Finance Bill

House of Commons

Session 2007 - 08
Internet Publications
Other Bills before Parliament

Finance Bill

Finance Bill
Part 2 — Income tax, corporation tax and capital gains tax - general
26

Leasing
52
Leases of plant or machinery
Schedule 20 contains provision about leases of plant or machinery.
53
Sale of lessor companies etc
(1)
Schedule 10 to FA 2006 (sale etc of lessor companies etc) is amended as follows.
5
(2)
In paragraph 23 (leasing business carried on in partnership: change in
company’s interest in the business), after sub-paragraph (4) insert—
   “(4A)
But if at the end of the relevant day the other company is the only
person carrying on the business, the expense—
(a)
is treated as an expense incurred by the other company in its
10
carrying on of the business (at a time when it is the only
person carrying it on), and
(b)
is allowed as a deduction in calculating for corporation tax
purposes the profits of the business for the accounting period
in which it is treated as incurred.”
15
(3)
In paragraph 32 (amount of expense)—
(a)
in sub-paragraph (2), for “The” substitute “Except in a case where sub-
paragraph (3A) applies, the”, and
(b)
after sub-paragraph (3) insert—
   “(3A)
If paragraph 23(4A) applies (business carried on by the other
20
company alone), the amount of the expense of the other
company is equal to the amount of the income.”
(4)
In paragraph 39 (relief for certain expenses otherwise giving rise to carried
forward loss)—
(a)
after sub-paragraph (1) insert—
25
   “(1A)
This paragraph also applies if—
(a)
a company is treated under paragraph 23(4A) as
incurring an expense of a business in an accounting
period,
(b)
the company makes a loss in that accounting period,
30
and
(c)
some or all of that loss would otherwise be carried
forward to the next accounting period of the company
(“the subsequent accounting period”).”,
(b)
in sub-paragraph (2), after “3” insert “, 23(4A)”, and
35
(c)
in sub-paragraph (4), after “3” insert “, 23(4A)”,

and, accordingly, in the heading before that paragraph, after “3” insert “,
23(4A)”.
(5)
The amendments made by this section are treated as always having had effect.

Finance Bill
Part 2 — Income tax, corporation tax and capital gains tax - general
27

Double taxation arrangements
54
Double taxation relief
(1)
Section 798 of ICTA (limits on foreign tax credit: trade income) is amended as
follows.
(2)
After subsection (1) insert—
5
“(1A)
The references in section 796 and this section to income in respect of
which a credit for foreign tax is to be allowed are to be treated as
referring only to income arising out of the transaction, arrangement or
asset in connection with which the credit for foreign tax arises.”
(3)
In subsection (3), after “income” insert “in respect of which the credit is to be
10
allowed”.
(4)
The amendments made by this section have effect in relation to a credit for
foreign tax which relates to—
(a)
a payment of foreign tax on or after 6 April 2008, or
(b)
income received on or after that date in respect of which foreign tax has
15
been deducted at source.
55
UK residents and foreign partnerships
(1)
In section 115 of ICTA (partnerships involving companies: supplementary),
after subsection (5B) insert—
“(5C)
For the purposes of subsections (5) to (5B) the members of a partnership
20
include any company which is entitled to a share of income or capital
gains of the partnership.”
(2)
In section 59 of TCGA 1992 (partnerships), insert at the end—
“(4)
For the purposes of subsections (2) and (3) the members of a
partnership include any person entitled to a share of capital gains of the
25
partnership.”
(3)
In section 858 of ITTOIA 2005 (resident partners and double taxation
agreements), insert at the end—
“(4)
For the purposes of this section the members of a firm include any
person entitled to a share of income of the firm.”
30
(4)
The amendments made by subsections (1) to (3) are treated as always having
had effect.
(5)
For the purposes of the predecessor provisions, the members of a partnership
are to be treated as having included, at all times to which those provisions
applied, a person entitled to a share of income or capital gains of the
35
partnership.
(6)
“The predecessor provisions” means—
(a)
section 153(4) and (5) of the Income and Corporation Taxes Act 1970
(c. 10) (as it had effect under section 62(2) of F(No.2)A 1987), and
(b)
sections 112(4) to (6) and 115(5) of ICTA.
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Finance Bill
Part 2 — Income tax, corporation tax and capital gains tax - general
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56
UK residents and foreign enterprises
(1)
In ICTA, after section 815A insert—
“815AZA
UK residents and foreign enterprises
(1)
Where arrangements having effect under section 788 make the
provision mentioned in subsection (2) (however expressed), that
5
provision does not prevent income of a person resident in the United
Kingdom being chargeable to income tax or corporation tax.
(2)
The provision is that the profits of an enterprise which is resident
outside the United Kingdom, or carries on a trade, profession or
business the control or management of which is situated outside the
10
United Kingdom, are not to be subject to United Kingdom tax except in
so far as they are attributable to a permanent establishment of the
enterprise in the United Kingdom.
(3)
A person is resident in the United Kingdom for the purposes of this
section if the person is so resident for the purposes of the arrangements
15
having effect under section 788.
(4)
This section does not apply in relation to—
(a)
income of a company resident in the United Kingdom to which
section 115(5A) applies, or
(b)
income of a person resident in the United Kingdom to which
20
section 858 of ITTOIA 2005 applies.”
(2)
The amendment made by subsection (1) has effect in relation to income arising
on or after 12 March 2008.
Other anti-avoidance provisions
57
Restrictions on trade loss relief for individuals
25
Schedule 21 contains provision restricting relief for losses made by individuals
who, otherwise than in partnership, carry on trades in a non-active capacity.
58
Non-active partners
(1)
In section 103B(2) of ITA 2007 (meaning of “non-active partner” for purposes
of provisions restricting trade loss relief), for “carried on for the purposes of the
30
trade” substitute “of the trade and those activities are carried on—
(a)
on a commercial basis, and
(b)
with a view to the realisation of profits as a result of the
activities.”
(2)
The amendment made by subsection (1) has effect in relation to relevant
35
periods ending on or after 12 March 2008.
59
Financial arrangements avoidance
Schedule 22 contains provision about avoidance involving financial
arrangements.

Finance Bill
Part 2 — Income tax, corporation tax and capital gains tax - general
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60
Manufactured payments
(1)
Schedule 23 contains anti-avoidance provisions about manufactured
payments.
(2)
The amendments made by that Schedule have effect in relation to
manufactured payments (including deemed manufactured payments) made
5
(or treated as made) on or after 31 January 2008.
61
Controlled foreign companies
(1)
Chapter 4 of Part 17 of ICTA (controlled foreign companies) is amended as
follows.
(2)
In section 747 (imputation of chargeable profits of controlled foreign
10
companies)—
(a)
in subsection (6), before “and” at the end of paragraph (a) insert—
“(ab)
any reference in this Chapter to its chargeable profits for
an accounting period includes (subject to subsections (7)
to (9)) income which accrues during that accounting
15
period to the trustees of a settlement in relation to which
the company is a settlor or a beneficiary;”, and
(b)
after that subsection insert—
“(7)
Where there is more than one settlor or beneficiary in relation to
the settlement mentioned in subsection (6)(ab), the income is to
20
be apportioned between the company and the other settlors or
beneficiaries on a just and reasonable basis.
(8)
Where income within subsection (6)(ab) is included in the
chargeable profits of a company, any dividend or other
distribution received by the company which derives from that
25
income is not included in the chargeable profits of the company
to the extent that it is so derived.
(9)
Any income within subsection (6)(ab) which would (apart from
this subsection)—
(a)
be included in the chargeable profits of a company
30
which is a beneficiary in relation to a settlement and
apportioned under subsection (3), and
(b)
be included in the chargeable profits of a company
which is a settlor in relation to the settlement and
apportioned under that subsection,
35

is not to be included in the chargeable profits of the company
which is a settlor.”
(3)
In section 755D (meaning of control)—
(a)
after subsection (1) insert—
“(1A)
For the purposes of this Chapter a person also controls a
40
company if the person possesses, or is entitled to acquire, such
rights as would—
(a)
if the whole of the income of the company were
distributed, entitle the person to receive the greater part
of the amount so distributed,
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Finance Bill
Part 2 — Income tax, corporation tax and capital gains tax - general
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(b)
if the whole of the company’s share capital were
disposed of, entitle the person to receive the greater part
of the proceeds of the disposal, or
(c)
in the event of the winding-up of the company or in any
other circumstances, entitle the person to receive the
5
greater part of the assets of the company which would
then be available for distribution.”, and
(b)
in subsection (2), after “above” insert “or satisfy subsection (1A) above”.
(4)
In paragraph 2A of Schedule 25 (acceptable distribution policy)—
(a)
in sub-paragraph (2), for “sub-paragraph (4)” substitute “sub-
10
paragraphs (4) and (4A)”, and
(b)
after sub-paragraph (4) insert—
   “(4A)
Sub-paragraph (2) does not apply where the distribution
condition is satisfied in relation to the relevant accounting
period, but—
15
(a)
the relevant profits for that period do not include
income within sub-paragraph (4B), and
(b)
if that income were included, the distribution
condition would not be satisfied in relation to that
period.
20
     (4B)
The income within this sub-paragraph is—
(a)
any income which accrues during the relevant
accounting period to the trustees of a settlement in
relation to which the company is a settlor or a
beneficiary, and
25
(b)
any income not within paragraph (a) to which the
company is entitled and which accrues during that
period (whether or not received by the company
during that period).
     (4C)
Where there is more than one settlor or beneficiary in relation
30
to the settlement mentioned in sub-paragraph (4B)(a), the
income is to be apportioned between the company and the
other settlors or beneficiaries on a just and reasonable basis.”
(5)
In paragraph 6 of Schedule 25 (definition of exempt activities), after sub-
paragraph (5B) insert—
35
   “(5C)
For the purposes of this paragraph, the gross income of a holding
company or a superior holding company during an accounting
period includes—
(a)
any income which accrues during that period to the trustees
of a settlement in relation to which the company is a settlor or
40
a beneficiary, and
(b)
any income not within paragraph (a) to which the company
is entitled and which accrues during that period (whether or
not received by the company during that period).
     (5D)
Where there is more than one settlor or beneficiary in relation to the
45
settlement mentioned in sub-paragraph (5C)(a), the income is to be
apportioned between the company and the other settlors or
beneficiaries on a just and reasonable basis.”

Finance Bill
Part 2 — Income tax, corporation tax and capital gains tax - general
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(6)
The amendments made by subsections (2) and (5) have effect in relation to
income accruing on or after 12 March 2008.
(7)
The amendments made by subsection (3) have effect for determining whether,
at any time on or after 12 March 2008, a company is controlled by persons
resident in the United Kingdom for the purposes of Chapter 4 of Part 17 of
5
ICTA.
(8)
The amendments made by subsection (4) have effect in relation to any
dividend paid on or after 12 March 2008.
(9)
In relation to an accounting period of a company beginning before, and ending
on or after, 12 March 2008 (“the straddling period”), the amendments made by
10
this section have effect as if, for the purposes of Chapter 4 of Part 17 of ICTA,
so much of the period as falls before that date, and so much of the period as
falls on or after that date, were separate accounting periods.
(10)
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
15
periods on a just and reasonable basis.
(11)
In this section “accounting period”, “chargeable profits” and “creditable tax”
have the same meaning as in Chapter 4 of Part 17 of ICTA.
62
Intangible fixed assets: related parties
(1)
In Schedule 29 to FA 2002 (gains and losses of a company from intangible fixed
20
assets), after paragraph 95 (meaning of “related party”) insert—
“Persons treated as “related parties”
95A   (1)
For the purposes of this Schedule, a person (“P”) shall be treated as a
related party in relation to a company (“C”) within a Case in
paragraph 95(1) if P would be a related party in relation to C within
25
that Case but for any person (other than an individual) being the
subject of—
(a)
insolvency arrangements, or
(b)
equivalent arrangements under the law of any country or
territory (whether made when the person is solvent or
30
insolvent).
      (2)
For the purpose of this paragraph, “insolvency arrangements”
includes—
(a)
arrangements under which a person acts as the liquidator,
provisional liquidator, receiver, administrator or
35
administrative receiver of a company or partnership, and
(b)
voluntary arrangements proposed or approved in relation to
a company or partnership under Part 1 of the Insolvency Act
1986 or Part 2 of the Insolvency (Northern Ireland) Order
1989.
40
      (3)
In this paragraph—
“administrative receiver” means an administrative receiver
within the meaning of section 251 of the Insolvency Act 1986
or Article 5(1) of the Insolvency (Northern Ireland) Order
1989,
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Finance Bill
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“administrator” means a person appointed to manage the
affairs, business and property of the company or partnership
under Schedule B1 to that Act or to that Order, and
“receiver” means a person appointed as receiver of some or all
of the property of the company or partnership under an
5
enactment or under an instrument issued for the purpose of
representing security for, or the rights of creditors in respect
of, any debt.”
(2)
Subject to subsections (4) and (5), the amendment made by subsection (1) has
effect in relation to the debits and credits to be brought into account for
10
accounting periods beginning on or after 12 March 2008.
(3)
For the purposes of subsection (2), an accounting period beginning before, and
ending on or after, that day is treated as if so much of that period as falls before
that day, and so much of that period as falls on or after that day, were separate
periods.
15
(4)
The amendment made by subsection (1) does not have effect for the purpose of
determining whether a person was a related party in relation to a company at
a time before 12 March 2008.
(5)
That amendment has effect, for the purposes of paragraph 92 of Schedule 29 to
FA 2002 as it applies otherwise than for determining the debits and credits to
20
be brought into account under that Schedule, in relation to any transfer of an
asset made on or after 12 March 2008.
63
Repeal of obsolete anti-avoidance provisions
(1)
In Part 17 of ICTA (tax avoidance)—
(a)
in section 704 (cancellation of corporation tax advantages: the
25
prescribed circumstances), omit—
(i)
paragraph B (and the “OR” after it), and
(ii)
in paragraph C(1), paragraph (b) (and the “or” before it),
(b)
in section 709 (definitions), omit subsection (2A),
(c)
omit sections 731 to 735 (purchase and sale of securities), and
30
(d)
omit section 736 (company dealing in securities: distribution materially
reducing value of holding).
(2)
In Part 13 of ITA 2007 (tax avoidance)—
(a)
in section 684(2) (person liable to counteraction of income tax
advantage), omit the entry relating to section 687 of that Act,
35
(b)
omit section 687 (deductions from profits obtained following
distribution or dealings), and
(c)
in section 688 (receipt of consideration representing company’s assets,
future receipts or trading stock), omit—
(i)
in subsection (3), paragraph (b) (and the “or” before it), and
40
(ii)
subsections (4), (5) and (9).
(3)
In consequence of the amendments made by subsection (1)(a) and (b), omit—
(a)
in FA 1997, section 73, and
(b)
in ITA 2007, paragraph 155(4) and (5) and (6)(b) of Schedule 1.
(4)
In consequence of the amendments made by subsection (1)(c) and (d), omit—
45
(a)
in ICTA, sections 343(5) and 738,