House of Commons - Explanatory Note

Taxation (International And Other Provisions) Bill - continued	House of Commons

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Section 835K: Lloyd’s agents

1213. This section provides that a person in the United Kingdom who has acted as the members’ agent of a non-UK resident member of Lloyd’s or as the managing agent of the syndicate of which the non-UK resident was a member is not a UK representative of the non-UK resident in relation to income of the non-UK resident from the non-UK resident’s underwriting business at Lloyd’s. It is based on section 127(1) and (16) of FA 1995.

1214. The reference in section 127(16)(a) of FA 1995 to a corporate member of Lloyd’s within the meaning of Chapter 5 of Part 4 of FA 1994 has been omitted. Corporate members of Lloyd’s are chargeable to corporation tax. Following the amendment of section 126 of FA 1995 by FA 2003 so that it ceased to apply for corporation tax purposes, the reference is unnecessary. Similarly the provision in section 127(16)(b) of FA 1995 construing members’ agent and managing agent (in relation to corporate members of Lloyd’s) in accordance with section 230 of FA 1994 has been omitted.

Section 835L: The independent broker conditions

1215. This section sets out the conditions to be met if, in accordance with section 835H, a broker in the United Kingdom is not to be the UK representative of a non-UK resident in relation to a transaction carried out on behalf of the non-UK resident by the broker. It is based on section 127(2) of FA 1995.

Section 835M: The independent investment manager conditions

1216. This section sets out the conditions to be met if, in accordance with section 835I, an investment manager in the United Kingdom is not to be the UK representative of a non-UK resident in relation to an investment transaction carried out on behalf of the non-UK resident by the investment manager. It is based on section 127(3) and (18) of FA 1995.

Section 835N: Investment managers: the 20% rule

1217. This section sets out the “20% rule” for investment managers. It is based on section 127(4) of FA 1995.

1218. The 20% rule has two requirements. The first requirement is that the investment manager and connected persons must intend that any interest that they may have in the non-UK resident’s “relevant disregarded income” will not exceed 20% of that income. The second requirement applies if that intention is not fulfilled. The 20% rule will continue to be met if the only reason why it is not fulfilled is because of matters outside the control of the investment manager or connected persons despite their having taken reasonable steps to mitigate the effect of those matters.

1219. In subsection (2) the term “relevant disregarded income” has been substituted for the term “relevant excluded income” which appears in section 127(4) of FA 1995. The same substitution was made in section 819(2) of ITA which is also based on section 127(4) of FA 1995.

Section 835O: Meaning of “qualifying period”, “relevant disregarded income” and “beneficial entitlement”

1220. This section defines three terms used in section 835N (and also in sections 835P and 835Q, which modify the effect of section 835N in certain cases). It is based on section 127(5), (6) and (7) of FA 1995.

1221. Subsection (3) adopts the term “relevant disregarded income” in preference to the term “relevant excluded income” in section 127(5) of FA 1995. Section 821 of ITA, which is also based on section 127(5) of FA 1995, similarly adopts the term “relevant disregarded income”.

1222. In subsection (3), a reference to “the total of the non-UK resident’s income” has been substituted for the reference in section 127(5) of FA 1995 to “the aggregate of such of the profits and gains of the non-resident”. As section 127(5)(b) of FA 1995 requires that this aggregate falls to be treated (apart from the 20% rule) as excluded income, the reference to “such of the profits and gains” is limited by the source legislation to so much of the profits and gains as is income.

1223. In subsection (3)(b) the words:

in relation to which the independent investment manager conditions are met, ignoring the requirements of the 20% rule

are the same as appear in section 821(4)(b). They have the same effect as the words cross-referring to Chapter 1 of Part 14 of ITA which were substituted in section 127(5)(b) of FA 1995 by ITA.

Section 835P: Treatment of transactions where 20% rule not met

1224. This section provides that, if the 20% rule is not met but all the other independent investment manager conditions are met, only the income in relation to which the 20% rule is not met is not relevant disregarded income. It is based on section 127(8) of FA 1995.

Section 835Q: Application of 20% rule to collective investment schemes

1225. This section modifies the 20% rule where the non-UK resident is a participant in a collective investment scheme. It is based on section 127(9) to (11) and (17) of FA 1995.

1226. This section applies at the level of the scheme itself, treating it as if it were a non-UK resident company, see subsection (3).

1227. A minor drafting change has been made in subsection (3) by substituting reference to a non-UK resident company for the reference in section 127(10)(a) of FA 1995 to a company resident outside the United Kingdom. This has been done to clarify the assumption and in this context does not change the effect of the law. The same minor drafting change was made in section 824(3) of ITA.

1228. Subsection (4) applies to a scheme which, if it was assumed to be a non-UK resident company, would not be regarded as carrying on a trade in the United Kingdom. The 20% rule is treated as satisfied in relation to such a scheme.

1229. Subsection (5) applies to a scheme which, if it was assumed to be a non-UK resident company, would be regarded as carrying on a trade in the United Kingdom. The 20% rule applies to such a scheme with the modifications in subsection (6).

Section 835R: Supplementary provision

1230. This section explains when a person is to be regarded as carrying out a transaction on behalf of another and makes provision for a person part only of whose business is as a broker or investment manager. It is based on section 127(14) and (15) of FA 1995.

Section 835S: Interpretation of Chapter

1231. This section defines terms used in the Chapter. It is based on sections 126(8) and 127(12) and (13) of FA 1995.

1232. “Investment manager” is defined by cross-reference to section 827 of ITA in which the definition of that term is itself based on section 127(12) of FA 1995.

1233. The transactions currently specified as “investment transactions” are set out in the Investment Manager (Specified Transactions) Regulations 2009 made under the powers in section 127(12) and (13) of FA 1995 and which came into force on 12 May 2009.

1234. The provision of section 127(17) of FA 1995 that section 993 of ITA (connected persons) applies for the purposes of section 127 of FA 1995 has not been rewritten. It is not required, as section 1021(1) of ITA applies section 993 for the purposes of ITA unless otherwise indicated.

Chapter 2C: Income tax obligations and liabilities imposed on UK representatives

Overview

1235. This new Chapter of Part 14 of ITA sets out the obligations and liabilities of a UK representative of a non-UK resident carrying on a trade, profession or vocation through a branch or agency in the United Kingdom in relation to the assessment, collection and recovery of income tax on amounts in respect of which the branch or agency is treated as the UK representative of the non-UK resident under Chapter 2B.

Section 835T: Introduction to Chapter

1236. This section introduces the Chapter. It is based on paragraph 1(1) and (2) of Schedule 23 to FA 1995.

1237. Subsection (1) refers to the Chapter applying to “the enactments relating to income tax” and subsection (3) provides that “enactments” includes subordinate legislation. This is intended to have the same effect as the references in the source legislation to the Tax Acts and subordinate legislation under the Tax Acts, but is focussed more clearly on the income tax context of the Chapter.

Section 835U: Obligations and liabilities of UK representative

1238. This section treats the obligations and liabilities of the non-UK resident in respect of the income of the trade, profession or vocation carried on through the branch or agency in the United Kingdom as also being the obligations and liabilities of the UK representative. It is based on paragraphs 1(1) and 2 of Schedule 23 to FA 1995.

Section 835V: Exceptions: notices and information

1239. This section provides:

for the circumstances in which an obligation or liability of a non-UK resident does not attach to the non-UK resident’s UK representative (subsections (1) and (2));

that a UK representative which is an independent agent is only required to do what is practicable for the representative to do in discharging the representative’s obligations to provide information (subsections (3) to (5));

that, if the UK representative has only provided so much information as it is practicable for the representative to provide, the non-UK resident is not discharged from the non-UK resident’s obligations to provide the whole of the information (subsection (6)); and

for the circumstances in which a non-UK resident is not bound by the mistakes of the UK representative (subsection (7)).

It is based on paragraphs 3 and 4 of Schedule 23 to FA 1995.

1240. In the definition of “information” in subsection (8), the words “to the Commissioners for Her Majesty’s Revenue and Customs or to any officer of Revenue and Customs” have been substituted for the words “to the Board or any officer of 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.

Section 835W: Exceptions: criminal offences and penalties etc

1241. This section sets out the circumstances in which the UK representative is not liable to be proceeded against for a criminal offence. It is based on paragraph 5 of Schedule 23 to FA 1995.

Section 835X: Indemnities

1242. This section sets out the circumstances in which an “independent agent” is entitled to be indemnified by the non-UK resident and to retain sums otherwise payable or accountable by the UK representative to the non-UK resident to meet the UK representative’s liabilities under the Chapter. It is based on paragraph 6 of Schedule 23 to FA 1995.

Section 835Y: Meaning of “independent agent”

1243. This section defines “independent agent”. It is based on paragraph 7 of Schedule 23 to FA 1995.

Part 2: New Part 7A of TCGA 1992

Part 7A: UK representatives of non-UK residents

Overview

1244. This new Part of TCGA provides, in Chapter 1, for determining who is a UK representative of a non-UK resident for the purposes of capital gains tax and, in Chapter 2, for the obligations and liabilities of such a UK representative.

Chapter 1: Treatment of branch or agency as UK representative of non-UK resident

Overview

1245. This Chapter determines the extent to which and the period for which a branch or agency in the United Kingdom through which a non-UK resident carries on a trade, profession or vocation is the UK representative of the non-UK resident in relation to gains in respect of which the non-UK resident is chargeable to capital gains tax under section 10 of TCGA.

Section 271A: Overview of Chapter

1246. This section introduces the Chapter and provides a signpost to Chapter 2. It is new.

Section 271B: Branch or agency treated as UK representative

1247. This section determines who is a UK representative of a non-UK resident in relation to amounts to which the non-UK resident is chargeable to capital gains tax under section 10. It is based on section 126(2), (3), (4) and (5) of FA 1995.

1248. The amounts are those chargeable by reference to a branch or agency in the United Kingdom through which the non-UK resident carries on a trade, profession or vocation. The person who is the UK representative in relation to those amounts is the branch or agency that, in accordance with Chapter 2B of Part 14 of ITA, is the UK representative of the non-UK resident in relation to income of the non-UK resident from the trade, profession or vocation arising through the branch or agency. See subsections (1) and (2).

1249. As it is a condition of chargeability to capital gains tax under section 10 of TCGA that the non-UK resident is carrying on a trade, profession or vocation through a branch or agency in the United Kingdom, it must always be the case (if the non-UK resident is to incur chargeability under that section) that there is a person who, under Chapter 2B of Part 14 of ITA, is the non-UK resident’s UK representative in relation to the non-UK resident’s liabilities and obligations in respect of tax on income arising through the branch or agency. When considering whether a person is to be treated as a UK representative in relation to amounts of income for income tax purposes, it is immaterial whether or not there are in fact any amounts of income which are chargeable to income tax.

1250. If a branch or agency in the United Kingdom of a non-UK resident ceases to be the non-UK resident’s branch or agency, the branch or agency nevertheless continues thereafter to be the UK representative of the non-UK resident in relation to the amounts for which the non-UK resident is chargeable mentioned in subsection (2). See Rule 2 in subsection (3).

Section 271C: Trade or profession carried on in partnership

1251. This section contains special rules to deal with the case where the non-UK resident carries on a trade or profession in partnership. It is based on section 126(6), (7) and (7A) of FA 1995.

1252. Subsections (1) and (2) provide that, if a partnership carries on a trade or profession in the United Kingdom through a branch or agency, the branch or agency is treated as the UK representative of any non-UK resident partner in relation to the share of the gains in respect of which that partner is chargeable under section 10 of TCGA.

1253. Subsections (3) and (4) provide that section 271B also applies if a partnership which includes both UK resident and non-UK resident members carries on a trade or profession in the United Kingdom, whether it does so itself or through a branch or agency.

1254. In this case, the partnership itself is treated as the UK representative of the non-UK resident partner in relation to the share of the gains in respect of which that partner is chargeable under section 10 of TCGA. This is so notwithstanding that there may also be a branch or agency which is the non-UK resident partner’s UK representative in relation to those chargeable gains. All the partners are as a consequence jointly liable for capital gains tax on the gains of the non-UK resident partner.

Section 271D: Interpretation of Chapter

1255. This section defines two terms for the purposes of the Chapter. It is based on section 126(1) and (8) of FA 1995.

Chapter 2: Capital gains tax obligations and liabilities imposed on UK representatives

Overview

1256. This Chapter sets out the obligations and liabilities of a UK representative of a non-UK resident carrying on a trade, profession or vocation through a branch or agency in the United Kingdom in relation to the assessment, collection and recovery of capital gains tax in respect of amounts which are chargeable to tax under section 10 of TCGA by reference to that branch or agency.

Section 271E: Introduction to Chapter

1257. This section introduces the Chapter. It is based on paragraph 1(1) and (2) of Schedule 23 to FA 1995.

Section 271F: Obligations and liabilities of UK representative

1258. This section treats the obligations and liabilities of the non-UK resident in respect of amounts chargeable under section 10 of TCGA as also being the obligations and liabilities of the non-UK resident’s UK representative in respect of the branch or agency to which those amounts relate. It is based on paragraphs 1(1) and 2 of Schedule 23 to FA 1995.

Section 271G: Exceptions: notices and information

1259. This section provides:

for the circumstances in which an obligation or liability of a non-UK resident does not attach to the non-UK resident’s UK representative (subsections (1) and (2));

that a UK representative which is an independent agent is only required to do what is practicable for the representative to do in discharging the representative’s obligations to provide information (subsections (3) to (5));

that, if the UK representative has only provided so much information as it is practicable for the representative to provide, the non-UK resident is not discharged from the non-UK resident’s obligations to provide the whole of the information (subsection (6)); and

for the circumstances in which a non-UK resident is not bound by the mistakes of the UK representative (subsection (7)).

It is based on paragraphs 3 and 4 of Schedule 23 to FA 1995.

1260. In the definition of “information” in subsection (8), the words “to the Commissioners for Her Majesty’s Revenue and Customs or to any officer of Revenue and Customs” have been substituted for the words “to the Board or any officer of 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.

Section 271H: Exceptions: criminal offences and penalties etc

1261. This section sets out the circumstances in which the UK representative is not liable to be proceeded against for a criminal offence. It is based on paragraph 5 of Schedule 23 to FA 1995.

Section 271I: Indemnities

1262. This section sets out the circumstances in which an “independent agent” is entitled to be indemnified by the non-UK resident and to retain sums otherwise payable or accountable by the UK representative to the non-UK resident to meet the UK representative’s liabilities under the Chapter. It is based on paragraph 6 of Schedule 23 to FA 1995.

Section 271J: Meaning of “non-UK resident” and “independent agent”

1263. This section defines “non-UK resident” and “independent agent”. It is based on section 126(1) of, and paragraph 7 of Schedule 23 to, FA 1995.

Schedule 7: Miscellaneous relocations

Overview

1264. This Schedule relocates a number of provisions which have not been dealt with as part of the rewrite of income tax and corporation tax in earlier rewrite Acts or CTB2, or of international matters in this Bill. In the absence of any action to relocate them, these provisions would for the foreseeable future be left where they are currently located and this may not be helpful to users.

Part 1: Relocation of section 38 of, and Schedule 15 to, FA 1973

Overview

1265. This Part inserts sections 77B to 77K inclusive of TMA as Part 7A of that Act. The inserted sections rewrite provisions in section 38 of, and Schedule 15 to, FA 1973, which provide an information power and a power to assess a licensee in respect of activities carried on by non-UK resident sub-contractors on the UK continental shelf.

1266. A licensee is a person or company who has been granted a licence by the United Kingdom government to search for and exploit the oil reserves in Great Britain, under the United Kingdom territorial sea and on the United Kingdom continental shelf. An oil field may have more than one licensee. The licensees will in turn use the services of other businesses to assist in the development and exploitation of the oil reserves but those other businesses will not themselves be licensees.

1267. Where any of those other businesses is not resident in the United Kingdom, these provisions give HMRC the power to seek information from the licensee about payments made to those businesses, and to seek payment of tax due from those other businesses that is unpaid after 30 days.

Section 77B of TMA: Pre-conditions for serving secondary-liability notice

1268. This section sets out the conditions that must exist before HMRC can seek tax from a licensee that should have been paid by a non-UK resident. It is based on paragraphs 4(1) and 5 of Schedule 15 to FA 1973.

1269. Paragraph 5 of Schedule 4 to the Petroleum Act 1998 updated the reference to the Petroleum (Production) Act 1934 in paragraph 4(1) of Schedule 15 to FA 1973.

Section 77C of TMA: Secondary-liability notices

1270. This section sets out how a notice must be served on the licensee and how the amount due is to be calculated. It is based on paragraphs 4, 4A, 7A and 8A of Schedule 15 to FA 1973 and section 86(3) of F(No 2)A 1987.

1271. Subsection (3) sets out the basic calculation, but this may be modified in cases where an exemption certificate has been issued - see sections 77F and 77G of TMA, inserted by this Schedule.

1272. The source legislation refers to interest under section 86 of TMA. Interest under section 87A of TMA was added by section 86(3)(b) of F(No 2)A 1987.

1273. Certain cases involving contracts made before 23 March 1973 are excluded - see section 77E of TMA.

1274. References to the Board have been changed to references to an officer of Revenue and Customs in line with practice. See Change 2 in Annex 1.

Section 77D of TMA: Payments under secondary-liability notices

1275. This section specifies that the tax that a licensee may be required to pay under these rules is subject to all the same provisions as if it were tax due and payable by them. It is based on paragraph 4(2) and 4(3) of Schedule 15 to FA 1973.

1276. Subsection (2) permits the licensee to recover any amounts paid from the person whose tax was unpaid. Subsection (3) prohibits a deduction in computing profits for any tax paid by the licensee under these provisions.

Section 77E of TMA: Exception for certain pre-1974 cases

1277. This section sets out an exception in respect of contracts made before 23 March 1973, subject to certain conditions. It is based on paragraph 6 of Schedule 15 to FA 1973.

Section 77F of TMA: Issue, cancellation and effect of exemption certificates

1278. This section sets out the circumstances under which HMRC can issue an exemption certificate to a licensee in respect of a named non-UK resident person. It is based on paragraphs 7, 8 and 8A of Schedule 15 to FA 1973.

1279. While the certificate is in force, the licensee is relieved of any liability in respect of tax unpaid by the named person.

1280. References to the Board have been changed to an officer of Revenue and Customs in line with practice. See Change 2 in Annex 1.

Prepared: 19 November 2009