Finance (No.2) Bill

House of Commons

Session 2005 - 06
Internet Publications
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
155

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
conditions A and B are met.
      (2)
Condition A is that, for the purposes of any tax under the EEA
5
territory concerned or under any relevant territory, the amount
cannot be taken into account in calculating any profits, income or
gains which—
(a)
might arise to the company or any other person in any
period after the current period, and
10
(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
territory concerned or under any relevant territory, the amount
cannot be relieved in any period after the current period—
15
(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)
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
20
the determination is to be made is the time immediately after the
end of the current period.
      (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
25
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
resident.
30
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
Kingdom (other than the EEA territory concerned) if conditions A
and B are met.
35
      (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
calculating any profits, income or gains which—
(a)
have arisen to the company or any other person in any
40
period, and
(b)
were chargeable to that tax for the period (or, but for so
taking the amount into account, would have been so
chargeable).
      (3)
Condition B is that, for the purposes of any tax under any territory
45
outside the United Kingdom (other than the EEA territory
concerned), the amount has not been relieved in any 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
156

(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.
Precedence condition
9     (1)
This paragraph applies in the case of a non-resident company
5
(“the relevant 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.
      (2)
An amount meets the precedence condition in relation to the EEA
10
territory concerned in so far as relief for the amount cannot be
given in any other territory outside the United Kingdom which is
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—
15
(a)
another company is resident in that territory (which need
not be an EEA territory),
(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
20
owns directly or indirectly any ordinary share capital of
that other company,
(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
25
third company as a result of its being a 75 per cent.
subsidiary of a fourth company which is resident in the
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
30
relief being given—
(a)
by taking the amount into account in calculating any
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
35
that territory,
(c)
by the elimination or reduction of a tax liability of any
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
40
the relevant company is resident or (as the case may be) in which
it carries on a trade through a permanent establishment.

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

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 relevant proportion
(see sub-paragraph (5)) of 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, and
“the relevant proportion” means the proportion that the
appropriate part of the EEA amount bears to the EEA
35
amount.
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.
      (2)
But this does not require it to be assumed—
40
(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

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
158

(b)
that the EEA company ceases to be resident in the United
Kingdom at the end of the loss period.
      (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.
5
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
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.
10
      (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
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
15
as to produce the result that most closely corresponds with that
produced for Schedule A purposes in relation to land in the
United Kingdom.
Deemed accounting period
14    (1)
It is to be assumed that an accounting period of the EEA company
20
begins at the beginning of the loss period.
      (2)
It is to be assumed that the accounting period ends on the earlier
of—
(a)
the end of 12 months from the beginning of the loss period,
or
25
(b)
the end of the loss period.
      (3)
If an accounting period ends in accordance with sub-paragraph
(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
30
earlier of—
(a)
the end of 12 months from the beginning of the further
accounting period, or
(b)
the end of the loss period.
Capital allowances
35
15    (1)
This paragraph applies if, before the beginning of the loss period,
the EEA company incurs any capital expenditure on the provision
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—
40
(a)
was provided for purposes wholly other than those of the
activity, and

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
159

(b)
was not brought into use for the purposes of the activity
until the beginning of the loss period,

and section 13 of the Capital Allowances Act (use for qualifying
activity of plant or machinery provided for other purposes) is to
apply accordingly.
5
      (3)
This paragraph is to be read as one with Part 2 of the Capital
Allowances Act.
Applicable UK tax rules
16    (1)
For the purposes of this Part of this Schedule references to
recalculating the EEA amount in accordance with the applicable
10
UK tax rules are to recalculating it in accordance with any
provision made by or under the Corporation Tax Acts—
(a)
which applies for the purpose of calculating for
corporation tax purposes the amount of the loss or other
amount to which the EEA amount corresponds, or
15
(b)
which otherwise affects in any way the amount of that loss
or other amount for which relief from corporation tax is
available.
      (2)
For the purposes of sub-paragraph (1), the Treasury may by
regulations provide for the modification of any provision made by
20
or under the Corporation Tax Acts—
(a)
which applies as mentioned in sub-paragraph (1)(a), or
(b)
which otherwise affects an amount as mentioned in sub-
paragraph (1)(b).
      (3)
Regulations under this paragraph may make provision in relation
25
to—
(a)
all classes of trade or business, or
(b)
any particular class or classes of trade or business.
      (4)
Regulations under this paragraph may make—
(a)
different provision for different cases or different
30
purposes, and
(b)
incidental, supplemental, consequential or transitional
provision and savings.
      (5)
Regulations under this paragraph may make provision having
effect before the date on which the regulations are made.
35
Part 3
Definitions for the purposes of this Schedule
Charge to tax under the law of any territory outside the United Kingdom
17    (1)
This paragraph applies for the purposes of this Schedule.
      (2)
Any reference to a tax under a territory outside the United
40
Kingdom is a reference to a tax chargeable under the law of that
territory which—

Finance (No.2) Bill
Schedule 1 — Group relief where surrendering company not resident in UK
Part 2 — Amendments of other enactments
160

(a)
is charged on income and corresponds to United Kingdom
income tax, or
(b)
is charged on income or chargeable gains or both and
corresponds to United Kingdom corporation tax.
      (3)
A tax chargeable under the law of a territory outside the United
5
Kingdom is not to be regarded as failing to correspond to income
or corporation tax just because—
(a)
it is chargeable under the law of a province, state or other
part of a country, or
(b)
it is levied by or on behalf of a municipality or other local
10
body.”.
Part 2
Amendments of other enactments
Claims for group relief
8
After paragraph 77 of Schedule 18 to FA 1998 (joint amended returns)
15
insert—
“Claims in respect of overseas losses of non-resident companies
77A   (1)
This paragraph applies if a claim for group relief is made in
respect of any loss or other amount as a result of the condition in
section 402(2A) of the Taxes Act 1988 being satisfied (relief in
20
respect of overseas losses of non-resident companies).
      (2)
In relation to the surrendering company, this Part of this Schedule
applies as if—
(a)
references to the relief being surrendered were to the EEA
amount and to the relief being claimed, and
25
(b)
references to its accounting period were to its deemed
accounting period under Part 2 of Schedule 18A to the
Taxes Act 1988.
      (3)
Notice of consent of the surrendering company—
(a)
is to be given to the officer of the Board under paragraph
30
70(3)(b) by the claimant company (and not by the
surrendering company), and
(b)
is to be given to the officer to whom the claimant company
makes its company tax returns.
      (4)
If the surrendering company is not within the charge to income or
35
corporation tax, the requirement under paragraph 71(1)(e) for
notice of consent by the surrendering company to contain details
of its tax district reference is not to apply.
      (5)
If notice of consent is withdrawn under paragraph 71, the notice of
the withdrawal is to be given to the officer of the Board by the
40
claimant company (and not by the surrendering company).
      (6)
If notice of consent is withdrawn under paragraph 75—
(a)
the notice of withdrawal, and any copy of any new notice
of consent, is to be sent to an officer of Revenue and

Finance (No.2) Bill
Schedule 1 — Group relief where surrendering company not resident in UK
Part 3 — Commencement
161

Customs by the claimant company (and not by the
surrendering company), and
(b)
any notice containing directions by an officer of Revenue
and Customs under sub-paragraph (4) of that paragraph is
to be given to the claimant company (and not to the
5
surrendering company).
      (7)
The remaining provisions of that paragraph, and the rest of this
Part of this Schedule, are, accordingly, to be read with the
appropriate modifications (so that, in particular, it is the claimant
company (and not the surrendering company) which can bring an
10
appeal under paragraph 75(7)).
      (8)
A notice under paragraph 27 (notice to produce documents etc for
purposes of an enquiry) given to the claimant company may
require the claimant company—
(a)
to explain why the EEA amount meets the conditions
15
mentioned in subsection (2)(a) to (d) of section 403F of the
Taxes Act 1988 and is not prevented from being
surrendered by section 403G of that Act, and
(b)
to provide details of the recalculation required under Part
2 of Schedule 18A to that Act in relation to the EEA
20
amount.
      (9)
Except where expressly indicated, requirements imposed under
this paragraph are in addition to those imposed apart from this
paragraph.
     (10)
In this paragraph “the EEA amount” has the same meaning as in
25
Part 2 of Schedule 18A to the Taxes Act 1988.”.
Part 3
Commencement
Commencement
9     (1)
The amendments made by this Schedule, other than those made by
30
paragraphs 4(2) and 5, have effect—
(a)
in relation to any accounting period of a claimant company
beginning on or after 1st April 2006, and
(b)
in relation to any period (“the loss period”) beginning on or after 1st
April 2006 in which any loss or other amount arises to a non-resident
35
company.
      (2)
If an accounting period (a “straddling period”) of a claimant company
begins before 1st April 2006 and ends on or after that date—
(a)
so much of the straddling period as falls before 1st April 2006, and
(b)
so much of the straddling period as falls on or after that date,
40

are to be treated as separate accounting periods for the purposes of the
amendments made by this Schedule other than those made by paragraphs
4(2) and 5.
      (3)
The amount of the claimant company’s profits for the straddling period is to
be attributed, on an apportionment in accordance with this paragraph, to
45
those separate accounting periods.