Corporation Tax Bill

House of Commons

Session 2009 - 10
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Corporation Tax Bill

Corporation Tax Bill
Part 24 — Corporation Tax Acts definitions etc
Chapter 1 — Definitions
557

(4)
References in the Corporation Tax Acts to securities which are included in the
official UK list are to securities which are included in the official list (within the
meaning of Part 6 of FISMA 2000) in accordance with the provisions of that
Part.
(5)
In this section—
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“recognised investment exchange” has the same meaning as in FISMA
2000 (see section 285 of that Act), and
“securities” includes shares and stock.
1138
“Research and development”
(1)
This section has effect for the purposes of the provisions of the Corporation Tax
10
Acts which apply this section.
(2)
“Research and development” means activities that fall to be treated as research
and development in accordance with generally accepted accounting practice.

This is subject to subsections (3) and (4).
(3)
Activities that are “research and development” for the purposes of section 1006
15
of ITA 2007 as a result of regulations under that section are “research and
development” for the purposes of this section.
(4)
Activities that are not “research and development” for the purposes of section
1006 of ITA 2007 as a result of regulations under that section are not “research
and development” for the purposes of this section.
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(5)
Unless otherwise expressly provided, “research and development” does not
include oil and gas exploration and appraisal.
1139
“Tax advantage”
(1)
This section has effect for the purposes of the provisions of the Corporation Tax
Acts which apply this section.
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(2)
“Tax advantage” means—
(a)
a relief from tax or increased relief from tax,
(b)
a repayment of tax or increased repayment of tax,
(c)
the avoidance or reduction of a charge to tax or an assessment to tax, or
(d)
the avoidance of a possible assessment to tax.
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(3)
For the purposes of subsection (2)(c) and (d) it does not matter whether the
avoidance or reduction is effected—
(a)
by receipts accruing in such a way that the recipient does not pay or
bear tax on them, or
(b)
by a deduction in calculating profits or gains.
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(4)
In this section “relief from tax” includes—
(a)
a tax credit under section 1109 for the purposes of corporation tax, and
(b)
a tax credit under section 397(1) or 397A(1) of ITTOIA 2005 for the
purposes of income tax.

Corporation Tax Bill
Part 24 — Corporation Tax Acts definitions etc
Chapter 2 — Permanent establishments
558

1140
“Unauthorised unit trust”
(1)
In the Corporation Tax Acts “unauthorised unit trust” means a unit trust
scheme which is neither an authorised unit trust nor an umbrella scheme.
(2)
But if a unit trust scheme is not, under regulations made under section 1007(2)
of ITA 2007, to be a unit trust scheme for the purposes of the definition of
5
“unauthorised unit trust” in section 989 of that Act, it is not to be a unit trust
scheme for the purposes of subsection (1).
(3)
In subsection (1) “umbrella scheme” has the same meaning as in section 619.
Chapter 2
Permanent establishments
10
General
1141
Permanent establishments of companies
(1)
For the purposes of the Corporation Tax Acts a company has a permanent
establishment in a territory if (and only if)—
(a)
it has a fixed place of business there through which the business of the
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company is wholly or partly carried on, or
(b)
an agent acting on behalf of the company has and habitually exercises
there authority to do business on behalf of the company.
(2)
For this purpose a “fixed place of business” includes (without prejudice to the
generality of that expression)—
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(a)
a place of management,
(b)
a branch,
(c)
an office,
(d)
a factory,
(e)
a workshop,
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(f)
an installation or structure for the exploration of natural resources,
(g)
a mine, an oil or gas well, a quarry or any other place of extraction of
natural resources, and
(h)
a building site or construction or installation project.
(3)
Subsection (1) is subject to sections 1142 to 1144.
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Circumstances where there is no permanent establishment
1142
Agent of independent status
(1)
A company is not regarded as having a permanent establishment in a territory
by reason of the fact that it carries on business there through an agent of
independent status acting in the ordinary course of the agent’s business.
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(2)
Sections 1145 to 1151 apply for the purpose of supplementing subsection (1) in
relation to transactions carried out on behalf of a non-UK resident company by
a person in the United Kingdom acting as—
(a)
a broker (section 1145),

Corporation Tax Bill
Part 24 — Corporation Tax Acts definitions etc
Chapter 2 — Permanent establishments
559

(b)
an investment manager (sections 1146 to 1150), or
(c)
a members’ or managing agent at Lloyd’s (section 1151).
1143
Preparatory or auxiliary activities
(1)
If the condition in subsection (2) is met, a company is not regarded as having a
permanent establishment in a territory by reason of the fact that—
5
(a)
a fixed place of business is maintained there for the purpose of carrying
on activities for the company, or
(b)
an agent carries on activities there for and on behalf of the company.
(2)
The condition is that, in relation to the business of the company as a whole, the
activities carried on are only of a preparatory or auxiliary character.
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(3)
For this purpose “activities of a preparatory or auxiliary character” include
(without prejudice to the generality of that expression)—
(a)
the use of facilities for the purpose of storage, display or delivery of
goods or merchandise belonging to the company,
(b)
the maintenance of a stock of goods or merchandise belonging to the
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company for the purpose of storage, display or delivery,
(c)
the maintenance of a stock of goods or merchandise belonging to the
company for the purpose of processing by another person, and
(d)
purchasing goods or merchandise, or collecting information, for the
company.
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1144
Alternative finance arrangements
(1)
Subsection (2) applies if alternative finance return is paid to a non-UK resident
company.
(2)
The company is not regarded as having a permanent establishment in the
United Kingdom merely by virtue of anything done for the purposes of the
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alternative finance arrangements—
(a)
by the other party to the arrangements, or
(b)
by any other person acting for the company in relation to the
arrangements.
(3)
In subsection (1) “alternative finance return” means alternative finance return
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within the application of—
(a)
section 564I, 564K or 564L(2) or (3) of ITA 2007, or
(b)
section 511, 512 or 513(2) or (3) of CTA 2009.
(4)
In subsection (2) the reference to “the alternative finance arrangements” is a
reference to the alternative finance arrangements under which the alternative
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finance return mentioned in subsection (1) is paid.
Brokers
1145
The independent broker conditions
(1)
This section applies if a transaction is carried out on behalf of a non-UK
resident company in the course of the company’s trade by a person in the
40
United Kingdom acting as a broker.

Corporation Tax Bill
Part 24 — Corporation Tax Acts definitions etc
Chapter 2 — Permanent establishments
560

(2)
In relation to the transaction, the broker is regarded for the purposes of section
1142(1) as an agent of independent status acting in the ordinary course of the
broker’s business if (and only if) each of conditions A to D is met.
(3)
Condition A is that at the time of the transaction the broker is carrying on the
business of a broker.
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(4)
Condition B is that the transaction is carried out in the ordinary course of that
business.
(5)
Condition C is that the remuneration which the broker receives in respect of
the transaction for the provision of the services of a broker to the non-UK
resident company is not less than is customary for that class of business.
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(6)
Condition D is that the broker does not fall (apart from this subsection) to be
treated as a permanent establishment of the non-UK resident company in
relation to any other transaction of any kind carried out in the same accounting
period of the non-UK resident company as the transaction in question.
Investment managers
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1146
The independent investment manager conditions
(1)
This section applies if an investment transaction is carried out on behalf of a
non-UK resident company in the course of the company’s trade by a person in
the United Kingdom acting as an investment manager.
(2)
In relation to the investment transaction, the investment manager is regarded
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for the purposes of section 1142(1) as an agent of independent status acting in
the ordinary course of the investment manager’s business if (and only if) each
of conditions A to E is met (“the independent investment manager
conditions”).
(3)
Condition A is that at the time of the transaction the investment manager is
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carrying on a business of providing investment management services.
(4)
Condition B is that the transaction is carried out in the ordinary course of that
business.
(5)
Condition C is that, when the investment manager acts on behalf of the non-
UK resident company in relation to the transaction, the relationship between
30
them, having regard to its legal, financial and commercial characteristics, is a
relationship between persons carrying on independent businesses dealing
with each other at arm’s length.
(6)
Condition D is that the requirements of the 20% rule are met (see section 1147).
(7)
Condition E is that the remuneration which the investment manager receives
35
in respect of the transaction for the provision of investment management
services to the non-UK resident company is not less than is customary for that
class of business.
1147
Investment managers: the 20% rule
(1)
The requirements of the 20% rule are met if conditions A and B are met.
40
(2)
Condition A is that, in relation to a qualifying period, it has been or is the
intention of the investment manager and the persons connected with the

Corporation Tax Bill
Part 24 — Corporation Tax Acts definitions etc
Chapter 2 — Permanent establishments
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investment manager that at least 80% of the non-UK resident company’s
relevant disregarded income should consist of amounts to which none of them
has a beneficial entitlement.
(3)
Condition B is that, so far as there is a failure to fulfil that intention, that
failure—
5
(a)
is attributable (directly or indirectly) to matters outside the control of
the investment manager and persons connected with the investment
manager, and
(b)
does not result from a failure of any of them to take such steps as may
be reasonable for mitigating the effect of those matters in relation to the
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fulfilment of that intention.
1148
Section 1147: interpretation
(1)
This section applies for the purposes of section 1147.
(2)
A “qualifying period” means—
(a)
the accounting period of the non-UK resident company in which the
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transaction in question is carried out, or
(b)
a period of not more than 5 years comprising two or more complete
accounting periods including that one.
(3)
The “relevant disregarded income” of the non-UK resident company for a
qualifying period is the total of the non-UK resident company’s income for the
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accounting periods comprised in the qualifying period which derives from
transactions—
(a)
carried out by the investment manager on the non-UK resident
company’s behalf, and
(b)
in relation to which the investment manager does not (apart from the
25
requirements of the 20% rule) fall to be treated as a permanent
establishment of the company.
(4)
A person has a “beneficial entitlement” to relevant disregarded income if the
person has or may acquire a beneficial entitlement that is, or would be,
attributable to the relevant disregarded income as a result of having an interest
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or other rights mentioned in subsection (5).
(5)
The interests and rights referred to in subsection (4) are—
(a)
an interest (whether or not an interest giving a right to an immediate
payment of a share in the profits or gains) in property in which the
whole or any part of the relevant disregarded income is represented, or
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(b)
an interest in, or other rights in relation to, the non-UK resident
company.
1149
Application of 20% rule to collective investment schemes
(1)
This section applies if amounts arise or accrue to the non-UK resident company
as a participant in a collective investment scheme.
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(2)
It applies for the purposes of determining whether the requirements of the 20%
rule are met in relation to a transaction carried out for the purposes of the
scheme (so far as the transaction is one in respect of which amounts so arise or
accrue).
(3)
In applying this section make the following assumptions—
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Corporation Tax Bill
Part 24 — Corporation Tax Acts definitions etc
Chapter 2 — Permanent establishments
562

(a)
that all the transactions carried out for the purposes of the scheme are
carried out on behalf of a company (“the assumed company”) which
is—
(i)
constituted for the purposes of the scheme, and
(ii)
non-UK resident, and
5
(b)
that the participants do not have any rights in respect of the amounts
arising or accruing in respect of those transactions, other than the rights
which, if they held shares in the assumed company, would be their
rights as shareholders.
(4)
If the scheme is such that the assumed company would not be regarded for tax
10
purposes as carrying on a trade in the United Kingdom in relation to the
accounting period in which the transaction was carried out, the requirements
of the 20% rule are to be treated as met in relation to a transaction carried out
for the purposes of the scheme.
(5)
If the scheme is such that the assumed company would be so regarded for tax
15
purposes, sections 1147 and 1148 have effect in relation to a transaction carried
out for the purposes of the scheme with the modifications in subsection (6).
(6)
The modifications are—
(a)
for references to the non-UK resident company substitute references to
the assumed company, and
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(b)
for references to the non-UK resident company’s relevant disregarded
income for a qualifying period substitute references to the sum of the
amounts that would, for accounting periods comprised in the
qualifying period, be chargeable to tax on the assumed company as
profits deriving from the transactions—
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(i)
carried out by the investment manager, and
(ii)
assumed to be carried out on behalf of the company.
(7)
In this section—
“collective investment scheme” has the meaning given by section 235 of
FISMA 2000, and
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“participant”, in relation to a collective investment scheme, is to be read in
accordance with that section.
1150
Meaning of “investment manager” and “investment transaction”
(1)
In this Chapter—
“investment manager” means a person who provides investment
35
management services, and
“investment transaction” means any transaction of a description specified
for the purposes of this subsection in regulations made by the
Commissioners for Her Majesty’s Revenue and Customs.
(2)
Provision made in regulations under subsection (1) may, in particular, have
40
effect in relation to accounting periods current on the day on which the
regulations are made.