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 2 — Double taxation relief
Chapter 3 — Miscellaneous provisions
63

Special rules for discretionary trusts
111
When payment to beneficiary treated as arising from foreign source
(1)
Subsection (6) applies if each of conditions A to D is met.
(2)
Condition A is that a payment is made by trustees of a settlement.
(3)
Condition B is that income tax is treated under section 494 of ITA 2007
5
(treatment of discretionary payments by trustees) as having been paid in
relation to the payment.
(4)
Condition C is that the income arising under the settlement includes taxed
overseas income.
(5)
Condition D is that the trustees certify—
10
(a)
that the payment is one made out of income consisting of, or including,
taxed overseas income of an amount, and from a source, stated in the
certificate, and
(b)
that that amount of taxed overseas income arose to the trustees not
earlier than 6 years before the end of the tax year in which the payment
15
is made.
(6)
The person to whom the payment is made may claim that the payment, up to
the certified amount, is to be treated for the purposes of this Part as income
received by the person—
(a)
from the certified source, and
20
(b)
in the tax year in which the payment is made.
(7)
In this section “taxed overseas income”, in relation to a settlement, means
income in respect of which the trustees are entitled to credit under this Part for
tax under the law of a territory outside the United Kingdom.
Deduction for foreign tax where no credit allowed
25
112
Deduction from income for foreign tax (instead of credit against UK tax)
(1)
The amount of any income arising in any place outside the United Kingdom is
reduced for the purposes of the Tax Acts—
(a)
by any amount which has been paid in respect of non-UK tax on that
income in the place where the income arose, or
30
(b)
if subsection (2) applies, by the lesser amount mentioned in that
subsection.
(2)
This subsection applies if credit would, were it allowable in respect of the
income, be reduced under section 39 (reduction by reference to accrued income
losses) to the lesser amount given by section 39(5).
35
(3)
If—
(a)
income of any person (“P”) is reduced under subsection (1) by an
amount paid in respect of tax on that income in the place where the
income arose, and
(b)
a payment is made by a tax authority to P, or any person connected
40
with P, by reference to that tax,

the amount of P’s income is increased by the amount of the payment.

Taxation (International and Other Provisions) Bill
Part 2 — Double taxation relief
Chapter 3 — Miscellaneous provisions
64

(4)
Subsection (1)—
(a)
has effect subject to section 31(2)(a) (no deduction for foreign tax if
credit allowed and UK tax calculated otherwise than by reference to the
amount received in the United Kingdom),
(b)
has effect subject to section 143(5) and (6) (no deduction for special
5
withholding tax if UK tax calculated otherwise than by reference to the
amount received in the United Kingdom),
(c)
does not apply to income the tax on which is to be calculated by
reference to the amount of income received in the United Kingdom,
and
10
(d)
does not require any income to be reduced by an amount of underlying
tax which, under section 60(3), is to be left out of account for the
purposes of section 57.
(5)
Subsection (1) has effect for corporation tax purposes despite—
(a)
section 464(1) of CTA 2009 (matters to be brought into account in the
15
case of loan relationships only under Part 5 of that Act), and
(b)
section 906(1) of that Act (matters to be brought into account in respect
of intangible fixed assets only under Part 8 of that Act).
(6)
In subsection (1) “non-UK tax” means tax under the law of a territory outside
the United Kingdom.
20
(7)
For the purposes of subsection (3), whether a person is connected with P is
determined in accordance with section 1122 of CTA 2010.
113
Deduction from capital gain for foreign tax (instead of credit against UK tax)
(1)
Subsection (2) applies to tax if it is—
(a)
chargeable under the law of any territory outside the United Kingdom
25
on the disposal of an asset, and
(b)
borne by the person making the disposal.
(2)
The tax is allowable as a deduction in the calculation of the gain.
(3)
Subsection (2) is subject to—
(a)
Chapters 1 and 2 so far as they apply for corporation tax purposes (see,
30
in particular, section 31),
(b)
Chapters 1 and 2 so far as they apply for capital gains tax purposes (see,
in particular, section 31), and
(c)
section 143 (which includes provision about taking account of special
withholding tax when calculating a gain for capital gains tax purposes).
35
(4)
In subsection (1) “asset” and “disposal” have the same meaning as in TCGA
1992 (see, in particular, section 21 and the following provisions of TCGA 1992).
114
Time limits for action if tax adjustment makes reduction too large or too small
(1)
Subsection (2) applies to a claim or assessment if—
(a)
the amount of any reduction under section 112(1) or 113(2) becomes
40
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
territory outside the United Kingdom, or a person’s income is
increased under section 112(3),
(b)
the adjustment or increase gives rise to the claim or assessment, and
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Taxation (International and Other Provisions) Bill
Part 2 — Double taxation relief
Chapter 3 — Miscellaneous provisions
65

(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)
No time-limit rule applies to the assessment or claim.
(3)
In subsection (1)(c) “material determination” means (as the case may be)—
5
(a)
an assessment, adjustment, increase or other determination that is
material in determining whether any, and (if so) what, reduction is to
be made under section 112(1) or increase is to be made under section
112(3), or
(b)
an assessment, adjustment or other determination that is material in
10
determining whether any, and (if so) what, reduction is to be made
under section 113(2).
(4)
In subsection (2) “time-limit rule” means anything—
(a)
in TMA 1970,
(b)
in ICTA,
15
(c)
in TCGA 1992, or
(d)
in any other provision of the Tax Acts,

limiting the time for the making of assessments or limiting the time for the
making of claims for relief.
115
Duty to give notice that adjustment has rendered reduction too large
20
(1)
This section applies if—
(a)
the amount of any of a person’s income is reduced under section 112(1),
(b)
that reduction (“the original reduction”) later 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 or an increase under section
25
112(3), and
(c)
the adjustment or increase is not a Lloyd’s adjustment.
(2)
This section also applies if—
(a)
a deduction is allowed under section 113(2) in the case of a person
making a disposal, and
30
(b)
that deduction (“the original reduction”) later 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.
(3)
The person must give notice that the original reduction has become excessive
as a result of the making of an adjustment or increase.
35
(4)
Notice under subsection (3) is to be given—
(a)
to an officer of Revenue and Customs, and
(b)
within one year from when the adjustment or increase was made.
(5)
If the person fails to comply with the requirements imposed by subsections (3)
and (4), the person is liable to a penalty not greater than the amount given by—

40

where—
A is the amount of tax payable by the person for the reduction period after
giving effect to the reduction that ought to be made under section
112(1) or (as the case may be) under section 113(2), and

Taxation (International and Other Provisions) Bill
Part 2 — Double taxation relief
Chapter 3 — Miscellaneous provisions
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B is the amount that would have been the tax payable by the person for
that period after giving effect instead to the original reduction.
(6)
In subsection (5) “the reduction period” means the tax year, or accounting
period of a company for corporation tax purposes, for which the original
reduction was made.
5
(7)
For the purposes of subsection (1)(c), the adjustment or increase is a “Lloyd’s
adjustment” if the consequences of the adjustment or increase in relation to the
reduction are to be given effect in accordance with regulations under—
(a)
section 182(1) of FA 1993 (regulations about individual members of
Lloyd’s), or
10
(b)
section 229 of FA 1994 (regulations relating to corporate members of
Lloyd’s).
(8)
In subsection (2) “disposal” has the same meaning as in TCGA 1992 (see, in
particular, section 21(2) and the following provisions of TCGA 1992).
(9)
In this section so far as it relates to capital gains tax “notice” means notice in
15
writing.
European cross-border transfers of business
116
Introduction to section 117
(1)
Subject to subsections (4) to (6), section 117 applies if condition A or B is met.
(2)
Condition A is that—
20
(a)
a company resident in the United Kingdom transfers to a company
resident in another member State the whole or part of a business which
immediately before the transfer the transferor carried on in a member
State other than the United Kingdom through a permanent
establishment, and
25
(b)
the transfer includes—
(i)
the transfer of an asset or liability representing a loan
relationship,
(ii)
the transfer of rights and liabilities under a derivative contract,
or
30
(iii)
the transfer of intangible fixed assets that are chargeable
intangible assets in relation to the transferor immediately before
the transfer and in the case of one or more of which the proceeds
of realisation exceed the costs recognised for tax purposes.
(3)
Condition B is that—
35
(a)
a company resident in the United Kingdom transfers part of its
business to one or more companies,
(b)
the part of the transferor’s business which is transferred was carried on
immediately before the transfer in a member State other than the
United Kingdom through a permanent establishment,
40
(c)
at least one transferee is resident in a member State other than the
United Kingdom,
(d)
the transferor continues to carry on a business after the transfer,
(e)
the condition in subsection (2)(b) is met, and
(f)
the transfer—
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Taxation (International and Other Provisions) Bill
Part 2 — Double taxation relief
Chapter 3 — Miscellaneous provisions
67

(i)
is made in exchange for the issue of shares in or debentures of
each transferee to each person holding shares in or debentures
of the transferor, or
(ii)
is not so made only because, and only so far as, a transferee is
prevented from so issuing such shares or debentures by section
5
658 of the Companies Act 2006 (general rule against limited
company acquiring own shares) or by a corresponding
provision of the law of another member State preventing such
an issue.
(4)
If a transfer that meets condition A or B includes such a transfer as is
10
mentioned in subsection (2)(b)(i), section 117—
(a)
only applies as respects the transfer so mentioned as a result of the
transfer meeting condition A if the transfer is wholly or partly in
exchange for shares or debentures issued by the transferee to the
transferor, and
15
(b)
only applies as respects the transfer so mentioned as a result of the
transfer meeting condition B if each transferee is resident in a member
State, but not necessarily the same one.
(5)
If a transfer that meets condition A or B includes such a transfer as is
mentioned in subsection (2)(b)(ii), section 117—
20
(a)
only applies as respects the transfer so mentioned as a result of the
transfer meeting condition A if the transfer is wholly or partly in
exchange for shares or debentures issued by the transferee to the
transferor or to the persons holding shares in or debentures of the
transferor,
25
(b)
only applies as respects the transfer so mentioned as a result of the
transfer meeting condition B if each transferee is resident in a member
State, but not necessarily the same one, and
(c)
only applies as respects the transfer so mentioned if the transferor
makes a claim under this section in respect of it.
30
(6)
If a transfer that meets condition A or B includes such a transfer as is
mentioned in subsection (2)(b)(iii), section 117—
(a)
only applies as respects the transfer so mentioned as a result of the
transfer meeting condition A if—
(i)
the companies mentioned in subsection (2)(a) are companies
35
incorporated under the law of a member State, and
(ii)
the transfer is wholly or partly in exchange for shares or other
securities issued by the transferee to the transferor,
(b)
only applies as respects the transfer so mentioned as a result of the
transfer meeting condition B if—
40
(i)
the transferor and at least one of the transferees mentioned in
subsection (3)(a) is a company so incorporated, and
(ii)
the transfer is in exchange for shares or debentures issued by
the transferee to the persons holding shares in or debentures of
the transferor, and
45
(c)
only applies as respects the transfer so mentioned if—
(i)
the transfer includes the whole of the assets of the transferor
used for the purposes of the business or part, or the whole of
those assets other than cash, and
(ii)
the transferor makes a claim under this section in respect of the
50
transfer so mentioned.

Taxation (International and Other Provisions) Bill
Part 2 — Double taxation relief
Chapter 3 — Miscellaneous provisions
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(7)
No claim may be made under subsection (6) in respect of a transfer in relation
to which a claim is made under section 827 of CTA 2009 (claims to postpone
charge on transfer of assets to non-UK resident company).
(8)
For the purposes of this section, a company is resident in a member State if—
(a)
it is within a charge to tax under the law of the State as being resident
5
for that purpose, and
(b)
it is not regarded, for the purpose of any double taxation relief
arrangements to which the State is a party, as resident in a territory not
within a member State.
117
Tax treated as chargeable in respect of transfer of loan relationship, derivative
10
contract or intangible fixed assets
(1)
If tax would have been chargeable under the law of one or more other member
States in respect of the transfer mentioned in section 116(2)(b)(i), (ii) or (iii) but
for the Mergers Directive, this Part applies, and any double taxation
arrangements apply, as if that tax had been chargeable.
15
(2)
In calculating tax notionally chargeable under subsection (1), it is to be
assumed—
(a)
that, to the extent permitted by the law of the other member State,
losses arising on the transfer mentioned in section 116(2)(b)(i), (ii) or
(iii) are set against gains arising on that transfer, and
20
(b)
that any relief due to the transferor under that law is claimed.
(3)
Subsection (1) does not apply if—
(a)
the transfer of business mentioned in section 116(2)(a) or (3)(a) is not
effected for genuine commercial reasons, or
(b)
that transfer of business forms part of a scheme or arrangements of
25
which the main purpose, or one of the main purposes, is avoiding
liability to corporation tax, capital gains tax or income tax.
(4)
But subsection (3) does not prevent subsection (1) from applying if before the
transfer—
(a)
the appropriate applicant has applied to the Commissioners for Her
30
Majesty’s Revenue and Customs, and
(b)
the Commissioners have notified the appropriate applicant that they
are satisfied subsection (3) will not have that effect.
(5)
In subsection (4) “the appropriate applicant” means—
(a)
in a case where tax chargeable in respect of such a transfer as is
35
mentioned in section 116(2)(b)(i) or (ii) is concerned, the companies
mentioned in section 116(2)(a) or (3)(a), and
(b)
in a case where tax chargeable in respect of such a transfer as is
mentioned in section 116(2)(b)(iii) is concerned, the transferor.
(6)
Sections 427 and 428 of CTA 2009 (procedure and decisions on applications for
40
clearance) have effect in relation to subsection (4) as in relation to section 426(2)
of that Act, taking the references in section 428 to section 426(2)(b) as references
to subsection (4)(b) of this section.