Taxation (International and Other Provisions) Bill

House of Commons

Session 2009 - 10
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Taxation (International and Other Provisions) Bill

Taxation (International and Other Provisions) Bill
Part 4 — Transfer pricing
Chapter 3 — Exemptions from basic rule
99

section 447(5) and (6) of CTA 2009 (this Part generally does not affect how
exchange gains or losses from loan relationships are accounted for),
and
section 694(8) and (9) of CTA 2009 (this Part generally does not affect how
exchange gains or losses from derivative contracts are accounted for).
5
(3)
In this section “the OECD model” means—
(a)
the rules which, at the passing of ICTA (which occurred on 9 February
1988), were contained in Article 9 of the Model Tax Convention on
Income and on Capital published by the Organisation for Economic Co-
operation and Development, or
10
(b)
any rules in the same or equivalent terms.
(4)
In this section “the transfer pricing guidelines” means—
(a)
all the documents published by the Organisation for Economic Co-
operation and Development, at any time before 1 May 1998, as part of
their Transfer Pricing Guidelines for Multinational Enterprises and Tax
15
Administrations, and
(b)
such documents published by that Organisation on or after that date as
may for the purposes of this Part be designated, by an order made by
the Treasury, as comprised in the transfer pricing guidelines.
(5)
In this section “double taxation arrangements” means arrangements that have
20
effect under section 2(1) (double taxation relief by agreement with territories
outside the United Kingdom).
Chapter 3
Exemptions from basic rule
165
Exemption for dormant companies
25
(1)
Section 147(3) and (5) do not apply in calculating for any chargeable period the
profits and losses of a potentially advantaged person if that person is a
company which meets the condition in subsection (2).
(2)
The condition is that—
(a)
the company was dormant throughout the pre-qualifying period, and
30
(b)
apart from section 147, the company has continued to be dormant at all
times since the end of the pre-qualifying period.
(3)
In subsection (2) “the pre-qualifying period” means—
(a)
if there is an accounting period of the company that ends on 31 March
2004, that accounting period, or
35
(b)
if there is no such accounting period, the period of 3 months ending
with that date.
(4)
In this paragraph “dormant” has the meaning given by section 1169 of the
Companies Act 2006 (c. 46).
166
Exemption for small and medium-sized enterprises
40
(1)
Section 147(3) and (5) do not apply in calculating for any chargeable period the
profits and losses of a potentially advantaged person if that person is a small
or medium-sized enterprise for that chargeable period (see section 172).

Taxation (International and Other Provisions) Bill
Part 4 — Transfer pricing
Chapter 3 — Exemptions from basic rule
100

(2)
Exceptions to subsection (1) are provided—
(a)
in the case of a small enterprise, by section 167, and
(b)
in the case of a medium-sized enterprise, by sections 167 and 168.
167
Small and medium-sized enterprises: exceptions from exemption
(1)
Subsections (2) and (3) set out exceptions to section 166(1).
5
(2)
The first exception is if the small or medium-sized enterprise elects for section
166(1) not to apply in relation to the chargeable period.

Any such election is irrevocable.
(3)
The second exception is if—
(a)
the other affected person, or
10
(b)
a party to a relevant transaction,

is, at the time when the actual provision is or was made or imposed, a resident
of a non-qualifying territory (whether or not that person is also a resident of a
qualifying territory).
(4)
For the purposes of subsection (3)—
15
(a)
a “party to a relevant transaction” is a person who, if the actual
provision is or was imposed by means of a series of transactions, is or
was a party to one or more of those transactions, and
(b)
“qualifying territory” and “non-qualifying territory” are defined in
section 173.
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(5)
In subsection (3) “resident”, in relation to a territory—
(a)
means a person who, under the law of that territory, is liable to tax there
by reason of the person’s domicile, residence or place of management,
but
(b)
does not include a person who is liable to tax in that territory in respect
25
only of income from sources in that territory or capital situated there.
168
Medium-sized enterprises: exception from exemption: transfer pricing notice
(1)
Section 166(1) does not apply in relation to any provision made or imposed if—
(a)
the potentially advantaged person is a medium-sized enterprise for the
chargeable period, and
30
(b)
the Commissioners for Her Majesty’s Revenue and Customs give that
person a notice requiring the person to calculate the profits and losses
of that chargeable period in accordance with section 147(3) or (5) in the
case of that provision.
(2)
A notice under subsection (1) is referred to in this Chapter as a transfer pricing
35
notice.
169
Giving of transfer pricing notices
(1)
This section applies to a transfer pricing notice given to a person.
(2)
The notice may be given in relation to—
(a)
any provision specified, or of a description specified, in the notice, or
40
(b)
every provision in relation to which one or other of the assumptions in
section 147(3) and (5) would, apart from section 166(1), be required to

Taxation (International and Other Provisions) Bill
Part 4 — Transfer pricing
Chapter 3 — Exemptions from basic rule
101

be made when calculating the person’s profits and losses for tax
purposes.
(3)
The notice may be given only after a notice of enquiry has been given to the
person in relation to the person’s tax return for the chargeable period
concerned.
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(4)
The notice must identify the officer of Revenue and Customs to whom any
notice of appeal under section 170 is to be given.
(5)
In subsection (3) “notice of enquiry” means a notice under—
(a)
section 9A or 12AC of TMA 1970, or
(b)
paragraph 24 of Schedule 18 to FA 1998.
10
170
Appeals against transfer pricing notices
(1)
A person to whom a transfer pricing notice is given may appeal against the
decision to give the notice, but only on the ground that the condition in section
168(1)(a) is not met.
(2)
Any such appeal must be brought by giving written notice of appeal to the
15
officer of Revenue and Customs identified in the notice in accordance with
section 169(4).
(3)
The notice of appeal must be given before the end of the period of 30 days
beginning with the day on which the transfer pricing notice is given.
171
Tax returns where transfer pricing notice given
20
(1)
If a transfer pricing notice is given to a person (“T”), T may amend T’s tax
return for the purpose of complying with the notice at any time before the end
of the period of 90 days beginning with—
(a)
the day on which the notice is given, or
(b)
if T appeals under section 170 against the decision to give the notice, the
25
day on which the appeal is finally determined or abandoned.
(2)
If a transfer pricing notice is given in the case of any tax return, no closure
notice may be given in relation to that tax return until—
(a)
the end of the period of 90 days specified in subsection (1), or
(b)
the earlier amendment of the tax return for the purpose of complying
30
with the notice.
(3)
So far as relating to any provision made or imposed by or in relation to a
person—
(a)
who is a medium-sized enterprise for a chargeable period,
(b)
who does not make an election under section 167(2) for that period, and
35
(c)
who is not excepted from section 166(1) in relation to that provision for
that period because of section 167(3),

the tax return required to be made for that period is a return that disregards
section 147(3) and (5).
(4)
Subsection (3) does not prevent a tax return for a period becoming incorrect if
40
in the case of any provision made or imposed—
(a)
a transfer pricing notice is given which has effect in relation to that
provision for that period,

Taxation (International and Other Provisions) Bill
Part 4 — Transfer pricing
Chapter 3 — Exemptions from basic rule
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(b)
the return is not amended in accordance with subsection (1) for the
purpose of complying with the notice, and
(c)
the return ought to have been so amended.
(5)
In this section—
“closure notice” means a notice under—
5
(a)
section 28A or 28B of TMA 1970, or
(b)
paragraph 32 of Schedule 18 to FA 1998,
“company tax return” means the return required to be delivered pursuant
to a notice under paragraph 3 of Schedule 18 to FA 1998, as read with
paragraph 4 of that Schedule, and
10
“tax return” means—
(a)
a return under section 8, 8A or 12AA of TMA 1970, or
(b)
a company tax return.
172
Meaning of “small enterprise” and “medium-sized enterprise”
(1)
In this Chapter—
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(a)
“small enterprise” means a small enterprise as defined in the Annex,
and
(b)
“medium-sized enterprise” means an enterprise which—
(i)
falls within the category of micro, small and medium-sized
enterprises as defined in the Annex, and
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(ii)
is not a small enterprise as defined in the Annex.
(2)
For the purposes of subsection (1), the Annex has effect with the modifications
set out in subsections (4) to (7).
(3)
In this paragraph “the Annex” means the Annex to Commission
Recommendation 2003/361/EC of 6th May 2003 (concerning the definition of
25
micro, small and medium-sized businesses).
(4)
Where any enterprise is in liquidation or administration, the rights of the
liquidator or administrator (in that capacity) are to be left out of account when
applying Article 3(3)(b) of the Annex in determining for the purposes of this
Part whether—
30
(a)
that enterprise, or
(b)
any other enterprise (including that of the liquidator or administrator),

is a small or medium-sized enterprise.
(5)
Article 3 of the Annex has effect with the omission of paragraph 5 (declaration
in good faith where control cannot be determined etc).
35
(6)
The first sentence of Article 4(1) of the Annex has effect as if the data to apply
to—
(a)
the headcount of staff, and
(b)
the financial amounts,

were the data relating to the chargeable period referred to in section 166(1)
40
(instead of the period described in that sentence) and calculated on an annual
basis.
(7)
Article 4 of the Annex has effect with the omission of the following
provisions—

Taxation (International and Other Provisions) Bill
Part 4 — Transfer pricing
Chapter 3 — Exemptions from basic rule
103

(a)
the second sentence of paragraph 1 (data to be taken into account from
date of closure of accounts),
(b)
paragraph 2 (no change of status unless ceilings exceeded for two
consecutive periods), and
(c)
paragraph 3 (genuine estimate in case of newly established enterprise).
5
173
Meaning of “qualifying territory” and “non-qualifying territory”
(1)
In section 167(3)—
“non-qualifying territory” means any territory which is not a qualifying
territory;
“qualifying territory” means—
10
(a)
the United Kingdom, or
(b)
any territory in relation to which condition A or condition B is
met.
(2)
Condition A is that—
(a)
double taxation arrangements have been made in relation to the
15
territory,
(b)
the arrangements include a non-discrimination provision, and
(c)
the territory is not designated as a non-qualifying territory for the
purposes of this subsection in regulations made by the Treasury.
(3)
Condition B is that—
20
(a)
double taxation arrangements have been made in relation to the
territory, and
(b)
the territory is designated as a qualifying territory for the purposes of
this subsection in regulations made by the Treasury.
(4)
For the purposes of subsection (2)(b) a “non-discrimination provision”, in
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relation to any double taxation arrangements, is a provision to the effect that
nationals of a state which is a party to those arrangements (a “contracting
state”) are not to be subject in any other contracting state to—
(a)
any taxation, or
(b)
any requirement connected with taxation,
30

which is other or more burdensome than the taxation and connected
requirements to which nationals of that other state in the same circumstances
(in particular with respect to residence) are or may be subjected.
(5)
In subsection (4) “national”, in relation to a state, includes—
(a)
any individual possessing the nationality or citizenship of the state, and
35
(b)
any legal person, partnership or association deriving its status as such
from the law in force in that state.
(6)
In this section “double taxation arrangements” means arrangements that have
effect under section 2(1) (double taxation relief by agreement with territories
outside the United Kingdom).
40
(7)
Regulations under this section may only be made if a draft of the statutory
instrument containing the regulations has been laid before and approved by a
resolution of the House of Commons.

Taxation (International and Other Provisions) Bill
Part 4 — Transfer pricing
Chapter 4 — Position, if only one affected person potentially advantaged, of other affected person
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Chapter 4
Position, if only one affected person potentially advantaged, of other
affected person
Claim by affected person who is not advantaged
174
Claim by the affected person who is not potentially advantaged
5
(1)
Subsection (2) applies if—
(a)
only one of the affected persons (in this Chapter called “the advantaged
person”) is a person on whom a potential advantage in relation to
United Kingdom taxation is conferred by the actual provision, and
(b)
the other affected person (in this Chapter called “the disadvantaged
10
person”) is within the charge to income tax or corporation tax in respect
of profits arising from the relevant activities (see section 216).
(2)
On the making of a claim by the disadvantaged person—
(a)
the profits and losses of the disadvantaged person are to be calculated
for tax purposes as if the arm’s length provision had been made or
15
imposed instead of the actual provision, and
(b)
despite any limit in the Tax Acts on the time within which any
adjustment may be made, all such adjustments are to be made in the
disadvantaged person’s case as may be required to give effect to the
assumption that the arm’s length provision was made or imposed
20
instead of the actual provision.
(3)
Provision about claims under this section is made by—
section 175 (claim not allowed in some cases where actual provision
relates to a security issued by one of the affected persons),
section 176 (claim cannot be made unless advantaged person has made
25
return on the basis that the arm’s length provision applies),
section 177 (when claim may be made or amended), and
sections 181 to 184 (option to make claims in accordance with section 182
in some cases where actual provision relates to a security issued by one
of the affected persons).
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(4)
Subsection (2) has effect subject to—
section 180 (closing trading stock and closing work in progress in a trade),
sections 188 and 189 (effect of claims under this section on double taxation
relief),
Chapter 5 (provision, where liabilities of an affected person under
35
securities issued by that person are guaranteed, for attribution to
guarantor of things done by that affected person),
section 447(5) and (6) of CTA 2009 (this Part generally does not affect how
exchange gains or losses from loan relationships are accounted for),
and
40
section 694(8) and (9) of CTA 2009 (this Part generally does not affect how
exchange gains or losses from derivative contracts are accounted for).
175
Claims under section 174 where actual provision relates to a security
(1)
A claim under section 174 may not be made if—

Taxation (International and Other Provisions) Bill
Part 4 — Transfer pricing
Chapter 4 — Position, if only one affected person potentially advantaged, of other affected person
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(a)
the participation condition (see section 148) would not be satisfied but
for section 161 or 162,
(b)
the actual provision is provision in relation to a security issued by one
of the affected persons (“the issuer”), and
(c)
a guarantee is provided in relation to the security by a person with
5
whom the issuer has a participatory relationship.
(2)
For the purposes of subsection (1), one person (“A”) has a “participatory
relationship” with another (“B”) if—
(a)
one of A and B is directly or indirectly participating in the management,
control or capital of the other, or
10
(b)
the same person or persons is or are directly or indirectly participating
in the management, control or capital of each of A and B.
(3)
In subsections (1)(b) and (4)(a) “security” includes securities not creating or
evidencing a charge on assets.
(4)
For the purposes of subsection (1)(b), any—
15
(a)
interest payable by a company on money advanced without the issue
of a security for the advance, or
(b)
other consideration given by a company for the use of money so
advanced,

is to be treated as if payable or given in respect of a security issued for the
20
advance by the company, and references to a security are to be read
accordingly.
(5)
The reference in subsection (1)(c) to a guarantee includes—
(a)
a reference to a surety, and
(b)
if the issuer is a company, a reference to any other relationship,
25
arrangements, connection or understanding (whether formal or
informal) such that the person making the loan to the issuer has a
reasonable expectation that in the event of a default by the issuer the
person will be paid by, or out of the assets of, one or more companies.
176
Claims under section 174: advantaged person must have made return
30
(1)
A claim may not be made under section 174 unless a calculation has been made
in the case of the advantaged person on the basis that the arm’s length
provision was made or imposed instead of the actual provision.
(2)
A claim made under section 174 must be consistent with the calculation made
on that basis in the case of the advantaged person.
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(3)
For the purposes of subsections (1) and (2), a calculation is to be taken to have
been made in the case of the advantaged person on the basis that the arm’s
length provision was made or imposed instead of the actual provision if (and
only if)—
(a)
the calculations made for the purposes of any return by the advantaged
40
person have been made on that basis because of this Part, or
(b)
a relevant notice (see section 190) given to the advantaged person takes
account of a determination in pursuance of this Part of an amount to be
brought into account for tax purposes on that basis.