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 6 — Balancing payments
117

(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
5
paid by, or out of the assets of, one or more companies.
198
Balancing payments by guarantor to issuer: no charge to, or relief from, tax
(1)
If each of the qualifying conditions (see section 197) is met, subsection (2)
applies to the balancing payments made by all of the guarantor companies if,
or so far as, the total amount of those payments does not exceed the total
10
amount of the reductions within section 197(4).
(2)
Payments to which this subsection applies—
(a)
are not to be taken into account in calculating for the purposes of
corporation tax the profits or losses of the guarantor company or
companies or the issuing company, and
15
(b)
are not for any purpose of the Corporation Tax Acts to be regarded as
distributions.
(3)
In this section, the following expressions have the meaning given by section
197—
“the balancing payments”,
20
“the guarantor company”, and
“the issuing company”.
199
Pre-conditions for making election under section 200
(1)
Conditions A to E are the pre-conditions for the purposes of section 200.
(2)
Condition A is that both of the affected persons are companies.
25
(3)
Condition B 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.
(4)
Condition C is that the other affected person (“the disadvantaged person”) is
within the charge to income tax or corporation tax in respect of profits arising
30
from the relevant activities (see section 216).
(5)
Condition D is that the actual provision is provision in relation to a security
(the “relevant security”).
(6)
Condition E is that the capital market condition is met (see section 204).
(7)
In subsections (5) and (8)(a) “security” includes securities not creating or
35
evidencing a charge on assets.
(8)
For the purposes of subsection (5), 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
40
advanced,

Taxation (International and Other Provisions) Bill
Part 4 — Transfer pricing
Chapter 6 — Balancing payments
118


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 (5) to a security is to
be read accordingly.
200
Election to pay tax rather than make balancing payments
(1)
If each of the pre-conditions (see section 199) is met, the disadvantaged person
5
may make an election—
(a)
to make no balancing payment within section 196 to the advantaged
person in connection with section 147(3) or (5) applying because of
section 152 in relation to the relevant security in a chargeable period,
but
10
(b)
instead, to undertake sole responsibility for discharging the
advantaged person’s liability to tax for that period so far as resulting
from section 147(3) or (5) applying because of section 152 in relation to
the relevant security.
(2)
Section 203 contains provision about the making and effect of elections under
15
this section.
(3)
In this section, the following expressions have the meaning given by section
199—
“the advantaged person”,
“the disadvantaged person”, and
20
“the relevant security”.
201
Pre-conditions for making election under section 202
(1)
Conditions A to E are the pre-conditions for the purposes of section 202.
(2)
Condition A is that both of the affected persons are companies.
(3)
Condition B is that only one of the affected persons (“the advantaged person”)
25
is a person on whom a potential advantage in relation to United Kingdom
taxation is conferred by the actual provision.
(4)
Condition C is that the other affected person (“the disadvantaged person”) is
within the charge to income tax or corporation tax in respect of profits arising
from the relevant activities (see section 216).
30
(5)
Condition D is that the actual provision is made or imposed by means of a
series of transactions which include—
(a)
the issuing of a security (“the relevant security”) by one of the affected
persons (“the issuing company”), and
(b)
the provision of a guarantee by the other affected person.
35
(6)
Condition E is that the capital market condition is met (see section 204).
(7)
In subsections (5) and (8)(a) “security” includes securities not creating or
evidencing a charge on assets.
(8)
For the purposes of subsection (5), any—
(a)
interest payable by a company on money advanced without the issue
40
of a security for the advance, or
(b)
other consideration given by a company for the use of money so
advanced,

Taxation (International and Other Provisions) Bill
Part 4 — Transfer pricing
Chapter 6 — Balancing payments
119


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 (5) to a security is to
be read accordingly.
(9)
In subsection (5) the reference to a guarantee includes—
(a)
a reference to a surety, and
5
(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
paid by, or out of the assets of, one or more companies.
10
202
Election, in guarantee case, to pay tax rather than make balancing payments
(1)
If each of the pre-conditions (see section 201) is met, the disadvantaged person
may make an election—
(a)
to make no balancing payment within section 198 to the advantaged
person in connection with section 147(3) or (5) applying because of
15
section 153 in relation to the relevant security in a chargeable period,
but
(b)
instead, to undertake sole responsibility for discharging the
advantaged person’s liability to tax for that period so far as resulting
from section 147(3) or (5) applying because of section 153 in relation to
20
the relevant security.
(2)
Section 203 contains provision about the making and effect of elections under
this section.
(3)
In this section, the following expressions have the meaning given by section
201—
25
“the advantaged person”,
“the disadvantaged person”, and
“the relevant security”.
203
Elections under section 200 or 202
(1)
In this section “election” means election under section 200 or 202.
30
(2)
An election must be made by being included (whether by amendment or
otherwise) in the disadvantaged person’s company tax return for the
chargeable period in which the relevant security is issued.
(3)
An election is irrevocable.
(4)
An election has effect in relation to each of the affected persons for the
35
chargeable period in which the relevant security is issued and all subsequent
chargeable periods.
(5)
An election is of no effect if the Commissioners for Her Majesty’s Revenue and
Customs give the disadvantaged person a notice refusing to accept the
election.
40
(6)
A notice under subsection (5) may be given only after a notice of enquiry in
respect of the company tax return containing the election has been given to the
disadvantaged person.

Taxation (International and Other Provisions) Bill
Part 4 — Transfer pricing
Chapter 6 — Balancing payments
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(Paragraph 24 of Schedule 18 to FA 1998 makes provision about notices of
enquiry in respect of company tax returns.)
(7)
If an election has effect in relation to an accounting period of the advantaged
person, the tax mentioned in subsection (1)(b) of the section under which the
election is made—
5
(a)
is recoverable from the disadvantaged person as if it were an amount
of corporation tax due and owing from that person, and
(b)
is not recoverable from the advantaged person.
(8)
In this section—
“the advantaged person”, “the disadvantaged person” and “the relevant
10
security”—
(a)
in relation to an election under section 200, have the meaning
given by section 199, and
(b)
in relation to an election under section 202, have the meaning
given by section 201, and
15
“company tax return” means the return required to be delivered pursuant
to a notice under paragraph 3 of Schedule 18 to FA 1998, as read with
paragraph 4 of that Schedule.
(9)
For the purposes of subsections (2) and (4), if the relevant security was issued
in a chargeable period beginning before 1st April 2004 it is to be treated as if it
20
had been issued in the chargeable period beginning on that date.
204
Meaning of “capital market condition” in sections 199 and 201
(1)
For the purposes of section 199(6) or 201(6), the capital market condition is met
if—
(a)
the actual provision forms part of a capital market arrangement,
25
(b)
the capital market arrangement involves the issue of a capital market
investment,
(c)
the securities that represent the capital market investment are issued
wholly or mainly to independent persons, and
(d)
the total value of the capital market investments made under the capital
30
market arrangement is at least £50 million.
(2)
In this section—
“capital market arrangement” has the same meaning as in section 72B(1)
of the Insolvency Act 1986 (see paragraph 1 of Schedule 2A to that Act),
“capital market investment” has the same meaning as in section 72B(1) of
35
the Insolvency Act 1986 (see paragraphs 2 and 3 of Schedule 2A to that
Act), and
“independent person” means a person—
(a)
who is not the disadvantaged person, and
(b)
who does not have a participatory relationship with either of
40
the affected persons.
(3)
In subsection (2) “the disadvantaged person”—
(a)
for the purposes of the application of this section in relation to section
199(6) has the meaning given by section 199(4), and
(b)
for the purposes of the application of this section in relation to section
45
201(6) has the meaning given by section 201(4).

Taxation (International and Other Provisions) Bill
Part 4 — Transfer pricing
Chapter 7 — Oil-related ring-fence trades
121

(4)
For the purposes of subsection (2), a person (“A”) who is a company has a
“participatory relationship” with one of the affected persons (“B”) if—
(a)
one of A and B is directly or indirectly participating in the management,
control or capital of the other, or
(b)
the same person or persons is or are directly or indirectly participating
5
in the management, control or capital of each of A and B.
Chapter 7
Oil-related ring-fence trades
205
Provision made or imposed between ring-fence trade and other activities
(1)
Subsections (2) to (4) apply if—
10
(a)
a person carries on an oil-related ring-fence trade (see section 206), and
(b)
any provision is made or imposed by the person as between—
(i)
the oil-related ring-fence trade, and
(ii)
any other activities carried on by the person.
(2)
Chapters 1 and 3 to 6 (read in accordance with Chapters 2 and 8) apply in
15
relation to the provision as if—
(a)
the oil-related ring-fence trade, and the person’s other activities, were
carried on by two different persons,
(b)
the provision were made or imposed as between those two persons by
means of a transaction,
20
(c)
those two persons were both controlled by the same person at the time
when the provision was made or imposed, and
(d)
a potential advantage in relation to United Kingdom taxation were
conferred by the provision on each of those two persons.
(3)
Subsection (2) has effect subject to subsection (4).
25
(4)
Chapters 1 and 3 to 6 apply in relation to the provision only if the effect of their
applying is—
(a)
that a larger amount is taken for tax purposes to be the amount of the
profits of the oil-related ring-fence trade for any chargeable period, or
(b)
that a smaller amount (including nil) is taken for tax purposes to be the
30
amount for any chargeable period of any losses of the oil-related ring-
fence trade.
(5)
In subsection (4)(a), the reference to a larger amount includes, if there would
not otherwise have been profits, an amount of more than nil.
206
Meaning of “oil-related ring-fence trade” in sections 205 and 218
35
(1)
This section has effect for the interpretation of—
(a)
section 205, and
(b)
in Part 5, section 218(2)(f).
(2)
Activities carried on by a person are an “oil-related ring-fence trade” carried on
by that person if subsection (3) or (4) applies to the activities.
40
(3)
This subsection applies to the activities if—
(a)
they are carried on by the person as part of a trade, and

Taxation (International and Other Provisions) Bill
Part 4 — Transfer pricing
Chapter 8 — Supplementary provisions and interpretation of Part
122

(b)
in accordance with section 16(1) of ITTOIA 2005 or section 279 of CTA
2010 (oil-related activities), they are treated for any tax purposes as a
separate trade distinct from all other activities carried on by the person
as part of the trade.
(4)
This subsection applies to the activities if—
5
(a)
they are carried on by the person as a trade, and
(b)
in accordance with section 16(1) of ITTOIA 2005 or section 279 of CTA
2010 they would, if the person did carry on any other activities as part
of the trade, be treated for any tax purposes as a separate trade distinct
from all other activities carried on by the person as part of the trade.
10
Chapter 8
Supplementary provisions and interpretation of Part
Unit trusts
207
Application of Part to unit trusts
(1)
This Part has effect as follows.
15
(2)
As if a unit trust scheme were a company that is a body corporate.
(3)
As if the rights of the unit holders under a unit trust scheme were shares in the
company that the scheme is deemed to be.
(4)
As if rights and powers of a person in the capacity of a person entitled to act for
the purposes of a unit trust scheme were rights and powers of the scheme.
20
(5)
As if provision made or imposed as between—
(a)
a person in the capacity of a person entitled to act for the purposes of a
unit trust scheme, and
(b)
another person,

were made or imposed as between the scheme and that other person.
25
Determinations requiring Commissioners’ sanction
208
The determinations which require the Commissioners’ sanction
(1)
A determination requires the Commissioners’ sanction if it—
(a)
is a transfer-pricing determination made for any of the specified
purposes, and
30
(b)
is not excepted by section 209 from the requirement for the
Commissioners’ sanction.
(2)
In subsection (1) “transfer-pricing determination” means a determination of an
amount to be brought into account for tax purposes in respect of any
assumption made under section 147(3) or (5).
35
(3)
For the purposes of subsection (1), each of the following is a specified
purpose—
(a)
the giving of 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,

Taxation (International and Other Provisions) Bill
Part 4 — Transfer pricing
Chapter 8 — Supplementary provisions and interpretation of Part
123

(b)
the giving of a closure notice under section 28B(1) of TMA 1970 in
relation to an enquiry into a partnership return,
(c)
the giving of a closure notice under paragraph 32 of Schedule 18 to FA
1998 in relation to an enquiry into a company tax return,
(d)
the giving of a notice under section 30B(1) of TMA 1970 amending a
5
partnership return,
(e)
the making of an assessment under section 29 of TMA 1970,
(f)
the making of a discovery assessment under paragraph 41 of Schedule
18 to FA 1998 (which includes a discovery assessment under that
paragraph as applied by paragraph 52 of that Schedule), and
10
(g)
the making of a discovery determination under paragraph 41 of
Schedule 18 to FA 1998.
(4)
In this section “the Commissioners” means the Commissioners for Her
Majesty’s Revenue and Customs.
209
Determinations exempt from requirement for Commissioners’ sanction
15
(1)
A transfer-pricing determination made for a purpose specified in section 208(3)
(“the specified purpose”) does not require the Commissioners’ sanction if—
(a)
an agreement about the matters to which the determination relates has
been made between an officer and the person in whose case the
determination is made,
20
(b)
the agreement is in force at the relevant time, and
(c)
the matters to which the agreement relates include the amount
determined by the transfer-pricing determination.
(2)
For the purposes of subsection (1)(b)—
(a)
if the specified purpose is within section 208(3)(a) to (d), “the relevant
25
time” is when the notice is given,
(b)
if the specified purpose is within section 208(3)(e) or (f), “the relevant
time” is when any notice of the assessment is given, and
(c)
if the specified purpose is within section 208(3)(g), “the relevant time”
is when any notice of the discovery determination is given.
30
(3)
For the purposes of subsection (1)(b), an agreement made between an officer
and any person in relation to any matter is “in force” at any time if (and only
if)—
(a)
the agreement is one that has been made or confirmed in writing,
(b)
that time is after the end of the cooling-off period, and
35
(c)
the person has not, before the end of the cooling-off period, served a
notice on an officer stating that the person is repudiating or resiling
from the agreement.
(4)
In subsection (3) “the cooling-off period” means—
(a)
if the agreement is made in writing, the 30 days beginning with the day
40
when the agreement is made, and
(b)
in any other case, the 30 days beginning with the day when the
agreement is confirmed in writing.
(5)
For the purposes of subsections (3) and (4), an agreement made between an
officer and any person is “confirmed in writing” if an officer serves on the
45
person a notice in writing—
(a)
stating that the agreement has been made, and