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 2 — Double taxation relief
Chapter 2 — Double taxation relief by way of credit
39

(2)
Condition A is that a company (“the claimant company”) makes a claim for an
allowance by way of credit in accordance with this Part.
(3)
Condition B is that the claim relates to underlying tax on a dividend paid to the
claimant company by a company resident outside the United Kingdom (“the
overseas company”).
5
(4)
Condition C is that the underlying tax is, or includes, an amount in respect of
tax payable at a high rate by the overseas company and—
(a)
that amount would not be, or would not be included in, the underlying
tax, or
(b)
any part of that amount would not be included in the underlying tax,
10

but for the existence of, or but for there having been, an avoidance scheme (see
section 68).
(5)
Condition D is that—
(a)
there is a dividend-paying chain (see section 64) in which—
(i)
the first company is the claimant company, and
15
(ii)
the second company is the overseas company, and
(b)
the underlying tax is, or includes, an amount in respect of tax payable
at a high rate by a company lower in the chain than the overseas
company and—
(i)
that amount would not be, or would not be included in, the
20
underlying tax, or
(ii)
any part of that amount would not be included in the
underlying tax,

but for the existence of, or but for there having been, an avoidance
scheme (see section 68).
25
(6)
The amount of credit to which the claimant company is entitled on the claim is
to be determined as if the tax payable at a high rate had instead been tax at the
relievable rate.
(7)
For the purposes of this section, tax payable by a company is “tax payable at a
high rate” so far as the amount payable exceeds the amount that would
30
represent tax at the relievable rate on the profits of the company which, for the
purposes of this Part, are taken to bear the payable tax.
(8)
In this section “the relievable rate” means the rate of corporation tax in force
when the dividend mentioned in subsection (3) was paid.
68
Meaning of “avoidance scheme” in section 67
35
(1)
In section 67 “avoidance scheme” means any scheme or arrangement in respect
of which each of conditions A to C is met.
(2)
Condition A is that the purpose, or one of the main purposes, of the scheme or
arrangement is to have an amount of underlying tax taken into account on a
claim for an allowance by way of credit in accordance with this Part.
40
(3)
Condition B is that the parties to the scheme or arrangement include—
(a)
the company which is the claimant company for the purposes of section
67,
(b)
a company related to the claimant company, or
(c)
a person connected with the claimant company.
45

Taxation (International and Other Provisions) Bill
Part 2 — Double taxation relief
Chapter 2 — Double taxation relief by way of credit
40

(4)
Condition C is that the parties to the scheme or arrangement include a person
who was not under the control of the claimant company at any time before the
doing of anything as part of, or in pursuance of, the scheme or arrangement.
(5)
For the purposes of subsection (3)(b), a company (“R”) is related to the claimant
company if the claimant company—
5
(a)
controls directly or indirectly, or
(b)
is a subsidiary of a company which controls directly or indirectly,

at least 10% of the voting power in R.
(6)
For the purposes of subsection (3)(c), whether a person is connected with
another is determined in accordance with section 1122 of CTA 2010.
10
(7)
For the purposes of subsection (4), a person who is a party to a scheme or
arrangement is to be taken to have been under the control of the claimant
company at all the following times—
(a)
any time when the claimant company would have been taken (in
accordance with sections 450 and 451 of CTA 2010) to have had control
15
of the person for the purposes of Part 10 of CTA 2010 (close companies),
(b)
any time when the claimant company would have been so taken if
sections 450 and 451 of CTA 2010 applied (with the necessary
modifications) in the case of partnerships and unincorporated
associations as they apply in the case of companies, and
20
(c)
any time when the person acted in relation to the scheme or
arrangement, or any proposal for it, either directly or indirectly under
the direction of the claimant company.
(8)
For the purposes of subsection (5), the claimant company is a subsidiary of
another company (“P”) if P controls, directly or indirectly, at least 50% of the
25
voting power in the claimant company.
(9)
In this section “arrangement” means an arrangement of any kind, whether in
writing or not.
69
Dividends paid out of transferred profits
(1)
This section applies if—
30
(a)
a company resident outside the United Kingdom (“company A”) has
paid tax under the law of a territory outside the United Kingdom in
respect of any of its profits,
(b)
some or all of those profits become profits of another company resident
outside the United Kingdom (“company B”) otherwise than as a result
35
of the payment of a dividend to company B, and
(c)
company B pays a dividend out of those profits to another company,
wherever resident.
(2)
If this section applies, this Part has effect, so far as relating to the determination
of underlying tax in relation to any dividend paid—
40
(a)
by any company resident outside the United Kingdom (whether or not
company B),
(b)
to a company resident in the United Kingdom,

as if company B had paid the tax paid by company A in respect of those profits
of company A which have become profits of company B as mentioned in
45
subsection (1)(b).

Taxation (International and Other Provisions) Bill
Part 2 — Double taxation relief
Chapter 2 — Double taxation relief by way of credit
41

(3)
But the amount of relief under this Part which is allowable to a company
resident in the United Kingdom is not to exceed the amount which would have
been allowable to that company had those profits become profits of company
B as a result of the payment of a dividend by company A to company B.
70
Underlying tax reflecting interest on loans
5
(1)
Subsection (2) applies if—
(a)
a bank, or a company connected with a bank, makes a claim for an
allowance by way of credit in accordance with this Chapter,
(b)
there is a dividend-paying chain (see section 64) in which—
(i)
the first company is the claimant, and
10
(ii)
the second company is a company resident outside the United
Kingdom,
(c)
the claimant—
(i)
controls directly or indirectly, or
(ii)
is a subsidiary of a company which controls directly or
15
indirectly,

at least 10% of the voting power in the second company,
(d)
the claim relates to underlying tax on a dividend paid by the second
company,
(e)
that underlying tax is, or includes, tax payable under the law of a
20
territory outside the United Kingdom on, or by reference to, interest or
dividends earned or received in the course of its business by a company
(“the receiving company”) which is—
(i)
the second company, or
(ii)
a company lower in the chain than the second company, and
25
(f)
section 44 would have applied to the receiving company had it been
resident in the United Kingdom.
(2)
The amount of the credit for the tax mentioned in subsection (1)(e) (“the non-
UK tax”) is not to exceed the sum equal to corporation tax, at the rate in force
at the time the non-UK tax was chargeable, on—

30

where—
ID is the amount of the interest or dividends mentioned in subsection
(1)(e), and
E is the amount of the receiving company’s expenditure which is properly
attributable to the earning of that interest or those dividends.
35
(3)
For the purposes of subsection (1)(a)—
(a)
“bank” means a company carrying on, in the United Kingdom or
elsewhere, any trade which includes the receipt of interest or
dividends, and
(b)
whether a company is connected with a bank is determined in
40
accordance with section 1122 of CTA 2010.
(4)
For the purposes of subsection (1)(c), the claimant is a subsidiary of another
company (“P”) if P controls, directly or indirectly, at least 50% of the voting
power in the claimant.

Taxation (International and Other Provisions) Bill
Part 2 — Double taxation relief
Chapter 2 — Double taxation relief by way of credit
42

71
Foreign taxation of group as single entity
(1)
Subsections (2) and (3) apply in relation to a claim for credit in respect of
underlying tax in relation to a dividend paid by a company resident outside the
United Kingdom to a company resident in the United Kingdom if, under the
law of a territory outside the United Kingdom, tax is payable by any one
5
company resident in the territory (“the responsible company”) in respect of the
aggregate profits, or aggregate profits and aggregate gains, of—
(a)
that company and another company resident in the territory, or
(b)
that company and two or more other companies resident in the
territory,
10

taken together as a single taxable entity.
(2)
This Part, so far as relating to the determination of underlying tax in relation to
any dividend paid by any of the companies mentioned in subsection (1)(a) or
(b) (the “non-resident companies”) to another company (“the payee
company”), has effect as if—
15
(a)
the non-resident companies, taken together, were a single company,
(b)
anything done by or in relation to any of the non-resident companies
(including the payment of the dividend) were done by or in relation to
that single company, and
(c)
that single company were related to the payee company if the company
20
which actually pays the dividend is related to the payee company.
(3)
In particular, this Part has effect as if—
(a)
the relevant profits for the purposes of section 58 is a single aggregate
figure in respect of that single company, and
(b)
the tax paid in the territory by the responsible company is tax paid in
25
the territory by that single company.
(4)
For the purposes of this section, a company (“X”) is related to another company
(“H”) if H—
(a)
controls directly or indirectly, or
(b)
is a subsidiary of a company which controls directly or indirectly,
30

at least 10% of the voting power in X.
(5)
For the purposes of subsection (4), H is a subsidiary of another company (“P”)
if P controls, directly or indirectly, at least 50% of the voting power in H.
Unrelieved foreign tax on profits of overseas permanent establishment
72
Application of section 73(1)
35
(1)
Section 73(1) applies if, in an accounting period of a company resident in the
United Kingdom—
(a)
the amount of the credit for foreign tax which under the arrangements
would, if section 42 were ignored, be allowable against corporation tax
in respect of the company’s qualifying income from an overseas
40
permanent establishment, exceeds
(b)
the amount of the credit for foreign tax which under the arrangements
is allowed against corporation tax in respect of the company’s
qualifying income from that overseas permanent establishment.

Taxation (International and Other Provisions) Bill
Part 2 — Double taxation relief
Chapter 2 — Double taxation relief by way of credit
43

(2)
For the purposes of subsection (1) and section 73(1), the company’s qualifying
income from an overseas permanent establishment is the profits of the overseas
permanent establishment which are—
(a)
profits, chargeable under Chapter 2 of Part 3 of CTA 2009, of a trade
carried on partly, but not wholly, outside the United Kingdom, or
5
(b)
included in the profits of a gross roll-up business chargeable under
section 436A of ICTA.
(3)
In sections 73 to 78—
“the company” means the company mentioned in subsection (1),
“the excess” means the excess referred to in that subsection,
10
“the PE” means the overseas permanent establishment mentioned in that
subsection, and
“period A” means the accounting period mentioned in that subsection.
73
Carry-forward and carry-back of unrelieved foreign tax
(1)
For the purposes of allowing credit relief under this Part, the excess is to be
15
treated—
(a)
as if it were foreign tax paid in respect of, and calculated by reference
to, the company’s qualifying income from the PE in the accounting
period after period A (whether or not the company in fact has any
qualifying income from that source in the accounting period after
20
period A), or
(b)
in accordance with the rules in section 74, as if it were foreign tax paid
in respect of, and calculated by reference to, the company’s qualifying
income from the PE in one or more of the recent periods, or
(c)
partly as mentioned in paragraph (a) and partly as mentioned in
25
paragraph (b).
(2)
If in period A the company ceases to have the PE, the excess, so far as it is not
treated as mentioned in subsection (1)(b), is to be reduced to nil (so that none
of the excess is to be treated as mentioned in subsection (1)(a)).
(3)
If an amount is treated as mentioned in subsection (1)(b) it is not to be so
30
treated for the purpose of any further application of subsection (1).
(4)
In subsection (1)(b) “recent period” means an accounting period which is
earlier than period A but begins not more than 3 years before period A.
74
Rules for carrying back unrelieved foreign tax
(1)
This section sets out the rules mentioned in section 73(1)(b).
35
(2)
The first rule is that—
(a)
credit for the excess, or for any remaining balance of the excess, is
allowed against corporation tax in respect of a later recent period,
before
(b)
credit for any of the excess is allowed against corporation tax in respect
40
of any earlier recent period.
(3)
The second rule is that, before allowing credit for any of the excess against
corporation tax in respect of income of any particular accounting period
(“period P”), credit for foreign tax is allowed—

Taxation (International and Other Provisions) Bill
Part 2 — Double taxation relief
Chapter 2 — Double taxation relief by way of credit
44

(a)
first for foreign tax in respect of the income of period P, other than
amounts which are foreign tax as a result of applying section 73(1) to an
excess from an accounting period other than period P, and
(b)
then for amounts which are foreign tax as a result of applying section
73(1) to an excess from an accounting period before period P.
5
(4)
In subsection (2) “recent period” means an accounting period which is earlier
than period A but begins not more than 3 years before period A.
75
Two or more establishments treated as a single establishment
(1)
Subsection (2) applies if, under the law of a territory outside the United
Kingdom, tax is charged in respect of the profits of two or more overseas
10
permanent establishments in that territory, taken together.
(2)
For the purposes of the provisions of sections 72 to 78 other than the excepted
provisions, those overseas permanent establishments are to be treated as if
they together constituted a single overseas permanent establishment.
(3)
In subsection (2) “the excepted provisions” means section 73(2), this section
15
and section 77.
76
Former and subsequent establishments regarded as distinct establishments
(1)
If the company—
(a)
at any time ceases to have a particular overseas permanent
establishment in a particular territory (“the old establishment”), but
20
(b)
subsequently again has an overseas permanent establishment in that
territory (“the new establishment”),

the old establishment and the new establishment are, for the purposes of the
provisions of sections 72 to 78 other than the excepted provisions, to be
regarded as different overseas permanent establishments.
25
(2)
In subsection (1) “the excepted provisions” means sections 73(2), 75 and 77.
77
Claims for relief under section 73(1)
(1)
The excess is to be treated as mentioned in section 73(1) only on a claim.
(2)
A claim under subsection (1) must specify—
(a)
the amount (if any) of the excess which is to be treated as mentioned in
30
section 73(1)(a), and
(b)
the amount (if any) of the excess which is to be treated as mentioned in
section 73(1)(b).
(3)
A claim under subsection (1) must be made not more than—
(a)
4 years after the end of period A, or
35
(b)
if later, 1 year after the end of the accounting period in which the
foreign tax concerned is paid.
78
Meaning of “overseas permanent establishment”
(1)
For the purposes of sections 72 to 76 “overseas permanent establishment”
means a permanent establishment through which the company carries on a
40
trade in a territory outside the United Kingdom.

Taxation (International and Other Provisions) Bill
Part 2 — Double taxation relief
Chapter 2 — Double taxation relief by way of credit
45

(2)
In subsection (1) “permanent establishment”—
(a)
if the arrangements are double taxation arrangements and define the
expression, has the meaning given by the arrangements, and
(b)
if the arrangements are double taxation arrangements but do not define
the expression, or if the arrangements are unilateral relief arrangements
5
for a territory outside the United Kingdom, is to be read in accordance
with Chapter 2 of Part 24 of CTA 2010.
Action after adjustment of amount payable by way of UK or foreign tax
79
Time limits for action if tax adjustment makes credit excessive or insufficient
(1)
Subsection (2) applies to a claim or assessment if—
10
(a)
the amount of any credit given under the arrangements is reduced
under section 34, or becomes excessive or insufficient by reason of any
adjustment of the amount of any tax payable either in the United
Kingdom or under the law of any other territory,
(b)
the reduction or adjustment gives rise to the claim or assessment, and
15
(c)
the claim or assessment is made not later than 6 years from the time
when all material determinations have been made, whether in the
United Kingdom or elsewhere.
(2)
Nothing in—
(a)
the Tax Acts, and
20
(b)
the enactments relating to capital gains tax,

limiting the time for the making of assessments, or limiting the time for the
making of claims for relief, applies to the assessment or claim.
(3)
In subsection (1)(c) “material determination” means an assessment, reduction,
adjustment or other determination that is material in determining whether
25
any, and (if so) what, credit is to be given.
80
Duty to give notice that adjustment has rendered credit excessive
(1)
This section applies if—
(a)
any credit for foreign tax has been allowed to a person under the
arrangements,
30
(b)
later, the amount of that credit is reduced under section 34, or becomes
excessive as a result of an adjustment of the amount of any tax payable
under the law of a territory outside the United Kingdom, and
(c)
the reduction or adjustment is not a Lloyd’s adjustment (see subsection
(5)).
35
(2)
The person must give notice that a reduction has been made or that the amount
of the credit has become excessive as a result of the making of an adjustment.
(3)
Notice under subsection (2) is to be given—
(a)
to an officer of Revenue and Customs, and
(b)
within one year from when the reduction or adjustment is made.
40
(4)
If the person fails to comply with the requirements imposed by subsections (2)
and (3), the person is liable to a penalty not greater than the amount by which
the credit has been reduced or has become excessive as a result of the
adjustment.