Finance Bill

House of Commons

Session 2008 - 09
Internet Publications
Other Bills before Parliament

Finance Bill

Finance Bill
Schedule 16 — Controlled foreign companies
Part 1 — Abolition of acceptable distribution policy exemption
181

Meaning of “the Commissioners” and “HMRC”
76
In this Schedule—
“the Commissioners” means the Commissioners for Her Majesty’s
Revenue and Customs;
“HMRC” means Her Majesty’s Revenue and Customs.
5
Part 10
Consequential amendments and commencement
Consequential amendment
77
In section 98 of TMA 1970 (special returns etc), in the first column of the
Table, at the end insert—
10
“regulations under paragraph 17, 18, 19, 29 or 31 of Schedule 15 to FA
2009.”
Commencement
78
This Schedule has effect in relation to periods of account of the worldwide
group that begin on or after 1 January 2010.
15
Schedule 16
Section 36

Controlled foreign companies
Part 1
Abolition of acceptable distribution policy exemption
Abolition of acceptable distribution policy exemption
20
1     (1)
ICTA is amended as follows.
      (2)
In section 748(1) (cases where apportionment under section 747(3) does not
apply), omit paragraph (a) (including the “or” at the end).
      (3)
In Schedule 25 (supplementary provision in relation to cases where
apportionment under section 747(3) does not apply), omit Part 1 (acceptable
25
distribution policy).
Consequential amendments
2     (1)
ICTA is amended as follows.
      (2)
Omit section 754A (returns where it is not established whether acceptable
distribution policy applies).
30
      (3)
In section 801 (dividends paid between related companies: relief for UK and
third country taxes), omit subsections (2A)(aa), (2B), (6) and (7).
      (4)
Omit section 801C (double taxation relief: separate streaming of dividend so
far as representing an ADP dividend of a CFC).

Finance Bill
Schedule 16 — Controlled foreign companies
Part 1 — Abolition of acceptable distribution policy exemption
182

      (5)
In section 803A (foreign taxation of group as single entity), omit subsection
(1A).
      (6)
In Schedule 24 (assumptions for calculating chargeable profits, creditable
tax and corresponding UK tax of foreign companies), omit—
(a)
in paragraph 1(3A), paragraph (b)(ii) (and the “and” before it) and
5
the words “or which is an ADP exempt period” (in both places),
(b)
paragraph 1(6),
(c)
paragraph (b) of paragraph 2(1) (and the “or” before it),
(d)
paragraph (b) of paragraph 4(1A) (and the “or” before it),
(e)
paragraph 4(3A),
10
(f)
in paragraph 9(1)(c), “, and is not to be assumed by virtue of
paragraph 2(1)(b) above to have been resident,”, and
(g)
paragraph (b) of paragraph 10(1) (and the “or” before it).
3
In paragraph 116 of Schedule 29 to FA 2002 (assumptions for calculating
chargeable profits of CFCs in connection with intangible fixed assets), omit
15
paragraph (b) of sub-paragraph (2) (and the “or” before it).
4
In section 869 of CTA 2009 (assumptions for calculating chargeable profits of
CFCs in connection with intangible fixed assets), omit—
(a)
paragraph (b) of subsection (3) (and the “or” before it), and
(b)
subsection (7).
20
5
In consequence of the amendments made by paragraphs 1 to 4, omit—
(a)
in FA 1990, section 67(3)(b) and (c),
(b)
in FA 1994, section 134,
(c)
in FA 1996, in Schedule 36, paragraphs 3(3), (8) and (9) and 4(2) and
(3)(b),
25
(d)
in FA 1998, in Schedule 17, paragraphs 10, 17(2) to (5) and 26 to 28,
(e)
in FA 1999, section 88,
(f)
in FA 2000, in Schedule 30, paragraph 13,
(g)
in FA 2001, section 82,
(h)
in FA 2005, sections 89 and 90,
30
(i)
in FA 2007, in Schedule 7, paragraph 56, and
(j)
in FA 2008, section 64(4) and, in Schedule 17, paragraph 29.
Commencement
6
The amendments made by this Part have effect in relation to accounting
periods of controlled foreign companies beginning on or after 1 July 2009.
35
Periods straddling 1 July 2009
7     (1)
Where a controlled foreign company has an accounting period (“the
straddling accounting period”) that—
(a)
begins before 1 July 2009, and
(b)
ends on or after that date,
40

the straddling accounting period is to be treated as split.
      (2)
Where this paragraph provides that the straddling accounting period is to
be treated as “split”—

Finance Bill
Schedule 16 — Controlled foreign companies
Part 2 — Amendment of exempt activities exemption
183

(a)
that part of the straddling accounting period that falls before 1 July
2009 and that part of the straddling accounting period that falls on or
after that date are to be treated for the purposes of Chapter 4 of Part
17 of ICTA as separate accounting periods, and
(b)
the company’s chargeable profits for the straddling accounting
5
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.
Transitional provision
8     (1)
The amendments made by this Part do not affect the application of sections
10
801, 801C or 803A of, or Part 1 of Schedule 25 to, ICTA in relation to
dividends paid on or after 1 July 2009 if they are paid for accounting periods
beginning before that date.
      (2)
Sub-paragraph (3) applies where a dividend of a controlled foreign
company is paid during the second of the two accounting periods provided
15
for by paragraph 7(2).
      (3)
For the purposes of Part 1 of Schedule 25 to ICTA, section 799 of that Act has
effect as if the reference in subsection (3)(c) to the last period for which
accounts of the company were made up which ended before the dividend
became payable were to the first of the two accounting periods provided for
20
by paragraph 7(2).
Interpretation
9
The following expressions have the same meaning for the purposes of this
Part as they have for the purposes of Chapter 4 of Part 17 of ICTA—
“accounting period”;
25
“chargeable profits”;
“controlled foreign company”;
“creditable tax”.
Part 2
Amendment of exempt activities exemption
30
Abolition of special rules for holding companies other than local holding companies
10    (1)
Part 2 of Schedule 25 to ICTA (exempt activities) is amended as follows.
      (2)
In paragraph 6 (definition of exempt activities)—
(a)
in sub-paragraph (1)(c), for “(2), (3), (4) or (4A)” substitute “(2) or (3)”,
(b)
in sub-paragraph (3)(b), omit “or superior holding companies”,
35
(c)
omit sub-paragraphs (4) to (4BB),
(d)
in sub-paragraph (5)—
(i)
for “sub-paragraphs (3) to (4B)” substitute “sub-paragraph
(3)”, and
(ii)
omit “or superior holding company”,
40
(e)
in sub-paragraph (5ZA), omit “or superior holding company”,
(f)
in sub-paragraph (5ZB), omit “or superior holding company”,

Finance Bill
Schedule 16 — Controlled foreign companies
Part 2 — Amendment of exempt activities exemption
184

(g)
in sub-paragraph (5A), for “sub-paragraphs (3) to (4B)” substitute
“sub-paragraph (3)”,
(h)
omit sub-paragraph (5B),
(i)
in sub-paragraph (5C), omit “or superior holding company”,
(j)
in sub-paragraph (6), for “sub-paragraphs (1) to (4BB) above”
5
substitute “this paragraph”.
      (3)
In paragraph 8(3), omit “or superior holding company”.
      (4)
In paragraph 12 (definition of “holding company” etc)—
(a)
in sub-paragraph (1), for “paragraph 12A below and in” substitute
“in”,
10
(b)
in sub-paragraph (4), omit “or (4), as the case may be,”, and
(c)
in sub-paragraph (5)—
(i)
in the words before paragraph (a), for “sub-paragraphs (3)
and (4)” substitute “sub-paragraph (3)”, and
(ii)
in paragraph (a), omit “or superior holding company”.
15
      (5)
Omit paragraph 12A (definition of “superior holding company” etc).
11
In consequence of the amendments made by paragraph 10, omit—
(a)
in FA 1998, in Schedule 17, paragraphs 30(4)(a), (5), (6) and (8), 31,
32(2) and (3)(a) and 33,
(b)
in FA 2000, in Schedule 31, paragraph 7(2) to (7), (10) and (11), and
20
(c)
in FA 2003, in Schedule 42, paragraph 2(2).
Commencement
12    (1)
The amendments made by this Part have effect in relation to accounting
periods of controlled foreign companies beginning on or after the
commencement date.
25
      (2)
For this purpose “the commencement date” means—
(a)
in relation to a controlled foreign company other than a qualifying
holding company, 1 July 2009, and
(b)
in relation to a qualifying holding company, 1 July 2011.
Meaning of “qualifying holding company” and “exempt holding company”
30
13    (1)
In this Part “qualifying holding company” means a controlled foreign
company that was an exempt holding company in relation to the last
accounting period to end before 1 July 2009.
      (2)
For the purposes of sub-paragraph (1), paragraphs 14 and 15 are to be
disregarded.
35
      (3)
For the purposes of this Part, a company is an “exempt holding company” in
relation to an accounting period if—
(a)
throughout the period the company is, within the meaning of Part 2
of Schedule 25 to ICTA, engaged in exempt activities, and
(b)
paragraph 6(4) or (4A) of that Schedule applies to the company in
40
relation to the period.

Finance Bill
Schedule 16 — Controlled foreign companies
Part 2 — Amendment of exempt activities exemption
185

Periods straddling 1 July 2009
14    (1)
Where a controlled foreign company has an accounting period (“the
straddling accounting period”) that—
(a)
begins before 1 July 2009, and
(b)
ends on or after that date,
5

the straddling accounting period is to be treated as split.
      (2)
Where this paragraph provides that the straddling accounting period is to
be treated as “split”—
(a)
that part of the straddling accounting period that falls before 1 July
2009 and that part of the straddling accounting period that falls on or
10
after that date are to be treated for the purposes of Chapter 4 of Part
17 of ICTA as separate accounting periods, and
(b)
the company’s gross income for the straddling accounting period,
and its chargeable profits and creditable tax (if any) for that period,
are to be apportioned to the two separate accounting periods on a
15
time basis according to the respective lengths of the periods.
Qualifying holding companies: periods straddling 1 July 2011
15    (1)
Where a qualifying holding company has an accounting period (“the
straddling accounting period”) that—
(a)
begins before 1 July 2011, and
20
(b)
ends on or after that date,

the straddling accounting period is to be treated as split.
      (2)
Where this paragraph provides that a straddling accounting period of a
company is to be treated as “split”—
(a)
that part of the straddling accounting period that falls before 1 July
25
2011 and that part of the straddling accounting period that falls on or
after that date are to be treated for the purposes of Chapter 4 of Part
17 of ICTA as separate accounting periods, and
(b)
the company’s gross income for the straddling accounting period,
and its chargeable profits and creditable tax (if any) for that period,
30
are to be apportioned to the two separate accounting periods on a
time basis according to the respective lengths of the periods.
Qualifying holding companies: definition of “relevant accounting period”
16
For the purposes of paragraph 17, an accounting period of a qualifying
holding company is a “relevant accounting period” if it—
35
(a)
begins on or after 1 July 2009, and
(b)
ends on or before the 1 July 2011.
Qualifying holding companies: treatment during two years before 1 July 2011
17    (1)
In its application in relation to a relevant accounting period of a qualifying
holding company, Part 2 of Schedule 25 to ICTA has effect subject to the
40
modifications in this paragraph.
      (2)
Sub-paragraph (4) or (4A) of paragraph 6 applies to a company only if—
(a)
the condition specified in that sub-paragraph is met, and
(b)
conditions A and B are met.

Finance Bill
Schedule 16 — Controlled foreign companies
Part 2 — Amendment of exempt activities exemption
186

      (3)
Condition A is that at all material times the company was a member of a
group with the same ultimate corporate parent.
      (4)
For this purpose the following times are “material”—
(a)
the beginning of 9 December 2008, and
(b)
all times during the accounting period in question.
5
      (5)
Condition B is that amount X does not exceed amount Y.
      (6)
Amount X is the amount of the company’s gross income in the accounting
period in question that is non-qualifying gross income.
      (7)
Amount Y is (subject to sub-paragraph (8))—
(a)
where there are three reference periods in relation to the company,
10
the greatest of the amounts of the company’s non-qualifying gross
income in each of those periods,
(b)
where there are two reference periods in relation to the company, the
greater of the amounts of the company’s non-qualifying gross
income in each of those periods,
15
(c)
where there is one reference period in relation to the company, the
amount of the company’s non-qualifying gross income in that
period, or
(d)
where there is no reference period in relation to the company, the
amount of the company’s non-qualifying gross income in the period
20
of 12 months ending with 9 December 2008.
      (8)
Where the number of days in the period by reference to which amount X is
determined is not the same as the number of days in the period by reference

to which amount Y is determined, amount Y is to be multiplied by—

DX
DY


where—
25
DX is the number of days in the period by reference to which amount X
is determined, and
DY is the number of days in the period by reference to which amount Y
is determined.
      (9)
In this paragraph—
30
“non-qualifying gross income” means gross income that does not
satisfy the test in paragraph 6(3), (4) or (4A) of Schedule 25 to ICTA;
“a reference period”, in relation to a company, means an accounting
period of the company that—
(a)
is one of the last three accounting periods of the company to
35
end before 9 December 2008, and
(b)
is an accounting period in relation to which the company is
an exempt holding company;
“ultimate corporate parent” has the meaning given by paragraph 18.
Meaning of “ultimate corporate parent” and “group” for the purposes of paragraph 17(3)
40
18    (1)
In paragraph 17(3) the “ultimate corporate parent”, in relation to a group,
means a member of the group that—
(a)
is a body corporate, and

Finance Bill
Schedule 17 — International movement of capital
Part 1 — Abolition of existing regime
187

(b)
is not a subsidiary (whether direct or indirect) of another body
corporate.
      (2)
A reference in this paragraph to a body corporate does not include—
(a)
the Crown,
(b)
a Minister of the Crown,
5
(c)
a government department,
(d)
a Northern Ireland department, or
(e)
a foreign sovereign power.
      (3)
In paragraph 17(3) and this paragraph “group” has the meaning for the time
being given by international accounting standards.
10
      (4)
In this paragraph “subsidiary” has the meaning for the time being given by
international accounting standards.
Reference periods: anti-avoidance
19    (1)
This paragraph applies where, on or after 9 December 2008, a company
alters its accounting date so that any period (“period A”) that would
15
otherwise have fallen in an accounting period ending on or after 9 December
2008 falls instead in an accounting period ending before that date.
      (2)
The reference in paragraph (a) of the definition of “a reference period” in
paragraph 17(9) to 9 December 2008 is to be treated as a reference to the
beginning of period A.
20
Interpretation
20
The following expressions have the same meaning for the purposes of this
Part as they have for the purposes of Chapter 4 of Part 17 of ICTA—
“accounting period”;
“chargeable profits”;
25
“control”;
“controlled foreign company”;
“creditable tax”;
“gross income”.
Schedule 17
30
Section 37

International movement of capital
Part 1
Abolition of existing regime
1
In ICTA, omit—
(a)
section 765 (prior Treasury consent required for certain transactions
35
involving movement of capital outside Europe),
(b)
section 765A (HMRC to be given information about certain
transactions involving movement of capital within Europe),
(c)
section 766 (offence of failure to comply with section 765), and