Taxation (International and Other Provisions) Bill

House of Commons

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

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241
Scheme including issue of shares not conferring qualifying beneficial
entitlement
(1)
A scheme is a deduction scheme if—
(a)
it includes a company issuing shares to a connected person, and
(b)
the shares do not meet conditions A, B and C.
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(2)
Condition A is that on their issue the shares are ordinary shares that are fully
paid-up.
(3)
Condition B is that when the issue takes place there is no arrangement or
understanding under which the rights attaching to the shares may be
amended.
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(4)
Condition C is that, at all times in the accounting period of the company in
which the issue takes place, each of the shares confers a beneficial entitlement
to the appropriate proportion of—
(a)
any profits available for distribution to equity holders of the company,
and
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(b)
any assets of the company available for distribution to its equity
holders on a winding-up.
(5)
For the purposes of subsection (4) the appropriate proportion, in relation to a
share, is the same as the proportion of the issued share capital represented by
that share.
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(6)
Chapter 6 of Part 5 of CTA 2010 (equity holders and profits or assets available
for distribution) applies for the purposes of subsection (4) as it applies for the
purposes of the provisions specified in section 157(1) of that Act.
242
Scheme including transfer of rights under a security
(1)
A scheme is a deduction scheme if each of conditions A to D is met.
25
(2)
Condition A is that the scheme includes a transaction or a series of transactions
under which a person (“the transferor”)—
(a)
transfers to one or more other persons rights to receive a payment
under a security, or
(b)
otherwise secures that one or more other persons are similarly
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benefited.
(3)
A person is similarly benefited for these purposes if the person receives a
payment which, but for the transaction or series of transactions, would have
arisen to the transferor.
(4)
Condition B is that—
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(a)
the transferor, and
(b)
at least one of the persons to whom a transfer of rights is made or a
similar benefit is secured,

are connected with each other.
(5)
Condition C is that, immediately after the transfer of rights or the securing of
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the similar benefit, two or more persons—
(a)
hold rights to receive a payment under the security, or
(b)
enjoy a similar benefit.

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(6)
Condition D is that, immediately after the transfer of rights or the securing of
the similar benefit, the market value of all the relevant benefits of such of those
persons as are connected equals or exceeds the market value of all other
relevant benefits.
(7)
In subsection (6) “relevant benefits” means—
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(a)
rights to receive a payment under the security, and
(b)
similar benefits.
(8)
In this section “security” includes an agreement under which a person receives
an annuity or other annual payment (whether it is payable annually or at
shorter or longer intervals) for a term which is not contingent on the duration
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of a human life or lives.
Consequences of deduction notices
243
Consequences of deduction notices
(1)
This section applies in relation to a transaction if—
(a)
a deduction notice specifying the transaction is given to a company
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under section 232, and
(b)
when the notice is given, each of the deduction scheme conditions is
met in relation to the transaction.
(2)
The company must calculate (or recalculate) its income or chargeable gains for
the purposes of corporation tax, or its liability to corporation tax, for—
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(a)
the accounting period specified in the deduction notice, and
(b)
any later accounting period.
(3)
That calculation (or recalculation) must be done in accordance with—
(a)
the rule in section 244 (the rule against double deduction), and
(b)
the rule in section 248 (the rule against deduction for untaxable
25
payments) if it applies (see section 245).
(4)
But the company is treated as having complied with subsections (2) and (3), so
far as the scheme specified in the deduction notice is concerned, if the company
incorporates the necessary relevant adjustments in its company tax return for
the accounting period specified in the notice.
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(5)
For the purposes of subsection (4), adjustments are relevant if they—
(a)
treat all or part of a deduction allowable for corporation tax purposes
as not being allowable, or
(b)
treat all or part of an amount that for corporation tax purposes may be
set off against profits in an accounting period as not falling to be set off.
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(6)
For the purposes of subsection (4), relevant adjustments are the necessary
adjustments if—
(a)
they are such adjustments as are necessary for counteracting those
effects of the scheme that are referable to the purpose referred to in
deduction scheme condition C (see section 233(4)), and
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(b)
as a result of their incorporation in the return, the company counteracts
those effects.

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244
The rule against double deduction
(1)
The rule referred to in section 243(3)(a) is that, in respect of the transaction
specified in the deduction notice, no amount is allowable as a deduction for the
purposes of the Corporation Tax Acts so far as an amount is otherwise
deductible or allowable in relation to the expense in question.
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(2)
An amount is otherwise deductible or allowable if it may be otherwise
deducted or allowed in calculating the income, profits or losses of any person
for the purposes of any tax to which this subsection applies.
(3)
Subsection (2) applies to any tax (including any non-UK tax) other than—
(a)
petroleum revenue tax, or
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(b)
the tax chargeable under section 330(1) of CTA 2010 (supplementary
charge in respect of ring fence trades).
(4)
The reference in subsection (2) to an amount being able to be otherwise
deducted or allowed as mentioned in that subsection includes a reference to an
amount that would be able to be so deducted or allowed but for any tax rule
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that has the same effect as the rule in subsection (1).
(5)
In subsection (4) “tax rule” means—
(a)
a provision of the Tax Acts, or
(b)
a rule having effect under the tax law of any territory outside the
United Kingdom.
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(6)
In this section “non-UK tax” has the meaning given in section 187 of CTA 2010.
245
Application of the rule against deduction for untaxable payments
(1)
Section 248 (the rule against deduction for untaxable payments) applies if
conditions A, B and C are met.
(2)
Condition A is that a transaction that forms part of the deduction scheme, or a
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series of transactions that forms part of the scheme, makes or imposes
provision as a result of which—
(a)
one person (“the payer”) makes a payment, and
(b)
another person (“the payee”) receives, or becomes entitled to receive, a
payment or payments.
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(3)
Condition B is that, in respect of the payment by the payer, an amount may be
deducted by, or otherwise allowed to—
(a)
the payer, or
(b)
another person who is party to, or concerned in, the scheme,

in calculating any profits or losses for tax purposes.
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(4)
Condition C is that as a result of provision made or imposed by the deduction
scheme—
(a)
the payee is not liable to tax—
(i)
in respect of the payment or payments that the payee receives
or is entitled to receive as a result of the transaction or series of
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transactions, or
(ii)
in respect of part of such payment or payments, or
(b)
if the payee is so liable, the payee’s liability to tax is reduced.
(5)
In this section—

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(a)
“the deduction scheme” means the scheme in relation to which the
deduction scheme conditions are met, and
(b)
“tax purposes” includes the purposes of any non-UK tax (within the
meaning of section 187 of CTA 2010).
(6)
Sections 246 and 247 make further provision about condition C.
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(7)
Expressions used in those sections or section 248 have the same meaning as in
this section.
246
Cases where payee’s non-liability treated as not a result of scheme
(1)
This section sets out two cases in which condition C in section 245(4) (which
requires that as a result of the deduction scheme the payee is not liable to tax
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in respect of the whole or part of certain payments) is treated as not met.
(2)
The first case is where the reason why the payee is not liable to tax is that under
the tax law of any territory the payee is not liable to tax on any income or gains
received by the payee or received for the payee’s benefit.
(3)
The second case is where, or to the extent that, the payee is not subject to tax
15
because an exemption within subsection (4) applies.
(4)
An exemption is within this subsection if—
(a)
it exempts a person from being liable to tax in respect of income or
gains, without providing for that income or those gains to be treated as
the income or gains of another person, and
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(b)
it is conferred by a provision contained in, or having the force of, an Act
or by a provision of the tax law of any territory outside the United
Kingdom.
247
Cases where payee treated as having reduced liability as a result of scheme
(1)
This section sets out two cases in which the payee’s liability to tax in respect of
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the scheme payment is treated for the purposes of section 245(4)(b) as reduced
as a result of provision made or imposed by the deduction scheme.
(2)
But that does not mean that there are no other cases in which that liability is so
reduced.
(3)
In this section “the scheme payment” means the payment or payments that the
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payee receives or is entitled to receive as a result of the transaction or series of
transactions referred to in section 245(2).
(4)
Case A is that an amount arising from—
(a)
a transaction forming part of the scheme, or
(b)
a series of such transactions,
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falls to be deducted by, or otherwise allowed to, the payee in calculating for tax
purposes any profits or losses arising from the scheme payment or the
entitlement to receive it.
(5)
Case B is that an amount of relief arising from—
(a)
a transaction forming part of the scheme, or
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(b)
a series of such transactions,

may be deducted from the amount of income or gains arising from the scheme
payment or the entitlement to receive it.