Finance (No.2) Bill

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Session 2005 - 06
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Finance (No.2) Bill

Finance (No.2) Bill
Schedule 7 — Transfer of assets abroad
194

Schedule 7
Section 79

Transfer of assets abroad
Income and Corporation Taxes Act 1988
Amendments of ICTA: introductory
1
ICTA is amended as follows.
5
Section 741: application subject to sections 741B and 741C
2     (1)
Section 741 (exemption from sections 739 and 740) is amended as follows.
      (2)
At the beginning of the section insert “(1)”.
      (3)
At the end of the section insert—
“(2)
This section is subject to sections 741B and 741C (application of this
10
section and section 741A etc).”.
      (4)
In consequence of amendments made by this Schedule, the heading of the
section becomes “Exemption from sections 739 and 740 (transactions before
5th December 2005)”.
      (5)
The amendments made by this paragraph shall be taken to have come into
15
force on 5th December 2005.
Exemption from sections 739 and 740: new provision
3     (1)
After section 741 insert—
“741A
  Exemption from sections 739 and 740 (transactions on or after 5th
December 2005)
20
(1)
The individual is not liable to income tax by virtue of section 739 or
740 for the year of assessment by reference to the relevant
transactions if he satisfies an officer of the Board—
(a)
that Condition A is met, or
(b)
in a case where Condition A is not met, that Condition B is
25
met.
(2)
Condition A is that it would not be reasonable to draw the
conclusion, from all the circumstances of the case, that the purpose
of avoiding liability to taxation was the purpose, or one of the
purposes, for which the relevant transactions or any of them were
30
effected.
(3)
Condition B is that—
(a)
all the relevant transactions were genuine commercial
transactions, and
(b)
it would not be reasonable to draw the conclusion, from all
35
the circumstances of the case, that any one or more of those
transactions was more than incidentally designed for the
purpose of avoiding liability to taxation.
(4)
The intentions and purposes of any person who, whether or not for
consideration,—
40

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Schedule 7 — Transfer of assets abroad
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(a)
designs or effects the relevant transactions or any of them, or
(b)
provides advice in relation to the relevant transactions or any
of them,

are to be taken into account in determining the purposes for which
those transactions or any of them were effected.
5
(5)
A relevant transaction is a commercial transaction only if it is
effected—
(a)
in the course of a trade or business, or
(b)
with a view to setting up and commencing a trade or
business,
10

and, in either case, for the purposes of that trade or business.
(6)
For that purpose, the making and managing of investments, or the
making or managing of investments, is not a trade or business except
to the extent that—
(a)
the person by whom it is done, and
15
(b)
the person for whom it is done,

are independent persons dealing at arm’s length.
(7)
In this section—
“commercial transaction” does not include—
(a)
a transaction on terms other than those that would
20
have been made between independent persons
dealing at arm’s length, or
(b)
a transaction that would not have been entered into
between independent persons dealing at arm’s
length;
25
“independent persons” means persons who are not connected
with each other (within the meaning given by section 839);
“relevant transactions” means—
(a)
the transfer, and
(b)
any associated operations;
30
“revenue” includes taxes, duties and national insurance
contributions;
“taxation” includes any revenue for whose collection and
management the Commissioners for Her Majesty’s Revenue
and Customs are responsible.
35
(8)
Any associated operation that would not (apart from this subsection)
fall to be taken into account for the purposes of this section must be
taken into account for those purposes if, were it to be so taken into
account, the conditions in subsection (1) above would be failed by
reference to—
40
(a)
that associated operation, or
(b)
that associated operation taken together with the transfer or
any one or more other associated operations.
(9)
The jurisdiction of the Special Commissioners on any appeal
includes jurisdiction to review any decision taken by an officer of the
45
Board in exercise of the officer’s functions under this section.
(10)
This section is subject to sections 741B and 741C (application of
section 741 and this section etc).”.

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Schedule 7 — Transfer of assets abroad
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      (2)
The amendment made by this paragraph shall be taken to have come into
force on 5th December 2005.
Application of sections 741 and 741A
4     (1)
After section 741A insert—
“741B
  Application of sections 741 and 741A
5
(1)
This section makes provision with respect to the application for the
year of assessment of—
(a)
section 741,
(b)
section 741A, or
(c)
section 741C,
10

in the case of the individual and the relevant transactions.
(2)
In this section—
“new transaction” means a relevant transaction effected on or
after the relevant date;
“old transaction” means a relevant transaction effected before
15
the relevant date;
“the relevant date” means 5th December 2005;
“relevant transactions” means—
(a)
the transfer, and
(b)
any associated operations.
20
(3)
If all the relevant transactions are old transactions, section 741 is the
provision to be applied.
(4)
If all the relevant transactions are new transactions, section 741A is
the provision to be applied.
(5)
If—
25
(a)
any one or more of the relevant transactions are old
transactions, and
(b)
any one or more of the relevant transactions are new
transactions,

section 741C is the provision to be applied.
30
741C
Cases where there are both old transactions and new transactions
(1)
This section applies by virtue of section 741B if the case falls within
subsection (5) of that section.
(2)
Sections 739 and 740 do not apply, unless subsection (3) below
applies.
35
(3)
This subsection applies if—
(a)
the conditions in section 741(1) are failed by reference to the
old transactions or any of them, or
(b)
the conditions in section 741A(1) are failed by reference to the
new transactions or any of them.
40
(4)
Where subsection (3) above applies, the general rule is that sections
739 and 740 apply as they would have applied apart from any
exemption by virtue of sections 741 to 741C.

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(5)
In any case where subsection (3) above applies by virtue only of
paragraph (b) of that subsection, the general rule has effect subject to,
and in accordance with, the Rules in subsections (6) to (8) below.
(6)
Rule 1 is that, for the purposes of section 739(2) or (3), any income
arising before the relevant date must not be brought into account as
5
income of the person resident or domiciled outside the United
Kingdom.
(7)
Rule 2 is that for the purposes of section 740, where—
(a)
a benefit is received by the individual in a year of assessment
ending after the relevant date, and
10
(b)
relevant income of years of assessment up to and including
that year falls to be determined,

the general rule requires years ending before the relevant date to be
brought into account as well as years ending after that date.
(8)
Rule 3 is that, for the purposes of section 740, a benefit received by
15
the individual in the year 2005-06 is to be left out of account to the
extent that, on a time apportionment basis, it fell to be enjoyed in any
part of the year that falls before the relevant date.
(9)
This section is to be read as one with section 741B.”.
      (2)
The amendment made by this paragraph shall be taken to have come into
20
force on 5th December 2005.
Just and reasonable apportionment in certain cases
5     (1)
After section 741C insert—
“741D
  Section 739: just and reasonable apportionment in certain cases
(1)
This section applies where—
25
(a)
an individual is liable to tax by virtue of section 739 for a year
of assessment (the “taxable year”), but
(b)
the conditions in subsections (2) to (4) below are met.
(2)
Condition 1 is that since the making of the transfer there have been
one or more years of assessment when the circumstances were such
30
that, so far as relating to such of the relevant transactions as were
effected before the end of the year, the individual—
(a)
was not liable to tax by virtue of section 739, or
(b)
would not have been liable to tax by virtue of section 739 if
there had been any deemed income of his under that section,
35

because an appropriate exemption applied or, in a case falling within
paragraph (b) above, would have applied.
(3)
Condition 2 is that the individual is liable to tax under section 739 in
the taxable year in consequence of Condition B in section 741A(3) not
being met.
40
(4)
Condition 3 is that the income by reference to which the individual
is liable to tax for the taxable year is attributable—
(a)
partly to relevant transactions by reference to which the
appropriate exemption applied for the last exempt year of
assessment, and
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(b)
partly to associated operations not falling within paragraph
(a) above (“chargeable operations”).
(5)
For the purposes of this section, a year of assessment is “exempt” if it
is one of the years of assessment mentioned in subsection (2) and
there is no earlier year of assessment for which—
5
(a)
the individual was liable to tax by virtue of section 739, or
(b)
the individual would have been liable to tax by virtue of
section 739, if there had been any deemed income of his
under that section.
(6)
Where this section applies, the liability of the individual is to be
10
reduced as if it fell to be determined by reference to only so much of
the income as appears to an officer of the Board to be justly and
reasonably attributable to chargeable operations in all the
circumstances of the case.
(7)
The facts and matters that may be taken into account in determining
15
for the purposes of subsection (6) above whether income may be
regarded as justly and reasonably attributable to chargeable
operations include whether, and to what extent, the chargeable
operations or any of them directly or indirectly affect any of the
following—
20
(a)
the character, description or amount of any income of any
person,
(b)
any person’s power to enjoy any income,
(c)
the character, description or amount of any income which a
person has power to enjoy.
25
(8)
The jurisdiction of the Special Commissioners on any appeal
includes jurisdiction to review any decision taken by an officer of the
Board in exercise of the officer’s functions under this section.
(9)
In this section—
“appropriate exemption” means exemption by virtue of—
30
(a)
paragraph (b) of section 741(1), or
(b)
Condition B in section 741A(3);
“relevant transactions” means—
(a)
the transfer, and
(b)
any associated operations.”.
35
      (2)
The amendment made by this paragraph shall be taken to have come into
force on 5th December 2005.
Section 742: interpretation of the Chapter
6     (1)
Section 742 (interpretation of sections 739 to 741) is amended as follows.
      (2)
In subsection (1) (meaning of “associated operations”) for “sections 739 to
40
741” substitute “this Chapter”.
      (3)
At the end of subsection (1), insert—

“It is immaterial whether the operation is effected before, after, or at
the same time as the transfer.”.

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      (4)
After subsection (1) insert—
“(1A)
The income that becomes payable to, or has become income of, a
person resident or domiciled outside the United Kingdom that is
referred to in section 739(1) or (3) or section 740(1) includes any
income which becomes payable to, or has become income of, the
5
person by virtue or in consequence of—
(a)
the transfer,
(b)
one or more associated operations, or
(c)
the transfer and one or more associated operations.
(1B)
The income which an individual has power to enjoy, as mentioned in
10
section 739(2), includes any income which he has power to enjoy by
virtue or in consequence of—
(a)
the transfer,
(b)
one or more associated operations, or
(c)
the transfer and one or more associated operations.”.
15
      (5)
The heading to the section accordingly becomes “Interpretation of this
Chapter”.
      (6)
The amendments made by this paragraph shall be taken to have come into
force on 5th December 2005.
ITTOIA 2005
20
Gains from contracts for life insurance etc
7     (1)
In ITTOIA 2005, section 468 (gains from contracts of life insurance etc: non-
UK resident trustees and foreign institutions) is amended as follows.
      (2)
In subsection (2) (section 740 of ICTA to apply with the modifications in
subsection (3) or (4))—
25
(a)
for “Section 740” substitute “Sections 739 and 740”,
(b)
for “prevents” substitute “prevent”,
(c)
for “applies” substitute “apply”.
      (3)
In subsection (3) (cases within subsection (1)(a)) for “section 740 applies”
substitute “sections 739 and 740 apply”.
30
      (4)
In subsection (4) (cases within subsection (1)(b)) for “section 740 applies”
substitute “sections 739 and 740 apply”.
      (5)
The amendments made by this paragraph apply in relation to gains treated
as arising on or after 5th December 2005.