Finance Bill

House of Commons

Session 2008 - 09
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Finance Bill

Finance Bill
Schedule 14 — Corporation tax treatment of company distributions
Part 2 — Other amendments
146

(b)
references in that Part to the payer are to be treated as
references to the company that pays the dividend of which
the manufactured dividend is representative.”
12    (1)
Paragraph 4 of Schedule 23A (manufactured overseas dividends) is
amended as follows
5
      (2)
For sub-paragraph (1A) substitute—
   “(1A)
Sub-paragraphs (1C) to (1E) apply where the overseas dividend of
which the manufactured overseas dividend is representative is
taxable.
     (1B)
For this purpose an overseas dividend is “taxable” if—
10
(a)
it is received by the overseas dividend manufacturer and
the charge to corporation tax on income applies to it, or
(b)
it is received by a person other than the overseas dividend
manufacturer and the charge to corporation tax on income
would have applied to it if it had been received by the
15
overseas dividend manufacturer.
     (1C)
Where the overseas dividend manufacturer carries on a trade to
which the manufactured overseas dividend relates, and neither
sub-paragraph (1D) nor (1E) applies, the manufactured overseas
dividend is to be treated as an expense of the trade.
20
     (1D)
Where the overseas dividend manufacturer has investment
business to which the manufactured overseas dividend relates, the
manufactured overseas dividend is to be treated as expenses of
management of the business for the purposes of Part 16 of CTA
2009.
25
     (1E)
Where the overseas dividend manufacturer carries on life
assurance business to which the manufactured overseas dividend
relates, the manufactured overseas dividend is to be treated as if,
to the extent that it is referable to basic life assurance and general
annuity business, it were an expense payable falling to be brought
30
into account at step 3 of section 76(7).
     (1F)
For the purposes of sub-paragraph (1E), the manufactured
overseas dividend is to be treated as referable to basic life
assurance and general annuity business to the extent that the
overseas dividend of which it is representative—
35
(a)
is received by the overseas dividend manufacturer and is
so referable by virtue of section 432A, or
(b)
is received by a person other than the dividend
manufacturer, and would have been so referable by virtue
of section 432A if it had it been received by the dividend
40
manufacturer.”
      (3)
After sub-paragraph (4) insert—
   “(4A)
In its application in relation to a manufactured overseas dividend
by virtue of sub-paragraph (4), Part 9A of the Corporation Tax Act
2009 (company distributions) has effect—
45
(a)
as if the manufactured overseas dividend were an overseas
dividend on the overseas securities in question, and

Finance Bill
Schedule 14 — Corporation tax treatment of company distributions
Part 2 — Other amendments
147

(b)
subject to the following modification.
     (4B)
The modification is that—
(a)
the definition of “the payer” in section 931T is to be treated
as omitted, and
(b)
references in that Part to the payer are to be treated as
5
references to the company that pays the dividend of which
the manufactured overseas dividend is representative.”
13
In paragraph 5(3)(c) of Schedule 27 (distributing funds: United Kingdom
equivalent profits)—
(a)
for “section 1285” substitute “Chapter 2 or 3 of Part 9A”, and
10
(b)
omit “in like manner as if they were dividends or distributions of a
company resident outside the United Kingdom”.
14
In paragraph 5 of Schedule 28AA (provision not at arm’s length), after sub-
paragraph (7) insert—
    “(8)
For the purposes of sub-paragraph (1), section 209(2)(d) (excessive
15
interest etc treated as distribution) is to be disregarded.”
FA 1989
15
FA 1989 is amended as follows.
16    (1)
Section 85A (life assurance: excess adjusted Case I profits) is amended as
follows.
20
      (2)
In paragraph (a) of subsection (6), for “distributions received by the
company in the accounting period from companies resident in the United
Kingdom” substitute “non-taxable distributions received by the company in
the accounting period”.
      (3)
After that subsection insert—
25
“(6A)
In this section “non-taxable distribution” means—
(a)
a distribution that is exempt for the purposes of Part 9A of the
Corporation Tax Act 2009 (company distributions), and
(b)
does not include any amount withheld from the distribution
on account of tax payable under the laws of a territory
30
outside the United Kingdom.”
17    (1)
Section 89 (life assurance: policy holders’ share of profits) is amended as
follows.
      (2)
In subsection (2)(b), for “distributions received from companies resident in
the United Kingdom” substitute “non-taxable distributions received”.
35
      (3)
In subsection (7), after the definition of “Case I profits” insert—
““non-taxable distribution” has the same meaning as in section
85A.”
FA 1994
18
In section 219 of FA 1994 (taxation of profits of Lloyd’s underwriters etc)—
40
(a)
in subsection (3), omit “Subject to subsection (4A) below,”, and
(b)
omit subsections (4), (4A) and (4C).

Finance Bill
Schedule 14 — Corporation tax treatment of company distributions
Part 2 — Other amendments
148

FA 2006
19
In Schedule 17 to FA 2006 (group REITs modifications), in paragraph 32
(non-UK resident members), omit sub-paragraph (7).
CTA 2009
20
CTA 2009 is amended as follows.
5
21
In section 1(2) (overview of Act), before the “and” at the end of paragraph (f)
insert—
“(fa)
Part 9A (company distributions),”.
22
For section 130 (traders receiving distributions etc) substitute—
“Insurers
10
130
Insurers receiving distributions etc
(1)
This section applies for the purpose of calculating the trading profits
of—
(a)
insurance business other than life assurance business, or
(b)
any category of such business.
15
(2)
A receipt that is exempt for the purposes of Part 9A (company
distributions) is not brought into account in calculating the profits of
the trade.”
23
In section 932(1) (overview of Part 10), omit paragraph (a).
24
Omit Chapter 2 of Part 10 (taxation of dividends from non-UK resident
20
companies).
25    (1)
Section 974 (charge to tax in relation to sale of foreign dividend coupons) is
amended as follows.
      (2)
In subsection (3)(a), after “realisation of” insert “taxable”.
      (3)
In subsection (4), after “sale of” insert “taxable”.
25
      (4)
After subsection (4) insert—
“(4A)
For the purposes of subsections (3) and (4) a dividend coupon is
“taxable” if the associated dividend would not have been exempt for
the purposes of Part 9A (company distributions) had it been paid to
the holder of the shares.”
30
26
In section 982(1)(a) and (2)(a) (boundary provisions for Part 10), omit “2,”.
27
Omit section 1285 (exemption for distributions of UK resident companies).
28
In section 1310(4) (orders and regulations subject to affirmative resolution
procedure in House of Commons), before paragraph (a) insert—
“(za)
section 931C (meaning of “qualifying territory”),”.
35
29
In Schedule 4 (index of defined expressions), insert at the appropriate
places—

Finance Bill
Schedule 14 — Corporation tax treatment of company distributions
Part 3 — Commencement etc
149

“ordinary share (in Part 9A)
section 931U”;

“the payer (in Part 9A)
section 931T”;

“the recipient (in Part 9A)
section 931T”;

“redeemable (in Part 9A)
section 931U”;

“a relevant person (in Part 9A)
section 931T”;

5

“scheme (in Part 9A)
section 931V”;

“small company (in Part 9A)
section 931S”;

“tax advantage scheme (in Part 9A)
section 931V”.

Consequential repeals
30
In consequence of the amendments made by this Schedule, omit—
10
(a)
in F(No.2)A 1997, section 22(2) and (3)(a),
(b)
in FA 2000, in Schedule 30, paragraphs 8(4)(c), 21 and 22,
(c)
in FA 2001, in Schedule 27, paragraphs 1(3), 4 and 5,
(d)
in FA 2008, in Schedule 39, paragraph 25, and
(e)
in CTA 2009, in Schedule 1, paragraphs 174(4)(c), 252 to 254 and
15
392(4) and (5).
Part 3
Commencement etc
Commencement
31
The amendments made by this Schedule have effect in relation to
20
distributions paid on or after 1 July 2009 (“the commencement date”).
Transitional provision
32    (1)
This paragraph contains transitional provision in relation to the
commencement of Part 9A of CTA 2009 (as inserted by paragraph 1).
      (2)
In section 931H—
25
(a)
a reference to a transaction that is one of a series of transactions does
not include a transaction where each transaction in the series was
entered into more than 12 months before the commencement date,
(b)
a reference to any other transaction does not include a transaction
entered into more than 12 months before the commencement date,
30
and
(c)
a reference to a dividend that falls into (or does not fall into) an
exempt class otherwise than by virtue of that section is, in relation to
a dividend paid before the commencement date, to a dividend that
would have so fallen (or not so fallen) had that section had effect in
35
relation to the dividend.
      (3)
In section 931J—

Finance Bill
Schedule 15 — Tax treatment of financing costs and income
Part 1 — Introduction
150

(a)
a reference to profits available for distribution that arose at any time
does not include such profits that arose in a period of account ending
more than 12 months before the commencement date, and
(b)
a reference to a dividend that falls into (or does not fall into) an
exempt class otherwise than by virtue of section 931E is, in relation
5
to a dividend paid before the commencement date, to a dividend that
would have so fallen (or not so fallen) had that section had effect in
relation to the dividend.
Schedule 15
Section 35

Tax treatment of financing costs and income
10
Part 1
Introduction
Overview
1     (1)
Part 2 contains provision for determining whether this Schedule applies in
relation to any particular period of account of the worldwide group.
15
      (2)
Part 3 provides for the disallowance of certain financing expenses of relevant
group companies arising in a period of account of the worldwide group to
which this Schedule applies.

The total of the amounts disallowed is the amount by which the tested
expense amount (defined in Part 8) exceeds the available amount (defined in
20
Part 9).
      (3)
Part 4 provides for the exemption from the charge to corporation tax of
certain financing income of UK group companies where financing expenses
of relevant group companies have been disallowed under Part 3.
      (4)
Part 5 provides for the exemption from the charge to corporation tax of
25
certain intra-group financing income of UK group companies where the
paying company is denied a deduction for tax purposes otherwise than
under this Schedule.
      (5)
Part 6 contains rules connected with tax avoidance.
      (6)
Part 7 defines “financing expense amounts” and “financing income
30
amounts” of a company for a period of account of the worldwide group,
which are amounts that would, apart from this Schedule, be brought into
account for the purposes of corporation tax.
      (7)
Part 8 defines the “tested expense amount” and the “tested income amount”
of the worldwide group for a period of account of the group, which are totals
35
deriving from the financing expense amounts and financing income
amounts of certain group companies.
      (8)
Part 9 defines the “available amount” for a period of account of the
worldwide group, which derives from certain financing costs disclosed in
the group’s consolidated financial statements.
40
      (9)
Part 10 contains further interpretative provisions.

Finance Bill
Schedule 15 — Tax treatment of financing costs and income
Part 2 — Application of this Schedule
151

     (10)
Part 11 contains consequential provision and provision about
commencement.
Part 2
Application of this Schedule
Application of Schedule
5
2     (1)
This Schedule applies to any period of account of the worldwide group for
which—
(a)
the UK net debt of the group (see paragraphs 3 and 4), exceeds
(b)
75% of the worldwide gross debt of the group (see paragraph 5).
      (2)
But a period of account that is within sub-paragraph (1) is not a period of
10
account to which this Schedule applies if the worldwide group is a
qualifying financial services group in that period (see paragraph 7).
      (3)
The Treasury may by order amend sub-paragraph (1)(b) by substituting a
higher or lower percentage for the percentage for the time being specified
there.
15
      (4)
No order may be made under sub-paragraph (3) unless a draft of the
statutory instrument containing it has been laid before, and approved by a
resolution of, the House of Commons.
      (5)
An order under sub-paragraph (3) may only have effect in relation to
periods of account of the worldwide group beginning after the date on
20
which the order is made.
UK net debt of the worldwide group for period of account of worldwide group
3     (1)
The reference in paragraph 2 to the “UK net debt” of the worldwide group
for a period of account of the group is to the sum of the net debt amounts of
each company that was a relevant group company at any time during the
25
period.
      (2)
In this paragraph “net debt amount”, in relation to a company, means the
average of—
(a)
the net debt of the company as at that company’s start date, and
(b)
the net debt of the company as at that company’s end date.
30

For the meaning of “net debt”, see paragraph 4.
      (3)
Where the amount determined in accordance with sub-paragraph (2) is less
than £3 million, the net debt amount of the company is nil.
      (4)
Where a company is dormant (within the meaning given by section 1169 of
the Companies Act 2006) at all times in the period beginning with that
35
company’s start date and ending with that company’s end date, the net debt
amount of the company is nil.
      (5)
The Treasury may by order amend sub-paragraph (3) by substituting a
higher or lower amount for the amount for the time being specified there.
      (6)
No order may be made under sub-paragraph (5) unless a draft of the
40
statutory instrument containing it has been laid before, and approved by a
resolution of, the House of Commons.

Finance Bill
Schedule 15 — Tax treatment of financing costs and income
Part 2 — Application of this Schedule
152

      (7)
An order under sub-paragraph (5) may only have effect in relation to
periods of account of the worldwide group beginning after the date on
which the order is made.
      (8)
In this Part—
(a)
“the start date” of a company means the first day of the period of
5
account of the worldwide group or, if later, the first day in the period
on which the company was a relevant group company, and
(b)
“the end date” of a company means the last day of the period of
account of the worldwide group or, if earlier, the last day in the
period on which the company was a relevant group company.
10
Net debt of a company
4     (1)
References in paragraph 3 to the “net debt” of a company as at any date are
to—
(a)
the sum of the company’s relevant liabilities as at that date, less
(b)
the sum of the company’s relevant assets as at that date.
15
      (2)
The amount determined in accordance with sub-paragraph (1) may be a
negative amount.
      (3)
For the purposes of this paragraph a company’s “relevant liabilities” as at
any date are the amounts that are disclosed in the balance sheet of the
company as at that date in respect of—
20
(a)
amounts borrowed (whether by way of overdraft or other short term
or long term borrowing),
(b)
liabilities in respect of finance leases, or
(c)
amounts of such other description as may be specified in regulations
made by the Commissioners.
25
      (4)
For the purposes of this paragraph a company’s “relevant assets” as at any
date are the amounts that are disclosed in the balance sheet of the company
as at that date in respect of—
(a)
cash and cash equivalents,
(b)
amounts loaned (whether by way of overdraft or other short term or
30
long term loan),
(c)
net investments, or net cash investments, in finance leases,
(d)
securities of Her Majesty’s government or of the government of any
other country or territory, or
(e)
amounts of such other description as may be specified in regulations
35
made by the Commissioners.
      (5)
Expressions used in sub-paragraphs (3)(a) and (b) and (4)(a) to (c) have the
meaning for the time being given by generally accepted accounting practice.
Worldwide gross debt of worldwide group for period of account of worldwide group
5     (1)
The reference in paragraph 2 to the “worldwide gross debt” of the
40
worldwide group for a period of account of the group is to the average of—
(a)
the sum of the relevant liabilities of the group as at the day before the
first day of the period, and
(b)
the sum of the relevant liabilities of the group as at the last day of the
period.
45