Part 16: Relocation of section 144 of FA 2000

Overview

1363.     This Part inserts section 106A of TMA. It is based on section 144 of FA 2000, sections 281(7) and 282(2) and (3) of the Criminal Justice Act 2003 and section 45(1), (2), (6) and (7) of the Criminal Proceedings etc (Reform) (Scotland) Act 2007.

1364.     Section 144 of FA 2000 is one of a number of similar sections that create an offence of fraudulent evasion in relation to taxes and duties for which HMRC has responsibility. Section 144 relates to the fraudulent evasion of income tax.

1365.     The offence under section 144 is a so-called “either way” offence. That is, it can be tried on indictment in the Crown Court or summarily in the Magistrates Court.

Section 106A of TMA: Offence of fraudulent evasion of income tax

1366.     The section defines the offence of fraudulent evasion of income tax and sets out the possible penalties for such an offence.

1367.     Subsection (3) provides that the penalty under summary conviction may be different in England and Wales, Northern Ireland and Scotland. The maximum period of imprisonment in England and Wales is currently six months. This will, however, increase to 12 months when a commencement order in relation to section 282(3) of the Criminal Justice Act 2003 is passed. The maximum penalty in Northern Ireland is six months as in the source legislation as enacted. The Criminal Justice Act 2003 does not apply in Northern Ireland. The maximum penalty in Scotland is 12 months. It was originally six months in line with the source legislation as enacted. Section 45 of the Criminal Proceedings etc. (Reform) (Scotland) Act 2007 has, however, extended the maximum penalty for such offences to 12 months.

Part 17: Relocation of section 199 of FA 2003

Overview

1368.     This Part inserts sections 18B to 18E of TMA. They are based on section 199 of FA 2003.

1369.     Section 199 of FA 2003 enables the Treasury to make regulations to counter cross-border tax evasion by individuals on their savings income.

1370.     Regulations have been made under the source legislation by the Reporting of Savings Income Information Regulations 2003 (SI 2003/3297). The regulations have been subsequently amended by the Reporting of Savings Income Information (Amendment) Regulations 2005 and 2006 (SIs 2005/1539 and 2006/3286).

1371.     This Part also provides for the omission from the Table in section 98 of TMA of the entry for regulations under section 199 of FA 2003. That entry is not rewritten elsewhere in the Table since regulations under the new section 18B will be covered by the existing entry in the Table for Part 3 of TMA.

Section 18B of TMA: Savings income; regulations about European and international aspects

1372.     This section sets out the circumstances under which the Treasury may make regulations to ensure the effective taxation of savings income. It is based on section 199(1), (9), (12) and (13) of FA 2003. Schedule 9 to this Bill makes provision about the reference in section 18B(1)(a) to any Community obligation.

Section 18C of TMA: Regulations under section 18B: provision about “paying agents”

1373.     This section enlarges on the scope of regulations under section 18B insofar as they may relate to paying agents. It is based on section 199(2), (3) and (7) to (10) of FA 2003.

Section 18D of TMA: Content of regulations under section 18B: supplementary provision

1374.     This section specifies a number of additional provisions that are within the scope of regulations under section 18B. It is based on section 199(4) to (6) and (11) of FA 2003.

Section 18E of TMA: Interpretation of sections 18B to 18D: “prescribed” etc

1375.     This section provides definitions of terms used in sections 18B to 18D. It is based on section 199(14) of FA 2003.

Part 18: Relocation of section 61 of F(No 2)A 2005

Overview

1376.     This Part inserts paragraphs 87A, 87B and 87C of Schedule 18 to FA 1998. They are based on section 61 of F(No 2)A 2005.

1377.     These provisions ensure continuity of application of the corporation tax administrative and collection provisions in Schedule 18 to FA 1998 in the case of a Societas Europaea (SE).

Paragraph 87A of Schedule 18 to FA 1998: Company ceasing to be UK resident on formation of SE by merger

1378.     Paragraph 87A applies where a company ceases to be UK resident as a result of the formation of an SE by merger - all matters dealt with by Schedule 18 to FA 1998 in respect of the company before the merger fall upon the SE.

Paragraph 87B of Schedule 18 to FA 1998: SE ceasing to be UK resident

1379.     Paragraph 87B applies where an existing SE transfers its registered office out of the UK - the SE is treated as still being UK resident for the purposes of dealing with matters under Schedule 18 to FA 1998 that arose or accrued before the change of registered office.

Paragraph 87C of Schedule 18 to FA 1998: Meaning of SE

1380.     Paragraph 87C provides a definition.

Part 19: Relocation of paragraph 13 of Schedule 13 to FA 2007

Overview

1381.     This Part inserts sections 925A to 925F of ITA, which are based on paragraphs 13 to 15 of Schedule 13 to FA 2007, and consequentially amends section 926 of ITA.

1382.     Schedule 13 to FA 2007 made provision for the taxation of sale and repurchase of securities, and Schedule 14 to that Act repealed many of the corporation tax provisions for such transactions in Part 17 of ICTA. Chapter 10 of Part 6 of CTA 2009 (relationships treated as loan relationships etc: repos) rewrote the provisions of Schedule 13 to FA 2007 which applied to corporation tax on income.

1383.     Paragraph 13 of Schedule 13 to FA 2007 provides for income tax to be deducted at source in certain cases involving the sale and repurchase of securities. It applies provisions of Chapter 9 of Part 15 of ITA, which requires income tax to be deducted at source in certain cases involving manufactured payments.

1384.     Part 15 of ITA rewrote all the primary legislation on the deduction of income tax at source which had been enacted before FA 2007. For the convenience of the user, paragraph 13 of Schedule 13 to FA 2007 and the relevant supplementary provisions of paragraphs 14 and 15 of that Schedule are rewritten as a sequence of new sections in Chapter 9 of Part 15 of ITA, and paragraph 13 of that Schedule is repealed.

Section 925A of ITA: Creditor repos

1385.     This section deems a company which has a creditor repo to make manufactured payments. It is based on paragraphs 13(1) and 14(6) and (7) of Schedule 13 to FA 2007.

1386.     In paragraph 13(1)(a) of Schedule 13 to FA 2007, “the lender” refers to “a company” in the opening words of paragraph 13(1). Section 925A(1) brings this out.

Section 925B of ITA: Debtor repos

1387.     This section deems a company which has a debtor repo to receive manufactured payments. It is based on paragraphs 13(2) and (4) and 14(6) and (7) of Schedule 13 to FA 2007.

1388.     In paragraph 13(2)(a) of Schedule 13 to FA 2007, “the borrower” refers to “a company” in the opening words of paragraph 13(2). Section 925B(2) brings this out.

Section 925C of ITA: Actual payments ignored if section 925A or 925B applies

1389.     This section is a priority rule. It is based on paragraph 13(3) of Schedule 13 to FA 2007.

1390.     In a case in which a repo involves an actual manufactured payment (which would be within Chapter 9 of Part 15 of ITA anyway), the actual manufactured payment is deemed not to have been made, and section 925A or 925B applies.

Section 925D of ITA: Power to modify repo sections

1391.     This section gives the Treasury the power to modify sections 925A to 925F of ITA in relation to (a) “non-standard” repo cases (see section 925E), (b) cases involving redemption arrangements or (c) both. It is based on paragraph 15(1), (6), (7) and (9) of Schedule 13 to FA 2007.

1392.     The effect of paragraph 15(7)(a) of Schedule 13 to FA 2007 is replicated by the existing section 927 of ITA, which applies to this section.

Section 925E of ITA: Cases where section 925D applies: non-standard repos

1393.     This section supplements section 925D. It is based on paragraph 15(2) to (5) and (9) of Schedule 13 to FA 2007.

1394.     Subsection (1) does not rewrite “in relation to the repo” in paragraph 15(2)(c) of Schedule 13 to FA 2007. Those words are otiose, because the wording of the conditions in subsection (1) ties them fully to the factual situation.

Section 925F of ITA: Interpretation of the repo sections

1395.     This section is interpretative. It is based on paragraph 14(1), (3), (4) and (5) of Schedule 13 to FA 2007.

Section 926 of ITA: Interpretation of Chapter

1396.     Subsection (1A) is interpretative. It is new. In the Chapter into which sections 925A to 925F are inserted, words and phrases have the same meaning as in Chapter 2 of Part 11 of ITA: see section 926(1) of ITA. The source legislation rewritten by those new sections is not subject to that interpretative rule. It therefore follows that the rule would need to be disapplied in relation to the new sections if it affected how they were to be read. As it seems possible to argue that the rule may have some limited effect on how the new sections are to be read, subsection (1A) is inserted to clarify the position.

Schedule 8: Minor and consequential amendments

Overview

1397.     This Schedule makes minor and consequential amendments.

1398.     The commentary on this Schedule makes specific points about certain of the amendments made.

Part 1: Double taxation relief

Section 12B of TMA: Records to be kept for purposes of returns

1399.     Section 12B(4A)(c)(ii) of TMA refers to “a relief to which section 788(5) of [ICTA] applies”. This is rewritten in new section 12B(4B) of TMA, which reflects the interpretation of that expression adopted in the rewrite of section 790(10A)(d) of ICTA. See the commentary on clause 17.

Section 24 of TMA: Power to obtain information as to income from securities

1400.     This Schedule inserts section 24(3ZA) and (3ZB) of TMA. These subsections restrict the right of banks under section 24(3) not to disclose certain information about income from securities, when the beneficial owner of the income is non-UK resident and protected by a DTA. They are based on section 816(3) of ICTA. Section 816(3) of ICTA is not relevant to capital gains tax or to PRT.

Section 43D of TMA: Claims for double taxation relief in relation to petroleum revenue tax

1401.     This section concerns claims for DTR in relation to PRT. It is based on section 194(4) of FA 1993, which refers to sections 42 and 43 of TMA. But the effect of section 194(4) of FA 1993 is to apply only certain elements of sections 42 and 43 of TMA. It is those elements, as applied by section 194(4) of FA 1993, which are rewritten to the new section 43D of TMA.

1402.     The first limb of section 42(8) of TMA says that a claim may be made on behalf of an incapacitated person by the person’s trustee, guardian, tutor or curator. Yet it may be the case that the terms under which the trustee etc is appointed confer power on the trustee etc to make a claim on the incapacitated person’s behalf. If they do, section 42(8) is merely declaratory. If they do not, section 42(8) would not be interpreted as overriding the limitations on their powers, given that those powers arise under carefully constructed statutory codes for the protection of persons without capacity.

1403.     It is in any case extremely unlikely that a claim for DTR in relation to PRT would fall to be made by or on behalf of an individual, even if the individual had legal capacity. In addition, with the exception of guardians in Scotland, statutory representatives of incapacitated persons no longer include trustees, guardians, tutors or curators. The first limb of section 42(8) of TMA is therefore not rewritten in this section.

1404.     The second limb of section 42(8) of TMA is also not rewritten in this section. It has no application to claims under section 194(4) of FA 1993, because it is about persons charged under Part 8 of TMA. Part 8 of TMA did not extend to PRT and has been repealed.

1405.     Subsection (4) modifies the application of paragraph 2A(4) of Schedule 1A to TMA.

Section 790 of ICTA: Unilateral relief

1406.     Section 790(5)(c)(iii) of ICTA is spent, because it refers to section 802(1) of that Act, which has been repealed. It is repealed without replacement.

Sections 806A to 806K of ICTA: Foreign dividends: onshore pooling, utilisation of eligible unrelieved foreign tax and branches or agencies in the United Kingdom of persons resident elsewhere

1407.     Paragraph 9 of Schedule 14 to FA 2009 repealed sections 806A to 806K of ICTA with effect in relation to distributions paid on or after 1 July 2009. Sections 806A to 806J of ICTA applied solely for corporation tax purposes. Sections 806A to 806J apply in relation to distributions paid before 1 July 2009 in accounting periods which begin before that date and end on or after 1 April 2010. This Bill has effect, for corporation tax purposes, for such accounting periods. Accordingly, this Schedule amends sections 806A to 806J of ICTA as appropriate.

1408.     Section 806K of ICTA applied for income tax purposes and (if section 277(1) of TCGA had any practical application to section 806K) for capital gains tax purposes, and section 806K(1) also applied for corporation tax purposes. Section 806K therefore does not apply for income tax purposes or capital gains tax purposes to any tax years for which this Bill has effect. Although, as explained in the previous paragraph, section 806K(1) of ICTA applies for corporation tax purposes for certain accounting periods for which this Bill has effect, there is no need for this Schedule to amend that subsection. Accordingly, this Schedule does not amend section 806K of ICTA.

Section 807 of ICTA: Sale of securities with or without accrued interest

1409.     Following section 679(3) of ITA, section 807(3) of ICTA is redundant. It is repealed without replacement.

Sections 812 to 814 of ICTA: Withdrawal of right to tax credit of certain non-resident companies connected with unitary states

1410.     Sections 812 to 814 of ICTA are not rewritten, as they are obsolete. This Schedule consequentially amends them, because their repeal would be outside the scope of this Bill. HMRC will refer sections 812 to 814 of ICTA to the Law Commission for inclusion in a future Statute Law (Repeals) Bill.

Section 816 of ICTA: Disclosure of information

1411.     Section 816(4) of ICTA is repealed without replacement, as it is spent.

Schedule 26 to ICTA: Controlled foreign companies: reliefs against liability for tax in respect of chargeable profits

1412.     Paragraph 4 of Schedule 26 to ICTA is concerned with the charge on UK resident companies under section 747(4)(a) of ICTA. This Schedule substitutes, in paragraph 4(4) of that Schedule, references to clauses 36, 40 and 42 of this Bill. These clauses limit DTR by way of credit against, respectively, income tax, capital gains tax and corporation tax.

1413.     The reference to clause 36 (which is based on section 796 of ICTA) is needed because the calculations under paragraph 4 of Schedule 26 to ICTA take account of participators in the controlled foreign company who are income tax payers.

1414.     The reference to clause 40 reflects the application of section 277(1) of TCGA to section 796 of ICTA. If this reference is needed, its omission would change the law to the taxpayer’s disadvantage. This reference is therefore included out of caution.

Section 194 of FA 1993: DTR in relation to PRT

1415.     Section 194(2) of FA 1993 is a spent transitional. It is repealed without replacement.

Schedule 18 to FA 1998: Company tax returns, assessments and related matters

1416.     Paragraph 22(3)(c)(ii) of Schedule 18 to FA 1998 refers to “a relief to which section 788(5) of [ICTA] applies”. This is rewritten in new paragraph 22(4) of that Schedule, which reflects the interpretation of that expression adopted in the rewrite of section 790(10A)(d) of ICTA. See the commentary on clause 17.

Section 115 of FA 2004: Supplementary

1417.     This Bill repeals section 115(4) of FA 2004 without replacement. This provision is redundant since paragraph 3 of Schedule 4 to CRCA removed from section 10 of the Exchequer and Audit Department Act 1866 the rule that allowed HMRC to deduct money for tax repayments etc before paying their receipts into the Consolidated Fund. That rule is now to be found in section 44 of CRCA and is in sufficiently general terms to cover repayments under Part 3 of this Bill (double taxation relief for special withholding tax).

Section 527 of ITA: charitable trusts: exemption from charges under provisions to which section 1016 of ITA applies

1418.     Section 527(2)(b) of ITA refers to section 804 of ICTA. It is drafted on the basis that section 804(5B)(a) of ICTA refers to an amount which is chargeable to income tax. But, following its amendment by ITA, section 804(5B)(a) of ICTA does not refer to an amount which is chargeable to income tax.

1419.     Section 527(2)(b) of ITA purports to remove section 804 of ICTA from the scope of section 527(1) of ITA. But section 804 of ICTA is no longer within the scope of section 527(1) in the first place. Section 527(2)(b) is therefore otiose. It is repealed without replacement.

Section 1026 of ITA: meaning of “non-qualifying income” for the purposes of section 1025 of ITA (meaning of “modified net income”)

1420.     Section 1026(g) of ITA refers to section 804 of ICTA. It is drafted on the basis that section 804(5B)(a) of ICTA deems a person to receive an amount. But, following its amendment by ITA, section 804(5B)(a) does not deem a person to receive an amount.

1421.     Also, section 1026(g) of ITA is drafted on the basis that the income tax liability calculated under section 23 of ITA includes the income tax liability under section 804(5B)(a) of ICTA. But that is not the case. The liability under section 804(5B)(a) is mentioned in section 32 of ITA and is therefore (by virtue of section 22(2) of that Act) outside section 23 of that Act.

1422.     Section 1026(g) is therefore otiose. It is repealed without replacement.

Section 793 of CTA 2009: Intangible fixed assets: reallocation of degrouping charge within group and recovery: further requirements about elections under section 793

1423.     Section 793(3) of CTA 2009 stipulates that an election under section 792 of that Act can only be made if at the relevant time (a) company B carried on a trade in the United Kingdom through a permanent establishment, and (b) it was not exempt from corporation tax in respect of the income or chargeable gains of that permanent establishment because of arrangements under Part 18 of ICTA (DTR).

1424.     Section 790(3) of ICTA (unilateral relief), in Part 18 of that Act, hypothesises notional arrangements for DTR. But section 790(3) of ICTA refers specifically to relief by way of credit under Chapter 2 of Part 18 of that Act, and section 793(3) of CTA 2009 refers specifically to exemption from corporation tax. Accordingly, section 793(3) of CTA 2009 does not refer by implication to section 790(3) of ICTA. For the sake of precision, therefore, this Schedule, in amending section 793(3) of CTA 2009, substitutes a reference to arrangements that have effect under clause 2(1) (double taxation arrangements).

Sections 931H and 931J of CTA 2009: Dividends derived from transactions not designed to reduce tax; schemes involving manipulation of controlled company rules

1425.     This Schedule amends sections 931H(5) and 931J(7) of CTA 2009 by replacing the reference to Part 18 of ICTA with a reference to Part 2 of this Bill. Sections 812 to 814 in Part 18 of ICTA have never been brought into force and are neither rewritten nor repealed. If those sections were in force, it is possible that dividends to which they would apply might have been deemed by section 931H(5) or 931J(7) of CTA 2009 to have been split into two separate dividends. As sections 812 to 814 of ICTA would, if in force, operate by restricting the benefits of tax credits given in respect of dividends, it makes no difference whether they would operate on the actual dividend or the two deemed dividends: either way, the total tax credit affected would be the same. Accordingly, no change will result from sections 931H(5) and 931J(7) of CTA 2009 no longer potentially applying for the purposes of the uncommenced sections 812 to 814 of ICTA.

Part 9: Sale and lease-back etc

Sections 779(13)(f), 781(4)(e), 781(5)(a) and 785 of ICTA: References to “woodlands”

1426.     Following the repeal of Schedule B in 1988, the references to woodlands in sections 779(13)(f), 781(4)(e), 781(5)(a) and 785 of ICTA are obsolete. They are repealed without replacement.

Section 781(5) of ICTA: Assets leased to traders and others: cessation of trade

1427.     Following the introduction of Income Tax Self Assessment, section 781(5) of ICTA is spent. It catered for cases in which, under the superseded rules about a trade ceasing, there could be periods whose profits were not brought into account in assessing the amounts on which income tax was charged. It is repealed without replacement.

Broadcasting Act 1996, Greater London Authority Act 1999 and Transport Act 2000

1428.     Schedule 7 to the Broadcasting Act 1996 contains taxation provisions relating to transfer schemes under section 131 of that Act. Paragraphs 22 to 24 of that Schedule relate to the sale and lease-back provisions of ICTA which are rewritten for corporation tax purposes in Part 19 of CTB2 and for income tax purposes by Schedule 4 to this Bill. Although it appears that paragraphs 22 to 24 primarily relate to the sale and lease-back provisions as applying for corporation tax purposes, they are not expressly limited to corporation tax.

1429.     As a result, and because Schedule 6 to the Broadcasting Act 1996 authorises the inclusion in a transfer scheme of a range of provision so wide as to make it difficult to conclude that paragraphs 22 to 24 could never be relevant for income tax purposes, this Part of this Schedule inserts into paragraphs 22 to 24 references to the sale and lease-back provisions as rewritten for income tax purposes by Schedule 4 to this Bill. This complements the insertion of references to Part 19 of CTB2 by Schedule 1 to that Bill and, although it may represent an unnecessarily cautious approach, has the merit of ensuring that taxpayers within the charge to income tax are not unintentionally disadvantaged.

1430.     The position may be similar for the amendments made by this Part of this Schedule in the Greater London Authority Act 1999 and the Transport 2000, but those amendments give rise to no initial surprise since there is nothing in the statutory text to suggest that the provisions being amended may be limited to corporation tax.