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
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 8 — Avoidance: miscellaneous
70

      (2)
The amount of the credit to be brought into account for tax purposes
is equal to so much of the amount of the receipt as does not give rise
to a credit under paragraph 14.
      (3)
The credit shall be brought into account for tax purposes in the
accounting period in which the receipt is recognised for accounting
5
purposes.”.
(4)
In paragraph 82 (assets excluded to extent specified: research and
development), in sub-paragraph (2) (provisions of Schedule not applying to
asset so far as representing expenditure on research and development)—
(a)
in paragraph (a) (Part 2 not to apply subject to exception relating to
10
paragraph 14), at the end insert “or 14A (receipts in respect of royalties
so far as not dealt with under paragraph 14)”, and
(b)
in paragraph (b) (Part 3 not to apply subject to exception for paragraph
14), for “paragraph 14” substitute “paragraphs 14 and 14A”.
(5)
In paragraph 83 (assets excluded to extent specified: election to exclude capital
15
expenditure on computer software), in sub-paragraph (3) (effect of election)—
(a)
in paragraph (a) (Part 2 not to apply subject to exception relating to
paragraph 14), at the end insert “or 14A (receipts in respect of royalties
so far as not dealt with under paragraph 14)”, and
(b)
in paragraph (b) (Part 3 not to apply subject to exception for paragraph
20
14), for “paragraph 14” substitute “paragraphs 14 and 14A”.
(6)
In paragraph 118 (application of Schedule to assets created or acquired after
commencement, that is to say, on or after 1st April 2002)—
(a)
in sub-paragraph (4) (application of sub-paragraph (1) subject to other
paragraphs), at the end insert “and
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(c)
paragraph 127A (assets whose value derives from
existing assets treated as existing assets), and
(d)
paragraph 127B (assets acquired in connection with
disposals of existing assets treated as existing assets).”,
and
30
(b)
in sub-paragraph (6) (nothing in paragraph 118 restricts application of
Schedule in accordance with paragraph 119), at the end insert “, but see
sub-paragraph (5) of that paragraph.”.
(7)
In paragraph 119 (application of Schedule to royalties), at the end insert—
    “(5)
Nothing in this paragraph shall be read as authorising or requiring
35
an amount to be brought into account in connection with the
realisation of an existing asset within the meaning of Part 4.”.
(8)
After paragraph 127 (certain assets acquired on transfer of business treated as
existing assets) insert—
“Assets whose value derives from existing assets treated as existing assets
40
127A  (1)
This paragraph applies where—
(a)
a company acquires an intangible fixed asset (“the acquired
asset”) after commencement from a person (“the transferor”)
who at the time of the acquisition is a related party in relation
to the company,
45
(b)
the acquired asset is created, whether by the transferor or any
other person, after commencement,

Finance (No.2) Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 8 — Avoidance: miscellaneous
71

(c)
the value of the acquired asset derives in whole or in part
from any other asset (“the other asset”),
(d)
the other asset has not at any time on or after 5th December
2005 been a chargeable intangible asset in the hands of the
company or a related party in relation to the company or the
5
transferor, and
(e)
the existing asset condition is met.
      (2)
The existing asset condition is that, after commencement,—
(a)
the other asset has been an existing asset in the hands of the
transferor at a time when the transferor was a related party in
10
relation to the company, or
(b)
the other asset has been an existing asset in the hands of any
other person at a time when the other person was a related
party in relation to the company or the transferor.
      (3)
Where this paragraph applies the acquired asset shall be treated for
15
the purposes of this Schedule as an existing asset in the hands of the
company, but only so far as its value derives from the other asset.
      (4)
If only part of the value of the acquired asset so derives—
(a)
this Schedule has effect as if there were a separate asset
representing the part of the value not so derived, and
20
(b)
the enactments that apply where this Schedule does not
apply have effect as if there were a separate asset
representing the part of the value so derived.

Any apportionment necessary for this purpose shall be made on a
just and reasonable basis.
25
      (5)
For the purposes of this paragraph the cases in which the value of an
asset may be derived from any other asset include any case where—
(a)
assets have been merged or divided,
(b)
assets have changed their nature, or
(c)
rights or interests in or over assets have been created or
30
extinguished.
      (6)
For the purposes of this paragraph the time at which an asset is
created or acquired is the time at which it would be regarded as
created or acquired for the purposes of paragraph 118 (application of
Schedule to assets created or acquired after commencement).
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Assets acquired in connection with disposals of existing assets treated as existing assets
127B  (1)
This paragraph applies where—
(a)
a person disposes of an asset which, at the time of the
disposal, is an existing asset in the hands of the person,
(b)
a company which at the time of the disposal is a related party
40
in relation to the person acquires an intangible fixed asset
directly or indirectly in consequence of, or otherwise in
connection with, the disposal, and
(c)
the intangible fixed asset that is acquired would, apart from
this paragraph, at the time of the acquisition be a chargeable
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intangible asset in the hands of the company.

Finance (No.2) Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 8 — Avoidance: miscellaneous
72

      (2)
Where this paragraph applies the intangible fixed asset that is
acquired shall be treated for the purposes of this Schedule as an
existing asset in the hands of the company.
      (3)
For the purposes of this paragraph—
(a)
“asset”, in relation to any disposal, means any asset for the
5
purposes of the Taxation of Chargeable Gains Act 1992,
(b)
a person “disposes of” an asset if, for the purposes of that Act,
the person makes a part disposal of the asset or any other
disposal of the asset,
(c)
the time at which a disposal of an asset is made is the time at
10
which it is made for the purposes of that Act.
      (4)
For the purposes of this paragraph it does not matter—
(a)
whether the asset that the person disposes of is the same asset
as the one that the company acquires,
(b)
whether the asset that is acquired is acquired at the time of
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the disposal or at any other time, or
(c)
whether the asset that is acquired is acquired by merging two
or more assets or is acquired in any other way.”.
(9)
In paragraph 143 (index of defined expressions), in the entry relating to
existing asset, in the second column, for “paragraph 127” substitute
20
“paragraphs 127 to 127B”.
(10)
The amendments made by this section have effect in relation to the debits or
credits to be brought into account for any accounting period beginning on or
after 5th December 2005 (and, in relation to the debits or credits to be brought
into account for any such period, shall be deemed always to have had effect).
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(11)
For this purpose an accounting period beginning before, and ending on or
after, that date is treated as if—
(a)
so much of that period as falls before that date, and
(b)
so much of that period as falls on or after that date,

were separate accounting periods.
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International matters
78
Controlled foreign companies and treaty non-resident companies
(1)
Section 90 of FA 2002 (controlled foreign companies and treaty non-resident
companies) is amended as follows.
(2)
In subsection (2) (application of subsection (1), which inserted section 747(1B)
35
of ICTA (disregard of section 249 of FA 1994 for most purposes of Chapter 4 of
Part 17 of ICTA (controlled foreign companies))), for paragraph (b) (exclusion
for companies which were non-resident immediately before 1st April 2002)
substitute—
“(b)
does not apply to a company (“the non-resident company”)
40
that—
(i)
by virtue of section 249 of the Finance Act 1994 was
treated as resident outside the United Kingdom, and not
resident in the United Kingdom, immediately before
that date, and
45

Finance (No.2) Bill
Part 3 — Income tax, corporation tax and capital gains tax
Chapter 8 — Avoidance: miscellaneous
73

(ii)
has not subsequently ceased to be so treated,

unless condition A or B is met in relation to the non-resident
company at any time on or after 22nd March 2006.”.
(3)
After that subsection insert—
“(3)
Condition A is met in relation to the non-resident company at any time
5
on or after 22nd March 2006 if—
(a)
immediately before 22nd March 2006 the non-resident
company does not own directly or indirectly any company as a
subsidiary company, and
(b)
at any time on or after that date the non-resident company
10
becomes the direct or indirect owner of a UK resident company
as a subsidiary company.
(4)
Condition B is met in relation to the non-resident company at any time
on or after 22nd March 2006 if—
(a)
immediately before 22nd March 2006 the non-resident
15
company owns directly or indirectly any company as a
subsidiary company (which may be a UK resident company),
(b)
at any time (“the relevant time”) on or after that date the non-
resident company becomes the direct or indirect owner of any
UK resident company as a subsidiary company (or, as the case
20
may be, another UK resident company), and
(c)
directly or indirectly in consequence of, or otherwise in
connection with, the ownership mentioned in paragraph (b)
there is a qualifying change in activities.
(5)
There is a qualifying change in activities if, at the relevant time or any
25
subsequent time,—
(a)
there is a major change in the nature, conduct or scale of the
non-resident company’s activities, or
(b)
there is a major change in the nature, conduct or scale of the
activities of the group of companies of which the non-resident
30
company is a member.
(6)
In this section references to directly or indirectly owning a company are
references to owning it—
(a)
directly or through another company or companies, or
(b)
partly directly and partly through another company or
35
companies.
(7)
In this section references to ownership are to be read as references to
beneficial ownership.
(8)
In this section “UK resident company”, in relation to any time, means
any company which is resident in the United Kingdom at that time.”.
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79
Transfer of assets abroad

Schedule 7 (which makes amendments of, or relating to, Chapter 3 of Part 17 of
ICTA (transfer of assets abroad)) has effect.