Finance Bill

House of Commons

Session 2006 - 07
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Finance Bill

Finance Bill
Schedule 15 — Controlled foreign companies
196


for the purpose of applying section 747(3) to (5) for determining the
sum (if any) chargeable on the UK resident company under section
747(4)(a) (but for no other purpose).
(4)
The Commissioners may grant the application only if they are
satisfied that the specified amount does not exceed the amount (if
5
any) equal to so much of those chargeable profits as can reasonably
be regarded as representing the net economic value which—
(a)
arises to the appropriate body of persons (taken as a whole),
and
(b)
is created directly by qualifying work.
10
(5)
For the purposes of subsection (4) “net economic value” does not
include any value which derives directly or indirectly from the
reduction or elimination of any liability of any person to any tax or
duty imposed under the law of any territory.
(6)
For the purposes of subsection (4) “the appropriate body of persons”
15
means—
(a)
if the controlled foreign company is not a member of a group
of companies, the controlled foreign company and the
persons who have an interest in it at any time in the relevant
accounting period, and
20
(b)
if the controlled foreign company is a member of a group of
companies, all the persons falling within paragraph (a) and
any other person who is a member of that group of
companies,

and for the purposes of this subsection “group of companies” means
25
a company and any other companies of which it has control.
(7)
For the purposes of subsection (4) “qualifying work” means work
which—
(a)
is done in any EEA territory in which the controlled foreign
company has a business establishment throughout the
30
relevant accounting period, and
(b)
is done in that territory by individuals working for the
controlled foreign company there.
(8)
Any reference in this section to a business establishment of a
controlled foreign company in an EEA territory is to be construed in
35
accordance with paragraph 7 of Schedule 25 (but as if the reference
in that paragraph to the territory in which the company is resident
were to the EEA territory).
(9)
For the purposes of this section individuals are not to be regarded as
working for a company in any territory unless—
40
(a)
they are employed by the company in the territory, or
(b)
they are otherwise directed by the company to perform
duties on its behalf in the territory.
751B
Section 751A: supplementary
(1)
An application by a company under section 751A—
45
(a)
must be made in such form as the HMRC Commissioners
may determine,

Finance Bill
Schedule 15 — Controlled foreign companies
197

(b)
must be accompanied by such documents (or copies of
documents) in the company’s possession or power as those
Commissioners may reasonably require for the purpose of
determining whether to grant the application, and
(c)
must contain such information as those Commissioners may
5
reasonably require for that purpose.
(2)
An application by a company under section 751A—
(a)
may be made at any time on or before the filing date (within
the meaning of Schedule 18 to the Finance Act 1998) for the
relevant company tax return of the company, and
10
(b)
may be amended or withdrawn at any time before the
application is determined by those Commissioners.
(3)
If an application by a company under section 751A is granted after
the company has delivered its relevant company tax return, it has 30
days beginning with the day on which the application is granted in
15
which to amend that return to give effect to section 751A.
(4)
The time limits otherwise applicable to an amendment of a company
tax return do not prevent an amendment being made under
subsection (3).
(5)
If the HMRC Commissioners refuse an application by a company
20
under section 751A, the company may appeal to the Special
Commissioners against the refusal.
(6)
Notice of an appeal must be given in writing to the HMRC
Commissioners within 30 days after the application is refused.
(7)
On an appeal—
25
(a)
if the Special Commissioners are satisfied that the relevant
amount is a different amount from the amount specified in
the application, they must direct the HMRC Commissioners
to grant the application as if the amount specified in it were
that different amount,
30
(b)
if the Special Commissioners are satisfied that the relevant
amount is the amount specified in the application, they must
direct the HMRC Commissioners to grant the application,
and
(c)
in any other case, the Special Commissioners must confirm
35
the refusal.
(8)
For the purposes of subsection (7) “the relevant amount” means the
amount (if any) equal to so much of the chargeable profits mentioned
in subsection (4) of section 751A as can reasonably be regarded as
representing the value mentioned in that subsection.
40
(9)
Part 5 of the Management Act (appeals against assessments to tax),
apart from section 50, applies in relation to an appeal under this
section as it applies in relation to an appeal against an assessment to
tax.
(10)
In this section “relevant company tax return”, in relation to a
45
company, means the return for the accounting period for which—
(a)
any sum is chargeable on the company under section
747(4)(a), or

Finance Bill
Schedule 15 — Controlled foreign companies
198

(b)
any sum would be so chargeable but for section 751A,

in respect of the chargeable profits of the controlled foreign company
for the accounting period mentioned in section 751A(1).
(11)
In this section “the HMRC Commissioners” means the
Commissioners for Her Majesty’s Revenue and Customs.”
5
Interpretation
6
In section 756 of ICTA (interpretation and construction of Chapter 4 of Part
17), after subsection (1) insert—
“(1A)
In this Chapter “EEA territory”, in relation to any time, means a
territory which is an EEA state at that time other than the United
10
Kingdom.
(1B)
But a territory is not to be regarded for the purposes of subsection
(1A) above as an EEA state at any time if—
(a)
it is not a member State at that time, and
(b)
there are no arrangements made in relation to the territory
15
having effect by virtue of section 173 of the Finance Act 2006
(international tax enforcement arrangements) at that time.”
Exempt activities test
7     (1)
Part 2 of Schedule 25 to ICTA (supplementary provision in relation to cases
where apportionment under section 747(3) does not apply: exempt
20
activities) is amended as follows.
      (2)
In paragraph 5, after sub-paragraph (1) insert—
   “(1A)
Except as provided in paragraph 8 below, the provisions of this
Part of this Schedule apply in relation to a company which is
resident in an EEA territory in the same way as they apply in
25
relation to a company which is resident elsewhere.”
      (3)
In paragraph 8, in sub-paragraph (1), after “fulfilled” insert “in relation to a
company which is not resident in an EEA territory”.
      (4)
Insert at the end of that paragraph—
    “(5)
The condition in paragraph 6(1)(b) above shall not be regarded as
30
fulfilled in relation to a company which is resident in an EEA
territory unless there are sufficient individuals working for the
company in the territory who have the competence and authority
to undertake all, or substantially all, of the company’s business.
      (6)
For the purposes of sub-paragraph (5) above, individuals are not
35
to be regarded as working for a company in any territory unless—
(a)
they are employed by the company in the territory, or
(b)
they are otherwise directed by the company to perform
duties on its behalf in the territory.”
Abolition of public quotation exemption
40
8     (1)
In section 748(1) of ICTA (cases where apportionment under section 747(3)
does not apply), omit paragraph (c) (together with the “or” at the end of it).

Finance Bill
Schedule 16 — Venture capital schemes etc
Part 1 — Limit on number of employees of company in which investment is made
199

      (2)
In Schedule 25 to ICTA (supplementary provision in relation to cases where
apportionment under section 747(3) does not apply), omit Part 3 (the public
quotation condition).
Discovery assessments
9
In paragraph 44(3) of Schedule 18 to FA 1998 (discovery assessment:
5
situation not disclosed by return or related documents etc), in the definition
of “relevant claim”, insert at the end “or an application under section 751A
of the Taxes Act 1988 made by or on behalf of the company which affects the
company’s tax return for the period in question”.
Commencement
10
10    (1)
The amendments made by this Schedule have effect in relation to accounting
periods of controlled foreign companies beginning on or after 6th December
2006.
      (2)
In the case of an accounting period (a “straddling period”) of a controlled
foreign company—
15
(a)
beginning before 6th December 2006, and
(b)
ending on or after that date,

the amendments made by this Schedule have effect as if, for the purposes of
Chapter 4 of Part 17 of ICTA, so much of the straddling period as falls before
that date, and so much of the straddling period as falls on or after that date,
20
were separate accounting periods.
      (3)
The company’s chargeable profits for the straddling period, and its
creditable tax (if any) for that period, are to be apportioned to the two
separate accounting periods on a just and reasonable basis.
      (4)
Each of the following expressions—
25
“accounting period”,
“chargeable profits”,
“controlled foreign company”, and
“creditable tax”,

has the same meaning in this paragraph as in Chapter 4 of Part 17 of ICTA.
30
Schedule 16
Section 50

Venture capital schemes etc
Part 1
Limit on number of employees of company in which investment is made
Corporate venturing scheme
35
1     (1)
Part 3 of Schedule 15 to FA 2000 (requirements as to issuing company) is
amended as follows.
      (2)
In paragraph 15 (introduction to Part) after paragraph (f) insert—
“(fa)
number of employees (see paragraph 22A); and”.

Finance Bill
Schedule 16 — Venture capital schemes etc
Part 1 — Limit on number of employees of company in which investment is made
200

      (3)
After paragraph 22 insert—
“The number of employees requirement
22A   (1)
If the issuing company is a single company, the full-time
equivalent employee number for it must be less than 50 when the
relevant shares are issued.
5
      (2)
If the issuing company is a parent company, the sum of—
(a)
the full-time equivalent employee number for it, and
(b)
the full-time equivalent employee numbers for each of its
qualifying subsidiaries,

must be less than 50 when the relevant shares are issued.
10
      (3)
The full-time equivalent employee number for a company is
calculated as follows—

Step 1

Find the number of full-time employees of the company.

Step 2
15

Add, for each employee of the company who is not a full-time
employee, such fraction as is just and reasonable.

The result is the full-time equivalent employee number.
      (4)
In this paragraph references to an employee—
(a)
include a director, but
20
(b)
do not include—
(i)
an employee on maternity or paternity leave, or
(ii)
a student on vocational training.”
      (4)
The amendments made by this paragraph do not have effect in relation to
shares issued before the day on which this Act is passed.
25
Enterprise investment scheme
2     (1)
Chapter 4 of Part 5 of ITA 2007 (the issuing company) is amended as follows.
      (2)
In section 180 (overview of Chapter 4), after paragraph (e) insert—
“(ea)
number of employees (see section 186A),”.
      (3)
After section 186 insert—
30
“186A
The number of employees requirement
(1)
If the issuing company is a single company, the full-time equivalent
employee number for it must be less than 50 when the relevant
shares are issued.
(2)
If the issuing company is a parent company, the sum of—
35
(a)
the full-time equivalent employee number for it, and
(b)
the full-time equivalent employee numbers for each of its
qualifying subsidiaries,

must be less than 50 when the relevant shares are issued.
(3)
The full-time equivalent employee number for a company is
40
calculated as follows—

Step 1

Finance Bill
Schedule 16 — Venture capital schemes etc
Part 1 — Limit on number of employees of company in which investment is made
201


Find the number of full-time employees of the company.

Step 2

Add, for each employee of the company who is not a full-time
employee, such fraction as is just and reasonable.

The result is the full-time equivalent employee number.
5
(4)
In this section references to an employee—
(a)
include a director, but
(b)
do not include—
(i)
an employee on maternity or paternity leave, or
(ii)
a student on vocational training.”
10
      (4)
The amendments made by this paragraph do not have effect in relation to—
(a)
shares issued before the day on which this Act is passed, or
(b)
shares issued to the managers of an approved fund which closed
before that day.
      (5)
For the purposes of sub-paragraph (4)(b)—
15
(a)
“the managers of an approved fund” has the same meaning as in
section 251 of ITA 2007, and
(b)
the reference to shares issued to the managers of an approved fund
is to shares issued to those managers as nominee for an individual
who has invested in the fund.
20
Venture capital trusts
3     (1)
Part 6 of ITA 2007 is amended as follows.
      (2)
In section 286(3) (qualifying holdings: introduction) after paragraph (j)
insert—
“(ja)
number of employees (see section 297A),”.
25
      (3)
After section 297 insert—
“297A
The number of employees requirement
(1)
If the relevant company is a single company, the full-time equivalent
employee number for it must be less than 50 when the relevant
holding is issued.
30
(2)
If the relevant company is a parent company, the sum of—
(a)
the full-time equivalent employee number for it, and
(b)
the full-time equivalent employee numbers for each of its
qualifying subsidiaries,

must be less than 50 when the relevant holding is issued.
35
(3)
The full-time equivalent employee number for a company is
calculated as follows—

Step 1

Find the number of full-time employees of the company.

Step 2
40

Add, for each employee of the company who is not a full-time
employee, such fraction as is just and reasonable.

The result is the full-time equivalent employee number.

Finance Bill
Schedule 16 — Venture capital schemes etc
Part 2 — Limit on amount raised annually by company through risk capital schemes
202

(4)
In this section references to an employee—
(a)
include a director, but
(b)
do not include—
(i)
an employee on maternity or paternity leave, or
(ii)
a student on vocational training.”
5
      (4)
In section 327 (certain requirements of Chapter 4 to be treated as met)—
(a)
in subsection (1), at the end insert “, and
section 297A (the number of employees requirement).”;
(b)
in subsection (4)(b) for “and 297” substitute “, 297 and 297A”.
      (5)
This paragraph is deemed to have come into force on 6th April 2007.
10
      (6)
The amendments made by this paragraph do not have effect in relation to—
(a)
a relevant holding issued before that date, or
(b)
a relevant holding acquired by a company (“the investing company”)
by means of the investment of protected money.
      (7)
For the purposes of sub-paragraph (6)(b), “protected money” is—
15
(a)
money raised by the issue before 6th April 2007 of shares in or
securities of the investing company, or
(b)
money derived from the investment of such money.
Part 2
Limit on amount raised annually by company through risk capital schemes
20
Corporate venturing scheme
4     (1)
Schedule 15 to FA 2000 is amended as follows.
      (2)
In paragraph 34 (introduction to Part) after sub-paragraph (a) insert—
“(aa)
the maximum amount raised annually through risk capital
schemes (see paragraph 35A);”.
25
      (3)
After paragraph 35 insert—
“Requirement as to maximum amount raised annually through risk capital schemes
35A   (1)
The total amount of relevant investments made in the issuing
company in the year ending with the date the relevant shares are
issued must not exceed £2 million.
30
      (2)
In sub-paragraph (1), the reference to relevant investments made
in the issuing company includes relevant investments made in any
company that is, or has at any time in the year mentioned there
been, a subsidiary of the issuing company (whether or not it was
such a subsidiary when the investment was made).
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      (3)
A “relevant investment” is made in a company if—
(a)
an investment (of any kind) in the company is made by a
VCT, or
(b)
the company issues shares (money having been subscribed
for them), and (at any time) the company provides—
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(i)
a compliance statement under paragraph 42, or