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 5 — Advance pricing agreements
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226
Annulment of agreement for misrepresentation
(1)
Subsection (6) applies if each of conditions A to D is met.
(2)
Condition A is that the Commissioners and any person (“A”) have at any time
purported to enter into an advance pricing agreement.
(3)
Condition B is that, before that time, A fraudulently or negligently provided
5
the Commissioners with information which was false or misleading.
(4)
Condition C is that the information was so provided—
(a)
for or in connection with the application to the Commissioners for the
making of the agreement, or
(b)
otherwise in connection with the preparation of the agreement.
10
(5)
Condition D is that the Commissioners have notified A that the agreement is
nullified by reason of the misrepresentation.
(6)
The agreement is to be treated as never made.
227
Penalty for misrepresentation in connection with agreement
A person is liable to a penalty of not more than £10,000 if the person
15
fraudulently or negligently makes a false or misleading statement to the
Commissioners or an officer—
(a)
for or in connection with any application to the Commissioners for
them to enter into an advance pricing agreement, or
(b)
otherwise in connection with the preparation of an advance pricing
20
agreement.
228
Party to agreement: duty to provide information
A party to an advance pricing agreement must provide the Commissioners
from time to time with all reports and other information that the party may be
required to provide—
25
(a)
under the agreement, or
(b)
as a result of a request made by an officer in accordance with the
agreement.
229
Modifications of agreement for double taxation purposes
(1)
Subsection (2) applies if a mutual agreement made under and for the purposes
30
of any double taxation arrangements is not consistent with the terms of an
advance pricing agreement.
(2)
The Commissioners must ensure that the advance pricing agreement is
modified so far as may be necessary for enabling effect to be given to the
mutual agreement in relation to the subject-matter of the advance pricing
35
agreement.
(3)
The Commissioners may comply with subsection (2) by exercising powers
conferred on them by the advance pricing agreement or otherwise.
(4)
In this section “double taxation arrangements” means arrangements that have
effect under section 2(1) (double taxation relief by agreement with territories
40
outside the United Kingdom).

Taxation (International and Other Provisions) Bill
Part 6 — Tax arbitrage
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230
Interpretation of Part: meaning of “Commissioners” and “officer”
In this Part—
“the Commissioners” means the Commissioners for Her Majesty’s
Revenue and Customs, and
“officer” means an officer of Revenue and Customs.
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Part 6
Tax arbitrage
Introduction
231
Overview
(1)
This Part provides for the service on companies of two kinds of notice, as a
10
result of which they must calculate or recalculate their income or chargeable
gains or liability to corporation tax less advantageously.
(2)
Sections 232 to 248 deal with the first kind of notice (“deduction notices”).
(3)
In particular—
(a)
see sections 232 to 235 for provisions about the service of deduction
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notices,
(b)
see sections 236 to 242 for the kinds of schemes (“deduction schemes”)
involved, and
(c)
see sections 243 to 248 for the consequences of such notices.
(4)
Sections 249 to 254 deal with the second kind of notice (“receipt notices”).
20
(5)
In particular—
(a)
see sections 249 to 253 for provisions about the service of receipt
notices, and
(b)
see section 254 for their consequences.
(6)
Sections 255 to 257 contain general provisions about both kinds of notice.
25
(7)
For the meaning of “scheme” etc, see section 258 (schemes and series of
transactions).
Deduction notices
232
Deduction notices
(1)
An officer of Revenue and Customs may give a company a notice under this
30
section if—
(a)
the company is within the charge to corporation tax, and
(b)
the officer considers on reasonable grounds that each of the deduction
scheme conditions is or may be met in relation to a transaction to which
the company is party.
35
(2)
In this Part—
(a)
a notice under this section is referred to as a “deduction notice”, and
(b)
“the deduction scheme conditions” means the conditions specified in
section 233.

Taxation (International and Other Provisions) Bill
Part 6 — Tax arbitrage
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(3)
For the consequences of a deduction notice, see section 243.
233
The deduction scheme conditions
(1)
This section sets out the deduction scheme conditions.
(2)
Deduction scheme condition A is that the transaction to which the company is
party forms part of a scheme that is a deduction scheme for the purposes of this
5
Part (see sections 236 to 242).
(3)
Deduction scheme condition B is that the scheme is such that for corporation
tax purposes the company—
(a)
is in a position to claim, or has claimed, an amount by way of deduction
in respect of the transaction, or
10
(b)
is in a position to set off, or has set off, an amount relating to the
transaction against profits in an accounting period.
(4)
Deduction scheme condition C is that the main purpose of the scheme, or one
of its main purposes, is to achieve a UK tax advantage for the company.
(5)
Deduction scheme condition D is that the amount of the UK tax advantage is
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more than minimal.
234
Schemes achieving UK tax advantage for a company
(1)
For the purposes of section 233, a scheme achieves a UK tax advantage for a
company if, in consequence of the scheme, the company is in a position to
obtain, or has obtained—
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(a)
a relief or increased relief from corporation tax,
(b)
a repayment or increased repayment of corporation tax, or
(c)
the avoidance or reduction of a charge to corporation tax.
(2)
In subsection (1)(a) “relief from corporation tax” includes a tax credit under
section 1109 of CTA 2010 (tax credits for certain recipients of qualifying
25
distributions) for the purposes of corporation tax.
(3)
For the purposes of subsection (1)(c) avoidance or reduction may, in particular,
be effected—
(a)
by receipts accruing in such a way that the recipient does not pay or
bear tax on them, or
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(b)
by a deduction in calculating profits or gains.
235
Further provisions about deduction notices
(1)
A deduction notice must specify the transaction in relation to which the officer
of Revenue and Customs considers that each of the deduction scheme
conditions is or may be met.
35
(2)
A deduction notice must specify the accounting period in relation to which the
officer considers that deduction scheme condition B is or may be met in relation
to the transaction.
(3)
A deduction notice must inform the company to which it is given that, as a
result of the service of the notice, section 243(2) to (6) (consequences of a
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deduction notice) will apply if each of the deduction scheme conditions is met
in relation to the transaction.

Taxation (International and Other Provisions) Bill
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(4)
A deduction notice may relate to two or more transactions.
Deduction schemes
236
Schemes involving hybrid entities
(1)
A scheme is a deduction scheme if a party to a transaction forming part of the
scheme meets conditions A and B.
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(2)
Condition A is that the party is regarded as being a person under the tax law
of any territory.
(3)
Condition B is that the party’s profits or gains are treated, for the purposes of
a relevant tax imposed under the law of any territory, as the profits or gains of
a person or persons other than the person mentioned in condition A.
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(4)
Condition B is not met just because the party’s profits or gains are subject to a
rule that—
(a)
is similar to that in section 747(3) of ICTA (imputation of chargeable
profits of controlled foreign company), and
(b)
has effect under the tax law of any territory outside the United
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Kingdom.
(5)
For the purposes of this section, the following are relevant taxes—
(a)
income tax,
(b)
corporation tax, and
(c)
any tax of a similar character to income tax or corporation tax that is
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imposed by the law of a territory outside the United Kingdom.
237
Instruments of alterable character
(1)
A scheme is a deduction scheme if one of the parties to the scheme is party to
an instrument within subsection (2).
(2)
An instrument is within this subsection if under the law of a particular territory
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any party to the instrument may alter its tax characteristics.
(3)
The reference to altering an instrument’s tax characteristics is to making an
alteration which, under the law of a particular territory, has the effect of
determining, for the tax purposes of that territory, whether the instrument is
taken into account as giving rise—
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(a)
to income,
(b)
to capital, or
(c)
to neither.
(4)
An instrument is taken into account as giving rise to capital if any gain on the
disposal of the instrument—
35
(a)
would be a chargeable gain, or
(b)
would be such a gain if the person making the disposal were UK
resident.
238
Shares subject to conversion
(1)
A scheme is a deduction scheme if it includes—
40
(a)
a company issuing shares subject to conversion, or

Taxation (International and Other Provisions) Bill
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(b)
such an amendment of rights attaching to shares issued by a company
that the shares become shares subject to conversion.
(2)
For the purposes of subsection (1)(a) a company’s shares are shares subject to
conversion if conditions A and B are met.
(3)
For the purposes of subsection (1)(b) a company’s shares are shares subject to
5
conversion if conditions A and C are met.
(4)
Condition A is that the rights attached to the shares include provision as a
result of which a holder of such shares is entitled, on the occurrence of an event,
to acquire securities in a company by conversion or exchange.
(5)
Condition B is that at the time when the shares are issued the company could
10
reasonably expect that event to occur.
(6)
Condition C is that at the time when the rights attaching to the shares are
amended as described in subsection (1)(b) the company could reasonably
expect that event to occur.
239
Securities subject to conversion
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(1)
A scheme is a deduction scheme if it includes—
(a)
a company issuing securities subject to conversion, or
(b)
such an amendment of rights attaching to securities issued by a
company that the securities become securities subject to conversion.
(2)
For the purposes of subsection (1)(a) a company’s securities are securities
20
subject to conversion if conditions A and B are met.
(3)
For the purposes of subsection (1)(b) a company’s securities are securities
subject to conversion if conditions A and C are met.
(4)
Condition A is that the rights attached to the securities include provision as a
result of which a holder of such securities is entitled, on the occurrence of an
25
event, to acquire shares in a company by conversion or exchange.
(5)
Condition B is that at the time when the securities are issued the company
could reasonably expect that event to occur.
(6)
Condition C is that at the time when the rights attaching to the securities are
amended as described in subsection (1)(b) the company could reasonably
30
expect that event to occur.
240
Debt instruments treated as equity
(1)
A scheme is a deduction scheme if it includes a debt instrument issued by a
company that is treated as equity in the company under generally accepted
accounting practice.
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(2)
In this section “debt instrument” means an instrument issued by a company
that—
(a)
represents a loan relationship of the company, or
(b)
would do so if the company were UK resident.