Income Tax Bill

House of Commons

Session 2006 - 07
Internet Publications
Other Bills before Parliament

Income Tax Bill

Income Tax Bill
Part 13 — Tax avoidance
Chapter 2 — Transfer of assets abroad
365

716
Meaning of “relevant transfer” and “transfer”
(1)
A transfer is a relevant transfer for the purposes of this Chapter if—
(a)
it is a transfer of assets, and
(b)
as a result of—
(i)
the transfer,
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(ii)
one or more associated operations, or
(iii)
the transfer and one or more associated operations,

income becomes payable to a person abroad.
(2)
In this Chapter “transfer”, in relation to rights, includes the creation of the
rights.
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(3)
For the meaning of “assets”, see section 717.
717
Meaning of “assets” etc
In this Chapter—
(a)
“assets” includes property or rights of any kind, and
(b)
references to assets representing any assets, income or accumulations
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of income include references to—
(i)
shares in or obligations of any company to which the assets,
income or accumulations are or have been transferred, or
(ii)
obligations of any other person to whom the assets, income or
accumulations are or have been transferred.
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718
Meaning of “person abroad” etc
(1)
In this Chapter “person abroad” means a person who is resident or domiciled
outside the United Kingdom.
(2)
For the purposes of this Chapter, the following persons are treated as resident
outside the United Kingdom—
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(a)
a UK resident body corporate that is incorporated outside the United
Kingdom,
(b)
the person treated as neither UK resident nor ordinarily UK resident
under section 475(3) (trustees of settlements), and
(c)
persons treated as non-UK resident under section 834(4) (personal
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representatives).
719
Meaning of “associated operation”
(1)
In this Chapter “associated operation”, in relation to a transfer of assets, means
an operation of any kind effected by any person in relation to—
(a)
any of the assets transferred,
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(b)
any assets directly or indirectly representing any of the assets
transferred,
(c)
the income arising from any assets within paragraph (a) or (b), or
(d)
any assets directly or indirectly representing the accumulations of
income arising from any assets within paragraph (a) or (b).
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(2)
It does not matter whether the operation is effected before, after or at the same
time as the transfer.

Income Tax Bill
Part 13 — Tax avoidance
Chapter 2 — Transfer of assets abroad
366

Charge where power to enjoy income
720
Charge to tax on income treated as arising under section 721
(1)
The charge under this section applies for the purpose of preventing the
avoiding of liability to income tax by individuals who are ordinarily UK
resident by means of relevant transfers.
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(2)
Income tax is charged on income treated as arising to such an individual under
section 721 (individuals with power to enjoy income as a result of relevant
transactions).
(3)
Tax is charged under this section on the amount of income treated as arising in
the tax year.
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(4)
But see section 724 (special rules where benefit provided out of income of
person abroad).
(5)
The person liable for any tax charged under this section is the individual to
whom the income is treated as arising.
(6)
For rules about the reduction in the amount charged in some circumstances
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and the availability of deductions and reliefs, see—
section 725 (reduction in amount charged where controlled foreign
company involved), and
section 746 (deductions and reliefs where individual charged under this
section or section 727).
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(7)
For exemptions from the charge under this section, see sections 736 to 742
(exemptions where no tax avoidance purpose or genuine commercial
transaction).
721
Individuals with power to enjoy income as a result of relevant transactions
(1)
Income is treated as arising to such an individual as is mentioned in section
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720(1) in a tax year for income tax purposes if conditions A and B are met.
(2)
Condition A is that the individual has power in the tax year to enjoy income of
a person abroad as a result of—
(a)
a relevant transfer,
(b)
one or more associated operations, or
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(c)
a relevant transfer and one or more associated operations.
(3)
Condition B is that the income would be chargeable to income tax if it were the
individual’s and received by the individual in the United Kingdom.
(4)
For the purposes of subsection (2), it does not matter whether the income may
be enjoyed immediately or only later.
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(5)
It does not matter for the purposes of this section—
(a)
whether the income would be chargeable to income tax apart from
section 720,
(b)
whether the individual is ordinarily UK resident at the time when the
relevant transfer is made, or
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(c)
whether the avoiding of liability to income tax is a purpose for which
the transfer is effected.

Income Tax Bill
Part 13 — Tax avoidance
Chapter 2 — Transfer of assets abroad
367

(6)
For the circumstances in which an individual is treated as having the power to
enjoy income for the purposes of this section, see section 722.
722
When an individual has power to enjoy income of person abroad
(1)
For the purposes of section 721, an individual is treated as having power to
enjoy income of a person abroad if any of the enjoyment conditions are met.
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(2)
In subsection (1) “the enjoyment conditions” means conditions A to E as
specified in section 723.
(3)
In determining whether an individual has power to enjoy income for the
purposes of section 721, regard must be had to the substantial result and effect
of all the relevant transactions.
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(4)
In making that determination all benefits which may at any time accrue to the
individual as a result of the transfer and any associated operations must be
taken into account, irrespective of—
(a)
the nature or form of the benefits, or
(b)
whether the individual has legal or equitable rights in respect of the
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benefits.
723
The enjoyment conditions
(1)
Condition A is that the income is in fact so dealt with by any person as to be
calculated at some time to enure for the benefit of the individual, whether in
the form of income or not.
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(2)
Condition B is that the receipt or accrual of the income operates to increase the
value to the individual—
(a)
of any assets the individual holds, or
(b)
of any assets held for the individual’s benefit.
(3)
Condition C is that the individual receives or is entitled to receive at any time
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any benefit provided or to be provided out of the income or related money.
(4)
In subsection (3) “related money” means money which is or will be available
for the purpose of providing the benefit as a result of the effect or successive
effects—
(a)
on the income, and
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(b)
on any assets which directly or indirectly represent the income,

of the associated operations referred to in section 721(2).
(5)
Condition D is that the individual may become entitled to the beneficial
enjoyment of the income if one or more powers are exercised or successively
exercised.
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(6)
For the purposes of subsection (5) it does not matter—
(a)
who may exercise the powers, or
(b)
whether they are exercisable with or without the consent of another
person.
(7)
Condition E is that the individual is able in any manner to control directly or
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indirectly the application of the income.

Income Tax Bill
Part 13 — Tax avoidance
Chapter 2 — Transfer of assets abroad
368

724
Special rules where benefit provided out of income of person abroad
(1)
This section applies if an individual has power to enjoy income of a person
abroad for the purposes of section 721 because of receiving any such benefit as
is referred to in section 723(3) (benefit provided out of income of person
abroad).
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(2)
Despite anything in section 720, the individual is liable to income tax under
that section for the tax year in which the benefit is received on the whole of the
amount or value of that benefit.
(3)
But subsection (2) does not apply so far as it is shown that the benefit derives
directly or indirectly from income on which the individual has already been
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charged to income tax for that tax year or a previous tax year.
725
Reduction in amount charged where controlled foreign company involved
(1)
This section applies if—
(a)
an amount of the chargeable profits for an accounting period of a
company (“the controlled foreign company”) is apportioned to one or
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more UK resident companies under section 747(3) of ICTA (imputation
of chargeable profits and creditable tax of controlled foreign
companies),
(b)
as a result of section 747(4) of that Act those companies are chargeable
in respect of the amount (“the chargeable amount”) of the chargeable
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profits so apportioned to them, and
(c)
apart from this section, the amount of income treated as arising to an
individual under section 721 for a tax year would be or include a sum
forming part of the controlled foreign company’s chargeable profits for
that accounting period.
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(2)
The amount of income so treated is reduced by—

where—
S is the sum forming part of the controlled foreign company’s chargeable
profits for that accounting period,
CA is the chargeable amount, and
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CP is the controlled foreign company’s chargeable profits for that
accounting period.
(3)
The following provisions of ICTA apply for the purposes of this section as they
apply for the purposes of Chapter 4 of Part 17 of that Act—
section 747(6) (interpretation, in relation to a non-UK resident company,
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of references to chargeable profits for an accounting period and
profits), and
section 751(1) to (5A) (accounting periods).