Chapter 1: Introduction

Clause 780: Overview of Part

2373.     This clause gives an overview of the Part. It is new.

Clause 781: Key definitions

2374.     This interpretative clause is based on sections 231AA and 231AB of ICTA, paragraphs 2 and 4 of Schedule 23A to that Act and section 139 of FA 2006.

2375.     The key expressions “manufactured dividend” and “manufactured overseas dividend” are defined at the beginning of, respectively, Chapters 2 (manufactured dividends) and 3 (manufactured overseas dividends). This clause applies those definitions throughout the Part.

2376.     As noted in clause 780(4), Part-wide definitions are located in Chapter 6.

Chapter 2: Manufactured dividends

Overview

2377.     This Chapter is concerned with:

• the taxability of manufactured dividends in the hands of the recipient (or, if different, the owner);

• tax relief for the payer of manufactured dividends; and

• taxes management.

Clause 782: Meaning of “manufactured dividend”

2378.     This interpretative clause is based on paragraph 2 of Schedule 23A to ICTA and section 139 of FA 2006.

2379.     The expression “UK shares” is used in this clause for the first time in this Part. It is defined in clause 814.

Clause 783: Treatment of payer of manufactured dividend

2380.     This clause gives corporation tax relief for the payer of a manufactured dividend. It is based on paragraphs 2(1A) to (1F) of Schedule 23A to ICTA.

2381.     Paragraph 2(1C) of Schedule 23A to ICTA envisages that a particular manufactured dividend may relate both to a trade carried on by the dividend manufacturer and to life assurance business carried on by the dividend manufacturer. Subsection (4) makes it clear that the words about paragraph 2(1E) in paragraph 2(1C) are intended to exclude relief under paragraph 2(1C) only so far as relief is given under paragraph 2(1E). This drafting clarification does not change the law.

Clause 784: Treatment of recipient of manufactured dividends

2382.     This clause deals with the corporation tax treatment, in the hands of the recipient (or, if different, the owner), of a manufactured dividend. It is based on paragraph 2 of Schedule 23A to ICTA.

Clause 785: Treatment of payer: Real Estate Investment Trusts

2383.     This clause gives corporation tax relief for the payer of a manufactured dividend, to the extent that it is representative of a dividend (a property income dividend or PID) paid by a company UK REIT or by the principal company of a group UK REIT. It is based on section 139 of FA 2006 and paragraph 30 of Schedule 17 to that Act.

Clause 786: Treatment of recipient: Real Estate Investment Trusts

2384.     This clause deals with the corporation tax treatment of a manufactured dividend, in the hands of the recipient (or, if different, the owner), to the extent that the manufactured dividend is representative of a PID. It is based on section 139 of FA 2006 and paragraph 30 of Schedule 17 to that Act.

Clause 787: Exemption of manufactured dividends

2385.     This clause provides that a manufactured dividend is exempt from corporation tax to the extent that the dividend of which it is representative is (or would be) so exempt. It is based on paragraph 2(3A) and (3B) of Schedule 23A to ICTA.

Clause 788: Statements about manufactured dividends

2386.     This clause imposes an obligation on the payer of a manufactured dividend to give the recipient a statement setting out information which may be relevant for tax purposes. It is based on paragraph 2 of Schedule 23A to ICTA and section 139 of, and paragraph 30 of Schedule 17 to, FA 2006.

Clause 789: Powers about administrative provisions

2387.     This clause is a general regulation-making power about manufactured dividends. It is based on paragraph 8 of Schedule 23A to ICTA.

Chapter 3: Manufactured overseas dividends

2388.     This Chapter is concerned with:

• the taxability of MODs in the hands of the recipient (or, if different, the owner);

• tax relief for the payer of MODs; and

• taxes management.

Clause 790: Meaning of “manufactured overseas dividend”

2389.     This interpretative clause is based on paragraph 4 of Schedule 23A to ICTA.

2390.     The expressions “overseas dividend” and “overseas securities” are used in paragraph (a) for the first time in this Part. They are defined in clause 814.

Clause 791: Treatment of payer of manufactured overseas dividend

2391.     This clause deals with the corporation tax treatment of a payer of MODs. It is based on paragraph 4 of Schedule 23A to ICTA.

Clause 792: Company receiving manufactured overseas dividend from UK resident etc

2392.     This clause deals with the corporation tax treatment of MODs in the hands of the recipient (or, if different, the owner) when tax has been deducted under section 922(1) of ITA. It is based on paragraph 4 of Schedule 23A to ICTA.

2393.     The expression “gross amount of the manufactured overseas dividend” is used in subsection (3)(a) for the first time in this Part. It is defined in clause 813.

2394.     The expression “overseas tax” is used in subsection (3)(b) for the first time in this Part. It is defined in clause 814.

Clause 793: Section 792: amount treated as withheld

2395.     This clause quantifies the amount treated as withheld under clause 792(3)(b). It is based on paragraph 4A of Schedule 23A to ICTA.

2396.     Subsection (2) refers to section 925A of ITA, which is based on paragraph 13 of Schedule 13 to FA 2007 and is inserted by Schedule 7 to TIOPB.

Clause 794: Company receiving manufactured overseas dividend from foreign payer

2397.     This clause deals with the corporation tax treatment of MODs in the hands of the recipient (or, if different, the owner) when tax has been accounted for and paid under section 923(1) of ITA. It is based on paragraph 4 of Schedule 23A to ICTA.

Clause 795: Exemption of manufactured overseas dividends

2398.     This clause provides that a MOD is exempt from corporation tax to the extent that the overseas dividend of which it is representative is (or would be) so exempt. It is based on paragraph 4 of Schedule 23A to ICTA.

Chapter 4: Further provision about manufactured payments

Overview

2399.     This Chapter makes further provision about manufactured payments. The detailed structure of the Chapter is as follows:

• Clauses 796 to 798 - manufactured payments exceeding, or less than, underlying payments;

• Clauses 799 to 801 - manufactured payments under arrangements with unallowable purpose;

• Clauses 802 to 804 - miscellaneous.

Clauses 796 and 797: Manufactured dividends and manufactured overseas dividends: amounts exceeding underlying payments

2400.     These clauses deal with cases in which an amount paid by way of manufactured dividend or MOD would otherwise exceed the amount of the payment of which it is representative. They are based on paragraph 7 of Schedule 23A to ICTA.

2401.     If either of these clauses applies, the excess is taken out of the scope of the rules about manufactured payments and is treated as a fee. This may affect (a) relief for the payer, (b) taxability for the recipient (or, if different, the owner) or (c) both, if the person concerned is a corporation tax payer.

2402.     In paragraph 7(1) of Schedule 23A to ICTA, the words “notwithstanding anything in paragraph 2 above or anything in paragraph 4 other than in sub-paragraph (1A)” signal that the treatment of the excess element of manufactured dividend or MOD as a fee will not prevent it from being eligible for relief as (for example) a trading expense (even though it will not qualify for such relief under paragraph 4(1A) of that Schedule). These words are not rewritten, as they add nothing except emphasis.

Clause 798: Manufactured overseas dividends less than underlying payments

2403.     This clause overrides clause 813(2) of this Bill (the general rule quantifying the gross amount of a MOD). It is based on paragraph 7 of Schedule 23A to ICTA.

Clause 799: Manufactured payments under arrangements with unallowable purpose

2404.     This clause denies tax relief for manufactured payments made under arrangements having an unallowable purpose. It is based on paragraph 7A of Schedule 23A to ICTA.

2405.     Subsection (1) states when the clause applies.

2406.     Subsection (2) sets out the consequences of the clause applying.

2407.     Subsection (3) defines “relevant tax relief”.

2408.     Subsections (4) and (5) state when a company is subject to another relevant tax relief restriction for the purposes of this section. See the priority rule in subsection (1)(d).

2409.     Subsection (6) requires the manufactured payment to be justly and reasonably apportioned in order to determine the part which is attributable to the unallowable purpose.

2410.     Subsection (7) is a signpost to the definition of “arrangements” in clause 801 of this Bill.

Clause 800: Arrangements with an unallowable purpose

2411.     This clause states when arrangements have an unallowable purpose for the purposes of clause 799 of this Bill. It is based on paragraph 7A of Schedule 23A to ICTA.

2412.     Subsections (2) and (3) define arrangements having an unallowable purpose.

2413.     Subsection (5) restricts the business and other commercial purposes of a company to the purposes of activities in respect of which it is within the charge to corporation tax.

2414.     Subsections (6) and (7) limit the extent to which a tax avoidance purpose can be a business or other commercial purpose of the company.

Clause 801: Sections 799 and 800: supplementary

2415.     This supplementary clause is based on paragraph 7A of Schedule 23A to ICTA.

2416.     Subsection (1) adopts the corporation tax definition of “manufactured interest” used in Chapter 9 of Part 6 of CTA 2009 (relationships treated as loan relationships etc: manufactured interest). This is a minor change in the law. See Change 51 in Annex 1.

Clause 802: Powers about amounts representative of overseas dividends

2417.     This clause is concerned with double taxation relief. It is based on paragraph 8 of Schedule 23A to ICTA.

Clause 803: Power to deal with special cases

2418.     This clause is a general power to modify the rules about manufactured payments contained in clauses 783 to 788, 791, 792, 794 and 795. It is based on paragraph 8 of Schedule 23A to ICTA.

2419.     Subsection (2) does not refer to clause 793, which is based on paragraph 4A of Schedule 23A to ICTA, because paragraph 8(1) of that Schedule does not refer to that paragraph. Clause 793 merely specifies an amount for the purposes of clause 792, which is within the scope of this clause.

Clause 804: Regulation-making powers: general

2420.     This clause is a general provision about powers to make regulations. It is based on paragraph 8 of Schedule 23A to ICTA.

Chapter 5: Stock lending arrangements and repos

Overview

2421.     This Chapter contains rules concerning stock lending arrangements and repos.

2422.     The detailed structure of the Chapter is as follows:

• Clauses 805 to 807 - interpretation;

• Clauses 808 to 811 - tax credits: stock lending arrangements and repos;

• Clause 812 - deemed manufactured payments.

Clauses 805 to 807: “Stock lending arrangement”; section 805: supplementary; “creditor repo”, “creditor quasi-repo”, “debtor repo” and “debtor quasi-repo”

2423.     These interpretative clauses are based on sections 231AA and 736B of ICTA, paragraph 1 of Schedule 23A to that Act and sections 263B and 263C of TCGA.

Clause 808: No tax credits for borrower under stock lending arrangement

2424.     This section prevents the borrower under a stock lending arrangement from claiming a tax credit when that person in economic terms does not retain a dividend on the securities, but passes it on to the lender, by way of a manufactured dividend or other means. It is based on section 231AA of ICTA and section 263B of TCGA.

Clause 809: No tax credits for lender under creditor repo or creditor quasi-repo

2425.     This clause prevents the lender under a creditor repo or creditor quasi-repo from claiming a tax credit when that person in economic terms does not retain a dividend on the shares, but passes it on to the counterparty, by way of a manufactured dividend or other means. It is based on section 231AA of ICTA.

2426.     Subsection (3)(b) refers to section 925A of ITA, which is based on paragraph 13 of Schedule 13 to FA 2007 and is inserted by Schedule 7 to TIOPB.

Clause 810: No tax credits for borrower under debtor repo or debtor quasi-repo

2427.     This clause counters unusual repo arrangements where the borrower does not pass entitlement to the dividends to the counterparty but the borrower nonetheless receives a manufactured dividend. It is based on section 231AB of ICTA.

Clause 811: Arrangements between companies to make distributions

2428.     This clause extends the meaning of distribution to encompass arrangements between two or more companies to make distributions to each other’s members. It is based on section 254(8) of ICTA.

Clause 812: Deemed manufactured payments: stock lending arrangements

2429.     This clause deems the borrower in a stock lending arrangement to make a manufactured payment in certain circumstances. It is based on sections 231AA, 231AB and 736B of ICTA.

2430.     Usually, a stock lending arrangement will require the borrower to make a manufactured payment to the lender, in which case Chapter 2 of this Part will apply for corporation tax purposes.

2431.     Exceptionally, a stock lending arrangement may be structured in such a way that the lender is not entitled to receive a manufactured payment, even though the lender has forgone interest or dividends on the securities transferred. In such a case, this section deems the borrower to make a manufactured payment. In consequence, Chapters 2 to 4 of this Part applies and, in particular, if the securities are overseas securities, the lender is deemed to receive a MOD. But the borrower is denied any tax relief for the deemed manufactured payment.

Chapter 6: Interpretation of Part

Clauses 813 and 814: The gross amount of a manufactured overseas dividend etc; other interpretation

2432.     These interpretative clauses are based on sections 736B and 736C of ICTA, paragraphs 1, 4 and 7 of Schedule 23A to that Act and section 263B of TCGA.

2433.

Part 18: Transactions in land

Overview

2434.     This Part rewrites sections 776 to 778 of ICTA for the purposes of corporation tax.

2435.     Sections 776 to 778 of ICTA were enacted as a wide-ranging anti-avoidance rule specifically aimed at transactions in land.

2436.     Chapter 3 of Part 13 of ITA rewrote sections 776 to 778 of ICTA for the purposes of income tax, and paragraphs 184 to 186 of Schedule 1 to ITA consequentially amended those sections to apply solely for the purposes of corporation tax.

2437.     This Part replicates Chapter 3 of Part 13 of ITA as far as possible. It differs from Chapter 3 of Part 13 of ITA in two respects.

2438.     First, sections 776 to 778 of ICTA, as amended by ITA, do not include any provisions corresponding to section 759(8) of ITA (person liable: territorial scope), section 767 of that Act (exemption: private residences) or section 768(6) to (8) of that Act (income treated as highest part of individual’s total income), because those provisions are income tax specific. Accordingly, no such provisions appear in the corporation tax version of the legislation.

2439.     Second, where necessary this Part uses concepts specific to corporation tax where Chapter 3 of Part 13 of ITA uses concepts specific to income tax. For example, since persons other than companies are not liable to corporation tax, this Part uses the word “company” to refer to the taxpayer where Chapter 3 of Part 13 of ITA uses the word “person”.

2440.     In rewriting sections 776 to 778 of ICTA for the purposes of income tax, Chapter 3 of Part 13 of ITA included some minor changes in the law. Some of the same changes are made in this Part, for the purposes of corporation tax. They are highlighted in the commentary on clauses 821, 831 and 832.

2441.     The rewrite of this legislation for the purposes of corporation tax raises three new points of detail, which are highlighted in the commentary on clauses 817 and 821 and Schedule 1.

Clauses 815 and 816: Introduction to Part; meaning of disposing of land

2442.     These clauses are based on sections 776(1), (2) and (4) of ICTA.

2443.     Except as noted in the Overview above, these clauses replicate exactly sections 752 and 753 of ITA.

Clause 817: Priority of other tax provisions

2444.     This clause is based on section 777(10) of ICTA. It replicates exactly section 754 of ITA.

2445.     Paragraph (a) gives Chapter 5 of Part 5 of ITTOIA (which is an income tax provision) priority over this Part (which is a corporation tax provision). This is necessary because without it there might be the possibility of a double charge. The possibility arises because the company liable to corporation tax under this Part is not necessarily the person to whom the gain has accrued; see clause 821.

2446.     Chapter 5 of Part 5 of ITTOIA treats any capital sum paid directly or indirectly by the trustees of a settlement to the settlor as the settlor’s income. If such a capital sum became available for payment because a gain of a capital nature had accrued, and the gain was derived from value provided by a company, then (but for paragraph (a)) the company and the settlor could both be taxed by reference to the same income.

2447.     It may well be that such a case would be unlikely to arise in practice. But omitting paragraph (a) would remove a potential safeguard against double taxation and so it has been retained.

2448.     Similarly, paragraph (b) refers to “the Tax Acts” (ie both the Corporation Tax Acts and the Income Tax Acts) both to ensure that there is no unintended change and for the sake of consistency with section 754(b) of ITA.

Clause 818: Charge to tax on gains from transactions in land

2449.     This clause imposes the charge to corporation tax on income and stipulates when the charge applies. It is based on section 776(3) and (3A) of ICTA, and is similar to section 755 of ITA.

Clauses 819 and 820: Gains obtained from land disposals in some circumstances; person obtaining gain

2450.     These clauses are based on section 776(2) to (5), (13) and (14) of ICTA.

2451.     Except as noted in the Overview above, these clauses replicate exactly sections 756 and 757 of ITA.

Clause 821: Company chargeable

2452.     This clause is based on section 776(3) and (8) of ICTA. It is very similar to section 759 of ITA.

2453.     Subsection (1) lays down the general rule for determining the company chargeable to corporation tax under this Chapter. Subsections (3) and (5) make exceptions to this general rule.

2454.     Subsection (4) backs up subsection (3). But there is no equivalent of subsection (4) to back up subsection (5), because none is needed. This is a change in the law but not in practice. See Change 52 in Annex 1.

2455.     As a separate matter, there is no equivalent in this clause of section 759(8) of ITA, because there is no corporation tax equivalent of section 1015 of that Act, to which section 759(8) of that Act refers.

2456.     The table below summarises the territorial scope of the corporation tax legislation on transactions in land.

2457.     This clause and clause 819 are drafted on this basis.

Clauses 822 to 826: Method of calculating gain; transactions, arrangements, sales and realisations relevant for Part; tracing value; meaning of “another person”; valuations and apportionments

2458.     These clauses are based on sections 776(6) and 777(2), (3) and (5) to (7) of ICTA. Except that clause 822 refers to CTA 2009 rather than to ITTOIA, they replicate exactly sections 760 to 764 of ITA.