Taxation (International and Other Provisions) Bill

House of Commons

Session 2009 - 10
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Taxation (International and Other Provisions) Bill

Taxation (International and Other Provisions) Bill
Part 4 — Transfer pricing
Chapter 4 — Position, if only one affected person potentially advantaged, of other affected person
110

186
Extending claim period if notice under section 185 not given or given late
(1)
If there is a contravention of section 185(2), the Commissioners must consider
whether, as a result of the contravention, any person has been prejudiced with
respect to the making or amendment of a claim under section 174.
(2)
Subsection (3) applies if—
5
(a)
there is a contravention of section 185(2), or
(b)
a notice required by section 185(2) is given after the relevant notice
concerned.
(3)
The Commissioners may, if they think fit, treat the period for the making or
amendment of a claim under section 174 in the case concerned as extended by
10
such further period as appears to them to be appropriate.
(4)
In this section “the Commissioners” means the Commissioners for Her
Majesty’s Revenue and Customs.
Treatment of interest where claim made
187
Tax treatment if actual interest exceeds arm’s length interest
15
(1)
Subsection (6) applies if the following conditions are met.
(2)
Condition A is that interest is paid by any person under the actual provision.
(3)
Condition B is that section 147(3) or (5) applies in relation to the actual
provision.
(4)
Condition C is—
20
(a)
that the amount (“ALINT”) of interest that would have been payable
under the arm’s length provision is less than the amount of interest
paid under the actual provision, or
(b)
that there would not have been any interest payable under the arm’s
length provision (so that ALINT is nil).
25
(5)
Condition D is that the person receiving the interest paid under the actual
provision makes—
(a)
a claim under section 174, or
(b)
a section 182 claim.
(6)
The interest paid under the actual provision, so far as it exceeds ALINT—
30
(a)
is not to be regarded as chargeable under Chapter 2 of Part 4 of ITTOIA
2005,
(b)
is not subject to the provisions of Part 15 of ITA 2007 (deduction of
income tax at source), and
(c)
is not required to be brought into account under Part 5 of CTA 2009
35
(loan relationships) as a non-trading credit.
Adjustment of double taxation relief where claim made
188
Double taxation relief by way of credit for foreign tax
(1)
Subsection (2) applies if—
(a)
a claim is made under section 174, and
40

Taxation (International and Other Provisions) Bill
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Chapter 4 — Position, if only one affected person potentially advantaged, of other affected person
111

(b)
the disadvantaged person (“DP”) is entitled on that claim to make a
calculation, or to have an adjustment made, on the basis that the arm’s
length provision was made or imposed instead of the actual provision.
(2)
Assumptions A and B are to be made in DP’s case in relation to any credit for
foreign tax which DP has been, or may be, given—
5
(a)
under any double taxation arrangements, or
(b)
under section 18(1)(b) and (2) (relief under unilateral relief
arrangements).
(3)
Subsection (2) has effect subject to section 189(2).
(4)
Assumption A is that the foreign tax paid or payable by DP does not include
10
any amount of foreign tax which would not be or have become payable were it
to be assumed for the purposes of that tax that the arm’s length provision had
been made or imposed instead of the actual provision.
(5)
Assumption B is that the amount of DP’s relevant profits in respect of which
DP is given credit for foreign tax does not include the amount (if any) by which
15
DP’s relevant profits are treated as reduced in accordance with section 174(1).
(6)
If any adjustment is required to be made for the purpose of giving effect to any
of the preceding provisions of this section—
(a)
it may be made by setting the amount of the adjustment against any
relief or repayment to which DP is entitled in pursuance of DP’s claim
20
under section 174, and
(b)
nothing in the Tax Acts limiting the time within which any assessment
is to be or may be made or amended prevents that adjustment from
being so made.
(7)
In subsection (5) “DP’s relevant profits” means the profits arising to DP from
25
the carrying on of the relevant activities (see section 216).
(8)
In this section—
“double taxation arrangements” means arrangements that have effect
under section 2(1) (double taxation relief by agreement with territories
outside the United Kingdom), and
30
“foreign tax” means—
(a)
any tax under the law of a territory outside the United
Kingdom, or
(b)
any amount that, for the purposes of any double taxation
arrangements, is to be treated as if it were tax under the law of
35
a territory outside the United Kingdom.
(9)
In determining for the purposes of this section whether a person is—
(a)
under any double taxation arrangements, or
(b)
under section 18(1)(b) and (2),

to be given credit for foreign tax, ignore any requirement that a claim is made
40
before such a credit is given.
189
Double taxation relief by way of deduction for foreign tax
(1)
Subsection (2) applies if—
(a)
a claim is made under section 174,

Taxation (International and Other Provisions) Bill
Part 4 — Transfer pricing
Chapter 4 — Position, if only one affected person potentially advantaged, of other affected person
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(b)
the disadvantaged person (“DP”) is entitled on that claim to make a
calculation, or to have an adjustment made, on the basis that the arm’s
length provision was made or imposed instead of the actual provision,
(c)
the application of that basis in the calculation of DP’s profits or losses
for any chargeable period involves a reduction in the amount of any
5
income, and
(d)
that income is also income that is to be reduced in accordance with
section 112(1) (deduction for foreign tax where no credit allowed).
(2)
If this subsection applies—
(a)
the reduction mentioned in subsection (1)(c) is to be treated as made
10
before any reduction under section 112(1), and
(b)
tax paid, in the place in which any income arises, on so much of that
income as is represented by the amount of the reduction mentioned in
subsection (1)(c) is to be disregarded for the purposes of section 112(1).
(3)
If any adjustment is required to be made for the purpose of giving effect to any
15
of the preceding provisions of this section—
(a)
it may be made by setting the amount of the adjustment against any
relief or repayment to which DP is entitled in pursuance of DP’s claim
under section 174, and
(b)
nothing in the Tax Acts limiting the time within which any assessment
20
is to be or may be made or amended prevents that adjustment from
being so made.
Interpretation of Chapter
190
Meaning of “relevant notice”
In this Chapter “relevant notice” means—
25
(a)
a closure notice under section 28A(1) of TMA 1970 in relation to an
enquiry into a return under section 8 or 8A of TMA 1970,
(b)
a closure notice under section 28B(1) of TMA 1970 in relation to an
enquiry into a partnership return,
(c)
a closure notice under paragraph 32 of Schedule 18 to FA 1998 in
30
relation to an enquiry into a company tax return,
(d)
a notice under section 30B(1) of TMA 1970 amending a partnership
return,
(e)
a notice of an assessment under section 29 of TMA 1970,
(f)
a notice of a discovery assessment under paragraph 41 of Schedule 18
35
to FA 1998 (which includes a discovery assessment under that
paragraph as applied by paragraph 52 of that Schedule), or
(g)
a notice of a discovery determination under paragraph 41 of Schedule
18 to FA 1998.

Taxation (International and Other Provisions) Bill
Part 4 — Transfer pricing
Chapter 5 — Position of guarantor of affected person’s liabilities under a security issued by the person
113

Chapter 5
Position of guarantor of affected person’s liabilities under a security issued by
the person
191
When sections 192 to 194 apply
(1)
Sections 192 to 194 apply if—
5
(a)
one of the affected persons (“the issuing company”) is a company that
has liabilities under a security issued by it,
(b)
those liabilities are to any extent the subject of a guarantee provided by
a company (“the guarantor company”),
(c)
in calculating the profits and losses of the issuing company for tax
10
purposes, the amounts to be deducted in respect of interest or other
amounts payable under the security are required to be reduced
(whether or not to nil) under section 147(3) or (5), and
(d)
that reduction is required because of section 153.
(2)
In subsections (1)(a) and (3)(a) “security” includes securities not creating or
15
evidencing a charge on assets.
(3)
For the purposes of subsection (1)(a), any—
(a)
interest payable by a company on money advanced without the issue
of a security for the advance, or
(b)
other consideration given by a company for the use of money so
20
advanced,

is to be treated as if payable or given in respect of a security issued for the
advance by the company, and the reference in subsection (1)(a) to a security is
to be read accordingly.
(4)
In subsection (1)(b) the reference to a guarantee includes—
25
(a)
a reference to a surety, and
(b)
a reference to any other relationship, arrangements, connection or
understanding (whether formal or informal) such that the person
making the loan to the issuing company has a reasonable expectation
that in the event of a default by the issuing company the person will be
30
paid by, or out of the assets of, one or more companies.
(5)
In this Chapter—
“the guarantor company” has the meaning given by subsection (1)(b),
“the issuing company” has the meaning given by subsection (1)(a), and
“the security” means the security mentioned in subsection (1)(a).
35
192
Attribution to guarantor company of things done by issuing company
(1)
On the making of a claim, the guarantor company is, to the extent of the
reduction mentioned in section 191(1)(c), to be treated for all purposes of the
Taxes Acts as if it (and not the issuing company)—
(a)
had issued the security,
40
(b)
owed the liabilities under it, and
(c)
had paid any interest or other amounts paid under it by the issuing
company.
(2)
Subsection (1) is subject to subsection (3).

Taxation (International and Other Provisions) Bill
Part 4 — Transfer pricing
Chapter 5 — Position of guarantor of affected person’s liabilities under a security issued by the person
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(3)
Where the issuing company’s liabilities under the security are the subject of
two or more guarantees (whether or not provided by the same person), TD
must not exceed TR, where—
TD is the total of the amounts brought into account by the guarantor
companies because of subsection (1), and
5
TR is the total amount of the reductions within section 191(1)(c).
(4)
Provision about claims under subsection (1) is made by—
section 193 (interaction between claims under subsection (1) and claims
under section 174), and
section 194 (general provision about claims under subsection (1)).
10
(5)
In subsection (1) “the Taxes Acts” has the meaning given by section 118(1) of
TMA 1970.
(6)
In subsection (3) any reference to a guarantee includes—
(a)
a reference to a surety, and
(b)
a reference to any other relationship, arrangements, connection or
15
understanding (whether formal or informal) such that the person
making the loan to the issuing company has a reasonable expectation
that in the event of a default by the issuing company the person will be
paid by, or out of the assets of, one or more companies.
193
Interaction between claims under sections 174 and 192(1)
20
(1)
In this section “the loan provision” means the actual provision made or
imposed between—
(a)
the issuing company, and
(b)
another company (“the lending company”),

which is provision in relation to the security.
25
(2)
Subsections (3) and (4) apply if—
(a)
the guarantor company makes a claim under section 192(1), and
(b)
the lending company makes a claim under section 174 in relation to the
loan provision.
(3)
In determining the arm’s length provision for the purposes of section 174(2)(a)
30
in relation to the lending company’s claim, additional amounts are to be
brought into account as credits corresponding to the debits that fall to be
brought into account by the guarantor company because of section 192(1).
(4)
If—
(a)
the lending company makes its claim under section 174 before the
35
guarantor company makes its claim under section 192(1), and
(b)
the calculation on which the lending company’s claim is based does not
comply with subsection (3),

the guarantor company’s claim is to be disallowed.
194
Claims under section 192(1): general provisions
40
(1)
A claim under section 192(1) may be made—
(a)
by the guarantor company,
(b)
if there are two or more guarantor companies, by those companies
acting together, or

Taxation (International and Other Provisions) Bill
Part 4 — Transfer pricing
Chapter 6 — Balancing payments
115

(c)
by the issuing company.
(2)
A claim made under section 192(1) by the issuing company is to be taken to be
made on behalf of the guarantor company or companies.
(3)
Sections 175 to 177 apply in relation to a claim under section 192(1) made by or
on behalf of any person or persons as they apply in relation to a claim under
5
section 174 made by the disadvantaged person, but taking—
(a)
references in sections 176 and 177 to the advantaged person as
references to the issuing company, and
(b)
the reference in section 177 to the disadvantaged person as a reference
to the guarantor company or companies.
10
Chapter 6
Balancing payments
195
Qualifying conditions for purposes of section 196
(1)
Conditions A to D are “the qualifying conditions” for the purposes of section
196.
15
(2)
Condition A is that only one of the affected persons (“the advantaged person”)
is a person on whom a potential advantage in relation to United Kingdom
taxation is conferred by the actual provision.
(3)
Condition B is that the other affected person (“the disadvantaged person”) is
within the charge to income tax or corporation tax in respect of profits arising
20
from the relevant activities (see section 216).
(4)
Condition C is that—
(a)
a payment (the “balancing payment”) is made, or
(b)
two or more payments (the “balancing payments”) are made,

to the advantaged person by the disadvantaged person.
25
(5)
Condition D is that the sole or main reason for making that payment or those
payments is that section 147(3) or (5) applies.
196
Balancing payments between affected persons: no charge to, or relief from, tax
(1)
If each of the qualifying conditions (see section 195) is met, subsection (2)
applies—
30
(a)
to the balancing payment if, or so far as, its amount does not exceed the
available compensating adjustment, or
(b)
to the balancing payments if, or so far as, their total amount does not
exceed the available compensating adjustment.
(2)
Any payment to which this subsection applies—
35
(a)
is not to be taken into account in calculating profits or losses of either of
the affected persons for the purposes of income tax or corporation tax,
and
(b)
is not for any purpose of the Corporation Tax Acts to be regarded as a
distribution.
40

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Chapter 6 — Balancing payments
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(3)
In subsection (1) “the available compensating adjustment” means the
difference between PL1 and PL2 where—
PL1 is the profits and losses of the disadvantaged person calculated for tax
purposes on the basis of the actual provision, and
PL2 is the profits and losses of the disadvantaged person as (or as they
5
would be) calculated for tax purposes on a claim under section 174.
(4)
For the purposes of subsection (3), take PL1 or PL2—
(a)
as a positive amount if it is an amount of profits, and
(b)
as a negative amount if it is an amount of losses.
(5)
In this section, the following expressions have the meaning given by section
10
195—
“the balancing payment” and “the balancing payments”, and
“the disadvantaged person”.
197
Qualifying conditions for purposes of section 198
(1)
Conditions A to F are the qualifying conditions for the purposes of section 198.
15
(2)
Condition A is that one of the affected persons (“the issuing company”) is a
company that has liabilities under a security issued by it.
(3)
Condition B is that those liabilities are to any extent the subject of a guarantee
provided by a company (“the guarantor company”).
(4)
Condition C is that, in calculating the profits and losses of the issuing company
20
for tax purposes, the amounts to be deducted in respect of interest or other
amounts payable under the security are required to be reduced (whether or not
to nil) under section 147(3) or (5).
(5)
Condition D is that that reduction is required because of section 153.
(6)
Condition E is that—
25
(a)
a payment (the “balancing payment”) is made, or
(b)
two or more payments (the “balancing payments”) are made,

by the guarantor company to the issuing company.
(7)
Condition F is that the sole or main reasons for making that payment or those
payments are—
30
(a)
that section 147(3) or (5) applies because of section 153, or
(b)
that sections 192 to 194 apply.
(8)
In subsections (2) and (9)(a) “security” includes securities not creating or
evidencing a charge on assets.
(9)
For the purposes of subsection (2), any—
35
(a)
interest payable by a company on money advanced without the issue
of a security for the advance, or
(b)
other consideration given by a company for the use of money so
advanced,

is to be treated as if payable or given in respect of a security issued for the
40
advance by the company, and the reference in subsection (2) to a security is to
be read accordingly.
(10)
In subsection (3) the reference to a guarantee includes—