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Finance Bill
Schedule 19 — Income tax credits for foreign distributions

215

 

“contracting state”) are not to be subject in any other contracting state

to—

(a)   

any taxation, or

(b)   

any requirement connected with taxation,

   

which is other or more burdensome than the taxation and connected

5

requirements to which nationals of that other state in the same

circumstances (in particular with respect to residence) are or may be

subjected.

(6)   

In subsection (5) “national”, in relation to a contracting state,

includes—

10

(a)   

an individual possessing the nationality or citizenship of the

contracting state, and

(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—

15

(a)   

describe a territory by reference to the double taxation relief

arrangements for the time being in force in relation to the

territory,

(b)   

make different provision in relation to different descriptions

of company, and

20

(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

instrument containing them has been laid before, and approved by a

resolution of, the House of Commons.”

25

6     (1)  

Section 397C (meaning of “minority shareholder”) is amended as follows.

      (2)  

In subsection (1)—

(a)   

for “397A” substitute “397AA”, and

(b)   

omit “non-UK resident”.

      (3)  

After that subsection insert—

30

“(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

distribution is made.”

      (4)  

Insert at the end—

35

“(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.”

7          

In section 398(1) (increase in amount or value of dividends where tax credit

available), for “397A(2)” substitute “397A(1)”.

40

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

regulations.”

 
 

Finance Bill
Schedule 19 — Income tax credits for foreign distributions

216

 

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),

(b)   

section 9(1)(b) (self-assessment of amount payable by way of income

5

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

income tax),

10

           

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

(b)   

in section 840ZA(3)(b) (meaning of “tax advantage”), after “397(1)”

15

insert “or 397A(1)”.

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)”.

20

13         

In ITA 2007—

(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

25

(c)   

in section 989 (definitions), in the definition of “tax credit”,

           

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,

30

(b)   

cash dividends paid over to a person under paragraph 68(4) of

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

35

distribution within paragraph (a), (b) or (c).

      (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

40

2007.

 
 

Finance Bill
Schedule 20 — Loan relationships: connected parties

217

 

Schedule 20

Section 41

 

Loan relationships: connected parties

Introduction

1          

Part 5 of CTA 2009 (loan relationships) is amended as follows.

Section 374

5

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))—

10

   

“and the condition in subsection (1A) is met.”

      (3)  

After that subsection insert—

“(1A)   

The condition is that C is—

(a)   

resident for tax purposes in a non-qualifying territory at any

time in the actual accrual period, or

15

(b)   

effectively managed in a non-taxing non-qualifying territory

at any such time.”

      (4)  

Insert at the end—

“(3)   

For the purposes of this section—

(a)   

“non-qualifying territory” has the meaning given by

20

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

25

non-qualifying territory, to tax there by reason of domicile,

residence or place of management.”

Sections 375 and 376

3     (1)  

Section 375 (late interest: loans to close companies by participators etc) is

amended as follows.

30

      (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.”

      (3)  

In subsections (3)(b) and (4)(b), after “resident” insert “for tax purposes”.

      (4)  

After subsection (4) insert—

35

“(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

time in the actual accrual period, or

 
 

Finance Bill
Schedule 20 — Loan relationships: connected parties

218

 

(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—

““resident for tax purposes” means liable, under the law of the

5

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-

taxing” if companies are not under its law liable to tax by reason of

10

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.

      (2)  

The existing provision becomes subsection (1) of that section.

15

      (3)  

In that subsection, omit the “and” at the end of paragraph (a) and insert at

the end “and

(c)   

the condition in subsection (2) is met.”

      (4)  

After that subsection insert—

“(2)   

The condition is that C is—

20

(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.

(3)   

For the purposes of this section—

25

(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

or place of management, and

30

(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.”

Section 407

6     (1)  

Section 407 (postponement until redemption of debits for connected

35

companies’ deeply discounted securities) is amended as follows.

      (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

40

(f)   

the condition in subsection (1A) is met.”

 
 

Finance Bill
Schedule 20 — Loan relationships: connected parties

219

 

      (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

5

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,

10

(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,

15

residence or place of management.”

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

20

(b)   

insert at the end (not as part of paragraph (d))—

   

“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”.

25

      (3)  

After subsection (4) insert—

“(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

30

(b)   

effectively managed in a non-taxing non-qualifying territory

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,

35

residence or place of management, and”.

      (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.”

40

Commencement and transitional provision

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

 
 

Finance Bill
Schedule 21 — Foreign exchange: anti-avoidance

220

 

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

Schedule do not have effect in relation to the first accounting period for

which they would otherwise apply.

5

      (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

return for the accounting period in relation to which the election is to have

effect.

10

Schedule 21

Section 43

 

Foreign exchange: anti-avoidance

Loan relationships

1          

Chapter 3 of Part 5 of CTA 2009 (loan relationships: credits and debits to be

taken into account) is amended as follows.

15

2          

In section 328 (exchange gains and losses), after subsection (4) insert—

“(4A)   

Subsections (3) and (4) do not have effect to disapply subsection (1)

in the case of an exchange gain arising in an accounting period of a

company so far as—

(a)   

the exchange gain arises in relation to an asset or liability

20

representing a loan relationship of the company,

(b)   

the loan relationship is part of arrangements that have a one-

way exchange effect in relation to the company in the

accounting period (see section 328A), and

(c)   

the arrangements cause the company or any other company

25

to gain a tax advantage (other than a negligible tax

advantage).”

3          

After that section insert—

“328A   

 Arrangements that have a “one-way exchange effect”

(1)   

For the purposes of section 328, arrangements (“the arrangements”)

30

have a “one-way exchange effect” in relation to a company

(“company A”) in an accounting period of that company (“the

relevant accounting period”) if the following two conditions are met.

(2)   

The first condition is that the arrangements include an option or a

relevant contingent contract.

35

(3)   

The second condition is that, in relation to any day in the relevant

accounting period (“the test day”)—

(a)   

amount A is not equal to amount B, and

(b)   

the difference between amounts A and B is not the same as it

would be were those amounts calculated disregarding the

40

matching rules.

 
 

Finance Bill
Schedule 21 — Foreign exchange: anti-avoidance

221

 

(4)   

Amount A is—

(a)   

the sum of the relevant exchange losses of company A, and of

each company connected with company A, that arise in

accounting periods of those companies that end on the test

day, less

5

(b)   

the sum of the relevant exchange gains of those companies

that arise in such accounting periods.

(5)   

Amount B is—

(a)   

the sum of the relevant exchange gains of company A, and of

each company connected with company A, that would have

10

arisen in accounting periods of those companies that end on

the test day, less

(b)   

the sum of the relevant exchange losses of those companies

that would have arisen in such accounting periods,

   

if exchange gains and losses of those companies in those accounting

15

periods were calculated in accordance with section 328D

(counterfactual currency movement assumptions).

(6)   

For the purposes of subsections (4) and (5), an accounting period of

company A, or of a company connected with company A, in which

the test day falls and that does not end on that day is to be treated as

20

if it did end on that day.

(7)   

In this section “the matching rules” means—

(a)   

section 328(3) and (4), and

(b)   

section 606(3) and (4).

328B    

Meaning of “relevant exchange gain” and “relevant exchange loss”

25

(1)   

For the purposes of section 328A an exchange gain or loss of a

company is “relevant” if—

(a)   

it arises in relation to—

(i)   

an asset or liability representing a loan relationship to

which the company is a party, or

30

(ii)   

a relevant contract to which the company is a party,

(b)   

the loan relationship or relevant contract is part of the

arrangements, and

(c)   

a debit or credit in respect of the exchange gain or loss is

required to be brought into account by the company for the

35

purposes of corporation tax.

(2)   

For the purposes of subsection (1)(c)—

(a)   

the arrangements are to be treated as not having a one-way

exchange effect in relation to the company for the purposes of

section 328 or 606 (if they would otherwise have had such an

40

effect), and

(b)   

sections 441 and 442 (loan relationships: unallowable

purposes) and 690 to 692 (derivative contracts: unallowable

purposes) are to be disregarded.

328C    

Meaning of “test day”

45

(1)   

This section makes provision for the purposes of section 328A as to

whether a day in an accounting period of company A is a “test day”.

 
 

 
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