Finance Bill

House of Commons

Session 2008 - 09
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Other Bills before Parliament

Finance Bill

Finance Bill
Schedule 19 — Income tax credits for foreign distributions
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5
After that section insert—
“397BA
Meaning of “qualifying territory”
(1)
For the purposes of section 397AA, “qualifying territory” means—
(a)
the United Kingdom, or
(b)
a territory within subsection (2).
5
(2)
A territory is within this subsection if—
(a)
arrangements to which section 788 of ICTA applies (“double
taxation relief arrangements”) have effect in relation to the
territory, and
(b)
the arrangements contain a non-discrimination provision.
10
(3)
The Treasury may by regulations—
(a)
provide that a territory specified in or of a description
specified in the regulations that does not satisfy subsection
(2)(a) or (b) is a qualifying territory for the purpose of section
397AA, and
15
(b)
provide that a territory so specified or described that satisfies
subsection (2)(a) or (b) is not a qualifying territory for that
purpose.
(4)
For the purposes of section 397AA, a company is a resident of a
territory if, under the laws of the territory, the company is liable to
20
tax there—
(a)
by reason of its domicile, residence or place of management,
but
(b)
not in respect only of income from sources in that territory or
capital situated there.
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(5)
In subsection (2) “non-discrimination provision”, in relation to
double taxation relief arrangements, means a provision to the effect
that nationals of a state which is a party to those arrangements (a
“contracting state”) are not to be subject in any other contracting state
to—
30
(a)
any taxation, or
(b)
any requirement connected with taxation,

which is other or more burdensome than the taxation and connected
requirements to which nationals of that other state in the same
circumstances (in particular with respect to residence) are or may be
35
subjected.
(6)
In subsection (5) “national”, in relation to a contracting state,
includes—
(a)
an individual possessing the nationality or citizenship of the
contracting state, and
40
(b)
a legal person, partnership or association deriving its status
as such from the laws in force in that contracting state.
(7)
Regulations under this section may—
(a)
describe a territory by reference to the double taxation relief
arrangements for the time being in force in relation to the
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territory,

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Schedule 19 — Income tax credits for foreign distributions
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(b)
make different provision in relation to different descriptions
of company, and
(c)
make provision having effect in relation to the tax year
current on the day on which the regulations are made.
(8)
No regulations may be made under this section unless a draft of the
5
instrument containing them has been laid before, and approved by a
resolution of, the House of Commons.”
6     (1)
Section 397C (meaning of “minority shareholder”) is amended as follows.
      (2)
In subsection (1)—
(a)
for “397A” substitute “397AA”, and
10
(b)
omit “non-UK resident”.
      (3)
After that subsection insert—
“(1A)
Where the company has more than one class of share, the reference
in subsection (1) to the company’s issued share capital is to issued
share capital of the same class as the share in respect of which the
15
distribution is made.”
      (4)
Insert at the end—
“(8)
For the purposes of this section, shares are not of the same class if the
amounts paid up on them (otherwise than by way of premium) are
different.”
20
7
In section 398(1) (increase in amount or value of dividends where tax credit
available), for “397A(2)” substitute “397A(1)”.
8
In section 873 (orders and regulations), after subsection (3) insert—
“(4)
Further, subsection (2) does not apply if any other Parliamentary
procedure is expressly provided to apply in relation to the order or
25
regulations.”
Consequential amendments of other Acts
9
In TMA 1970, in—
(a)
sections 8(1AA)(b) and 8A(1AA)(b) (personal return and trustee
return: amount payable by way of income tax),
30
(b)
section 9(1)(b) (self-assessment of amount payable by way of income
tax),
(c)
sections 12AA(1A)(b) and 12AB(5) (partnership return etc; amount
payable by way of income tax), and
(d)
sections 59A(8)(b) and 59B(2)(b) (payments of and on account of
35
income tax),

for “397A(2)” substitute “397A(1)”
10
In ICTA—
(a)
in section 824(4A)(b) (repayment supplements: individuals and
others), for “397A(2)” substitute “397A(1)”, and
40
(b)
in section 840ZA(3)(b) (meaning of “tax advantage”), after “397(1)”
insert “or 397A(1)”.

Finance Bill
Schedule 20 — Loan relationships: connected parties
204

11
In section 171(2B) of FA 1993 (Lloyd’s underwriters etc: taxation of profits
and allowance of losses), for “397A(2)” substitute “397A(1)”.
12
In Part 2 of Schedule 1 to ITEPA 2003 (definitions), in the entry for “tax
credit”, in the second column, after “397(1)” insert “or 397A(1)”.
13
In ITA 2007—
5
(a)
in section 504(4)(b) (provisions that do not apply to income of
unauthorised unit trusts),
(b)
in sections 592(2), 593(2) and 594(2) (stock lending arrangements and
repos), and
(c)
in section 989 (definitions), in the definition of “tax credit”,
10

for “397A(2)” substitute “397A(1)”.
Commencement
14    (1)
The amendments made by this Schedule have effect in relation to—
(a)
qualifying distributions arising on or after 22 April 2009,
(b)
cash dividends paid over to a person under paragraph 68(4) of
15
Schedule 2 of ITEPA 2003 on or after 22 April 2009,
(c)
dividends treated under section 407 of ITTOIA 2005 as paid to a
person on or after 22 April 2009, and
(d)
manufactured overseas dividends that are representative of a
distribution within paragraph (a), (b) or (c).
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      (2)
In this paragraph—
“manufactured overseas dividend” has the same meaning as in Chapter
2 of Part 11 of ITA 2007;
“qualifying distribution” has the meaning given in section 989 of ITA
2007.
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Schedule 20
Section 41

Loan relationships: connected parties
Introduction
1
Part 5 of CTA 2009 (loan relationships) is amended as follows.
Section 374
30
2     (1)
Section 374 (late interest: connection between debtor and person standing in
position of creditor) is amended as follows.
      (2)
In subsection (1)—
(a)
in paragraph (b), after “company” insert “(“C”)”, and
(b)
insert at the end (not as part of paragraph (b))—
35

“and the condition in subsection (1A) is met.”
      (3)
After that subsection insert—
“(1A)
The condition is that C is—

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Schedule 20 — Loan relationships: connected parties
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(a)
resident for tax purposes in a non-qualifying territory at any
time in the actual accrual period, or
(b)
effectively managed in a non-taxing non-qualifying territory
at any such time.”
      (4)
Insert at the end—
5
“(3)
For the purposes of this section—
(a)
“non-qualifying territory” has the meaning given by
paragraph 5E of Schedule 28AA to ICTA,
(b)
a non-qualifying territory is “non-taxing” if companies are
not under its law liable to tax by reason of domicile, residence
10
or place of management, and
(c)
“resident for tax purposes” means liable, under the law of the
non-qualifying territory, to tax there by reason of domicile,
residence or place of management.”
Sections 375 and 376
15
3     (1)
Section 375 (late interest: loans to close companies by participators etc) is
amended as follows.
      (2)
In subsection (1), insert at the end (not as part of paragraph (b))—

“and, where subsection (4A) applies, the non-qualifying territory
condition is met.”
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      (3)
In subsections (3)(b) and (4)(b), after “resident” insert “for tax purposes”.
      (4)
After subsection (4) insert—
“(4A)
This subsection applies if C is a company; and the non-qualifying
territory condition is that C is—
(a)
resident for tax purposes in a non-qualifying territory at any
25
time in the actual accrual period, or
(b)
effectively managed in a non-taxing non-qualifying territory
at any such time.”
4     (1)
Section 376 (interpretation of section 375) is amended as follows.
      (2)
In subsection (5), for the definition of “resident” substitute—
30
““resident for tax purposes” means liable, under the law of the
non-qualifying territory, to tax there by reason of domicile,
residence or place of management, and”.
      (3)
Insert at the end—
“(6)
For the purposes of section 375, a non-qualifying territory is “non-
35
taxing” if companies are not under its law liable to tax by reason of
domicile, residence or place of management.”
Section 377
5     (1)
Section 377 (late interest: party to loan relationship having major interest in
other party) is amended as follows.
40
      (2)
The existing provision becomes subsection (1) of that section.
      (3)
In that subsection, omit the “and” at the end of paragraph (a) and insert at

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Schedule 20 — Loan relationships: connected parties
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the end “and
(c)
the condition in subsection (2) is met.”
      (4)
After that subsection insert—
“(2)
The condition is that C is—
(a)
resident for tax purposes in a non-qualifying territory at any
5
time in the actual accrual period, or
(b)
effectively managed in a non-taxing non-qualifying territory
at any such time.
(3)
For the purposes of this section—
(a)
“non-qualifying territory” has the meaning given by
10
paragraph 5E of Schedule 28AA to ICTA,
(b)
a non-qualifying territory is “non-taxing” if companies are
not under its law liable to tax by reason of domicile, residence
or place of management, and
(c)
“resident for tax purposes” means liable, under the law of the
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non-qualifying territory, to tax there by reason of domicile,
residence or place of management.”
Section 407
6     (1)
Section 407 (postponement until redemption of debits for connected
companies’ deeply discounted securities) is amended as follows.
20
      (2)
In subsection (1)—
(a)
in paragraph (b), after “company” insert “(“the creditor company”)”,
(b)
omit the “and” at the end of paragraph (d), and
(c)
insert at the end “, and
(f)
the condition in subsection (1A) is met.”
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      (3)
After that subsection insert—
“(1A)
The condition is that the creditor company is—
(a)
resident for tax purposes in a non-qualifying territory at any
time in the relevant period, or
(b)
effectively managed in a non-taxing non-qualifying territory
30
at any such time.”
      (4)
Insert at the end—
“(6)
For the purposes of this section—
(a)
“non-qualifying territory” has the meaning given by
paragraph 5E of Schedule 28AA to ICTA,
35
(b)
a non-qualifying territory is “non-taxing” if companies are
not under its law liable to tax by reason of domicile, residence
or place of management, and
(c)
“resident for tax purposes” means liable, under the law of the
non-qualifying territory, to tax there by reason of domicile,
40
residence or place of management.”

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Schedule 20 — Loan relationships: connected parties
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Sections 409 and 410
7
Section 409(1) (postponement until redemption of debits for close
companies’ deeply discounted securities)—
(a)
in paragraph (b), after “there is a person” insert “(“C”)”, and
(b)
insert at the end (not as part of paragraph (d))—
5

“and, where it applies, the non-qualifying territory condition
is met.”
8     (1)
Section 410 (interpretation of section 409) is amended as follows.
      (2)
In subsections (3)(b) and (4)(b), after “resident” insert “for tax purposes”.
      (3)
After subsection (4) insert—
10
“(4A)
The non-qualifying territory condition applies if C is a company; and
the non-qualifying territory condition is that C is—
(a)
resident for tax purposes in a non-qualifying territory at any
time in the relevant period, or
(b)
effectively managed in a non-taxing non-qualifying territory
15
at any such time.”
      (4)
In subsection (5), for the definition of “resident” substitute—
““resident for tax purposes” means liable, under the law of the
non-qualifying territory, to tax there by reason of domicile,
residence or place of management, and”.
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      (5)
After that subsection insert—
“(5A)
For the purposes of this section, a non-qualifying territory is “non-
taxing” if companies are not under its law liable to tax by reason of
domicile, residence or place of management.”
Commencement and transitional provision
25
9     (1)
The amendments made by this Schedule have effect where the actual accrual
period (within the meaning of Chapter 8 of Part 5 of CTA 2009), or the
relevant period (within the meaning of section 407(1) or 409(1) of that Act),
begins on or after 1 April 2009.
      (2)
But a company may elect that any or all of the amendments made by this
30
Schedule do not have effect in relation to the first accounting period for
which they would otherwise apply.
      (3)
However, no election may be made under sub-paragraph (2) in relation to
an accounting period ending after 31 March 2011.
      (4)
An election under sub-paragraph (2) must be made in the corporation tax
35
return for the accounting period in relation to which the election is to have
effect.