Corporation Tax Bill

House of Commons

Session 2009 - 10
Internet Publications
Other Bills before Parliament

Corporation Tax Bill

Corporation Tax Bill
Part 12 — Real Estate Investment Trusts
Chapter 5 — Assets etc
275

(a)
costs giving rise to debits in respect of debtor relationships of the group
or company under Part 5 of CTA 2009 (loan relationships), other than
debits in respect of exchange losses from such relationships (within the
meaning given by section 475 of that Act),
(b)
any exchange gain or loss from a debtor relationship within the
5
meaning of that Part in relation to debt finance,
(c)
any credit or debit falling to be brought into account in accordance with
Part 7 of CTA 2009 (derivative contracts) in relation to debt finance,
(d)
the financing cost implicit in a payment under a finance lease, and
(e)
any other costs arising from what would be considered, in accordance
10
with generally accepted accounting practice, to be a financing
transaction.
Cancellation of tax advantage
545
Cancellation of tax advantage
(1)
If an officer of Revenue and Customs thinks that a company which is, or is a
15
member of, a UK REIT has tried to obtain a tax advantage for itself or another
person, the officer may give a notice to the company specifying the tax
advantage.
(2)
Subsections (3) and (4) apply if a notice is given under subsection (1).
(3)
The tax advantage is to be counteracted, in accordance with the notice, by an
20
adjustment by way of—
(a)
an assessment;
(b)
the cancellation of a right of repayment;
(c)
a requirement to return a repayment already made;
(d)
the calculation or recalculation of profits or gains, or liability to tax, on
25
a basis specified in the notice.
(4)
An officer of Revenue and Customs may (in addition to the adjustment under
subsection (3)) assess the company to such amount of corporation tax or
income tax (as the case may be) as the officer thinks is equivalent to the value
of the tax advantage.
30
(5)
For the purposes of this section “tax advantage” has the meaning given by
section 1139 (and includes, in particular, entering into arrangements the sole or
main purpose of which is to avoid or reduce a charge to tax under section 538).
(6)
But a company does not obtain a tax advantage merely because it is, or is a
member of, a UK REIT unless the company does anything (whether before or
35
while it is, or is a member of, the UK REIT) which in the opinion of an officer
of Revenue and Customs is wholly or principally designed—
(a)
to create or inflate or apply a loss, deduction or expense (whether or not
made or incurred by the company), or
(b)
to have another effect of a kind specified for the purposes of this
40
subsection by regulations made by the Treasury.
546
Appeal against notice under section 545
(1)
A company which receives a notice under section 545(1) may appeal.

Corporation Tax Bill
Part 12 — Real Estate Investment Trusts
Chapter 5 — Assets etc
276

(2)
An appeal must be made by notice given in writing to an officer of Revenue
and Customs during the period of 30 days beginning with the date on which
the notice under section 545(1) is given.
(3)
On an appeal under subsection (2) that is notified to the tribunal, the tribunal
may—
5
(a)
quash the notice under section 545(1),
(b)
affirm the notice, or
(c)
vary the notice.
Funds awaiting reinvestment
547
Funds awaiting reinvestment
10
(1)
This section applies if a—
(a)
company UK REIT or a member of a group UK REIT disposes of an
asset used wholly and exclusively for the purposes of property rental
business, and
(b)
the company UK REIT or any member of the group UK REIT holds the
15
proceeds in cash.
(2)
Profits or losses arising from a loan relationship entered into in connection
with the proceeds—
(a)
are to be ignored for the purposes of section 599 (calculation of profits),
and
20
(b)
are to be treated for all tax purposes as arising from a loan relationship
entered into in connection with residual business.
(3)
For the purposes of section 531 (conditions as to balance of business)—
(a)
during the period of 24 months beginning with the date of the disposal,
the proceeds are to be treated for the purposes of condition B in that
25
section as assets involved in property rental business, but
(b)
any income derived from the proceeds is to be treated as profits of
residual business.
(4)
For the purposes of this section proceeds are held in cash if—
(a)
held on deposit (whether or not in sterling),
30
(b)
invested in stocks or bonds of any of the descriptions included in Part
1 of Schedule 11 to FA 1942 (gilts), or
(c)
held or invested in such other form as the Commissioners for Her
Majesty’s Revenue and Customs may specify for the purposes of this
section in regulations.
35
(5)
In the case of the disposal of an asset which, for one or more periods of (in total)
at least a year, has been used—
(a)
partly for the purposes of property rental business of the company, and
(b)
partly for the purposes of residual business of the company,

this section applies to such part of the proceeds as may reasonably be
40
attributed to the property rental business (having regard to the extent to which,
and the length of the periods during which, the asset was used for the different
purposes).

Corporation Tax Bill
Part 12 — Real Estate Investment Trusts
Chapter 6 — Distributions
277

Chapter 6
Distributions
Recipients of distributions
548
Distributions: liability to tax
(1)
This section applies if a shareholder of the principal company of a group UK
5
REIT receives a distribution of amounts shown in the financial statement under
section 532(2)(a) (statement of group’s property rental business) as—
(a)
profits or gains (or both) of UK members of the group, or
(b)
profits or gains (or both) of UK property rental business of non-UK
members of the group.
10
(2)
In subsection (1) the reference to the principal company includes a reference to
the principal company of the post-cessation group.
(3)
This section also applies if a shareholder of a company UK REIT receives a
distribution in respect of profits or gains (or both) of property rental business
of the company.
15
(4)
In subsection (3) the reference to a company UK REIT includes a reference to
the post-cessation company.
(5)
If the shareholder is within the charge to corporation tax, the distribution is to
be treated as profits of a UK property business (within the meaning given by
section 205 of CTA 2009).
20
(6)
If the shareholder is not within the charge to corporation tax, the distribution
is to be treated as profits of a UK property business (within the meaning given
by section 264 of ITTOIA 2005).
(7)
In the case of a non-UK resident shareholder, the distribution is not non-
resident landlord income for the purposes of regulations under section 971 of
25
ITA 2007 (income tax due in respect of income of non-resident landlords).
(8)
See sections 973 and 974 of ITA 2007 (income tax due in respect of
distributions) for provision about the deduction of sums representing income
tax in relation to distributions of a kind mentioned in this section.
549
Distributions: supplementary
30
(1)
Section 548 does not apply in relation to a shareholder so far as the
shareholder—
(a)
is a person who is charged to tax under Part 3 of CTA 2009 (trading
income) in respect of distributions made by companies that are
received in the course of a trade not consisting of insurance business,
35
(b)
is a dealer in securities who is charged to income tax under Part 2 of
ITTOIA 2005 (trading income) in respect of distributions made by
companies,
(c)
is an individual member of Lloyd’s (within the meaning given by
section 184(1) of FA 1993) and the distribution is made in respect of
40
assets forming part of—
(i)
a premium trust fund of the member (within the meaning given
by section 174 of FA 1993), or

Corporation Tax Bill
Part 12 — Real Estate Investment Trusts
Chapter 6 — Distributions
278

(ii)
an ancillary trust fund of the member (within the meaning
given by section 176 of that Act), or
(d)
is a corporate member of Lloyd’s (within the meaning given by section
230(1) of FA 1994) and the distribution is made in respect of assets
forming part of—
5
(i)
a premium trust fund belonging to the member (within the
meaning given by section 222 of FA 1994), or
(ii)
an ancillary trust fund belonging to the member (within the
meaning given by section 223 of that Act).
(2)
Section 1109 of this Act and section 397 of ITTOIA 2005 (tax credits in respect
10
of qualifying distributions) do not apply to relevant distributions received by
a shareholder.
(3)
“Relevant distribution” means—
(a)
in the case of a group UK REIT, a distribution from the principal
company of the group of amounts shown in the financial statement
15
under section 532(2)(a) (statement of group’s property rental business)
as—
(i)
profits or gains (or both) of UK members of the group, or
(ii)
profits or gains (or both) of UK property rental business of non-
UK members of the group, and
20
(b)
in the case of a company UK REIT, a distribution from the company in
respect of profits or gains (or both) of its property rental business.
(4)
Relevant distributions received by a shareholder are to be treated for the
purposes of section 548(5) and (6) as the profits of a single business
(irrespective of whether the shareholder receives different distributions in
25
different capacities).
(5)
That single business is separate from—
(a)
any other UK property business (within the meaning given by section
205 of CTA 2009) carried on by the shareholder,
(b)
any other UK property business (within the meaning given by section
30
264 of ITTOIA 2005) carried on by the shareholder,
(c)
any overseas property business (within the meaning given by section
206 of CTA 2009) carried on by the shareholder, and
(d)
any overseas property business (within the meaning given by section
265 of ITTOIA 2005) carried on by the shareholder.
35
(6)
If a shareholder is a partnership, subsection (4) applies to receipts by a partner
of a share of any distribution as it applies to receipts by a shareholder.
Attribution of distributions
550
Attribution of distributions
(1)
Subsection (2) applies to—
40
(a)
distributions made by the principal company of a group UK REIT, and
(b)
distributions made by a company UK REIT.
(2)
The distributions are to be attributed—
(a)
first, to payments in satisfaction of the condition in section 530
(distribution of profits),
45

Corporation Tax Bill
Part 12 — Real Estate Investment Trusts
Chapter 6 — Distributions
279

(b)
second, so far as the company determines, to distribution of amounts
which derive from activities of a kind in respect of which corporation
tax is chargeable in relation to income,
(c)
third, to distribution of profits of property rental business (calculated in
accordance with section 599),
5
(d)
fourth, to distribution of relevant non-chargeable gains, and
(e)
fifth, to other distributions.
(3)
In subsection (2)(d) “relevant non-chargeable gains” means—
(a)
in the case of a group, gains accruing to property rental business of a
member of the group, and
10
(b)
in the case of a company, gains accruing to property rental business of
the company,

which as a result of section 535 are not chargeable gains.
Distributions to certain shareholders
551
Tax consequences of distribution to holder of excessive rights
15
(1)
Subsection (3) applies if—
(a)
a distribution is made to or in respect of a holder of excessive rights (as
defined by section 553), and
(b)
the distributor has not taken reasonable steps to prevent a distribution
to or in respect of such a person from being made.
20
(2)
“The distributor” means—
(a)
in the case of a group UK REIT, the principal company of the group,
and
(b)
in the case of a company UK REIT, the company.
(3)
The distributor is treated as receiving an amount of income calculated in
25
accordance with section 552 (“the section 552 amount”).
(4)
The section 552 amount is chargeable to corporation tax under the charge to
corporation tax on income.
(5)
It is treated—
(a)
as arising in the accounting period in which the distribution was made,
30
and
(b)
as profits of residual business of the distributor.
(6)
Accordingly it is charged to corporation tax at the rate mentioned in section
534(3) (rate at which profits of residual business are charged).
(7)
No loss, deficit, expense or allowance may be set off against the section 552
35
amount.
552
“The section 552 amount”
(1)
For the purposes of section 551, the section 552 amount is calculated by taking
3 steps.

Corporation Tax Bill
Part 12 — Real Estate Investment Trusts
Chapter 6 — Distributions
280

(2)
Step 1: find the amount given by—


where—
DO is—
(a)
in the case of a group UK REIT, the amount of the group’s UK
profits (as defined by section 530(2)) distributed in respect of
5
ordinary shares in the principal company, and
(b)
in the case of a company UK REIT, the amount of profits of
property rental business of the company distributed in respect
of ordinary shares in the company,
SO is—
10
(a)
the percentage of rights in respect of those shares held by the
holder of excessive rights, or
(b)
if less, the percentage of rights held by the recipient of the
distribution,
in respect of which the distribution is made,
15
BRT is the basic rate of income tax in force at the time the distribution is
made, and
MCT is the rate of corporation tax mentioned in section 534(3) (rate
determined without reference to sections 18 to 23).
(3)
Step 2: find the amount given by—

20

where—
DP is—
(a)
in the case of a group UK REIT, the amount of the group’s UK
profits (as defined by section 530(2)) distributed in respect of
preference shares in the principal company, and
25
(b)
in the case of a company UK REIT, the amount of profits of
property rental business of the company distributed in respect
of preference shares in the company,
SP is—
(a)
the percentage of rights in respect of those shares held by the
30
holder of excessive rights, or
(b)
if less, the percentage of rights held by the recipient of the
distribution,
in respect of which the distribution is made, and
BRT and MCT have the same meaning as they have in subsection (2).
35
(4)
Step 3: add together the amounts given by steps 1 and 2.

That amount is the section 552 amount.