Finance Bill

House of Commons

Session 2008 - 09
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Finance Bill

Finance Bill
Schedule 16 — Controlled foreign companies
Part 2 — Amendment of exempt activities exemption
195

(a)
in sub-paragraph (1), for “paragraph 12A below and in” substitute
“in”,
(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)
5
and (4)” substitute “sub-paragraph (3)”, and
(ii)
in paragraph (a), omit “or superior holding company”.
      (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,
10
32(2) and (3)(a) and 33,
(b)
in FA 2000, in Schedule 31, paragraph 7(2) to (7), (10) and (11), and
(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
15
periods of controlled foreign companies beginning on or after the
commencement date.
      (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
20
(b)
in relation to a qualifying holding company, 1 July 2011.
Meaning of “qualifying holding company” and “exempt holding company”
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.
25
      (2)
For the purposes of sub-paragraph (1), paragraphs 14 and 15 are to be
disregarded.
      (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
30
of Schedule 25 to ICTA, engaged in exempt activities, and
(b)
paragraph 6(4) or (4A) of that Schedule applies to the company in
relation to the period.
Periods straddling 1 July 2009
14    (1)
Where a controlled foreign company has an accounting period (“the
35
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
40
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

Finance Bill
Schedule 16 — Controlled foreign companies
Part 2 — Amendment of exempt activities exemption
196

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
5
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
10
(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
15
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,
20
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—
25
(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
30
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.
      (3)
Condition A is that at all material times the company was a member of a
35
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)
Condition B is that amount X does not exceed amount Y.
40
      (6)
Amount X is the amount of the company’s gross income in the accounting
period in question that is non-qualifying gross income.

Finance Bill
Schedule 16 — Controlled foreign companies
Part 2 — Amendment of exempt activities exemption
197

      (7)
Amount Y is (subject to sub-paragraph (8))—
(a)
where there are three reference periods in relation to the company,
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
5
greater of the amounts of the company’s non-qualifying gross
income in each of those periods,
(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
10
(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
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
15
to which amount Y is determined, amount Y is to be multiplied by—

where—
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
20
is determined.
      (9)
In this paragraph—
“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
25
period of the company that—
(a)
is one of the last three accounting periods of the company to
end before 9 December 2008, and
(b)
is an accounting period in relation to which the company is
an exempt holding company.
30
Meaning of “ultimate corporate parent” and “group” for the purposes of paragraph 17(3)
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
(b)
is not a subsidiary (whether direct or indirect) of another body
35
corporate.
      (2)
A reference in this paragraph to a body corporate does not include—
(a)
the Crown,
(b)
a Minister of the Crown,
(c)
a government department,
40
(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.

Finance Bill
Schedule 16 — Controlled foreign companies
Part 3 — Reduction in chargeable profits for certain financing income
198

      (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
5
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.
10
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”;
15
“control”;
“controlled foreign company”;
“creditable tax”;
“gross income”.
Part 3
20
Reduction in chargeable profits for certain financing income
Reduction in chargeable profits for certain financing income
21
ICTA is amended as follows.
22
In the following provisions, after “751A” insert “or 751AA”—
(a)
section 747(3A) and (5A) (imputation of chargeable profits and
25
creditable tax of controlled foreign companies),
(b)
section 749(10) (residence),
(c)
section 749A(9) (elections and designations under section 749:
supplementary provisions), and
(d)
section 750(3)(ab) (territories with a lower level of taxation).
30
23
After section 751A (reduction in chargeable profits for certain activities of
EEA business establishments) insert—
“751AA
Reduction in chargeable profits for certain financing income
(1)
This section applies if—
(a)
an apportionment under section 747(3) falls to be made as
35
regards an accounting period (“the relevant accounting
period”) of a controlled foreign company,
(b)
the chargeable profits of the controlled foreign company for
the relevant accounting period would, apart from this
section, include an amount of income in respect of a payment
40
made by another company (“the payer”),

Finance Bill
Schedule 16 — Controlled foreign companies
Part 3 — Reduction in chargeable profits for certain financing income
199

(c)
the amount that the payer brings into account for the
purposes of corporation tax in respect of the payment is
reduced (in part or in full) by virtue of Part 3 of Schedule 15
to FA 2009 (tax treatment of financing costs and income), and
(d)
a company resident in the United Kingdom (“the UK resident
5
company”) has a relevant interest in the controlled foreign
company in the relevant accounting period.
(2)
The UK resident company may make an application to the
Commissioners for Her Majesty’s Revenue and Customs for the
chargeable profits of the controlled foreign company for the relevant
10
accounting period (“the chargeable profits”) to be reduced by an
amount (“the specified amount”) specified in the application
(including to nil).
(3)
If the Commissioners grant the application—
(a)
the chargeable profits are treated as reduced by the specified
15
amount, and
(b)
the controlled foreign company’s creditable tax (if any) for
that period is treated as reduced by so much of that tax as, on
a just and reasonable basis, relates to the reduction in the
chargeable profits,
20

for the purpose of applying section 747(3) to (5) for determining the
sum (if any) chargeable on the UK resident company under section
747(4)(a) (but for no other purpose).
(4)
The Commissioners may grant the application only if they are
satisfied that the specified amount does not exceed the relevant
25
amount.
(5)
In subsection (4) “the relevant amount” means the amount (if any) by
which it is just and reasonable that the chargeable profits should be
treated as reduced, having regard to the effect of Parts 3 and 4 of
Schedule 15 to FA 2009 on amounts brought into account for the
30
purposes of corporation tax by the payer, or any other company.”
24    (1)
Section 751B (supplementary) is amended as follows.
      (2)
In the heading, for “Section 751A” substitute “Sections 751A and 751AA”.
      (3)
In subsections (1), (2), (3) (in each place) and (5), after “751A” insert “or
751AA”.
35
      (4)
In subsection (8)—
(a)
after ““the relevant amount”” insert “—
(a)
in the case of an appeal in respect of the refusal of an
application under section 751A,”, and
(b)
after “mentioned in that subsection” insert “, and
40
(b)
in the case of an appeal in respect of the refusal of an
application under section 751AA, has the meaning
given by subsection (5) of that section.”
      (5)
In subsection (10)—
(a)
after “751A” insert “or 751AA”, and
45
(b)
after “751A(1)” insert “or 751AA(1)”.

Finance Bill
Schedule 17 — International movement of capital
Part 2 — Reporting requirement
200

Commencement
25    (1)
The amendments made by this Part have effect in relation to accounting
periods of controlled foreign companies ending on or after 1 January 2010.
      (2)
For this purpose “accounting period” and “controlled foreign company”
have the same meaning as they have for the purposes of Chapter 4 of Part 17
5
of ICTA.
Schedule 17
Section 37

International movement of capital
Part 1
Abolition of existing regime
10
1
In ICTA, omit—
(a)
section 765 (prior Treasury consent required for certain transactions
involving movement of capital outside Europe),
(b)
section 765A (HMRC to be given information about certain
transactions involving movement of capital within Europe),
15
(c)
section 766 (offence of failure to comply with section 765), and
(d)
section 767 (interpretation).
2
In section 98 of TMA 1970 (special returns etc)—
(a)
omit subsection (5),
(b)
in the first column of the Table omit “section 765A(2)(b);”, and
20
(c)
in the second column of the Table omit “section 765A(2)(a);”.
3
In consequence of the amendments made by paragraphs 1 and 2, omit—
(a)
in FA 1988, section 105(6), and
(b)
in FA 1990, section 68(1), (2) and (3)(b) to (d).
Part 2
25
Reporting requirement
Reporting requirement
4     (1)
If a UK corporate parent is a reporting body at the time a reportable event
takes place or a reportable transaction is carried out, it must, within 6
months of that time, make a report to an officer of Revenue and Customs.
30
      (2)
The report must contain such information relating to the event or
transaction, or persons connected with the event or transaction, as is
specified in regulations made by the Commissioners.
      (3)
The purpose of the report is to enable the Commissioners to consider
whether the event or transaction results, directly or indirectly, in an
35
advantage for any person in respect of corporation tax or any other tax or
duty.

Finance Bill
Schedule 17 — International movement of capital
Part 2 — Reporting requirement
201

      (4)
In this Schedule “the Commissioners” means the Commissioners for Her
Majesty’s Revenue and Customs.
Meaning of “reporting body”
5     (1)
For the purposes of this Schedule a body corporate (“body A”) is a reporting
body at any time if, at that time—
5
(a)
it is a UK corporate parent, and
(b)
condition A, B, C or D is met.
      (2)
Condition A is that body A is not controlled by a body corporate resident
outside the United Kingdom.
      (3)
Condition B is that—
10
(a)
body A is controlled by a body corporate resident outside the United
Kingdom (“the foreign parent”), and
(b)
no other relevant UK body corporate is controlled by the foreign
parent.
      (4)
Condition C is that —
15
(a)
body A is controlled by a body corporate resident outside the United
Kingdom (“the foreign parent”),
(b)
one or more other UK corporate parents are controlled by the foreign
parent, and
(c)
body A is not a party to an arrangement under paragraph 6.
20
      (5)
Condition D is that—
(a)
body A is controlled by a body corporate resident outside the United
Kingdom (“the foreign parent”),
(b)
one or more other UK corporate parents are controlled by the foreign
parent, and
25
(c)
body A is a party to an arrangement under paragraph 6 and is the
nominated reporting body under that arrangement.
Groups with more than one UK corporate parent: nomination of single reporting body
6     (1)
Sub-paragraph (2) applies where—
(a)
a UK corporate parent is controlled by a body corporate resident
30
outside the United Kingdom (“the foreign parent”), and
(b)
one or more other UK corporate parents are controlled by the foreign
parent.
      (2)
Two or more of the UK corporate parents controlled by the foreign parent
may enter into an arrangement under which one of their number (“the
35
nominated reporting body”) is nominated to exercise, on behalf of all of
them, the functions conferred under this Schedule on a reporting body.
      (3)
A party to an arrangement under this paragraph may withdraw from the
arrangement.
      (4)
The Commissioners may by regulations make provision about entering into
40
and withdrawing from an arrangement under this paragraph.
      (5)
Regulations under sub-paragraph (4) may, in particular, include
provision—