Finance (No.2) Bill

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Session 2005 - 06
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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
148

Schedules
Schedule 1
Section 27

Group relief where surrendering company not resident in UK
Part 1
Amendments of Chapter 4 of Part 10 of ICTA
5
Availability of relief
1     (1)
Section 402 of ICTA (surrender of relief between members of groups and
consortia) is amended as follows.
      (2)
In subsection (1) (availability of relief) for the words from the beginning to
“set out” substitute—
10
“(1)
Subject to and in accordance with this Chapter and section 492(8)—
(a)
relief for trading losses and other amounts eligible for relief
from corporation tax, or
(b)
losses and other amounts not eligible for relief from
corporation tax,
15

may, in the cases set out”.
      (3)
For subsection (2) (group claims) substitute—
“(2)
In respect of amounts falling within subsection (1)(a) above, group
relief shall be available in a case where—
(a)
the surrendering company and the claimant company are
20
both members of the same group,
(b)
the surrendering company is resident in the United Kingdom
or is not so resident but carries on a trade there through a
permanent establishment, and
(c)
the claimant company is resident in the United Kingdom or
25
is not so resident but carries on a trade there through a
permanent establishment,

and, in respect of amounts falling within subsection (1)(b) above,
group relief shall be available in a case where the condition in
subsection (2A) below is satisfied.
30

A claim made by virtue of this subsection is referred to as a “group
claim”.
(2A)
The condition in this subsection is satisfied if the surrendering
company is within the charge to tax under the law of any EEA
territory and—
35

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
149

(a)
the surrendering company is a 75 per cent. subsidiary of the
claimant company and the claimant company is resident in
the United Kingdom, or
(b)
both the surrendering company and the claimant company
are 75 per cent. subsidiaries of a third company that is
5
resident in the United Kingdom.
(2B)
For the purposes of subsection (2A) above, the surrendering
company is within the charge to tax under the law of any EEA
territory if—
(a)
it is a non-resident company which is resident in any EEA
10
territory, or
(b)
it is a non-resident company which is not resident in any EEA
territory but which carries on a trade in any EEA territory
through a permanent establishment.”.
      (4)
In subsection (3A) (group relief not available unless both companies satisfy
15
following condition) for “Group relief is not available” substitute “A
consortium claim shall not be made”.
Limits on group relief
2     (1)
Section 403A of ICTA (limits on group relief) is amended as follows.
      (2)
In subsection (10) (qualifying conditions for the purposes of subsection (9)),
20
for paragraph (a) (group claims) substitute—
“(a)
if (or so far as) the claim is a group claim for the surrender of
any loss or other amount other than a qualifying overseas
loss, whenever the conditions in paragraphs (a) to (c) of
section 402(2) are satisfied;
25
(ab)
if (or so far as) the claim is a group claim for the surrender of
a qualifying overseas loss, whenever the condition specified
in section 402(2A) is satisfied; and”.
      (3)
After that subsection insert—
“(11)
For the purposes of subsection (10) above a “qualifying overseas
30
loss” means a loss or other amount that is available for surrender by
way of group relief in accordance with sections 403F and 403G and
Schedule 18A (relief in respect of overseas losses of non-resident
companies).”.
Relief for or in respect of non-resident companies within the charge to corporation tax
35
3     (1)
Section 403D of ICTA (relief for or in respect of non-resident companies) is
amended as follows.
      (2)
In subsection (1) (provision for determining amounts available for surrender
by a non-resident company), in the opening words,—
(a)
after “non-resident company” insert “carrying on a trade in the
40
United Kingdom through a permanent establishment”, and
(b)
after “as so available” insert “(but see also subsection (11) below)”.
      (3)
At the end insert—
“(11)
Any loss or other amount that is available for surrender by way of
group relief in accordance with this section is in addition to any loss
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
150

or other amount that is so available in accordance with sections 403F
and 403G and Schedule 18A (relief in respect of overseas losses of
non-resident companies).”.
      (4)
In consequence of the amendments made by this paragraph, the title to the
section becomes “Relief for or in respect of UK losses of non-resident
5
companies”.
Relief in respect of overseas losses of non-resident companies
4     (1)
After section 403E of ICTA (relief for overseas losses of UK resident
companies) insert—
“403F
  Relief in respect of overseas losses of non-resident companies
10
(1)
This section has effect for determining for the purposes of this
Chapter the extent to which a loss or other amount is available for
surrender by way of group relief by a non-resident company—
(a)
which is resident in an EEA territory, or
(b)
which is not so resident but which carries on a trade in an
15
EEA territory through a permanent establishment,

in a case where a group claim may be made as a result of the
condition in section 402(2A) being satisfied.
(2)
A loss or other amount is not available for surrender by way of group
relief by the non-resident company except in so far as, in relation to
20
the EEA territory, the amount meets—
(a)
the equivalence condition,
(b)
the EEA tax loss condition,
(c)
the qualifying loss condition, and
(d)
the precedence condition.
25
(3)
Part 1 of Schedule 18A determines, in the case of any amount and any
EEA territory, the extent to which those conditions are met.
(4)
In so far as a loss or other amount meets those conditions, Part 2 of
Schedule 18A applies—
(a)
for calculating the amount of the loss or other amount (if any)
30
that is available for surrender by way of group relief, and
(b)
otherwise for making provision in relation to the application
of this Chapter to the non-resident company.
(5)
This section is subject to section 403G (unallowable overseas losses of
non-resident companies).”.
35
      (2)
After section 403F of ICTA (as inserted by sub-paragraph (1)) insert—
“403G
  Unallowable overseas losses of non-resident companies
(1)
This section applies in the case of a loss or other amount arising to a
non-resident company—
(a)
which is resident in any EEA territory, or
40
(b)
which is not so resident but which carries on a trade in an
EEA territory through a permanent establishment,

where the amount is not attributable for corporation tax purposes to
any UK permanent establishment of the non-resident company.

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

(2)
The amount is not available for surrender by way of group relief by
the non-resident company in so far as conditions A and B are met.
(3)
Condition A is that—
(a)
the amount would not qualify for group relief but for any
relevant arrangements, or
5
(b)
the amount would not have arisen to the non-resident
company but for any relevant arrangements.
(4)
Condition B is that the main purpose, or one of the main purposes,
of the relevant arrangements was to secure that the amount would
qualify for group relief.
10
(5)
In this section references to relevant arrangements, in relation to any
amount, are to—
(a)
arrangements made on or after 20th February 2006, or
(b)
arrangements made before that date where the amount
would (but for this section) first qualify for group relief on or
15
after that date or (as the case may be) the amount arises on or
after that date.
(6)
In this section—
“arrangements” includes any agreement, understanding,
scheme, transaction or series of transactions (whether or not
20
legally enforceable),
“UK permanent establishment”, in relation to the non-resident
company, means any permanent establishment through
which it carries on a trade in the United Kingdom.”.
Interpretation of Chapter 4 of Part 10 of ICTA
25
5     (1)
Section 413 of ICTA (interpretation) is amended as follows.
      (2)
In subsection (1) (general definitions), after the definition of “consortium
claim”, insert—
““EEA territory”, in relation to any time, means a territory
outside the United Kingdom which is within the European
30
Economic Area at that time;”.
Group relief: equity holders and profits or assets available for distribution
6     (1)
Schedule 18 to ICTA (group relief: equity holders and profits or assets
available for distribution) is amended as follows.
      (2)
In paragraph 5F (special rules in the case of non-resident companies), in sub-
35
paragraph (1)(b) (application of paragraph for relevant purposes) for “by the
consortium” substitute “by the consortium;

but this paragraph does not have effect in relation to any
determination in the case of amounts falling within section
402(1)(b).”.
40
      (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)”.

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

      (4)
After that sub-paragraph insert—
   “(1A)
In this Schedule “the relevant accounting period” means, in the
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.
5
     (1B)
The assumption is that the company became resident in the United
Kingdom (and, accordingly, within the charge to corporation tax)
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
10
company’s being a 75 per cent. subsidiary is to its being such a
subsidiary disregarding section 413(7).”.
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—
15
“Schedule 18A
Section 403F

Group relief: overseas losses of non-resident companies
Part 1
Meaning of conditions for the purposes of section 403F
Introduction
20
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
overseas losses of non-resident companies).
The equivalence condition
2
An amount meets the equivalence condition if it corresponds (in
25
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
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
30
territory (“the relevant territory”), an amount meets the EEA tax
loss condition in relation 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
35
determining, in the case of the company, the amount of any loss or
other amount eligible for relief from any tax under the relevant
territory.

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

      (3)
Condition B is that, for the purposes of corporation tax, the
amount is not attributable to a UK permanent establishment of the
company.
      (4)
“UK permanent establishment”, in relation to the company, means
any permanent establishment through which it carries on a trade
5
in the United Kingdom.
      (5)
For the meaning of tax under any territory outside the United
Kingdom, see paragraph 17.
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
10
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
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
15
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
territory.
      (3)
Condition B is that the amount is not attributable to activities of
20
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
tax under the relevant territory for the period by any double
taxation arrangements if those arrangements—
25
(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
period from those activities are ignored in calculating the
company’s profits, income or gains chargeable to tax under the
30
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
relief from double taxation in relation to—
(a)
any tax under the relevant territory and any other territory
35
outside the United Kingdom, or
(b)
any tax under the relevant territory and United Kingdom
income or corporation tax.
The qualifying loss condition
5     (1)
This paragraph applies in the case of a non-resident company—
40
(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,

and for the purposes of this paragraph “the EEA territory
concerned” means the EEA territory in which the company is
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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
154

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
amount—
(a)
cannot be given qualifying relief for any period (“the
5
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
than the EEA territory concerned).
      (3)
Paragraph 6 determines whether the amount cannot be given
10
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.
      (5)
Paragraph 8 determines whether the amount has not been given
qualifying relief under the law of any territory outside the United
15
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
qualifying relief for the current period or any previous period if
conditions A and B are met.
20
      (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—
(a)
arise to the company or any other person in the current
25
period or any previous period, and
(b)
are chargeable to that tax for the current period or any
previous period.
      (3)
Condition B is that, for the purposes of any tax under the EEA
territory concerned or under any relevant territory, the amount
30
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
(c)
by any other means of any kind.
      (4)
An amount is to be regarded for the purposes of this paragraph as
35
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).
      (5)
In this paragraph “relevant territory” means—
(a)
if the company is resident in any EEA territory and is also
40
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
establishment, the territory (or territories) in which it is
45
resident.