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Taxation (International and Other Provisions) Bill


Taxation (International and Other Provisions) Bill
Part 2 — Double taxation relief
Chapter 2 — Double taxation relief by way of credit

39

 

(2)   

Condition A is that a company (“the claimant company”) makes a claim for an

allowance by way of credit in accordance with this Part.

(3)   

Condition B is that the claim relates to underlying tax on a dividend paid to the

claimant company by a company resident outside the United Kingdom (“the

overseas company”).

5

(4)   

Condition C is that the underlying tax is, or includes, an amount in respect of

tax payable at a high rate by the overseas company and—

(a)   

that amount would not be, or would not be included in, the underlying

tax, or

(b)   

any part of that amount would not be included in the underlying tax,

10

   

but for the existence of, or but for there having been, an avoidance scheme (see

section 68).

(5)   

Condition D is that—

(a)   

there is a dividend-paying chain (see section 64) in which—

(i)   

the first company is the claimant company, and

15

(ii)   

the second company is the overseas company, and

(b)   

the underlying tax is, or includes, an amount in respect of tax payable

at a high rate by a company lower in the chain than the overseas

company and—

(i)   

that amount would not be, or would not be included in, the

20

underlying tax, or

(ii)   

any part of that amount would not be included in the

underlying tax,

   

but for the existence of, or but for there having been, an avoidance

scheme (see section 68).

25

(6)   

The amount of credit to which the claimant company is entitled on the claim is

to be determined as if the tax payable at a high rate had instead been tax at the

relievable rate.

(7)   

For the purposes of this section, tax payable by a company is “tax payable at a

high rate” so far as the amount payable exceeds the amount that would

30

represent tax at the relievable rate on the profits of the company which, for the

purposes of this Part, are taken to bear the payable tax.

(8)   

In this section “the relievable rate” means the rate of corporation tax in force

when the dividend mentioned in subsection (3) was paid.

68      

Meaning of “avoidance scheme” in section 67

35

(1)   

In section 67 “avoidance scheme” means any scheme or arrangement in respect

of which each of conditions A to C is met.

(2)   

Condition A is that the purpose, or one of the main purposes, of the scheme or

arrangement is to have an amount of underlying tax taken into account on a

claim for an allowance by way of credit in accordance with this Part.

40

(3)   

Condition B is that the parties to the scheme or arrangement include—

(a)   

the company which is the claimant company for the purposes of section

67,

(b)   

a company related to the claimant company, or

(c)   

a person connected with the claimant company.

45

 
 

Taxation (International and Other Provisions) Bill
Part 2 — Double taxation relief
Chapter 2 — Double taxation relief by way of credit

40

 

(4)   

Condition C is that the parties to the scheme or arrangement include a person

who was not under the control of the claimant company at any time before the

doing of anything as part of, or in pursuance of, the scheme or arrangement.

(5)   

For the purposes of subsection (3)(b), a company (“R”) is related to the claimant

company if the claimant company—

5

(a)   

controls directly or indirectly, or

(b)   

is a subsidiary of a company which controls directly or indirectly,

   

at least 10% of the voting power in R.

(6)   

For the purposes of subsection (3)(c), whether a person is connected with

another is determined in accordance with section 1122 of CTA 2010.

10

(7)   

For the purposes of subsection (4), a person who is a party to a scheme or

arrangement is to be taken to have been under the control of the claimant

company at all the following times—

(a)   

any time when the claimant company would have been taken (in

accordance with sections 450 and 451 of CTA 2010) to have had control

15

of the person for the purposes of Part 10 of CTA 2010 (close companies),

(b)   

any time when the claimant company would have been so taken if

sections 450 and 451 of CTA 2010 applied (with the necessary

modifications) in the case of partnerships and unincorporated

associations as they apply in the case of companies, and

20

(c)   

any time when the person acted in relation to the scheme or

arrangement, or any proposal for it, either directly or indirectly under

the direction of the claimant company.

(8)   

For the purposes of subsection (5), the claimant company is a subsidiary of

another company (“P”) if P controls, directly or indirectly, at least 50% of the

25

voting power in the claimant company.

(9)   

In this section “arrangement” means an arrangement of any kind, whether in

writing or not.

69      

Dividends paid out of transferred profits

(1)   

This section applies if—

30

(a)   

a company resident outside the United Kingdom (“company A”) has

paid tax under the law of a territory outside the United Kingdom in

respect of any of its profits,

(b)   

some or all of those profits become profits of another company resident

outside the United Kingdom (“company B”) otherwise than as a result

35

of the payment of a dividend to company B, and

(c)   

company B pays a dividend out of those profits to another company,

wherever resident.

(2)   

If this section applies, this Part has effect, so far as relating to the determination

of underlying tax in relation to any dividend paid—

40

(a)   

by any company resident outside the United Kingdom (whether or not

company B),

(b)   

to a company resident in the United Kingdom,

   

as if company B had paid the tax paid by company A in respect of those profits

of company A which have become profits of company B as mentioned in

45

subsection (1)(b).

 
 

Taxation (International and Other Provisions) Bill
Part 2 — Double taxation relief
Chapter 2 — Double taxation relief by way of credit

41

 

(3)   

But the amount of relief under this Part which is allowable to a company

resident in the United Kingdom is not to exceed the amount which would have

been allowable to that company had those profits become profits of company

B as a result of the payment of a dividend by company A to company B.

70      

Underlying tax reflecting interest on loans

5

(1)   

Subsection (2) applies if—

(a)   

a bank, or a company connected with a bank, makes a claim for an

allowance by way of credit in accordance with this Chapter,

(b)   

there is a dividend-paying chain (see section 64) in which—

(i)   

the first company is the claimant, and

10

(ii)   

the second company is a company resident outside the United

Kingdom,

(c)   

the claimant—

(i)   

controls directly or indirectly, or

(ii)   

is a subsidiary of a company which controls directly or

15

indirectly,

   

at least 10% of the voting power in the second company,

(d)   

the claim relates to underlying tax on a dividend paid by the second

company,

(e)   

that underlying tax is, or includes, tax payable under the law of a

20

territory outside the United Kingdom on, or by reference to, interest or

dividends earned or received in the course of its business by a company

(“the receiving company”) which is—

(i)   

the second company, or

(ii)   

a company lower in the chain than the second company, and

25

(f)   

section 44 would have applied to the receiving company had it been

resident in the United Kingdom.

(2)   

The amount of the credit for the tax mentioned in subsection (1)(e) (“the non-

UK tax”) is not to exceed the sum equal to corporation tax, at the rate in force

at the time the non-UK tax was chargeable, on—equation: plus[times[char[I],char[D]],minus[char[E]]]

30

   

where—

ID is the amount of the interest or dividends mentioned in subsection

(1)(e), and

E is the amount of the receiving company’s expenditure which is properly

attributable to the earning of that interest or those dividends.

35

(3)   

For the purposes of subsection (1)(a)—

(a)   

“bank” means a company carrying on, in the United Kingdom or

elsewhere, any trade which includes the receipt of interest or

dividends, and

(b)   

whether a company is connected with a bank is determined in

40

accordance with section 1122 of CTA 2010.

(4)   

For the purposes of subsection (1)(c), the claimant is a subsidiary of another

company (“P”) if P controls, directly or indirectly, at least 50% of the voting

power in the claimant.

 
 

Taxation (International and Other Provisions) Bill
Part 2 — Double taxation relief
Chapter 2 — Double taxation relief by way of credit

42

 

71      

Foreign taxation of group as single entity

(1)   

Subsections (2) and (3) apply in relation to a claim for credit in respect of

underlying tax in relation to a dividend paid by a company resident outside the

United Kingdom to a company resident in the United Kingdom if, under the

law of a territory outside the United Kingdom, tax is payable by any one

5

company resident in the territory (“the responsible company”) in respect of the

aggregate profits, or aggregate profits and aggregate gains, of—

(a)   

that company and another company resident in the territory, or

(b)   

that company and two or more other companies resident in the

territory,

10

   

taken together as a single taxable entity.

(2)   

This Part, so far as relating to the determination of underlying tax in relation to

any dividend paid by any of the companies mentioned in subsection (1)(a) or

(b) (the “non-resident companies”) to another company (“the payee

company”), has effect as if—

15

(a)   

the non-resident companies, taken together, were a single company,

(b)   

anything done by or in relation to any of the non-resident companies

(including the payment of the dividend) were done by or in relation to

that single company, and

(c)   

that single company were related to the payee company if the company

20

which actually pays the dividend is related to the payee company.

(3)   

In particular, this Part has effect as if—

(a)   

the relevant profits for the purposes of section 58 is a single aggregate

figure in respect of that single company, and

(b)   

the tax paid in the territory by the responsible company is tax paid in

25

the territory by that single company.

(4)   

For the purposes of this section, a company (“X”) is related to another company

(“H”) if H—

(a)   

controls directly or indirectly, or

(b)   

is a subsidiary of a company which controls directly or indirectly,

30

   

at least 10% of the voting power in X.

(5)   

For the purposes of subsection (4), H is a subsidiary of another company (“P”)

if P controls, directly or indirectly, at least 50% of the voting power in H.

Unrelieved foreign tax on profits of overseas permanent establishment

72      

Application of section 73(1)

35

(1)   

Section 73(1) applies if, in an accounting period of a company resident in the

United Kingdom—

(a)   

the amount of the credit for foreign tax which under the arrangements

would, if section 42 were ignored, be allowable against corporation tax

in respect of the company’s qualifying income from an overseas

40

permanent establishment, exceeds

(b)   

the amount of the credit for foreign tax which under the arrangements

is allowed against corporation tax in respect of the company’s

qualifying income from that overseas permanent establishment.

 
 

Taxation (International and Other Provisions) Bill
Part 2 — Double taxation relief
Chapter 2 — Double taxation relief by way of credit

43

 

(2)   

For the purposes of subsection (1) and section 73(1), the company’s qualifying

income from an overseas permanent establishment is the profits of the overseas

permanent establishment which are—

(a)   

profits, chargeable under Chapter 2 of Part 3 of CTA 2009, of a trade

carried on partly, but not wholly, outside the United Kingdom, or

5

(b)   

included in the profits of a gross roll-up business chargeable under

section 436A of ICTA.

(3)   

In sections 73 to 78

“the company” means the company mentioned in subsection (1),

“the excess” mean the excess referred to in that subsection,

10

“the PE” means the overseas permanent establishment mentioned in that

subsection, and

“period A” means the accounting period mentioned in that subsection.

73      

Carry-forward and carry-back of unrelieved foreign tax

(1)   

For the purposes of allowing credit relief under this Part, the excess is to be

15

treated—

(a)   

as if it were foreign tax paid in respect of, and calculated by reference

to, the company’s qualifying income from the PE in the accounting

period after period A (whether or not the company in fact has any

qualifying income from that source in the accounting period after

20

period A), or

(b)   

in accordance with the rules in section 74, as if it were foreign tax paid

in respect of, and calculated by reference to, the company’s qualifying

income from the PE in one or more of the recent periods, or

(c)   

partly as mentioned in paragraph (a) and partly as mentioned in

25

paragraph (b).

(2)   

If in period A the company ceases to have the PE, the excess, so far as it is not

treated as mentioned in subsection (1)(b), is to be reduced to nil (so that none

of the excess is to be treated as mentioned in subsection (1)(a)).

(3)   

If an amount is treated as mentioned in subsection (1)(b) it is not to be so

30

treated for the purpose of any further application of subsection (1).

(4)   

In subsection (1)(b) “recent period” means an accounting period which is

earlier than period A but begins not more than 3 years before period A.

74      

Rules for carrying back unrelieved foreign tax

(1)   

This section sets out the rules mentioned in section 73(1)(b).

35

(2)   

The first rule is that—

(a)   

credit for the excess, or for any remaining balance of the excess, is

allowed against corporation tax in respect of a later recent period,

before

(b)   

credit for any of the excess is allowed against corporation tax in respect

40

of any earlier recent period.

(3)   

The second rule is that, before allowing credit for any of the excess against

corporation tax in respect of income of any particular accounting period

(“period P”), credit for foreign tax is allowed—

 
 

Taxation (International and Other Provisions) Bill
Part 2 — Double taxation relief
Chapter 2 — Double taxation relief by way of credit

44

 

(a)   

first for foreign tax in respect of the income of period P, other than

amounts which are foreign tax as a result of applying section 73(1) to an

excess from an accounting period other than period P, and

(b)   

then for amounts which are foreign tax as a result of applying section

73(1) to an excess from an accounting period before period P.

5

(4)   

In subsection (2) “recent period” means an accounting period which is earlier

than period A but begins not more than 3 years before period A.

75      

Two or more establishments treated as a single establishment

(1)   

Subsection (2) applies if, under the law of a territory outside the United

Kingdom, tax is charged in respect of the profits of two or more overseas

10

permanent establishments in that territory, taken together.

(2)   

For the purposes of the provisions of sections 72 to 78 other than the excepted

provisions, those overseas permanent establishments are to be treated as if

they together constituted a single overseas permanent establishment.

(3)   

In subsection (2) “the excepted provisions” means section 73(2), this section

15

and section 77.

76      

Former and subsequent establishments regarded as distinct establishments

(1)   

If the company—

(a)   

at any time ceases to have a particular overseas permanent

establishment in a particular territory (“the old establishment”), but

20

(b)   

subsequently again has an overseas permanent establishment in that

territory (“the new establishment”),

   

the old establishment and the new establishment are, for the purposes of the

provisions of sections 72 to 78 other than the excepted provisions, to be

regarded as different overseas permanent establishments.

25

(2)   

In subsection (1) “the excepted provisions” means sections 73(2), 75 and 77.

77      

Claims for relief under section 73(1)

(1)   

The excess is to be treated as mentioned in section 73(1) only on a claim.

(2)   

A claim under subsection (1) must specify—

(a)   

the amount (if any) of the excess which is to be treated as mentioned in

30

section 73(1)(a), and

(b)   

the amount (if any) of the excess which is to be treated as mentioned in

section 73(1)(b).

(3)   

A claim under subsection (1) must be made not more than—

(a)   

4 years after the end of period A, or

35

(b)   

if later, 1 year after the end of the accounting period in which the

foreign tax concerned is paid.

78      

Meaning of “overseas permanent establishment”

(1)   

For the purposes of sections 72 to 76 “overseas permanent establishment”

means a permanent establishment through which the company carries on a

40

trade in a territory outside the United Kingdom.

 
 

Taxation (International and Other Provisions) Bill
Part 2 — Double taxation relief
Chapter 2 — Double taxation relief by way of credit

45

 

(2)   

In subsection (1) “permanent establishment”—

(a)   

if the arrangements are double taxation arrangements and define the

expression, has the meaning given by the arrangements, and

(b)   

if the arrangements are double taxation arrangements but do not define

the expression, or if the arrangements are unilateral relief arrangements

5

for a territory outside the United Kingdom, is to be read in accordance

with Chapter 2 of Part 24 of CTA 2010.

Action after adjustment of amount payable by way of UK or foreign tax

79      

Time limits for action if tax adjustment makes credit excessive or insufficient

(1)   

Subsection (2) applies to a claim or assessment if—

10

(a)   

the amount of any credit given under the arrangements is reduced

under section 34, or becomes excessive or insufficient by reason of any

adjustment of the amount of any tax payable either in the United

Kingdom or under the law of any other territory,

(b)   

the reduction or adjustment gives rise to the claim or assessment, and

15

(c)   

the claim or assessment is made not later than 6 years from the time

when all material determinations have been made, whether in the

United Kingdom or elsewhere.

(2)   

Nothing in—

(a)   

the Tax Acts, and

20

(b)   

the enactments relating to capital gains tax,

   

limiting the time for the making of assessments, or limiting the time for the

making of claims for relief, applies to the assessment or claim.

(3)   

In subsection (1)(c) “material determination” means an assessment, reduction,

adjustment or other determination that is material in determining whether

25

any, and (if so) what, credit is to be given.

80      

Duty to give notice that adjustment has rendered credit excessive

(1)   

This section applies if—

(a)   

any credit for foreign tax has been allowed to a person under the

arrangements,

30

(b)   

later, the amount of that credit is reduced under section 34, or becomes

excessive as a result of an adjustment of the amount of any tax payable

under the law of a territory outside the United Kingdom, and

(c)   

the reduction or adjustment is not a Lloyd’s adjustment (see subsection

(5)).

35

(2)   

The person must give notice that a reduction has been made or that the amount

of the credit has become excessive as a result of the making of an adjustment.

(3)   

Notice under subsection (2) is to be given—

(a)   

to an officer of Revenue and Customs, and

(b)   

within one year from when the reduction or adjustment is made.

40

(4)   

If the person fails to comply with the requirements imposed by subsections (2)

and (3), the person is liable to a penalty not greater than the amount by which

the credit has been reduced or has become excessive as a result of the

adjustment.

 
 

 
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