Clause 1075: Exempt distributions

3134.     This clause states that an exempt distribution is not a distribution for the purposes of the Corporation Tax Acts, and provides a signpost to the categories of exempt distribution set out in the following three clauses. It is based on sections 213(2) and (3), 213A(1) and (2) and 218(1) of ICTA.

Clause 1076: Transfer of shares in subsidiaries to members

3135.     This clause defines the circumstances giving rise to the first type of exempt distribution. It is based on section 213(2) and (3) of ICTA.

3136.     Conditions A to D are in clause 1081, conditions E and F are in clause 1082 and conditions L and M are in clause 1085.

Clause 1077: Transfer by distributing company and issue of shares by transferee company

3137.     This clause defines the circumstances giving rise to the second type of exempt distribution. It is based on section 213(2) and (3) of ICTA.

3138.     Conditions A to D are in clause 1081, conditions G to K are in clause 1083 and conditions L and M are in clause 1085.

Clause 1078: Division of business in a cross-border transfer

3139.     This clause defines the circumstances giving rise to the third type of exempt distribution. It is based on section 213A(1) of ICTA.

Clause 1079: “The distributing company”

3140.     This clause defines the term “the distributing company” for the purposes of clauses 1080 to 1099. It is based on sections 213(3) and 213A(3) of ICTA.

Clause 1080: Meaning of “relevant company”

3141.     This clause defines the term “relevant company” for the purposes of clauses 1076, 1077 and 1078. It is based on sections 213(3) and 213A(3) of ICTA.

Clause 1081: General conditions

3142.     This clause sets out the conditions (A to D) for an exempt distribution to be treated as such, and covers all exempt distributions of the first or second type - see clauses 1076 and 1077. It is based on section 213(4), (5), (10) and (11) of ICTA.

3143.     Subsection (1) reflects the amendment of section 213(4) of ICTA by the Corporation Tax (Implementation of the Mergers Directive) Regulations 2009 (SI 2009/2797). The regulations substituted the words “resident in a member State” for the words “UK resident” to ensure that the United Kingdom is fully compliant in this context with its obligations under Directive 90/434/EEC of the European Council and of the Council of 26 October 2005 on cross-border mergers of limited liability companies.

3144.     The clause is supplemented by clauses 1082 and 1083 which set out conditions that must be met in relation to specific types of exempt distribution.

Clause 1082: Conditions for distributions within section 1076(a)

3145.     This clause supplements clause 1081 by requiring additional conditions (E and F) to be met if the exempt distribution is of a type involving the distribution by a company to its members of shares in one or more of its 75% subsidiaries. It is based on section 213(6), (7) and (12) of ICTA.

3146.     Subsection (1) sets out conditions relating to the company whose shares are transferred and subsection (2) sets out conditions relating to the company making the transfer.

3147.     Condition F in subsection (2), the requirement for the company making the transfer to be a trading company after the distribution, does not apply if that company is itself a 75% subsidiary. Instead, clause 1085 applies.

Clause 1083: Conditions for distributions within section 1077

3148.     This clause supplements clause 1081 by requiring additional conditions (G to K) to be met if the exempt distribution consists of the transfer of a trade or trades, or shares in one or more 75% subsidiaries, followed by the issue of shares in the receiving company to the members of the company making the transfer. It is based on section 213(8) of ICTA.

3149.     The company making the transfer must dispose of substantially the whole of its interest in the trade or shareholding that it transfers.

3150.     Clause 1084 further qualifies this clause.

Clause 1084: Cases where condition K does not apply

3151.     This clause qualifies clause 1083 by setting out circumstances where one of its conditions, condition K, does not apply. It is based on section 213(9) and (12) of ICTA.

Clause 1085: Conditions to be met if the distributing company is a 75% subsidiary

3152.     This clause will apply instead of either condition F in clause 1082 or condition K in clause 1083 if the distributing company is itself a 75% subsidiary. It is based on section 213(12) of ICTA.

3153.     Without this clause a 75% subsidiary would not be able to meet the overarching requirement in clause 1074(1), namely that the outcome of an exempt distribution is that a trade must be divided between two companies not in the same group or two independent groups. The categories of exempt distribution all involve transfers of shares to the members of the distributing company, and in the case of a 75% subsidiary the members would be the immediate holding company. Hence the conditions could not be met as everything would remain within the one group.

3154.     The “trading company or group” condition in condition F or K of the relevant clause is replaced by a requirement in subsection (1) about the group to which the company belongs.

3155.     This clause then requires further distributions, each of which must meet all the relevant tests - apart from condition F or K where the distributing company is a 75% subsidiary. The final exempt distribution in this process must therefore be made by a company which is not itself a 75% subsidiary and which is capable of meeting the requirements of clause 1074(1).

Clause 1086: Chargeable payments connected with exempt distributions

3156.     This clause sets out how a chargeable payment is charged to corporation tax or income tax, together with the condition that the charge only applies where the payment is made within five years after an exempt distribution. It is based on sections 214(1), (1A), (1B), and (6) and 215(4) of ICTA.

Clause 1087: Chargeable payments not deductible in calculating profits

3157.     This clause sets out the corporation tax treatment for the payer of a chargeable payment made within five years after an exempt distribution. It is based on section 214(1) of ICTA.

3158.     The chargeable payment is treated as a distribution for corporation tax purposes in the case of the payer. That is, the payer does not get a deduction for the payment. If the recipient is a company it is chargeable to corporation tax on the receipt - see clause 1086 - despite the treatment in the hands of the payer as a distribution.

Clause 1088: Meaning of “chargeable payment”

3159.     This clause sets out four conditions A to D, all of which must be met for a payment to be treated as a chargeable payment. It is based on section 214(2) and (3) of ICTA.

3160.     This clause is supplemented by clause 1089 if any company concerned in the exempt distribution is an unquoted company.

Clause 1089: Meaning of “chargeable payment”: unquoted companies

3161.     This clause expands the circumstances in which Condition A in clause 1088 is met if a company concerned in an exempt distribution is an unquoted company. It is based on section 214(2) and (3) of ICTA.

3162.     The clause sets out conditions B1, C1 and D1. These are the parallel conditions to conditions B, C and D of clause 1088. They have been given different but related labels to highlight the relationship.

Clause 1090: Meaning of “company concerned in an exempt distribution”

3163.     This clause defines the term “company concerned in an exempt distribution” for the purposes of the Chapter. It is based on section 214(4) and (5) of ICTA.

3164.     This term is used in the conditions in clause 1088 and the extension in clause 1089.

Clause 1091: Advance clearance of distributions

3165.     This clause allows a company to seek a ruling from the Commissioners for HMRC as to whether a distribution will be treated as an exempt distribution. It is based on section 215(1) of ICTA, and is supplemented by clause 1093.

3166.     The words “the Commissioners for Her Majesty’s Revenue and Customs” have been substituted for the words “the Board” in the source legislation. This gives effect to section 50(1) and (2) of CRCA which require references to the terms in the source legislation to be taken as references to the substituted terms.

Clause 1092: Advance clearance of payments

3167.     This clause provides companies with an opportunity to seek advance clearance that a payment will not be treated as a chargeable payment. It is based on section 215(2) and (3) of ICTA.

Clause 1093: Requirements relating to applications for clearance

3168.     This clause sets out how an application under clause 1091 or clause 1092 must be made and the time limits that must be observed by the Commissioners and the company. It is based on section 215(5) of ICTA.

Clause 1094: Decision of the Commissioners or tribunal

3169.     This clause sets out the time limit in which the Commissioners must make a decision on an application under clause 1091 or clause 1092 and the process for referring the application to the tribunal. It is based on section 215(6) to (8) of ICTA.

Clause 1095: Exempt distributions: returns

3170.     This clause requires a company to make a return of an exempt distribution. It is based on section 216(1) of ICTA.

Clause 1096: Chargeable payments etc: returns

3171.     This clause requires returns to be made in relation to chargeable payments connected with an exempt distribution. It is based on section 216(2), (3) and (4) of ICTA.

Clause 1097: Information about person for whom a payment is received

3172.     This clause enables an officer of Revenue and Customs to require certain information of a person who receives a chargeable payment on behalf of another person, or the person on whose behalf it is received. It is based on section 217(4) of ICTA.

Clause 1098: “Unquoted company”

3173.     This clause defines “unquoted company” for the purposes of the Chapter. It is based on section 218(1) of ICTA.

Clause 1099: Other definitions etc

3174.     This clause contains further interpretation for the purposes of the Chapter. It is based on section 218(1), (2) and (3) of ICTA.

Chapter 6: Information and returns: further provisions

Overview

3175.     This Chapter contains clauses of an administrative nature that apply generally across the distributions legislation.

Clause 1100: Qualifying distributions: right to request a statement

3176.     This clause enables the recipient of a qualifying distribution to require certain information from the payer. It is based on section 234(1) and (2) of ICTA.

Clause 1101: Non-qualifying distributions etc: returns and information

3177.     This clause requires the payer of a distribution that is not a qualifying distribution to make certain returns and provide certain information to HMRC. It is based on section 234(5) to (8) of ICTA.

3178.     The definition of what is and is not a qualifying distribution is in clause 1136.

Clause 1102: Non-qualifying distributions etc: additional information

3179.     This clause enables an officer of Revenue and Customs to require the provision of certain information in relation to distributions that are not qualifying distributions. It is based on section 234(9) of ICTA, and paragraphs 3 and 4 of Schedule 12 to FA 1989.

3180.     Paragraphs 3 and 4 of Schedule 12 to FA 1989 have been rewritten here rather than being applied by cross-reference.

Clause 1103: Power to modify or replace sections 1101 and 1102

3181.     This clause enables the Commissioners for HMRC to lay regulations amending clauses 1101 and 1102. It is based on section 253 of ICTA.

Clause 1104: Company distributing dividend or interest: duty to provide tax certificates

3182.     This clause requires a company to provide a tax certificate when it makes a distribution. It is based on section 234A(1), (2) and (3) of ICTA.

3183.     The meaning of “company” is that in section 1 of the Companies Act 2006, which came into effect from 1 October 2009 as a result of article 3(a) of The Companies Act 2006 (Commencement No 8, Transitional Provisions and Savings) Order 2008, SI 2008/2860. The Companies Act 2006 (Consequential Amendments) (Taxes and National Insurance) Order 2009, SI 2009/1890 article 3 made the necessary amendment of section 234A of ICTA.

3184.     Section 234A(6) has been omitted as having no effect because interest that is treated as a distribution can only be a qualifying distribution. See Change 58 in Annex 1.

Clause 1105: Duties of nominees

3185.     This clause places certain duties on nominees who receive distributions on behalf of others. It is based on section 234A(4) and (5) of ICTA.

Clause 1106: Meaning of “tax certificate” etc

3186.     This clause sets out what is required in a “tax certificate” in this Chapter and provides certain other definitions. It is based on section 234A(7), (8) and (8A) of ICTA.

3187.     Section 234A(6) has been omitted as having no effect because interest that is treated as a distribution can only be a qualifying distribution. See Change 58 in Annex 1.

Clause 1107: Penalties

3188.     This clause provides for penalties to be charged for failure to provide a tax certificate. It is based on section 234A(9) of ICTA.

Clause 1108: Alternative means of compliance with sections 1104 and 1105

3189.     This clause enables the Commissioners for HMRC to lay regulations providing for alternative methods by which a person may comply with obligations under clause 1104 or clause 1105. It is based on section 234A(10) and (11) of ICTA.

Chapter 7: Tax credits

3190.     This Chapter provides the rules under which a company is entitled to a tax credit and related administrative provisions. It is based on sections 231 and 252 of ICTA and paragraphs 3 and 4 of Schedule 12 to FA 1989.

3191.     Sections 231AA and 231AB of ICTA are rewritten in Part 17 of this Bill (see clauses 808, 809 and 810). Section 231B of ICTA is not rewritten as it has only a very limited future application.

Clause 1109: Tax credits for certain recipients of exempt qualifying distributions

3192.     This clause sets out the conditions to be met for a company to be entitled to a tax credit in relation to a distribution that it receives. It is based on section 231 of ICTA and paragraphs 3 and 4 of Schedule 12 to FA 1989. The corresponding provision for income tax is section 397 of ITTOIA.

3193.     One of the conditions is that the distribution is a qualifying distribution. This term is defined in clause 1136.

Clause 1110: Recovery of overpaid tax credit etc

3194.     This clause enables an officer of Revenue and Customs to make assessments to recover tax and/or interest where a tax credit has been overpaid or a set-off of tax credit is excessive. It is based on section 252(1) and (2) of ICTA.

3195.     Schedule 1 inserts the equivalent income tax provision into ITTOIA as section 401A.

Clause 1111: Section 1110: supplementary

3196.     This clause makes further provision relating to the recovery provisions in clause 1110. It is based on section 252(3) and (5) of ICTA.

Chapter 8: Interpretation of Part

Clause 1112: Arrangements between companies

3197.     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 1113: “In respect of shares”

3198.     This clause provides interpretation of the term “in respect of shares in the company”. It is based on section 254(1), (2), (4) and (12) of ICTA.

Clause 1114: “In respect of securities”

3199.     This clause provides interpretation of the term “in respect of securities in the company”. It is based on section 254(1), (2), (4) and (12) of ICTA.

Clause 1115: “New consideration”

3200.     This clause provides interpretation of the term “new consideration”. It is based on section 254(1), (5), (6) and (7) of ICTA.

Clause 1116: References to married persons, or civil partners, living together

3201.     This clause contains the definition of “living together”. It is based on section 1011 of ITA.

Clause 1117: Other interpretation

3202.     This clause provides further interpretation. It is based on sections 218(1) and 254(1), (9), (10), (11) and (12) of ICTA.

Part 24: Corporation Tax Acts definitions etc

Overview

3203.     This Part sets out definitions and related material applying for the purposes of the Corporation Tax Acts generally.

3204.     Chapters 1 and 5 are based on a number of provisions in Part 19 of ICTA. Chapter 2 (permanent establishments) is based on sections 148 and 152 of, and Schedule 26 to, FA 2003. Chapter 3 (subsidiaries) is based on section 838 of ICTA. Chapter 4 (investment trusts) is based on section 842 of ICTA.

3205.     Definitions have been rewritten using the following principles (which were also used in ITA):

• if definitions are relatively short or straightforward, they are duplicated in the legislation about each of the taxes to which they apply;

• if a definition is longer and more complicated, and is mainly concerned with one tax, it is set out in full in the legislation about that tax and defined by cross-reference for the purposes of any other taxes that are relevant;

• if a definition is longer and more complicated but is made substantial use of in relation to more than one tax, again it is normally duplicated.

Chapter 1: Definitions

Clause 1118: Introduction to Chapter

3206.     This clause introduces Chapter 1 which contains definitions applying for the purposes of the Corporation Tax Acts. Where it is not new, it is based on section 832 of ICTA. The corresponding provision for income tax is in section 988 of ITA.

3207.     A number of terms that are defined by ITA for the purposes of the Income Tax Acts are used without definition in this Bill. As that use is in an income tax context, the ITA definition applies in this Bill.

3208.     Subsections (3) to (5) indicate the extent to which the definitions apply.

3209.     Subsection (5) makes clear that the application of a definition is also subject to any contrary indication.

Clause 1119: The definitions

3210.     This clause sets out the definitions in alphabetical order. It is based on a number of provisions in ICTA, in particular sections 832 and 834, and on section 1319 of CTA 2009. The corresponding provision for income tax is in section 989 of ITA.

3211.     The definition of “Act” uses the term “Northern Ireland legislation”, which is defined in section 24(5) of the Interpretation Act 1978, rather than a list of categories of relevant legislation as in the source legislation. See Change 6 in Annex 1.

3212.     The definition of “capital allowance” does not include, as specified by section 832(1) of ICTA, allowances under enactments which under ICTA are treated as contained in CAA. The only such enactment was section 532 of ICTA, which was repealed by CTA 2009.

3213.     The definition of “period of account” omits the reference in the source legislation to “profession, vocation”. See Change 4 in Annex 1.

3214.     The definition of “personal representatives” is new. It follows the approach adopted in ITTOIA and ITA. See Change 59 in Annex 1.

3215.     The definition of “tax” does not rewrite the words “and in any enactment passed after 12th March 1970 which by any express provision is to be construed as one with the Tax Acts, the Corporation Tax Acts or the Income Tax Acts” in section 832(3) of ICTA as the definition already applies in a case which is to be construed as one with the Corporation Tax Acts. The effect of the opening words of section 832(3) of ICTA (“except so far as the context otherwise requires”) is included in clause 1118(4).

3216.     The definition of “trade” has been streamlined in line with the approach in ITA.

3217.     A number of definitions in section 832(1) of ICTA have not been rewritten. The definitions of “the Board”, “collector” and “inspector” were superseded by the interpretative rules in CRCA (see sections 5 to 7 and 50 of that Act). The terms “farm land” and “market garden land” no longer appear in corporation tax provisions but the substance of these definitions is included in the definitions in clause 1125 (“farming” and related expressions). The term “qualifying policy” is no longer relevant to corporation tax provisions.

Clause 1120: “Bank”

3218.     This clause defines “bank”. It is based on section 840A of ICTA. The corresponding provision for income tax is in section 991 of ITA.

3219.     The definition operates only where specifically applied.

3220.     The regulatory power mentioned in subsection (2)(e) differs from that in ITA, in that subsection (5) preserves the possibility in the source legislation that an organisation is designated for the purposes of only some provisions that deploy this definition rather than all such provisions. Schedule 1 to this Bill makes a corresponding consequential amendment to section 991 of ITA which brings the income tax and corporation tax codes back in line.