Corporation Tax Bill

House of Commons

Session 2009 - 10
Internet Publications
Other Bills before Parliament

Corporation Tax Bill

Corporation Tax Bill
Part 24 — Corporation Tax Acts definitions etc
Chapter 2 — Permanent establishments
564

Lloyd’s agents
1151
Lloyd’s agents
(1)
This section applies if a transaction is carried out on behalf of a non-UK
resident company in the course of the company’s trade by a person in the
United Kingdom acting as a members’ agent or managing agent at Lloyd’s.
5
(2)
In relation to the transaction, the person is regarded for the purposes of section
1142(1) as an agent of independent status acting in the ordinary course of the
person’s business if conditions A, B and C are met.
(3)
Condition A is that the non-UK resident company is a member of Lloyd’s.
(4)
Condition B is that the transaction is carried out in the course of the company’s
10
underwriting business.
(5)
Condition C is that the person acting on behalf of the company in relation to
the transaction acts as members’ agent or as managing agent of the syndicate
in question.
(6)
For the purposes of this section—
15
(a)
a non-UK resident company is a member of Lloyd’s if it is a corporate
member within the meaning of Chapter 5 of Part 4 of FA 1994, and
(b)
“members’ agent” and “managing agent” are to be read in accordance
with section 230 of that Act.
Supplementary
20
1152
Investment managers: disregard of certain chargeable profits
(1)
This section applies if—
(a)
an investment manager carries out one or more investment
transactions on behalf of a non-UK resident company (whether or not
the investment manager also carries out other transactions of any kind
25
on behalf of the company), and
(b)
the investment manager falls to be treated as a permanent
establishment of the non-UK resident company (whether because the
independent investment manager conditions are not met in relation to
such investment transactions, or otherwise).
30
(2)
In determining under Chapter 4 of Part 2 of CTA 2009 the amount of profits
attributable to the permanent establishment represented by the investment
manager acting as an agent on behalf of the non-UK resident company,
chargeable profits deriving from an investment transaction carried out by the
investment manager on behalf of the non-UK resident company are to be
35
disregarded in either of the following two cases—
Case 1

The independent investment manager conditions are met in relation to the
investment transaction.
Case 2
40

The independent investment manager conditions, other than Condition D in
section 1146(6) (the 20% rule), are met in relation to the investment transaction.

Corporation Tax Bill
Part 24 — Corporation Tax Acts definitions etc
Chapter 3 — Subsidiaries
565

(3)
But if Case 2 applies in relation to the investment transaction, chargeable
profits deriving from the transaction are to be disregarded only to the extent
that they do not represent relevant disregarded income of the non-UK resident
company to which the investment manager or a person connected with the
investment manager has or has had any beneficial entitlement.
5
(4)
In subsection (3) “relevant disregarded income” and “beneficial entitlement”
have the meanings given in section 1148.
1153
Miscellaneous
(1)
For the purposes of this Chapter a person is regarded as carrying out a
transaction on behalf of another if the person—
10
(a)
undertakes the transaction, whether on behalf of or to the account of the
other, or
(b)
gives instructions for it to be so carried out by another.
(2)
In the case of a person who acts as a broker or investment manager as part only
of a business, this Chapter has effect as if that part were a separate business.
15
Chapter 3
Subsidiaries
1154
Meaning of “51% subsidiary”, “75% subsidiary” and “90% subsidiary”
(1)
Subsections (2) to (4) define, for the purposes of the Corporation Tax Acts, the
circumstances in which a body corporate (“B”) is a 51% subsidiary, a 75%
20
subsidiary or a 90% subsidiary of another body corporate (“A”).
(2)
B is a 51% subsidiary of A if more than 50% of B’s ordinary share capital is
owned directly or indirectly by A.
(3)
B is a 75% subsidiary of A if at least 75% of B’s ordinary share capital is owned
directly or indirectly by A.
25
(4)
B is a 90% subsidiary of A if at least 90% of B’s ordinary share capital is owned
directly by A.
(5)
For the purposes of subsections (2) and (3) ordinary share capital is owned
“directly or indirectly” by a body corporate if it is owned by it—
(a)
directly,
30
(b)
indirectly, or
(c)
partly directly and partly indirectly.
(6)
In this Chapter references to ownership are to be read as references to
beneficial ownership.
1155
Indirect ownership of ordinary share capital
35
(1)
For the purposes of this Chapter ordinary share capital is owned indirectly by
a body corporate if it is owned through another body corporate or other bodies
corporate.
(2)
References in this Chapter to ownership through a body corporate are to be
read in accordance with subsections (3) and (4).
40

Corporation Tax Bill
Part 24 — Corporation Tax Acts definitions etc
Chapter 3 — Subsidiaries
566

(3)
Suppose that 3 or more bodies corporate are ordered in a series such that each
body in the series (other than the last) owns ordinary share capital of the body
immediately below it in the series.
(4)
If B is a body that is below, but not immediately below, A in the series, A is said
to own ordinary share capital of B through each body corporate that is between
5
A and B in the series.
(5)
Sections 1156 and 1157 contain rules for calculating, for the purposes of this
Chapter, the amount of a body corporate’s ordinary share capital that another
body corporate owns—
(a)
indirectly, or
10
(b)
partly directly and partly indirectly.
1156
Calculation of amounts owned indirectly: main rules
(1)
If a body corporate (“A”) directly owns the whole of the ordinary share capital
of another body corporate (“B”), A is treated as indirectly owning the whole of
any ordinary share capital that is owned directly or indirectly by B.
15
(2)
If a body corporate (“A”) directly owns a fraction of the ordinary share capital
of another body corporate (“B”) and B directly or indirectly owns ordinary
share capital of a third body corporate (“C”), A is treated as indirectly owning
the amount of C’s ordinary share capital given by the formula—


where—
20
F is the fraction of B’s ordinary share capital that is owned by A, and
M is the amount of the ordinary share capital of C that is owned directly
or indirectly by B.
(3)
For the purposes of subsections (1) and (2), the amount of any ordinary share
capital that is owned indirectly by B is calculated using subsection (1) or (2), or
25
both, as appropriate.
1157
Adding fractions together
(1)
If A and C are bodies corporate and—
(a)
A owns, through one or more bodies corporate (“the intermediaries in
the first series”), a fraction of C’s ordinary share capital, and
30
(b)
A also owns a further fraction of C’s ordinary share capital (or further
fractions of C’s ordinary share capital),

all those fractions are added together to find the amount of C’s ordinary share
capital that is owned by A.
(2)
The reference in subsection (1)(b) to a further fraction of C’s share capital is to
35
a fraction of C’s share capital that A owns—
(a)
directly, or
(b)
indirectly but through one or more bodies corporate which do not
(together) constitute all of the intermediaries in the first series, or which
include a body corporate that is not an intermediary in the first series.
40

Corporation Tax Bill
Part 24 — Corporation Tax Acts definitions etc
Chapter 4 — Investment trusts
567

Chapter 4
Investment trusts
1158
Meaning of “investment trust”
In the Corporation Tax Acts “investment trust”, with respect to an accounting
period, means a company which—
5
(a)
is approved for the purposes of this Chapter for that period by the
Commissioners for Her Majesty’s Revenue and Customs, and
(b)
is not a close company at any time in that period.
1159
Conditions for approval
(1)
The Commissioners for Her Majesty’s Revenue and Customs must not
10
approve a company under section 1158 for an accounting period unless it is
shown to their satisfaction that each of conditions A to F is met.
Condition A

The company must be UK resident throughout the accounting period.
Condition B
15

The shares making up the company’s ordinary share capital (or if they are of
more than one class, those of each class) must be included in the official UK list
throughout the accounting period.
Condition C

The company’s income of the accounting period must be derived wholly or
20
mainly from shares or securities.
Condition D

The company must not retain in respect of the accounting period an amount
which is greater than 15% of the income it derives from shares or securities (but
see section 1161).
25
Condition E

The company must not at any time in the accounting period have a holding in
a company that represents more than 15% by value of the investing company’s
investments (but see section 1162).
Condition F
30

The company’s memorandum or articles of association must prohibit the
distribution as dividend of surpluses arising from the realisation of
investments.
(2)
The conditions lettered A to F in subsection (1) are referred to by those letters
in this Chapter.
35
1160
Calculation of income
(1)
Subsections (2) to (4) apply in determining, for the purposes of condition C or
D (and accordingly of section 1161(2)(a)), with respect to any accounting
period of a company—

Corporation Tax Bill
Part 24 — Corporation Tax Acts definitions etc
Chapter 4 — Investment trusts
568

(a)
the amount of a company’s income, or
(b)
the amount of income which a company derives from shares or
securities.
(2)
The amounts to be brought into account under Part 5 of CTA 2009 in respect of
the company’s loan relationships are to be determined without reference to
5
any debtor relationships of the company.
(3)
The excess of—
(a)
any credits brought into account in respect of the accounting period by
virtue of section 574 of CTA 2009 (non-trading credits in respect of
derivative contracts), over
10
(b)
any debits brought into account in respect of the accounting period by
virtue of that section (non-trading debits in respect of derivative
contracts),

is to be treated as income of the period which is derived from shares or
securities.
15
(4)
Income treated as arising under regulation 18(1) of the Offshore Funds (Tax)
Regulations 2009 (S.I. 2009/3001) is to be ignored.
(5)
In determining the amount of a company’s income for the purposes of
condition C, no account is to be taken of any amount treated under section
1229(3)(b) of CTA 2009 (claw back of relief for expenses of management) as a
20
receipt chargeable under the charge to corporation tax on income.
1161
The income retention condition: exceptions
(1)
Condition D does not apply in relation to an accounting period if the amount
that the company would be required to distribute in order to meet the
condition is less than—
25
(a)
£10,000, or
(b)
if the period is shorter than 12 months, a proportionately reduced
amount.
(2)
Condition D does not apply in relation to an accounting period if—
(a)
by virtue of a restriction imposed by law, the company is required to
30
retain in respect of the period an amount of income that exceeds 15% of
the income the company derives from shares and securities, and
(b)
either—
(i)
the amount of income that the company retains in respect of the
accounting period does not exceed the amount of income that it
35
is required to retain in respect of the period by virtue of a
restriction imposed by law, or
(ii)
if there is such an excess, the amount of the excess plus the
amount of any income that the company distributes in respect
of the period is less than £10,000.
40
(3)
If the accounting period mentioned in subsection (2) is shorter than 12 months,
the amount of £10,000 mentioned in subsection (2)(b)(ii) is proportionately
reduced.