 — Amendments of Chapter 4 of Part 10 of ICTA
155

      (3)
Condition B is that, for the purposes of any tax under any territory
outside the United Kingdom (other than the EEA territory
concerned), the amount has not been relieved in any period—
(a)
by the payment of a credit,
(b)
by the elimination or reduction of a tax liability, or
5
(c)
by any other means of any kind.
Precedence condition
9     (1)
This paragraph applies in the case of a non-resident company
(“the relevant company”)—
(a)
which is resident in any EEA territory, or
10
(b)
which is not so resident but which carries on a trade in an
EEA territory through a permanent establishment.
      (2)
An amount meets the precedence condition in relation to the EEA
territory concerned in so far as relief for the amount cannot be
given in any other territory outside the United Kingdom which is
15
a qualifying territory in relation to the relevant company.
      (3)
For this purpose a territory is a qualifying territory in relation to
the relevant company if—
(a)
another company is resident in that territory (which need
not be an EEA territory),
20
(b)
that other company owns directly or indirectly any
ordinary share capital in the relevant company,
(c)
a third company which is resident in the United Kingdom
owns directly or indirectly any ordinary share capital of
that other company,
25
(d)
the relevant company is a 75 per cent. subsidiary of that
third company, and
(e)
the relevant company is not a 75 per cent. subsidiary of that
third company as a result of its being a 75 per cent.
subsidiary of a fourth company which is resident in the
30
United Kingdom.
      (4)
In this paragraph references, in relation to any amount and any
territory, to relief being given for the amount in the territory are to
relief being given—
(a)
by taking the amount into account in calculating any
35
profits, income or gains of any person chargeable to tax
under the law of that territory,
(b)
by the payment of a credit to any person under the law of
that territory,
(c)
by the elimination or reduction of a tax liability of any
40
person under the law of that territory, or
(d)
by any other means of any kind.
      (5)
“The EEA territory concerned” means the EEA territory in which
the relevant company is resident or (as the case may be) in which
it carries on a trade through a permanent establishment.
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Finance (No.2) Bill
Schedule 1 — Group relief where surrendering company not resident in UK
Part 1 — Amendments of Chapter 4 of Part 10 of ICTA
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Part 2
Application of UK rules to non-resident company
Introduction
10    (1)
This Part of this Schedule applies in the case of any loss or other
amount (“the EEA amount”) arising to a non-resident company
5
(“the EEA company”) in any period (“the loss period”) in so far as
the EEA amount meets the conditions mentioned in subsection
(2)(a) to (d) of section 403F.
      (2)
In this Part of this Schedule “the EEA territory concerned” means
the EEA territory in which the EEA company is resident or (as the
10
case may be) in which it carries on a trade through a permanent
establishment.
      (3)
In this Part of this Schedule any reference to the appropriate part
of the EEA amount is to that amount in so far as it meets the
conditions mentioned in subsection (2)(a) to (d) of section 403F.
15
Basic rules
11    (1)
The EEA amount must, on the relevant assumptions (see sub-
paragraph (5)), be recalculated in accordance with the applicable
UK tax rules (see paragraph 16).
      (2)
The amount of the EEA amount that is available for surrender by
20
the EEA company by way of group relief is so much of the
appropriate part of it as does not exceed the amount given by that
recalculation.
      (3)
But if the amount given by that recalculation is an amount of
income or other profits, no part of the EEA amount is available for
25
surrender by way of group relief.
      (4)
So far as any part of the EEA amount is available for surrender by
the EEA company by way of group relief, the provisions of this
Chapter have effect in that case on the basis that the relevant
assumptions are made.
30
      (5)
In this paragraph “the relevant assumptions” are the assumptions
set out in paragraphs 12 to 15.
Assumptions as to UK residence
12    (1)
It is to be assumed that the EEA company is resident in the United
Kingdom throughout the loss period.
35
      (2)
But this does not require it to be assumed—
(a)
that there is any change in the place or places at which the
EEA company carries on its activities (although see
paragraph 13), or
(b)
that the EEA company ceases to be resident in the United
40
Kingdom at the end of the loss period.

Finance (No.2) Bill
Schedule 1 — Group relief where surrendering company not resident in UK
Part 1 — Amendments of Chapter 4 of Part 10 of ICTA
157

      (3)
It is to be assumed that the EEA company becomes resident in the
United Kingdom (and, accordingly, within the charge to
corporation tax) at the beginning of the loss period.
Assumptions as to places in which activities carried out
13    (1)
In the case of any trade carried on by the EEA company in the loss
5
period wholly or partly in the EEA territory concerned, it is to be
assumed that the trade is carried on wholly or partly in the United
Kingdom.
      (2)
In the case of any estate, interest or rights in or over land in the
EEA territory concerned which are held by the EEA company, it is
10
to be assumed that the land is in the United Kingdom.
      (3)
For this purpose, the reference to domestic concepts of law in
relation to the land in the EEA territory concerned is to be read so
as to produce the result that most closely corresponds with that
produced for Schedule A purposes in relation to land in the
15
United Kingdom.
Deemed accounting period
14    (1)
It is to be assumed that an accounting period of the EEA company
begins at the beginning of the loss period.
      (2)
It is to be assumed that the accounting period ends on the earlier
20
of—
(a)
the end of 12 months from the beginning of the loss period,
or
(b)
the end of the loss period.
      (3)
If an accounting period ends in accordance with sub-paragraph
25
(2)(a), it is to be assumed that a further accounting period begins
when the previous one ends.
      (4)
It is to be assumed that the further accounting period ends on the
earlier of—
(a)
the end of 12 months from the beginning of the further
30
accounting period, or
(b)
the end of the loss period.
Capital allowances
15    (1)
This paragraph applies if, before the beginning of the loss period,
the EEA company incurs any capital expenditure on the provision
35
of plant or machinery for the purposes of any activity.
      (2)
It is to be assumed for the purposes of Part 2 of the Capital
Allowances Act that the plant or machinery—
(a)
was provided for purposes wholly other than those of the
activity, and
40
(b)
was not brought into use for the purposes of the activity
until the beginning of the loss period,