Corporation Tax Bill

House of Commons

Session 2009 - 10
Internet Publications
Other Bills before Parliament

Corporation Tax Bill

Corporation Tax Bill
Part 11 — Charitable companies etc
Chapter 4 — Restrictions on exemptions
255

Type 5

An interest in land, other than an interest held as security for a debt.
Type 6

Any of the following issued by Her Majesty’s Government in the United
Kingdom—
5
(a)
bills,
(b)
Certificates of Tax Deposit,
(c)
Savings Certificates, and
(d)
Tax Reserve Certificates.
Type 7
10

Northern Ireland Treasury Bills.
Type 8

Units in a unit trust scheme (as defined in section 237(1) of FISMA 2000) or in
a recognised scheme (as defined in section 237(3) of FISMA 2000).

“Units” is defined in section 237(2) of FISMA 2000.
15
Type 9

A deposit with a bank (as defined in section 1120)—
(a)
in respect of which interest is payable at a commercial rate, and
(b)
which is not made as part of an arrangement under which a loan is
made by the bank to some other person.
20
Type 10

A deposit with—
(a)
the National Savings Bank,
(b)
a building society, or
(c)
a credit institution which operates on mutual principles and which is
25
authorised by an appropriate governmental body in the territory in
which the deposit is taken.
Type 11

Certificates of deposit (including uncertificated eligible debt security units as
defined in section 986(3) of ITA 2007).
30
Type 12

A loan or other investment as to which an officer of Revenue and Customs is
satisfied, on a claim, that it is made for the benefit of the charitable company
and not for the avoidance of tax (whether by the company or any other person).
512
Securities which are approved charitable investments
35
(1)
The investments to which this section applies are investments in securities—
(a)
issued or guaranteed by the government of a member State of the
European Union,
(b)
issued or guaranteed by the government or a governmental body of
any territory or part of a territory,
40
(c)
issued by an international entity listed in the Annex to Council
Directive 2003/48/EC (directive on taxation of interest payments),

Corporation Tax Bill
Part 11 — Charitable companies etc
Chapter 4 — Restrictions on exemptions
256

(d)
issued by an entity meeting the four criteria set out at the end of that
Annex,
(e)
issued by a building society,
(f)
issued by a credit institution which operates on mutual principles and
which is authorised by an appropriate governmental body in the
5
territory in which the securities are issued,
(g)
issued by an open-ended investment company,
(h)
issued by a company and listed on a recognised stock exchange, or
(i)
issued by a company but not listed on a recognised stock exchange.
(2)
Subsection (1) is subject to section 513.
10
(3)
In this section and in section 513—
“debentures” includes—
(a)
debenture stock and bonds (whether constituting a charge on
assets or not), and
(b)
loan stock or notes,
15
“open-ended investment company” is to be read in accordance with
sections 613 and 615,
“securities” includes shares and debentures, and
“shares” includes stocks.
513
Conditions to be met for some securities
20
(1)
Section 512 does not apply to an investment by virtue of subsection (1)(b), (c)
or (d) of that section unless—
(a)
condition A is met in relation to the securities, and
(b)
if the securities are shares or debenture stock, condition B is met in
relation to the securities.
25

But see subsection (3) of this section.
(2)
In the case of an investment in securities issued by a company which is
incorporated, section 512 does not apply to the investment by virtue of
subsection (1)(i) of that section unless—
(a)
condition A is met in relation to the securities,
30
(b)
if the securities are shares or debenture stock, condition B is met in
relation to the securities, and
(c)
condition C is met in relation to the company.

But see subsection (3) of this section.
(3)
Conditions A and B need not be met if the securities are traded or quoted on a
35
money market supervised by the government or a governmental body of any
territory or part of a territory.
(4)
Condition A is that the securities are traded or quoted on—
(a)
a recognised investment exchange (as defined in section 285(1) of
FISMA 2000), or
40
(b)
an investment exchange which constitutes the principal or only market
established in a territory on which securities admitted to official listing
are dealt in or traded.
(5)
Condition B is that—
(a)
the securities are fully paid up,
45

Corporation Tax Bill
Part 11 — Charitable companies etc
Chapter 4 — Restrictions on exemptions
257

(b)
the terms of the issue of the securities require them to be fully paid up
within the period of 9 months beginning with the day after the day on
which they are issued, or
(c)
the securities are shares issued with no nominal value.
(6)
Condition C is that—
5
(a)
throughout the last business day before the investment day, the
company has total issued and paid up share capital of at least
£1,000,000 (or the equivalent of £1,000,000 in some other currency), and
(b)
in each of the 5 years immediately before the calendar year in which the
investment day falls, the company paid a dividend on all the shares
10
issued by the company (excluding any shares issued after the dividend
was declared and any shares which by their terms of issue did not rank
for dividend for that year).
(7)
For the purposes of the words in brackets in subsection (6)(a) use the exchange
rate prevailing in the United Kingdom at the close of business on the last
15
business day before the investment day.
(8)
For the purposes of subsection (6)(b) a company formed—
(a)
to take over the business of another company or other companies, or
(b)
to acquire the securities of, or control of, another company or other
companies,
20

is treated as having paid a dividend in any year in which a dividend has been
paid by the other company or all of the other companies (as the case may be).
(9)
It is irrelevant that the company is formed for other purposes in addition to
those mentioned in paragraph (a) or (b) of subsection (8).
(10)
In this section—
25
“business day” means, in relation to an investment, a business day in the
place where the investment is made, and
“the investment day” means, in relation to an investment, the day on
which the investment is made.
514
Approved charitable loans
30
(1)
A loan is an approved charitable loan for the purposes of section 496 (meaning
of “non-charitable expenditure”) if it meets conditions A and B.
(2)
Condition A is that the loan is not made by way of investment.
(3)
Condition B is that either—
(a)
the loan is made to another charity for charitable purposes only,
35
(b)
it is made to a beneficiary of the charitable company in the course of
carrying out the purposes of the charitable company,
(c)
it consists of money placed on current account with a bank otherwise
than as part of an arrangement under which a loan is made by a bank
to some other person, or
40
(d)
an officer of Revenue and Customs is satisfied, on a claim, that the loan
is made for the benefit of the charitable company and not for the
avoidance of tax (whether by the charitable company or by some other
person).
(4)
In this section “bank” has the meaning given by section 1120.
45

Corporation Tax Bill
Part 11 — Charitable companies etc
Chapter 4 — Restrictions on exemptions
258

Carry back of excess non-charitable expenditure
515
Excess expenditure treated as non-charitable expenditure of earlier periods
(1)
This section applies if a charitable company’s non-charitable expenditure for
an accounting period exceeds its available income and gains for the period.
(2)
The excess is the charitable company’s “excess expenditure” for the accounting
5
period.
(3)
The charitable company’s excess expenditure for the accounting period is
treated for the purposes of this Part as non-charitable expenditure for earlier
accounting periods so far as it can be attributed to earlier accounting periods
under section 516.
10
(4)
For the purposes of this Part a charitable company’s “available income and
gains” for an accounting period is the sum of—
(a)
the amount in respect of which the charitable company is chargeable
for the period under the charge to corporation tax on income after
giving effect to any exemption under this Part,
15
(b)
any chargeable gains accruing to the charitable company in the period,
(c)
the charitable company’s attributable income and gains for the period
(see section 493), and
(d)
any non-taxable sums received by the charitable company in the
period.
20
(5)
In subsection (4) “non-taxable sums” means donations, legacies and other
sums of a similar nature which, ignoring exemptions from corporation tax
under this Part and under section 256 of TCGA 1992, are not liable to
corporation tax.
(6)
Any restrictions on the exemptions under this Part which result from sections
25
492(2) and 494 are to be ignored in calculating the amount mentioned in
subsection (4)(a).
(7)
Any restriction on the exemption under section 256(1) of TCGA 1992 which
results from section 256(4) of that Act is to be ignored in calculating the amount
of any chargeable gains to be taken into account in accordance with subsection
30
(4)(b).
516
Rules for attributing excess expenditure to earlier periods
(1)
The rules in this section apply for attributing a charitable company’s excess
expenditure for an accounting period to earlier accounting periods under
section 515.
35
(2)
The excess expenditure for an accounting period may be attributed to an earlier
accounting period if—
(a)
the earlier period ends not more than 6 years before the end of the
period in question, and
(b)
the charitable company’s available income and gains for the earlier
40
period exceed its non-charitable expenditure for the earlier period.
(3)
If the conditions in subsection (2) are met in the case of more than one earlier
accounting period, the excess expenditure is to be attributed to a later
accounting period in priority to an earlier accounting period.

Corporation Tax Bill
Part 12 — Real Estate Investment Trusts
Chapter 1 — Introduction
259

(4)
The amount of excess expenditure that is to be attributed to an earlier
accounting period must not be greater than the amount by which the charitable
company’s available income and gains for the earlier period exceed its non-
charitable expenditure for the earlier period.
(5)
For the purposes of subsections (2)(b) and (4) the charitable company’s non-
5
charitable expenditure for the earlier accounting period includes any excess
expenditure attributed to the earlier period as a result of a previous operation
of this section, but ignores the attribution in question.
517
Adjustments in consequence of section 515
Such adjustments must be made (whether by way of the making of
10
assessments or otherwise) as may be required in consequence of section 515.
Part 12
Real Estate Investment Trusts
Chapter 1
Introduction
15
Introductory
518
Introduction to Part
(1)
This Part—
(a)
enables a group of companies which carries on property rental business
and which meets requirements specified in Chapter 2 to opt to benefit
20
from exemptions from corporation tax on profits and gains in
accordance with Chapter 3, and
(b)
imposes liabilities to tax on members of the group and the recipients of
distributions made by the principal company of the group.
(2)
This Part makes corresponding provision in relation to a company which
25
carries on property rental business and which meets requirements specified in
Chapter 2.
(3)
In addition—
(a)
Chapter 4 deals with some of the consequences of becoming, or
becoming a member of, a UK REIT,
30
(b)
Chapters 5, 6 and 7 contain provision relating to (respectively) assets of,
distributions made by, and gains arising to a UK REIT,
(c)
Chapter 8 contains provision about failure to meet requirements
specified in Chapter 2,
(d)
Chapter 9 contains provision about ceasing to be, or to be a member of,
35
a UK REIT,
(e)
Chapter 10 provides for the application of this Part in relation to
property rental business carried on by way of a joint venture, and
(f)
Chapter 11 contains miscellaneous provision and definitions.
(4)
In this Part “UK REIT” means—
40
(a)
a group UK REIT (see section 523(5)), or

Corporation Tax Bill
Part 12 — Real Estate Investment Trusts
Chapter 1 — Introduction
260

(b)
a company UK REIT (see section 524(5)).
Key concepts
519
“Property rental business”
(1)
In this Part “property rental business” means—
(a)
UK property business (within the meaning given by section 205 of CTA
5
2009), and
(b)
overseas property business (within the meaning given by section 206 of
that Act).
(2)
For the purposes of subsection (1) ignore the effect of section 42(2) of CTA 2009
(which provides for receipts and expenses in connection with tied premises to
10
be treated as part of a trade and not as part of a property business).
(3)
The definition of “property rental business” is subject to—
(a)
section 604 (which provides that business of a specified class is not
property rental business), and
(b)
section 605 (which provides that business giving rise to income of a
15
specified class is not property rental business).
(4)
Business carried on by a non-UK company which is a member of a group is
property rental business for the purposes of this Part if the business would be
property rental business if carried on by a UK company.
520
“UK property rental business” of non-UK companies
20
(1)
In this Part references to “UK property rental business”, in relation to a non-UK
company, are to the company’s property rental business in the United
Kingdom.
(2)
Subsection (3) applies if—
(a)
a non-UK company which is a member of a group UK REIT has UK
25
property rental business, and
(b)
the profits of that business would be chargeable to income tax under
Chapter 3 of Part 3 of ITTOIA 2005.
(3)
Profits of the UK property rental business—
(a)
are to be treated for the purposes of this Part as if they were (subject to
30
the application of this Part) chargeable to corporation tax, and
(b)
are not to be charged to income tax.
521
“UK company” and “non-UK company”
(1)
In this Part “UK company” means a company which is—
(a)
UK resident, and
35
(b)
not resident in another place in accordance with the law of that place
relating to taxation.
(2)
References in this Part to a “non-UK company”, in the case of a group of
companies, are to be read in accordance with subsection (1) (and references in
such a case to a company which is a “UK member” or “non-UK member” of the
40
group are to be read accordingly).