Taxation (International and Other Provisions) Bill

House of Commons

Session 2009 - 10
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Other Bills before Parliament

Taxation (International and Other Provisions) Bill

Taxation (International and Other Provisions) Bill
Part 1 — Overview
1

A
Bill
[AS AMENDED IN JOINT COMMITTEE]
To
Restate, with minor changes, certain enactments relating to tax; to make
provision for purposes connected with the restatement of enactments by other
tax law rewrite Acts; and for connected purposes.
Be it enacted by the Queen’s most Excellent Majesty, by and with the advice and
consent of the Lords Spiritual and Temporal, and Commons, in this present
Parliament assembled, and by the authority of the same, as follows:—
Part 1
Overview
1
Overview of Act
(1)
The following Parts contain provisions relating to international aspects of
taxation—
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(a)
Parts 2 and 3 (double taxation relief),
(b)
Parts 4 and 5 (transfer pricing and advance pricing agreements),
(c)
Part 6 (tax arbitrage),
(d)
Part 7 (tax treatment of financing costs and income), and
(e)
Part 8 (offshore funds).
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(2)
Part 9 contains amendments of tax legislation to relocate enactments to
appropriate places.
(3)
In particular, Part 9 contains amendments of TCGA 1992, ITTOIA 2005 and
ITA 2007 that insert provisions relating to—
(a)
oil activities (see section 364 and Schedule 1),
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(b)
alternative finance arrangements (see section 365 and Schedule 2),
(c)
leasing arrangements involving finance leases or loans (see section 367
and Schedule 3),
(d)
sale and lease-back etc (see section 368 and Schedule 4),

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Taxation (International and Other Provisions) Bill
Part 2 — Double taxation relief
Chapter 1 — Double taxation arrangements and unilateral relief arrangements
2

(e)
factoring of income etc (see section 369 and Schedule 5), and
(f)
UK representatives of non-UK residents (see section 370 and Schedule
6).
(4)
Part 10 contains provisions of general application (including definitions for the
purposes of the Act).
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(5)
For abbreviations used in this Act see section 373, and for defined expressions
used in Parts 2 to 8 see Schedule 11.
Part 2
Double taxation relief
Chapter 1
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Double taxation arrangements and unilateral relief arrangements
Double taxation arrangements
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Giving effect to arrangements made in relation to other territories
(1)
If Her Majesty by Order in Council declares—
(a)
that arrangements specified in the Order have been made in relation to
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any territory outside the United Kingdom with a view to affording
relief from double taxation in relation to taxes within subsection (3),
and
(b)
that it is expedient that those arrangements should have effect,

those arrangements have effect.
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(2)
If arrangements have effect under subsection (1), they have effect in accordance
with section 6.
(3)
The taxes are—
(a)
income tax,
(b)
corporation tax,
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(c)
capital gains tax,
(d)
petroleum revenue tax, and
(e)
any taxes imposed by the law of the territory that are of a similar
character to taxes within paragraphs (a) to (d).
(4)
In this Part “double taxation arrangements” means arrangements that have
30
effect under subsection (1).
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Arrangements may include retrospective or supplementary provision
(1)
Section 2(1) gives effect to arrangements even if the arrangements include—
(a)
provision for relief from tax for periods before the passing of this Act,
or
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(b)
provision for relief from tax for periods before the making of the
arrangements.
(2)
Section 2(1) gives effect to arrangements even if the arrangements include—
(a)
provision as to income that is not subject to double taxation,

Taxation (International and Other Provisions) Bill
Part 2 — Double taxation relief
Chapter 1 — Double taxation arrangements and unilateral relief arrangements
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(b)
provision as to chargeable gains that are not subject to double taxation,
or
(c)
provision as to foreign-field consideration that is not subject to double
taxation.
(3)
In subsection (2)(c) “foreign-field consideration” means consideration brought
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into charge to tax under section 12 of the Oil Taxation Act 1983 (charge to
petroleum revenue tax on consideration in respect of United Kingdom use of a
foreign field asset).
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Meaning of “double taxation” in sections 2 and 3
(1)
For the purposes of sections 2 and 3, any amount within subsection (2) is to be
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treated as having been payable.
(2)
An amount is within this subsection if it is an amount of tax that would have
been payable under the law of a territory outside the United Kingdom but for
a relief—
(a)
given under the law of the territory with a view to promoting
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industrial, commercial, scientific, educational or other development in
a territory outside the United Kingdom, and
(b)
about which provision is made in double taxation arrangements.
(3)
References in sections 2 and 3 to double taxation are to be read in accordance
with subsection (1).
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Orders under section 2: contents and procedure
(1)
If an Order under section 2 (“the later Order”) revokes an earlier Order under
that section, the later Order may contain transitional provisions that appear to
Her Majesty to be necessary or expedient.
(2)
An Order under section 2 is not to be submitted to Her Majesty in Council
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unless a draft of the Order has been laid before and approved by a resolution
of the House of Commons.
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The effect given by section 2 to double taxation arrangements
(1)
Subject to this Part and Part 18 of ICTA, double taxation arrangements have
effect in accordance with subsections (2) to (4) despite anything in any
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enactment.
(2)
Double taxation arrangements have effect in relation to income tax and
corporation tax so far as the arrangements provide—
(a)
for relief from income tax or corporation tax,
(b)
for taxing income of non-UK resident persons that arises from sources
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in the United Kingdom,
(c)
for taxing chargeable gains accruing to non-UK resident persons on the
disposal of assets in the United Kingdom,
(d)
for determining the income or chargeable gains to be attributed to non-
UK resident persons,
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(e)
for determining the income or chargeable gains to be attributed to
agencies, branches or establishments in the United Kingdom of non-UK
resident persons,

Taxation (International and Other Provisions) Bill
Part 2 — Double taxation relief
Chapter 1 — Double taxation arrangements and unilateral relief arrangements
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(f)
for determining the income or chargeable gains to be attributed to UK
resident persons who have special relationships with non-UK resident
persons, or
(g)
for conferring on non-UK resident persons the right to a tax credit
under section 397(1) of ITTOIA 2005 in respect of qualifying
5
distributions made to them by UK resident companies.
(3)
Double taxation arrangements have effect in relation to capital gains tax so far
as the arrangements provide—
(a)
for relief from capital gains tax,
(b)
for taxing capital gains accruing to non-UK resident persons on the
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disposal of assets in the United Kingdom,
(c)
for determining the capital gains to be attributed to non-UK resident
persons,
(d)
for determining the capital gains to be attributed to agencies, branches
or establishments in the United Kingdom of non-UK resident persons,
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or
(e)
for determining the capital gains to be attributed to UK resident
persons who have special relationships with non-UK resident persons.
(4)
Double taxation arrangements have effect in relation to petroleum revenue tax
so far as the arrangements provide for relief from petroleum revenue tax
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charged under section 12 of the Oil Taxation Act 1983 (charge to petroleum
revenue tax on consideration in respect of United Kingdom use of a foreign
field asset).
(5)
In the case of relief under this Chapter that is not also relief under Chapter 2,
the relief is not available in respect of special withholding tax (a corresponding
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rule applies in relation to relief under Chapter 2 as a result of the definition of
foreign tax given by section 21).
(6)
Relief under subsection (2)(a), (3)(a) or (4) requires a claim.
(7)
In subsection (3) “UK resident person” and “non-UK resident person” have the
meaning given by section 989 of ITA 2007.
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(8)
In subsection (5) “special withholding tax” has the same meaning as in Part 3
(see section 136).
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General regulations
(1)
The Commissioners for Her Majesty’s Revenue and Customs may make
regulations generally for carrying out the provisions of the treaty sections or
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any double taxation arrangements.
(2)
Regulations under subsection (1) may in particular provide for securing that
relief from taxation imposed by the law of the territory to which any double
taxation arrangements relate does not enure for the benefit of persons not
entitled to that relief.
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(3)
Subsection (4) applies to tax if—
(a)
the tax is deductible from a payment but, in order to comply with
double taxation arrangements, has not been deducted, and
(b)
it is discovered that the arrangements did not apply to that payment.
(4)
Regulations under subsection (1) may in particular provide for authorising
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recovery of tax to which this subsection applies—

Taxation (International and Other Provisions) Bill
Part 2 — Double taxation relief
Chapter 1 — Double taxation arrangements and unilateral relief arrangements
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(a)
by assessment on the person entitled to the payment from which the tax
is not deducted, or
(b)
by deduction from subsequent payments.
(5)
In subsection (1) “the treaty sections” means—
sections 2 to 6,
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section 134(1), and
section 134(3) to (6) so far as relating to section 134(1).
(6)
This section does not apply in relation to—
(a)
petroleum revenue tax, or
(b)
taxes imposed by the law of a territory outside the United Kingdom
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that—
(i)
are of a similar character to petroleum revenue tax, and
(ii)
are not of a similar character to income tax, corporation tax or
capital gains tax.
Unilateral relief arrangements
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Interpretation: “unilateral relief arrangements” means rules 1 to 9, etc
(1)
In this Part “unilateral relief arrangements”, in relation to a territory outside
the United Kingdom, means the rules set out in sections 9 to 17.
(2)
In sections 11 to 17, and in Chapter 2 (except section 29) in its application to
relief under unilateral relief arrangements, references to tax payable or paid
20
under the law of a territory outside the United Kingdom include only—
(a)
taxes which are charged on income and which correspond to income
tax,
(b)
taxes which are charged on income or chargeable gains and which
correspond to corporation tax, and
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(c)
taxes which are charged on capital gains and which correspond to
capital gains tax.
(3)
For the purposes of subsection (2), tax may correspond to income tax,
corporation tax or capital gains tax even though it—
(a)
is payable under the law of a province, state or other part of a country,
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or
(b)
is levied by or on behalf of a municipality or other local body.
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Rule 1: the unilateral entitlement to credit for non-UK tax
(1)
Credit for tax—
(a)
paid under the law of the territory,
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(b)
calculated by reference to income arising, or any chargeable gain
accruing, in the territory, and
(c)
corresponding to UK tax,

is to be allowed against any income tax or corporation tax calculated by
reference to that income or gain.
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(2)
Credit for tax—
(a)
paid under the law of the territory,
(b)
calculated by reference to any capital gain accruing in the territory, and

Taxation (International and Other Provisions) Bill
Part 2 — Double taxation relief
Chapter 1 — Double taxation arrangements and unilateral relief arrangements
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(c)
corresponding to UK tax,

is to be allowed against any capital gains tax calculated by reference to that
gain.
(3)
For the purposes of subsection (1), profits from, or remuneration for, personal
or professional services performed in the territory are to be treated as income
5
arising in the territory.
(4)
For the purposes of subsection (1)(c), tax corresponds to UK tax if—
(a)
it is charged on income and corresponds to income tax, or
(b)
it is charged on income or chargeable gains and corresponds to
corporation tax.
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(5)
For the purposes of subsection (2)(c), tax corresponds to UK tax if it is charged
on capital gains and corresponds to capital gains tax.
(6)
For the purposes of subsections (4) and (5), tax may correspond to income tax,
corporation tax or capital gains tax even though it—
(a)
is payable under the law of a province, state or other part of a country,
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or
(b)
is levied by or on behalf of a municipality or other local body.
(7)
If the territory is the Isle of Man or any of the Channel Islands, subsections
(1)(b) and (2)(b) have effect with the omission of “in the territory”.
(8)
Subsections (1) and (2) are subject to sections 11 and 12.
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Rule 2: accrued income profits
(1)
Subsection (2) applies if—
(a)
a person is treated under section 628(5) of ITA 2007 as making accrued
income profits in an interest period,
(b)
the person would, were the person to become entitled in the relevant
25
tax year to any interest on the securities concerned, be liable in respect
of the interest to tax chargeable under ITTOIA 2005 on relevant foreign
income, and
(c)
the person is liable under the law of the territory to tax in respect of
interest payable on the securities at the end of the interest period or the
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person would be so liable if the person were entitled to that interest.
(2)
Credit is to be allowed against income tax calculated by reference to the
accrued income profits.
(3)
The amount of the credit allowed under subsection (2) is given by—


where—
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AIP is the amount of the accrued income profits, and
FTR is the rate of tax to which the person is or would be liable as
mentioned in subsection (1)(c).
(4)
Subsection (2) is subject to section 11.
(5)
In subsection (1)(b) “the relevant tax year” means the tax year in which, under
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section 617(2) of ITA 2007, the accrued income profits are treated as made.

Taxation (International and Other Provisions) Bill
Part 2 — Double taxation relief
Chapter 1 — Double taxation arrangements and unilateral relief arrangements
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(6)
Expressions used in this section and in Chapter 2 of Part 12 of ITA 2007
(accrued income profits) have the same meaning as in that Chapter.
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Rule 3: interaction between double taxation arrangements and rules 1 and 2
(1)
Credit for tax paid under the law of the territory is not allowed under section
9 or 10 in the case of any income or gains if any credit for that tax is allowable
5
in respect of that income or those gains under double taxation arrangements
made in relation to the territory.
(2)
If credit in respect of an amount of tax may be allowed under double taxation
arrangements made in relation to the territory, credit is not allowed under
section 9 or 10 in respect of that tax.
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(3)
If double taxation arrangements made in relation to the territory contain
express provision to the effect that relief by way of credit is not to be given
under the arrangements in cases or circumstances specified or described in the
arrangements, credit is not allowed under section 9 or 10 in those cases or
circumstances.
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Rule 4: cases in which, and calculation of, credit allowed for tax on dividends
(1)
Credit under section 9 for overseas tax on a dividend paid by a company (“P”)
resident in the territory is allowed only if section 13, 14, 15 or 16 so provides.
(2)
If credit is allowed in principle as a result of at least one of sections 14, 15 and
16, any tax in respect of P’s profits that is paid by P under the law of the
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territory is to be taken into account in considering whether any, and (if so)
what, credit is in fact to be allowed under section 9 in respect of the dividend.
(3)
If credit is allowed in principle as a result of at least one of sections 15 and 16,
there is to be taken into account, as if it were tax payable under the law of the
territory, any tax that would be so taken into account under section 63(5) if the
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recipient of the dividend—
(a)
directly or indirectly controlled, or
(b)
were a subsidiary of a company that directly or indirectly controlled,

at least 10% of the voting power in P.
(4)
For the purposes of subsection (3), the recipient is a subsidiary of another
30
company if the other company controls, directly or indirectly, at least 50% of
the voting power in the recipient.
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Rule 5: credit for tax charged directly on dividend
(1)
This section applies for the purposes of section 12(1).
(2)
Credit under section 9 for overseas tax on a dividend paid by a company (“P”)
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resident in the territory is allowed if—
(a)
the overseas tax is charged directly on the dividend (whether by charge
to tax, deduction of tax at source or otherwise), and
(b)
neither P nor the recipient of the dividend would have borne any of that
tax if the dividend had not been paid.
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Rule 6: credit for underlying tax on dividend paid to 10% associate of payer
(1)
This section applies for the purposes of section 12(1).