Taxation (International and Other Provisions) Bill

House of Commons

Session 2009 - 10
Internet Publications
Other Bills before Parliament

Taxation (International and Other Provisions) Bill

Taxation (International and Other Provisions) Bill
Part 7 — Tax treatment of financing costs and income
Chapter 5 — Intra-group financing income where payer denied deduction
163

300
Meaning of “relevant associate”
For the purposes of this Chapter, the payer is a “relevant associate” of the
recipient if—
(a)
the payer is a parent of the recipient,
(b)
the payer is a 75% subsidiary of the recipient, or
5
(c)
the payer is a 75% subsidiary of a parent of the recipient.
301
Meaning of “tax-resident” and “EEA territory”
(1)
For the purposes of this Chapter, the payer is “tax-resident” in a territory if it is
liable, under the law of that territory, to tax by reason of domicile, residence or
place of management.
10
(2)
In this Chapter “EEA territory” means a territory outside the United Kingdom
that is within the European Economic Area.
302
Qualifying EEA tax relief for payment in current or previous period
(1)
For the purposes of this Chapter, qualifying EEA tax relief for a payment is not
available to the payer in the current period or a previous period if conditions
15
A and B are met in relation to the payment.
(2)
Condition A is that no deduction calculated by reference to the payment can be
taken into account in calculating any profits, income or gains that—
(a)
arise to the payer in the current period or any previous period, and
(b)
are chargeable to any tax of the United Kingdom or an EEA territory for
20
the current period or any previous period.
(3)
Condition B is that no relief determined by reference to the payment can be
given in the current period or any previous period for the purposes of any tax
of the United Kingdom or an EEA territory by—
(a)
the payment of a credit,
25
(b)
the elimination or reduction of a tax liability, or
(c)
any other means of any kind.
(4)
Conditions A and B are not met in relation to the payment unless every step is
taken (whether by the payer or any other person) to secure that deductions are
taken into account as mentioned in subsection (2) and reliefs are given as
30
mentioned in subsection (3).
(5)
Conditions A and B are not met in relation to the payment unless they would
be met disregarding a failure to obtain a deduction or relief as a result of—
(a)
this Part, or
(b)
provision made as a result of double taxation arrangements between
35
any two territories (including provision sanctioned by associated
enterprise rules contained in such arrangements).
(6)
For this purpose—
(a)
arrangements are “double taxation arrangements” if they are
arrangements made between any two territories with a view to
40
affording relief from double taxation, and
(b)
“associated enterprise rules” means—
(i)
rules that, on the passing of FA 2009, were contained in Article
9 of the Model Tax Convention on Income and on Capital

Taxation (International and Other Provisions) Bill
Part 7 — Tax treatment of financing costs and income
Chapter 5 — Intra-group financing income where payer denied deduction
164

published by the Organisation for Economic Co-operation and
Development, or
(ii)
any rules in the same or equivalent terms.
303
Qualifying EEA tax relief for payment in future period
(1)
For the purposes of this Chapter, qualifying EEA tax relief for a payment is not
5
available to the payer in a period after the current period if conditions A and B
are met in relation to the payment.
(2)
Condition A is that no deduction calculated by reference to the payment can be
taken into account in calculating any profits, income or gains that—
(a)
might arise to the payer in any period after the current period, and
10
(b)
would, if they did so arise, be chargeable to any tax of the United
Kingdom or an EEA territory for any period after the current period.
(3)
Condition B is that no relief determined by reference to the payment can be
given in any period after the current period for the purposes of any tax of the
United Kingdom or an EEA territory by—
15
(a)
the payment of a credit,
(b)
the elimination or reduction of a tax liability, or
(c)
any other means of any kind.
(4)
The question whether a deduction can be taken into account as mentioned in
subsection (2) or a relief can be given as mentioned in subsection (3) is to be
20
determined by reference to the position immediately after the end of the
current period.
(5)
Conditions A and B are not met in relation to the payment unless they would
be met disregarding a failure to obtain a deduction or relief as a result of—
(a)
this Part, or
25
(b)
provision made as a result of double taxation arrangements between
any two territories (including provision sanctioned by associated
enterprise rules contained in such arrangements).
(6)
For this purpose—
(a)
arrangements are “double taxation arrangements” if they are
30
arrangements made between any two territories with a view to
affording relief from double taxation, and
(b)
“associated enterprise rules” means—
(i)
rules that, on the passing of FA 2009, were contained in Article
9 of the Model Tax Convention on Income and on Capital
35
published by the Organisation for Economic Co-operation and
Development, or
(ii)
any rules in the same or equivalent terms.
304
References to tax of a territory
(1)
References in this Chapter to a tax of the United Kingdom are to income tax or
40
corporation tax.
(2)
References in this Chapter to a tax of a territory outside the United Kingdom
are to a tax chargeable under the law of that territory that—
(a)
is charged on income and corresponds to income tax, or

Taxation (International and Other Provisions) Bill
Part 7 — Tax treatment of financing costs and income
Chapter 6 — Tax avoidance
165

(b)
is charged on income or chargeable gains or both and corresponds to
corporation tax.
(3)
For the purposes of this section, a tax chargeable under the law of a territory
outside the United Kingdom does not fail to correspond to income tax or
corporation tax just because—
5
(a)
it is chargeable under the law of a province, state or other part of a
country, or
(b)
it is levied by or on behalf of a municipality or other local body.
305
Financing income amounts of a company
(1)
References in this Chapter to a “financing income amount” of a company are
10
(subject to subsection (6)) to any amount that meets condition A, B or C.
(2)
Condition A is that the amount is a credit that—
(a)
would, apart from this Chapter, be brought into account by the
company for the purposes of corporation tax,
(b)
would be so brought into account in respect of a loan relationship—
15
(i)
under Part 3 of CTA 2009 as a result of section 297 of that Act
(loan relationships for purposes of trade), or
(ii)
under Part 5 of that Act (other loan relationships), and
(c)
is not an excluded credit.
(3)
A credit is “excluded” if it is in respect of—
20
(a)
the reversal of an impairment loss,
(b)
an exchange gain, or
(c)
a profit from a related transaction.
(4)
Condition B is that the amount is an amount that would, apart from this
Chapter, be brought into account by the company for the purposes of
25
corporation tax in respect of the financing income implicit in amounts received
under finance leases.
(5)
Condition C is that the amount is an amount that would, apart from this
Chapter, be brought into account by the company for the purposes of
corporation tax in respect of the financing income receivable on debt factoring,
30
or any similar transaction.
(6)
The provisions of Chapter 7 apply in relation to an amount that is a financing
income amount of a company because of meeting condition A, B or C in this
section as they apply in relation to an amount that is a financing income
amount of a relevant group company because of meeting condition A, B or C
35
in section 314.
Chapter 6
Tax avoidance
306
Schemes involving manipulation of rules in Chapter 2
(1)
A period of account of the worldwide group that, apart from this section, is not
40
within section 261(1) is treated as within that provision if conditions A, B and
C are met.

Taxation (International and Other Provisions) Bill
Part 7 — Tax treatment of financing costs and income
Chapter 6 — Tax avoidance
166

(2)
Condition A is that—
(a)
at any time before the end of the period, a scheme is entered into, and
(b)
if the scheme had not been entered into, the period would have been
within section 261(1).
(3)
Condition B is that the main purpose, or one of the main purposes, of any party
5
to the scheme on entering into the scheme is to secure that the period is not
within section 261(1).
(4)
Condition C is that the scheme is not an excluded scheme.
307
Schemes involving manipulation of rules in Chapters 3 and 4
(1)
If conditions A, B and C are met in relation to a period of account of the
10
worldwide group (“the relevant period of account”), the tested expense
amount, the tested income amount and the available amount for the period are
to be calculated in accordance with section 309.
(2)
Condition A is that—
(a)
at any time before the end of the relevant period of account, a scheme
15
is entered into, and
(b)
the main purpose, or one of the main purposes, of any party to the
scheme on entering into it is to secure that the amount of the relevant
net deduction (within the meaning given by section 308) is lower than
it would be if that amount were calculated in accordance with section
20
309.
(3)
Condition B is that a result of the scheme is that—
(a)
the sum of the profits of UK group companies that—
(i)
arise in relevant accounting periods, and
(ii)
are chargeable to corporation tax,
25

is less than it would be if that sum were determined in accordance with
section 309, or
(b)
the sum of the losses of UK group companies that—
(i)
arise in relevant accounting periods (other than any taken into
account in calculating profits within paragraph (a)), and
30
(ii)
are capable of being a carried-back amount or a carried-forward
amount (see section 310),

is higher than it would be if that sum were determined in accordance
with section 309.
(4)
Condition C is that the scheme is not an excluded scheme.
35
(5)
If—
(a)
a profit or loss arises in an accounting period of a UK group company,
and
(b)
a proportion of that period does not fall within the relevant period of
account,
40

the profit or loss is to be reduced, for the purposes of condition B, by the same
proportion.
308
Meaning of “relevant net deduction”
(1)
In section 307(2) the “relevant net deduction” means—

Taxation (International and Other Provisions) Bill
Part 7 — Tax treatment of financing costs and income
Chapter 6 — Tax avoidance
167

(a)
the amount by which the total disallowed amount exceeds the tested
income amount, or
(b)
if the total disallowed amount does not exceed the tested income
amount, nil.
(2)
In this section the “total disallowed amount” means—
5
(a)
the amount by which the tested expense amount exceeds the available
amount, or
(b)
if the tested expense amount does not exceed the available amount, nil.
309
Calculation of amounts
(1)
References in section 307 to the calculation of any amount or sum in accordance
10
with this section are to the calculation of that amount or sum on the following
assumptions.
(2)
The assumptions are that—
(a)
the scheme in question was not entered into, and
(b)
instead, anything that it is more likely than not would have been done
15
or not done had this Part not had effect in relation to the relevant period
of account, was done or not done.
310
Meaning of “carried-back amount” and “carried-forward amount”
(1)
In section 307 “carried-back amount” means—
(a)
an amount carried back under section 389(2) of CTA 2009 (deficits of
20
insurance companies),
(b)
an amount carried back as a result of a claim under section 459(1)(b) of
CTA 2009 (non-trading deficits from loan relationships), or
(c)
an amount carried back under section 37(3)(b) of CTA 2010 (relief for
trade losses against total profits).
25
(2)
In section 307 “carried-forward amount” means—
(a)
an amount carried forward under section 76(12) or (13) of ICTA (certain
expenses of insurance companies),
(b)
an amount carried forward under section 436A(4) of ICTA (insurance
companies: losses from gross roll-up business),
30
(c)
an amount carried forward under section 8(1)(b) of TCGA 1992
(allowable losses),
(d)
an amount carried forward under section 391(2) of CTA 2009 (deficits
of insurance companies),
(e)
an amount carried forward under section 457(3) of CTA 2009 (non-
35
trading deficits from loan relationships),
(f)
an amount carried forward under section 753(3) of CTA 2009 (non-
trading loss on intangible fixed assets),
(g)
an amount carried forward under section 925(3) of CTA 2009 (patent
income: relief for expenses),
40
(h)
an amount carried forward under section 1223 of CTA 2009 (expenses
of management and other amounts),
(i)
an amount carried forward under section 45(4) of CTA 2010 (carry
forward of trade loss against subsequent trade profit),
(j)
an amount carried forward under section 62(5) of CTA 2010 (relief for
45
losses made UK property business),

Taxation (International and Other Provisions) Bill
Part 7 — Tax treatment of financing costs and income
Chapter 7 — “Financing expense amount” and “financing income amount”
168

(k)
an amount carried forward under section 63(3) of CTA 2010 (company
with investment business ceasing to carry on UK property business),
(l)
an amount carried forward under section 66(3) of CTA 2010 (relief for
losses made in overseas property business), or
(m)
an amount carried forward under section 91(6) of CTA 2010 (relief for
5
losses from miscellaneous transactions).
311
Schemes involving manipulation of rules in Chapter 5
(1)
This section applies to a financing income amount of a company received
during a period of account of the worldwide group if—
(a)
apart from this section, the financing income amount would, because of
10
section 299, not be brought into account for the purposes of corporation
tax, and
(b)
conditions A, B and C are met.
(2)
Condition A is that, at any time before the financing income amount is
received, a scheme is entered into that secures that any of the conditions in
15
subsections (2) to (4) of section 299 (“the relevant section 299 condition”) is met
in relation to the amount.
(3)
Condition B is that the purpose, or one of the main purposes, of any party to
the scheme on entering into the scheme is to secure that the relevant section 299
condition is met.
20
(4)
Condition C is that the scheme is not an excluded scheme.
(5)
If this section applies to a financing income amount, the relevant section 299
condition is treated as not met in relation to the amount.
(6)
Section 305 (meaning of references to a “financing income amount” of a
company) applies for the purposes of this section.
25
312
Meaning of “scheme” and “excluded scheme”
(1)
For the purposes of this Chapter, “scheme” includes any scheme, arrangements
or understanding of any kind whatever, whether or not legally enforceable,
involving a single transaction or two or more transactions.
(2)
For the purposes of this Chapter, a scheme is “excluded” if it is of a description
30
specified in regulations made by the Commissioners.
(3)
Regulations under subsection (2) may make different provision for different
purposes.
Chapter 7
“Financing expense amount” and “financing income amount”
35
313
The financing expense amounts of a company
(1)
References in this Part to a “financing expense amount” of a company for a
period of account of the worldwide group are to any amount that meets
condition A, B or C.
(2)
Condition A is that the amount is a debit that—
40

Taxation (International and Other Provisions) Bill
Part 7 — Tax treatment of financing costs and income
Chapter 7 — “Financing expense amount” and “financing income amount”
169

(a)
would, apart from this Part, be brought into account in a relevant
accounting period of the company,
(b)
would be so brought into account in respect of a loan relationship—
(i)
under Part 3 of CTA 2009 as a result of section 297 of that Act
(loan relationships for purposes of trade), or
5
(ii)
under Part 5 of that Act (other loan relationships), and
(c)
is not an excluded debit.
(3)
A debit is “excluded” if it is in respect of—
(a)
an impairment loss,
(b)
an exchange loss, or
10
(c)
a related transaction.
(4)
Condition B is that the amount is an amount that would, apart from this Part,
be brought into account for the purposes of corporation tax in a relevant
accounting period of the company in respect of the financing cost implicit in
payments made under finance leases.
15
(5)
Condition C is that the amount is an amount that would, apart from this Part,
be brought into account for the purposes of corporation tax in a relevant
accounting period of the company in respect of the financing cost payable on
debt factoring, or any similar transaction.
(6)
If—
20
(a)
a debit or other amount would, apart from this Part, be brought into
account in an accounting period, and
(b)
a proportion of that period does not fall within the period of account of
the worldwide group,

the debit or other amount is to be reduced, for the purposes of this section, by
25
the same proportion.
(7)
This section is subject to sections 316 to 327.
314
The financing income amounts of a company
(1)
References in this Part (except in Chapter 5 and section 311) to a “financing
income amount” of a company for a period of account of the worldwide group
30
are to any amount that meets condition A, B or C.
(2)
Condition A is that the amount is a credit that—
(a)
would, apart from this Part, be brought into account in a relevant
accounting period of the company,
(b)
would be so brought into account in respect of a loan relationship—
35
(i)
under Part 3 of CTA 2009 as a result of section 297 of that Act
(loan relationships for purposes of trade), or
(ii)
under Part 5 of that Act (other loan relationships), and
(c)
is not an excluded credit.
(3)
A credit is “excluded” if it is in respect of—
40
(a)
the reversal of an impairment loss,
(b)
an exchange gain, or
(c)
a profit from a related transaction.
(4)
Condition B is that the amount is an amount that would, apart from this Part,
be brought into account for the purposes of corporation tax in a relevant
45