Clause 49: Restricting section 44(3) if company is a bank or connected with a bank

147.     This clause supplements clause 44(3) in certain cases where the taxpayer is a bank (or is connected with a bank). It is based on section 798A(3A) to (3C) of ICTA.

Clauses 50 and 51: Tax for period on loan relationships; tax for period on intangible fixed assets

148.     These clauses harmonise the credit relief regime with, respectively, the loan relationships regime and the intangible fixed assets regime. They are based on sections 797A(1) and (2) and 797B(1) and (2) of ICTA.

149.     For credit relief purposes, items of income are dealt with separately, as indicated by “any income” in clause 42(1). And, broadly speaking, deductions which can be set against more than one description of profits are allocated for credit relief purposes as the company thinks fit: clause 52. This contrasts with the treatment of the same matters under the loan relationships and intangible fixed assets regimes.

150.     For loan relationships purposes, interest receivable (from both United Kingdom and foreign sources) from non-trading loan relationships, interest payable on non-trading loan relationships, and other gains and losses relating to non-trading loan relationships go into the same “pot”. The net non-trading result is then either taxed or relieved.

151.     Similarly, non-trading debits and non-trading credits on intangible fixed assets are netted off and the net non-trading result is taxed or relieved.

152.     The effect of clauses 50 and 51 is that, in the cases of (respectively) loan relationships and intangible fixed assets, one has to go behind the net non-trading results in order to analyse the figures from which those results are arrived at. The clauses then provide that, for credit relief purposes, corporation tax is in those cases to be treated as being charged not on the net non-trading results but on the gross non-trading receipts.

Clause 52: General deductions

153.     This clause lays down the general corporation tax rule that for credit relief purposes a company may allocate deductions as it thinks fit. It is based on section 797(3) of ICTA.

154.     Section 797(3) of ICTA refers to there being “any deduction to be made for charges on income, expenses of management, expenses payable (within the meaning of section 76(1)) or other amounts which can be deducted from or set against or treated as reducing profits of more than one description”. Subsection (1) refers, more succinctly, to there being “any amount (“the deduction”) that for corporation tax purposes is deductible from, or otherwise allowable against, profits of more than one description”. This compression does not change the law.

Clauses 53 to 55: Earlier years’ non-trading deficits on loan relationships; non-trading debits on loan relationships; current year’s non-trading deficits on loan relationships

155.     These clauses harmonise the credit relief regime with the loan relationships regime. They are based on sections 797 and 797A of ICTA.

156.     As explained in the commentary on clause 50, the figures calculated for the purposes of the loan relationships regimes need to be analysed for the purposes of credit relief. Clauses 53 and 55 are about the allocation for those purposes of non-trading deficits. Clause 54 is about the allocation for those purposes of non-trading debits.

157.     In subsection (1) of clause 54, “the period” is the period mentioned in clause 42(2).

Clause 56: Non-trading debits on intangible fixed assets

158.     This clause harmonises the credit relief regime with the intangible fixed assets regime. It is based on sections 797(3) and 797B of ICTA.

159.     As explained in the commentary on clause 51, the figures calculated for the purposes of the intangible fixed assets regimes need to be analysed for the purposes of credit relief. This clause is about the allocation for those purposes of non-trading debits.

160.     In subsection (1), “the period” is the period mentioned in clause 42(2).

Clause 57: Credit in respect of dividend: taking account of underlying tax

161.     This clause is the first in a series of clauses dealing with credit relief for tax underlying dividends. It is based on section 799(1), (1A), (2) and (2A) of ICTA, section 277(1) of TCGA, paragraphs 8(5) and 9(3) of Schedule 30 to FA 2000 and paragraph 2(4) of Schedule 27 to FA 2001.

Clause 58: Calculation if dividend paid by non-resident company to resident company

162.     This clause quantifies the underlying tax to be taken into account if the dividend under review is paid by a company resident outside the United Kingdom to a UK resident company. It is based on section 799(1), (1A) and (2) of ICTA.

Clause 59: Meaning of “relevant profits” in section 58

163.     This interpretative clause is based on section 799(3) to (7) of ICTA.

Clause 60: Underlying tax to be left out of account on claim to that effect

164.     This clause permits a claim for credit relief to be framed so as to exclude specified amounts of underlying tax. It is based on section 799(1B) of ICTA and paragraph 2(4) of Schedule 27 to FA 2001.

Clause 61: Calculation if section 58 does not apply

165.     This clause quantifies the underlying tax to be taken into account if the dividend under review is not paid by a company resident outside the United Kingdom to a UK resident company (and is thus outside clause 58). It is based on section 799(1) and (2) of ICTA.

Clause 62: Meaning of “relevant profits” in section 61

166.     This interpretative clause is based on section 799(3) and (4) of ICTA.

Clause 63: Non-UK company dividend paid to 10% investor: relief for UK and other tax

167.     This clause provides, if the appropriate conditions are met, for certain other taxes to be treated as underlying tax, namely taxes which are (a) payable in respect of the profits of the company paying the dividend and (b) not imposed in the jurisdiction in which that company is resident. It is based on sections 792(2) and 801(1), (1A) and (5) of ICTA.

168.     Subsection (5)(a) does not mention capital gains tax payable by the overseas company, because companies resident outside the United Kingdom are outside the scope of capital gains tax.

169.     In the italicised cross-heading before this clause, “tax..that is not foreign tax” is to be read in accordance with clause 21(1) and therefore includes third country tax within subsection (5)(b).

Clause 64: Meaning of “dividend-paying chain” of companies

170.      This interpretative clause is based on sections 792(2) and 801(1), (2), (3), (5) and (5A) of ICTA.

Clause 65: Relief for underlying tax paid by company lower in dividend-paying chain

171.     This clause provides for tax payable by the company paying the dividend to be treated as underlying tax paid by the dividend’s recipient. It is based on section 801(1), (2), (2A), (3), (4) and (5A) of ICTA and paragraphs 8(5) and 11(3) of Schedule 30 to FA 2000.

172.     Subsections (2) and (3) set the conditions for the clause to apply.

173.     Subsection (4) is the main operative provision. Subsection (4)(b) enables the clause to be applied repeatedly and thus deals with dividend-paying chains of companies comprising more than three companies.

Clause 66: Limitations on section 65(4)

174.     This clause sets limitations on clause 65(4). It is based on section 801(4) of ICTA.

Clause 67: Restriction of relief if underlying tax at rate higher than rate of corporation tax

175.     This clause combats schemes designed to inflate relievable underlying tax. It is based on section 801A(1) to (5) of ICTA.

Clause 68: Meaning of “avoidance scheme” in section 67

176.     This interpretative clause is based on sections 792(2) and 801A(6) to (11) of ICTA.

Clause 69: Dividends paid out of transferred profits

177.     This clause applies the rules about underlying tax to cases in which the profits of one company become profits of another company otherwise than by way of dividend. It is based on section 801B of ICTA.

Clause 70: Underlying tax reflecting interest on loans

178.     This clause, which deals with cases involving banks, prevents the rules about underlying tax from being used to circumvent the restrictions on credit relief imposed by clauses 44(3) and 49. It is based on sections 792(2) and 803 of ICTA.

Clause 71: Foreign taxation of group as single entity

179.     This clause applies the rules about underlying tax to cases in which, under non-UK tax law, groups of companies are taxed as single entities. It is based on sections 792(2) and 803A of ICTA and paragraph 15(2) of Schedule 30 to FA 2000.

Clause 72: Application of section 73(1)

180.     This clause is the first of a series of clauses concerned with DTR for unrelieved foreign tax suffered on the profits of an overseas permanent establishment. It is based on section 806L(1), (4) and (5) of ICTA.

Clause 73: Carry-forward and carry-back of unrelieved foreign tax

181.     This clause permits unrelieved foreign tax to be carried forward and carried back. It is based on sections 806L(2) and (6) and 806M(1) and (2) of ICTA.

Clause 74: Rules for carrying back unrelieved foreign tax

182.     This clause sets out the rules for carrying back unrelieved foreign tax. It is based on section 806L(2) to (4) of ICTA.

Clause 75: Two or more establishments treated as a single establishment

183.     This clause treats two or more overseas permanent establishments as a single establishment if they are so treated for the purposes of overseas tax law. It is based on section 806M(1) and (4) of ICTA.

Clause 76: Former and subsequent establishments regarded as distinct establishments

184.     This clause requires former and subsequent overseas permanent establishments to be regarded as different establishments. It is based on section 806M(1) and (3) of ICTA.

Clause 77: Claims for relief under section 73(1)

185.     This clause stipulates that relief under clause 73(1) needs to be claimed and lays down rules about such a claim. It is based on section 806M(1) and (5) to (7) of ICTA.

Clause 78: Meaning of “overseas permanent establishment”

186.     This interpretative clause is based on sections 806L(7) and 806M(1) of ICTA.

Clause 79: Time limits for action if tax adjustment makes credit excessive or insufficient

187.     This clause permits assessments or claims for relief to be made after the normal time limits, if the amount of credit given is found to be excessive or insufficient by reason of an adjustment of the amount of tax payable. It is based on section 806(2) of ICTA and section 277(1) of TCGA.

Clause 80: Duty to give notice that adjustment has rendered credit excessive

188.     This clause requires the taxpayer to give notice that an adjustment of the amount of tax payable has rendered the amount of credit given excessive. It is based on sections 806(3) to (6) and 831(5) of ICTA and 277(1) of TCGA.

Clause 81: Giving a counteraction notice

189.     This clause is the first of a group of anti-avoidance clauses directed against schemes and arrangements designed to increase DTR. It enables an officer of Revenue and Customs to activate these anti-avoidance provisions by giving a counteraction notice. It is based on sections 804ZA(1), (8) and (11A) and 831(5) of ICTA and 277(1) of TCGA.

190.     Section 804ZA of ICTA gives this function to the Commissioners for HMRC. In practice, the Commissioners delegate this function to officers of Revenue and Customs, and subsections (1) and (2) reflect this. This is a minor change in the law: see Change 2 in Annex 1. The Commissioners delegate the function of giving counteraction notices to a group of specialist officers; Change 2 makes no change to this practice.

191.     Section 703 of ICTA (transactions in securities) gave the function of giving counteraction notices to the Board. Rewriting this for income tax purposes, Chapter 1 of Part 13 of ITA gives this function to officers of Revenue and Customs, and the same change in the law is made in the Part of CTB2 which rewrites section 703 of ICTA for corporation tax purposes. This Change is also made in Part 6 of this Bill (tax arbitrage). Change 2 in this clause is consistent with this approach.

192.     As Change 2 is made in this clause, it is also made in clauses 89, 91 and 92.

Clause 82: Conditions for the purposes of section 81(1)

193.     This clause sets out the conditions mentioned in clause 81(1). It is based on sections 804ZA(1) to (7) and (11A), 831(5) and 832(3) of ICTA and section 277(1) of TCGA.

Clause 83: Schemes and arrangements referred to in section 82(4)

194.     This clause concerns the schemes and arrangements against which these provisions are directed. It fills out condition C in clause 82(4), and introduces clauses 84 to 88 (which specify the general features of the schemes and arrangements in question). It is based on section 804ZA(11) of ICTA and paragraph 1 of Schedule 28AB to that Act.

195.     If a scheme or arrangement is not an underlying-tax scheme or arrangement (as defined in subsection (3)), subsection (2) brings it within this clause if one or more of clauses 84 to 88 apply to it.

196.     In the case of an underlying-tax scheme or arrangement, subsections (4) to (7) modify the application of clauses 84 to 88. If one or more of clauses 84 to 88 would apply to the scheme or arrangement if the overseas-resident body corporate in question was resident in the United Kingdom, subsection (4) brings the scheme or arrangement within this clause.

Clause 84: Section 83(2) and (4): schemes enabling attribution of foreign tax

197.     This clause applies to schemes or arrangements which shift foreign tax from one source of income or chargeable gain to another. It is based on paragraph 2 of Schedule 28AB to ICTA and section 277(1) of TCGA.

Clause 85: Section 83(2) and (4): schemes about effect of paying foreign tax

198.     This clause applies to schemes or arrangements which inflate credit for foreign tax. It is based on section 831(5) of ICTA, paragraph 3 of Schedule 28AB to that Act and section 277(1) of TCGA.

Clause 86: Section 83(2) and (4): schemes about claims or elections etc

199.     This clause applies, in particular, to schemes or arrangements about claims or elections. It is based on paragraph 4 of Schedule 28AB to ICTA.

Clause 87: Section 83(2) and (4): schemes that would reduce a person’s tax liability

200.     This clause applies to schemes that would reduce a person’s tax liability. It is based on sections 831(5) and 832(3) of ICTA, paragraph 5 of Schedule 28AB to that Act and section 277(1) of TCGA.

Clause 88: Section 83(2) and (4): schemes involving tax-deductible payments

201.     This clause applies to schemes involving tax-deductible payments. It is based on paragraph 6 of Schedule 28AB to ICTA and section 277(1) of TCGA.

Clause 89: Contents of counteraction notice

202.     This clause sets out what a counteraction notice may contain. It is based on section 804ZA(9), (10) and (11A) of ICTA.

203.     Subsections (1) and (2) include a minor change in the law. See Change 2 in Annex 1 and the commentary on clause 81.

Clause 90: Consequences of counteraction notices

204.     This clause sets out the consequence of a counteraction notice being given. It is based on section 804ZB of ICTA.

Clause 91: Counteraction notices given before tax return made

205.     This clause meshes the DTR legislation in with the machinery of Self Assessment in cases in which a counteraction notice is given before the taxpayer’s tax return is made for the chargeable period specified in the notice. It is based on section 804ZC(1), (2) and (11) of ICTA.

206.     Subsection (1) includes a minor change in the law. See Change 2 in Annex 1 and the commentary on clause 81.

207.     Section 804ZC(2)(b) and (11)(b) of ICTA refer to the taxpayer amending the return “for the purpose of complying with the notice”. To sharpen the drafting, subsections (2)(b) and (3)(a) refer to the taxpayer amending the return “for the purpose of complying with the provision referred to in the notice”.

Clause 92: Counteraction notices given after tax return made

208.     This clause meshes the DTR legislation in with the machinery of Self Assessment in cases in which a counteraction notice is given after the taxpayer’s tax return has been made for the accounting period specified in the notice. It is based on section 804ZC(3) to (7) of ICTA.

209.     Subsections (1) to (5) include a minor change in the law. See Change 2 in Annex 1 and the commentary on clause 81.

Clause 93: Amendment, closure notices and discovery assessments in section 92 cases

210.     This clause concerns amendments to tax returns, and is also about closure notices and discovery assessments in cases in which clause 92 applies. It is based on section 804ZC(8) to (11) of ICTA.

211.     Section 804ZC(8), (9)(b), (10)(b) and (11)(b) of ICTA refer to the taxpayer amending the return “for the purpose of complying with the notice”. To sharpen the drafting, subsections (2), (5) and (6) refer to the taxpayer amending the return “for the purpose of complying with the provision referred to” in the notice.

Clause 94: Information made available for the purposes of section 92(4)

212.     This clause supplements clause 92(4). It is based on section 804ZC(6) of ICTA.

213.     This clause expands the cross-references in section 804ZC(6)(a) and (b) of ICTA to section 29 of TMA and paragraph 44 of Schedule 18 to FA 1998.

214.     In section 29(6)(a) of TMA, there cannot be “accounts” which are not “documents”, nor can there be “statements .. accompanying the return” which are not “documents”. Subsection (2)(c) and (3)(c) therefore compress “accounts, statements or documents accompanying the return” to “documents accompanying a return”.

215.     Similarly:

• subsections (2)(d), (3)(d) and (5)(c) omit as otiose the reference to “accounts” in section 29(6)(c) of TMA;

• subsections (4)(d) and (6)(d) omit as otiose the reference to “accounts” in paragraph 44(2)(c) of Schedule 18 to FA 1998; and

• subsections (5)(b) and (6)(c) compress “any accounts, statements or documents accompanying any such claim” in, respectively, section 29(6)(b) of TMA and paragraph 44(2)(b) of Schedule 18 to FA 1998 to “any documents accompanying such a claim”.

216.     Section 29(6)(c) of TMA uses the word “furnished”. Paragraph 44(2)(c) of Schedule 18 to FA 1998 is very similar, but uses the more modern word “provided”. Subsections (2)(d), (3)(d) and (5)(c), which are based on section 29(6)(c) of TMA, therefore use the word “provided”.

217.     Section 29(6)(d) of TMA refers to “the situation mentioned in subsection (1) above” and paragraph 44(2)(d) of Schedule 18 to FA 1998 refers to “the situation mentioned in paragraph 41(1) or (2)”. Subsection (7) makes it clear that, in the present context, these references are references to exercise of power to give the person a counteraction notice.

Clause 95: Interpretation of sections 89 to 94

218.     This interpretative clause is based on sections 804ZA(6) and (12), 804ZC(12) and 831(5) of ICTA and section 277(1) of TCGA.

Clause 96: Companies with overseas branches: restriction of credit

219.     This clause governs the allowance of credit relief against corporation tax charged on profits of life assurance business if the relief is in respect of foreign tax on insurance business carried on through an overseas branch of an insurance company. It is based on section 804A of ICTA.

220.     This clause provides that, where tax is charged overseas otherwise than wholly by reference to profits, the shareholders’ share of the foreign tax (to be measured in accordance with the rules in subsections (5) and (6)) is to qualify for credit relief, even though the balance of the foreign tax can be deducted in calculating the profits of life assurance business carried on by the company.

221.     This clause is the first of a group of clauses concerned with DTR for insurance companies. Chapter 1 of Part 12 of ICTA (insurance companies) is not rewritten. But, as the bulk of Part 18 of ICTA (DTR) is being rewritten in this Bill, the balance of convenience favours including sections 804A to 804E of ICTA (DTR: insurance companies) in the rewrite. Since the rewrite of those sections will need to be read alongside the unrewritten Chapter 1 of Part 12 of ICTA, their rewrite takes a relatively conservative approach.

Clause 97: Companies with more than one category of business: restriction of credit

222.     This clause gives specific apportionment rules for attributing foreign tax to different categories of long-term business carried on by an insurance company where an item of income or gain on which foreign tax is payable is referable to more than one category of business. It is based on section 804B(1) to (5), (8) and (9) of ICTA.

Clause 98: Attribution for section 97 purposes if category is gross roll-up business

223.     This clause supplements clause 97. It is based on section 804B(6) to (7A) of ICTA.

Clause 99: Allocation of expenses etc in calculations under section 35 of CTA 2009

224.     This clause sets out rules for setting an insurance company’s expenses and other deductions against items of income to calculate the measure of income, and therefore of corporation tax in respect of it, against which the creditability of foreign tax is to be measured. It is based on section 804C(1), (2), (5) and (10) to (13) of ICTA.

225.     Under subsection (1)(b), this clause only applies if a calculation falls to be made in accordance with the provisions applicable for the purposes of section 35 of CTA 2009.

226.     Under subsection (2), the amount of credit for foreign tax is restricted, first in accordance with clause 100 and then (if relevant) by clause 101.