Finance Bill

House of Commons

Session 2008 - 09
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Other Bills before Parliament

Finance Bill

Finance Bill
Schedule 15 — Tax treatment of financing costs and income
Part 10 — Other interpretative provisions
188

(b)
is not resident in the United Kingdom and is carrying on a trade in
the United Kingdom through a permanent establishment in the
United Kingdom.
      (5)
Condition B is that the company is either—
(a)
the ultimate parent of the worldwide group, or
5
(b)
a relevant subsidiary of the ultimate parent of the worldwide group.
      (6)
A company is a “relevant subsidiary” of the ultimate parent of the
worldwide group if the company is a member of the worldwide group
and—
(a)
the company is a 75% subsidiary of the ultimate parent,
10
(b)
the ultimate parent is beneficially entitled to at least 75% of any
profits available for distribution to equity holders of the company, or
(c)
the ultimate parent would be beneficially entitled to at least 75% of
any assets of the company available for distribution to its equity
holders on a winding-up.
15
      (7)
Schedule 18 to ICTA (equity holders and profits or assets available for
distribution) applies in relation to sub-paragraph (6)(b) and (c) as it applies
in relation to section 413(7) of that Act.
Financial statements of the worldwide group
87    (1)
This paragraph applies for the purposes of this Schedule.
20
      (2)
References to financial statements of the worldwide group are to
consolidated financial statements of the ultimate parent and its subsidiaries;
and references to a balance sheet of the worldwide group are to be read
accordingly.
      (3)
References to a period of account of the worldwide group are to a period in
25
respect of which financial statements of the worldwide group are drawn up.
Non-compliant financial statements of worldwide group
88    (1)
This paragraph applies where—
(a)
financial statements of the worldwide group are drawn up in respect
of a period,
30
(b)
those financial statements are not acceptable, and
(c)
the amounts disclosed in those financial statements are materially
different from those that would be disclosed in IAS financial
statements for the period.
      (2)
This Schedule (apart from this paragraph) applies as if IAS financial
35
statements had been drawn up in respect of the period.
      (3)
For the purposes of this paragraph financial statements are “acceptable” if—
(a)
they are drawn up in accordance with international accounting
standards,
(b)
they meet such conditions relating to accounting standards, or
40
accounting principles or practice, as may be specified in regulations
made by the Commissioners, or
(c)
conditions A to C are met.
      (4)
Condition A is that—

Finance Bill
Schedule 15 — Tax treatment of financing costs and income
Part 10 — Other interpretative provisions
189

(a)
the companies whose results are included in the financial statements,
and
(b)
the companies whose results would be included in IAS financial
statements of the worldwide group for the same period, were such
statements drawn up,
5

are the same.
      (5)
Condition B is that—
(a)
the transactions whose results are reflected in the amounts
mentioned in paragraph 73(1)(a) to (g) in the financial statements,
and
10
(b)
the transactions whose results would be reflected in those amounts
in IAS financial statements of the worldwide group for the same
period, were such statements drawn up,

are the same.
      (6)
Condition C is that the amounts mentioned in paragraph 73(1)(a) to (d) in
15
the financial statements are calculated using the effective interest method.
      (7)
In this paragraph, references to IAS financial statements of the worldwide
group for a period are to financial statements of the group for the period
drawn up in accordance with international accounting standards.
Non-existent financial statements of worldwide group
20
89    (1)
This paragraph applies where financial statements of the worldwide group
are not drawn up in respect of a period (“the relevant period”).
      (2)
If the relevant period is 12 months or less, this Schedule (apart from this
paragraph) applies as if IAS financial statements had been drawn up in
respect of the relevant period.
25
      (3)
If the relevant period is more than 12 months, this Schedule (apart from this
paragraph) applies as if IAS financial statements had been drawn up in
respect of each period to which sub-paragraph (4) applies.
      (4)
This sub-paragraph applies to a period if—
(a)
it is the first period of 12 months falling within the relevant period,
30
(b)
it is a period of 12 months falling within the relevant period that
begins immediately after the end of the period mentioned in
paragraph (a), or immediately after the end of a period determined
under this paragraph, or
(c)
it is a period of less than 12 months that—
35
(i)
begins immediately after the end of the period mentioned in
paragraph (a) or after the end of a period determined under
paragraph (b), and
(ii)
ends at the end of the relevant period.
      (5)
In this paragraph, references to IAS financial statements of the worldwide
40
group for a period are to financial statements of the group for the period
drawn up in accordance with international accounting standards.
References to amounts disclosed in financial statements
90    (1)
References in this Schedule to amounts disclosed in financial statements
include an amount comprised in an amount so disclosed.
45

Finance Bill
Schedule 15 — Tax treatment of financing costs and income
Part 10 — Other interpretative provisions
190

      (2)
References in this Schedule to amounts disclosed in financial statements do
not include, in the case of an amount that—
(a)
is an amount mentioned in paragraph 73(1)(a) to (g), and
(b)
has been capitalised and is accordingly included in the balance sheet
comprised in the financial statements,
5

any part of that amount that was included in a balance sheet comprised in
financial statements for an earlier period.
      (3)
References in this Schedule to amounts disclosed in financial statements do
not include—
(a)
any amount disclosed in respect of a group pension scheme, or
10
(b)
any amount disclosed in respect of any entity that is not a member of
the group.
Translation of amounts disclosed in financial statements into sterling
91    (1)
References in this Schedule (except in Part 2) to an amount disclosed in
financial statements for a period are, where the amount is expressed in a
15
currency other than sterling, to that amount translated into its sterling
equivalent.
      (2)
The exchange rate by reference to which the amount is to be translated is the
average rate of exchange for the period calculated from daily spot rates.
Expressions taking their meaning from international accounting standards
20
92    (1)
For the purposes of this Schedule the following expressions have the
meaning for the time being given by international accounting standards—
“effective interest method”;
“entity”;
“parent”;
25
“subsidiary”.
      (2)
The Commissioners may by order amend this paragraph.
Meaning of “relevant accounting period”
93
For the purposes of this Schedule a “relevant accounting period” of a
company, in relation to a period of account of the worldwide group, means
30
any accounting period that falls wholly or partly within the period of
account of the worldwide group.
Meaning of “the Commissioners” and “HMRC”
94
In this Schedule—
“the Commissioners” means the Commissioners for Her Majesty’s
35
Revenue and Customs;
“FSA Handbook” means the Handbook made by the Financial Services
Authority under FISMA 2000;
“HMRC” means Her Majesty’s Revenue and Customs.

Finance Bill
Schedule 15 — Tax treatment of financing costs and income
Part 11 — Consequential amendments and commencement
191

Part 11
Consequential amendments and commencement
Consequential amendment
95
In section 98 of TMA 1970 (special returns etc), in the first column of the
Table, at the end insert—
5
“regulations under paragraph 24, 25, 26, 36 or 38 of Schedule 15 to FA
2009.”
96
In paragraph 5 of Schedule 28AA to ICTA (provision not at arm’s length),
after sub-paragraph (8) (as inserted by paragraph 14 of Schedule 14 to this
Act) insert—
10
    “(9)
For the purposes of sub-paragraph (1), Schedule 15 to FA 2009 (tax
treatment of financing costs and income) is to be disregarded.”
Commencement
97
This Schedule has effect in relation to periods of account of the worldwide
group—
15
(a)
that begin on or after 1 January 2010, or
(b)
to which paragraph 98 applies.
Anti-avoidance: change of period of account of worldwide group
98
This paragraph applies to a period of account of the worldwide group (“the
relevant period of account”) if—
20
(a)
the ultimate parent of the group changes the date to which financial
statements of the group are drawn up,
(b)
as a result of the change, the relevant period of account—
(i)
begins before 1 January 2010, and
(ii)
includes a period that would, if the change had not been
25
made, have fallen within a period of account beginning on or
after that date, and
(c)
the main purpose, or one of the main purposes, of the ultimate parent
of the group in making the change is to secure that the first period of
account in relation to which this Schedule has effect does not include
30
any period falling within the relevant period of account.
Transitional provision
99    (1)
An amount that would, apart from this paragraph, meet condition A, B or C
in paragraph 54 (definition of “financing expense amount”) does not meet
that condition if it is a debit that, but for a relevant enactment, would be
35
brought into account for the purposes of corporation tax in an accounting
period beginning before 1 January 2010.
      (2)
For this purpose the following are “relevant enactments”—
(a)
section 373 of CTA 2009 (late interest treated as not accruing until
paid in some cases),
40
(b)
section 407 of that Act (postponement until redemption of debits for
connected companies’ deeply discounted securities),

Finance Bill
Schedule 16 — Controlled foreign companies
Part 1 — Abolition of acceptable distribution policy exemption
192

(c)
section 409 of that Act (postponement until redemption of debits for
close companies’ deeply discounted securities), and
(d)
regulation 3A of the Loan Relationships and Derivative Contracts
(Change of Accounting Practice) Regulations 2004 (S.I. 2004/3271)
(prescribed debits and credits brought into account over prescribed
5
period).
      (3)
An amount that would, apart from this paragraph, meet condition A, B or C
in paragraph 55 (definition of “financing income amount”) does not meet
that condition if it is a credit that, but for the regulation mentioned in sub-
paragraph (2)(d) of this paragraph, would be brought into account for the
10
purposes of corporation tax in an accounting period beginning before 1
January 2010.
Schedule 16
Section 36

Controlled foreign companies
Part 1
15
Abolition of acceptable distribution policy exemption
Abolition of acceptable distribution policy exemption
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).
20
      (3)
In Schedule 25 (supplementary provision in relation to cases where
apportionment under section 747(3) does not apply), omit Part 1 (acceptable
distribution policy).
Consequential amendments
2     (1)
ICTA is amended as follows.
25
      (2)
Omit section 754A (returns where it is not established whether acceptable
distribution policy applies).
      (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
30
far as representing an ADP dividend of a CFC).
      (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—
35
(a)
in paragraph 1(3A), paragraph (b)(ii) (and the “and” before it) and
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),

Finance Bill
Schedule 16 — Controlled foreign companies
Part 1 — Abolition of acceptable distribution policy exemption
193

(d)
paragraph (b) of paragraph 4(1A) (and the “or” before it),
(e)
paragraph 4(3A),
(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).
5
3
In paragraph 116 of Schedule 29 to FA 2002 (assumptions for calculating
chargeable profits of CFCs in connection with intangible fixed assets), omit
paragraph (b) of sub-paragraph (2) (and the “or” before it).
4
In section 870 of CTA 2009 (assumptions for calculating chargeable profits of
CFCs in connection with intangible fixed assets), omit—
10
(a)
paragraph (b) of subsection (3) (and the “or” before it), and
(b)
subsection (7).
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,
15
(c)
in FA 1996, in Schedule 36, paragraphs 3(3), (8) and (9) and 4(2) and
(3)(b),
(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,
20
(g)
in FA 2001, section 82,
(h)
in FA 2005, sections 89 and 90,
(i)
in FA 2007, in Schedule 7, paragraph 56,
(j)
in FA 2008, section 64(4) and, in Schedule 17, paragraph 29, and
(k)
in this Act, section 57(5).
25
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.
Periods straddling 1 July 2009
7     (1)
Where a controlled foreign company has an accounting period (“the
30
straddling accounting period”) that—
(a)
begins before 1 July 2009, and
(b)
ends on or after that date,

the straddling accounting period is to be treated as split.
      (2)
Where this paragraph provides that the straddling accounting period is to
35
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
after that date are to be treated for the purposes of Chapter 4 of Part
17, and Part 18, of ICTA as separate accounting periods, and
40
(b)
the company’s chargeable profits for the straddling accounting
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.

Finance Bill
Schedule 16 — Controlled foreign companies
Part 2 — Amendment of exempt activities exemption
194

Transitional provision
8     (1)
The amendments made by this Part do not affect the application of sections
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.
5
      (2)
Sub-paragraph (3) applies where a dividend of a controlled foreign
company is paid during the second of the two accounting periods provided
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
10
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
by paragraph 7(2).
Interpretation
9
The following expressions have the same meaning for the purposes of this
15
Part as they have for the purposes of Chapter 4 of Part 17 of ICTA—
“accounting period”;
“chargeable profits”;
“controlled foreign company”;
“creditable tax”.
20
Part 2
Amendment of exempt activities exemption
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)—
25
(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”,
(c)
omit sub-paragraphs (4) to (4BB),
(d)
in sub-paragraph (5)—
(i)
for “sub-paragraphs (3) to (4B)” substitute “sub-paragraph
30
(3)”, and
(ii)
omit “or superior holding company”,
(e)
in sub-paragraph (5ZA), omit “or superior holding company”,
(f)
in sub-paragraph (5ZB), omit “or superior holding company”,
(g)
in sub-paragraph (5A), for “sub-paragraphs (3) to (4B)” substitute
35
“sub-paragraph (3)”,
(h)
omit sub-paragraph (5B),
(i)
in sub-paragraph (5C), omit “or superior holding company”, and
(j)
in sub-paragraph (6), for “sub-paragraphs (1) to (4BB) above”
substitute “this paragraph”.
40
      (3)
In paragraph 8(3), omit “or superior holding company”.
      (4)
In paragraph 12 (definition of “holding company” etc)—