Income Tax Bill

House of Commons

Session 2006 - 07
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Other Bills before Parliament

Income Tax Bill

Income Tax Bill
Schedule 2 — Transitionals and savings
Part 6 — Losses on disposal of shares
621

      (5)
Section 138 does not apply in relation to shares issued before 6 April 1998.
      (6)
Sub-paragraphs (1) to (5) apply in relation to section 576C of ICTA (which
makes corresponding provision for the purposes of corporation tax) as they
apply in relation to section 138.
The control and independence requirement
5
42    (1)
In relation to shares issued before 6 April 2007, section 139(1)(a) applies with
the omission of “of the company”.
      (2)
In relation to shares issued before 21 March 2000, section 139 applies with
the following modifications—
(a)
the substitution for subsections (1) to (3) of—
10
“(1)
The control element of the requirement is that—
(a)
the company must not control (or together with any
person connected with it control) another company or
have a 51% subsidiary, and
(b)
no arrangements must be in existence by virtue of
15
which the company could fail to meet paragraph (a).
(2)
The independence element of the requirement is that—
(a)
the company must not be under the control of another
company (or another company and any other person
connected with that company) or be a 51% subsidiary
20
of another company, and
(b)
no arrangements must be in existence by virtue of
which the company could fail to meet paragraph (a).
(3)
This section is subject to section 145(3); and nothing in
subsection (1) prevents the company having one or more
25
qualifying subsidiaries.”, and
(b)
in subsection (4) the omission of the definition of “arrangements”
and, in the definition of “control”, the omission of “in subsection
(1)(a)”.
      (3)
In the application of sub-paragraph (2) on or after 21 March 2000, shares—
30
(a)
that were issued on or after 6 April 1998 but before 21 March 2000,
and
(b)
to which EIS relief or relief under Schedule 5B to TCGA 1992 was
attributable immediately before 21 March 2000,

are treated as having been issued on or after 21 March 2000.
35
      (4)
Section 139 does not apply in relation to shares issued before 6 April 1998.
      (5)
Sub-paragraphs (1) to (4) apply in relation to section 576D of ICTA (which
makes corresponding provision for the purposes of corporation tax) as they
apply in relation to section 139.
      (6)
For the purposes of sub-paragraph (5), sub-paragraph (2) applies with the
40
following modifications—
(a)
in paragraph (a), the substitution for “section 145(3)” of “section
576J(3)”, and
(b)
in paragraph (b), the insertion at the end of “and paragraph (b)”.

Income Tax Bill
Schedule 2 — Transitionals and savings
Part 6 — Losses on disposal of shares
622

The qualifying subsidiaries requirement
43    (1)
Section 140 does not apply in relation to shares issued before 6 April 1998.
      (2)
Sub-paragraph (1) applies in relation to section 576E of ICTA (which makes
corresponding provision for the purposes of corporation tax) as it applies in
relation to section 140.
5
The property managing subsidiaries requirement
44    (1)
Section 141 does not apply in relation to shares issued before 17 March 2004.
      (2)
Sub-paragraph (1) applies in relation to section 576F of ICTA (which makes
corresponding provision for the purposes of corporation tax) as it applies in
relation to section 141.
10
The gross assets requirement
45    (1)
In relation to shares issued before 6 April 2006, section 142 applies with the
substitution in subsections (1) and (2)—
(a)
of “£15 million” for “£7 million”, and
(b)
of “£16 million” for “£8 million”.
15
      (2)
For the purposes of sub-paragraph (1) shares issued on or after 6 April 2006
to a person who subscribed for them before 22 March 2006 are treated as
having been issued before 6 April 2006.
      (3)
Section 142 does not apply in relation to shares issued before 6 April 1998.
      (4)
Sub-paragraphs (1) to (3) apply in relation to section 576G of ICTA (which
20
makes corresponding provision for the purposes of corporation tax) as they
apply in relation to section 142.
The unquoted status requirement
46    (1)
In relation to shares issued before 7 March 2001, section 143 applies with the
following modifications—
25
(a)
the substitution for subsection (1) of—
“(1)
The unquoted status requirement is that the company must
be an unquoted company throughout the relevant period.”,
(b)
the substitution for subsection (2) of—
“(2)
If the company is an unquoted company at the time when any
30
shares are issued, it is not treated for the purposes of this
section as ceasing to be an unquoted company in relation to
those shares at any subsequent time merely because any
shares, stocks, debentures or other securities of the company
are at that time—
35
(a)
listed on an exchange designated by an order made
for the purposes of section 184(3)(b), or
(b)
dealt in by any means designated by an order made
for the purposes of section 184(3)(c),

if the order was made after the shares were issued.”, and
40
(c)
in subsection (3) the substitution for the definition of “arrangements”

Income Tax Bill
Schedule 2 — Transitionals and savings
Part 6 — Losses on disposal of shares
623

of—
““the relevant period” means the period—
(a)
beginning with the incorporation of the
company or, if later, the date one year before
the issue of the shares in question, and
5
(b)
ending with the date of the disposal.”
      (2)
For the purposes of sub-paragraph (1)(a) and (c), shares that were issued—
(a)
on or after 5 April 1998, but
(b)
before 7 March 2001,

are treated as having been issued on or after 7 March 2001 in respect of any
10
part of the relevant period which falls on or after that date.
      (3)
In the application of sub-paragraph (1)(b) on or after 7 March 2001, shares—
(a)
that were issued on or after 5 April 1998 but before 7 March 2001, and
(b)
to which EIS relief or relief under Schedule 5B to TCGA 1992 was
attributable immediately before 7 March 2001,
15

are treated as having been issued on or after 7 March 2001.
      (4)
Section 143 does not apply in relation to shares issued before 6 April 1998.
      (5)
Sub-paragraphs (1) to (4) apply in relation to section 576H of ICTA (which
makes corresponding provision for the purposes of corporation tax) as they
apply in relation to section 143.
20
      (6)
For the purposes of sub-paragraph (5), sub-paragraph (1) applies with the
insertion after “section 184(3)(b)” and “section 184(3)(c)” of “of ITA 2007”.
Power to amend requirements by Treasury order
47    (1)
Section 144 does not apply in relation to shares issued before 6 April 1998.
      (2)
Sub-paragraph (1) applies in relation to section 576I of ICTA (which makes
25
corresponding provision for the purposes of corporation tax) as it applies in
relation to section 144.
Relief after an exchange of shares for shares in another company
48    (1)
In relation to new shares issued before 6 April 2007, section 145 applies
with—
30
(a)
the substitution for subsection (1)(e) of—
“(e)
before the issue of the new shares, the Commissioners
for Her Majesty’s Revenue and Customs have, on the
application of the new company or the old company,
notified that company that the exchange of shares—
35
(i)
will be effected for genuine commercial
reasons, and
(ii)
will not form part of any such scheme or
arrangement as is mentioned in section 137(1)
of TCGA 1992.”, and
40
(b)
the omission of subsection (3)(a).
      (2)
Section 145 does not apply in relation to shares issued before 6 April 1998.

Income Tax Bill
Schedule 2 — Transitionals and savings
Part 6 — Losses on disposal of shares
624

      (3)
Sub-paragraphs (1)(a) and (2) apply in relation to section 576J of ICTA
(which makes corresponding provision for the purposes of corporation tax)
as they apply in relation to section 145.
      (4)
For the purposes of sub-paragraph (3) sub-paragraph (1) applies with the
substitution for “TCGA 1992” of “the 1992 Act”.
5
Substitution of new shares for old shares
49    (1)
Section 146 does not apply in relation to shares issued before 6 April 1998.
      (2)
Sub-paragraph (1) applies in relation to section 576K of ICTA (which makes
corresponding provision for the purposes of corporation tax) as it applies in
relation to section 146.
10
Interpretation of Chapter
50    (1)
In relation to shares issued before 6 April 1998, section 151 applies with the
following modifications—
(a)
in the definition of “excluded company” in subsection (1), the
substitution for “in land, in commodities or futures or in shares,
15
securities or other financial instruments” of “in shares, securities,
land, trades or commodity futures”,
(b)
in subsection (7), the insertion after “excluded company” of “or is a
non-UK resident”.
      (2)
Sub-paragraph (1) applies in relation to section 576L of ICTA (which makes
20
corresponding provision for the purposes of corporation tax) as it applies in
relation to section 151.
      (3)
For the purposes of sub-paragraph (2) sub-paragraph (1)(b) has effect with
the substitution for “subsection (7)” of “subsection (5)”.
Meaning of “qualifying subsidiary”
25
51    (1)
In relation to shares issued before 17 March 2004, section 191 (as applied by
sections 137(7), 139(4), 140(2) and 142(4)) applies with the following
modifications—
(a)
in subsection (1), the insertion at the end of “and, except as provided
by subsection (3), continue to be met until the time that is relevant for
30
the purposes of section 134(2)”,
(b)
in subsection (2), the substitution for paragraph (a) of—
“(a)
the relevant company, or another of its subsidiaries,
possesses at least 75% of the issued share capital of,
and at least 75% of the voting power in, the
35
subsidiary,
(aa)
the relevant company, or another of its subsidiaries,
would in the event of a winding up of the subsidiary,
or in any other circumstances, be beneficially entitled
to receive at least 75% of the assets of the subsidiary
40
which would then be available for distribution to the
equity holders of the subsidiary,
(ab)
the relevant company, or another of its subsidiaries, is
beneficially entitled to at least 75% of any profits of

Income Tax Bill
Schedule 2 — Transitionals and savings
Part 6 — Losses on disposal of shares
625

the subsidiary which are available for distribution to
the equity holders of the subsidiary,”,
(c)
in paragraph (c) of subsection (2), the substitution for “either of the
conditions in paragraphs (a) and (b)” of “any of the conditions in
paragraphs (a), (aa), (ab) and (b)”,
5
(d)
in subsection (3), the substitution for “any other company” of “the
relevant company” and the substitution for the words from “the
winding up or dissolution” to the end of that subsection of—
“(a)
the winding up or dissolution is for genuine
commercial reasons, and not part of a scheme or
10
arrangement the main purpose or one of the main
purposes of which is the avoidance of tax,
(b)
the net assets, if any, of the subsidiary or, as the case
may be, the relevant company are distributed to its
members, or dealt with as bona vacantia, before the
15
time that is relevant for the purposes of section 134(2)
or, in the case of a winding up, the end (if later) of 3
years from the commencement of the winding up.”,
(e)
the omission of subsection (4),
(f)
in subsection (5), the substitution for “arrangements are existence
20
for” of “of” and the insertion after “another subsidiary” of “within the
continuous period that is relevant for the purposes of section 134(3)”,
(g)
in subsection (5)(a), the omission of “to be”,
(h)
in subsection (5)(b), the substitution for “is not to be” of “not”, and
(i)
after subsection (5), the insertion of—
25
“(6)
The persons who are equity holders of a subsidiary, and the
percentage of the assets of a subsidiary to which an equity
holder would be entitled, is to be determined in accordance
with paragraphs 1 and 3 of Schedule 18 to ICTA, taking—
(a)
references in paragraph 3 to the first company as
30
references to an equity holder, and
(b)
references to a winding up as including references to
any other circumstances in which assets of the
subsidiary are available for distribution to its equity
holders.”
35
      (2)
Sub-paragraph (1) applies in relation to section 191 as applied by sections
576B(7), 576D(4), 576E(2) and 576G(4) of ICTA (which make corresponding
provision for the purposes of corporation tax) as it applies in relation to
section 191 as applied by sections 137(7), 139(4), 140(2) and 142(4).
      (3)
For the purposes of sub-paragraph (2) sub-paragraph (1) applies with—
40
(a)
in paragraphs (a) and (d), the substitution for “section 134(2)” of
“section 576A(2) of ICTA”, and
(b)
in paragraph (f), the substitution for “section 134(3)” of “section
576A(3) of ICTA”.
Meaning of “excluded activities”
45
52    (1)
In relation to shares issued before 7 March 2001, section 192(1) (as applied by
section 137(7)) applies with the insertion after paragraph (c) of—
“(ca)
oil extraction activities (within the meaning of Chapter 5 of
Part 12 of ICTA),”.

Income Tax Bill
Schedule 2 — Transitionals and savings
Part 6 — Losses on disposal of shares
626

      (2)
In the application of sub-paragraph (1) on or after 7 March 2001, shares—
(a)
that were issued on or after 6 April 1998 but before 7 March 2001, and
(b)
to which EIS relief or relief under Schedule 5B to TCGA 1992 was
attributable immediately before 7 March 2001,

are treated as having been issued on or after 7 March 2001.
5
      (3)
Sub-paragraphs (1) and (2) apply in relation to section 192(1) as applied by
section 576B(7) of ICTA (which makes corresponding provision for the
purposes of corporation tax) as they apply in relation to section 192(1) as
applied by section 137(7).
Excluded activities: wholesale and retail distribution
10
53    (1)
In relation to shares issued before 6 April 2007, section 193(5)(b) (as applied
by section 137(7)) applies with the following modifications—
(a)
the insertion after “held” of “by the company”, and
(b)
the substitution for “the trader” of “a vendor”.
      (2)
Sub-paragraph (1) applies in relation to section 193(5)(b) as applied by
15
section 576B(7) of ICTA (which makes corresponding provision for the
purposes of corporation tax) as it applies in relation to section 193(5)(b) as
applied by section 137(7).
Excluded activities: leasing of ships
54    (1)
In relation to shares issued before 6 April 2007, section 194 (as applied by the
20
definition of “non-qualifying activities” in section 137(7)) applies with the
omission of subsection (7).
      (2)
In relation to shares issued before 6 April 2004, section 194 (as applied by
section 137(7)) applies with the following modifications—
(a)
in subsection (1), the substitution for “offshore installations” of “oil
25
rigs”,
(b)
in subsection (2), the substitution for “offshore installation” of “oil
rig”, and
(c)
in subsection (8), the insertion after “this section” of—
““oil rig” means any ship which is an offshore installation for the
30
purposes of the Mineral Workings (Offshore Installations) Act
1971,”.
      (3)
Sub-paragraphs (1) and (2) apply in relation to section 194 as applied by
section 576B(7) of ICTA (which makes corresponding provision for the
purposes of corporation tax) as they apply in relation to section 194 as
35
applied by section 137(7).
Excluded activities: receipt of royalties and licence fees
55    (1)
In relation to shares issued before 6 April 2000, Chapter 6 of Part 4 applies
with the substitution for section 195 (as applied by section 137(7)) of—
“195
Excluded activities: receipt of royalties and licence fees
40
(1)
This section supplements section 192(1)(e) (receipt of royalties and
licence fees).

Income Tax Bill
Schedule 2 — Transitionals and savings
Part 6 — Losses on disposal of shares
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(2)
A trade is not to be regarded as consisting in the carrying on of
excluded activities within section 192(1)(e) as a result only of it
consisting to a substantial extent in the receiving of royalties or
licence fees if—
(a)
the company carrying on the trade is engaged throughout the
5
relevant period in—
(i)
the production of films, or
(ii)
the production of films and the distribution of films
produced by it in the relevant period, and
(b)
all royalties and licence fees received by it in the relevant
10
period are in respect of films produced by it in that period or
sound recordings in relation to such films or other products
arising from such films.
(3)
A trade is not to be regarded as consisting in the carrying on of
excluded activities within section 192(1)(e) as a result only of it
15
consisting to a substantial extent in the receiving of royalties or
licence fees if—
(a)
the company carrying on the trade is engaged in research and
development throughout the relevant period, and
(b)
all royalties and licence fees received by it in the relevant
20
period are attributable to research and development which it
has carried out.
(4)
In this section “the relevant period” means the continuous period
that is relevant for the purposes of section 134(3).”
      (2)
Sub-paragraph (1) applies in relation to section 195 as applied by section
25
576B(7) of ICTA (which makes corresponding provision for the purposes of
corporation tax) as it applies in relation to section 195 as applied by section
137(7).
      (3)
For the purposes of sub-paragraph (2) sub-paragraph (1) applies with the
substitution for “section 134(3)” of “section 576A(3) of ICTA”.
30
Excluded activities: provision of services or facilities for another business
56    (1)
In relation to shares issued before 6 April 2007, section 199 (as applied by
section 137(7)) applies with the following modifications—
(a)
in subsections (1) to (4), the substitution of “trade” for “business”,
wherever it occurs, and
35
(b)
in subsection (5) the substitution for paragraph (b) of—
“(b)
references to a trade, in relation to the provider of the
services or facilities, are to be read without regard to
the definition of “trade” in section 923, and
(c)
“trade”, in relation to the other person, includes any
40
business, profession or vocation”.
      (2)
Sub-paragraph (1) applies in relation to section 199 as applied by section
576B(7) of ICTA (which makes corresponding provision for the purposes of
corporation tax) as it applies in relation to section 199 as applied by section
137(7).
45