Taxation (International and Other Provisions) Bill

House of Commons

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

Taxation (International and Other Provisions) Bill
Part 4 — Transfer pricing
Chapter 2 — Key interpretative provisions
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153
Arm’s length provision where security issued and guarantee given
(1)
This section applies where the actual provision is made or imposed by means
of a series of transactions which include—
(a)
the issuing of a security by a company which is one of the affected
persons (“the issuing company”), and
5
(b)
the provision of a guarantee by a company which is the other affected
person.
(2)
Section 147(1)(d) is to be read as requiring account to be taken of all factors,
including—
(a)
the question whether the guarantee would have been provided at all in
10
the absence of the special relationship,
(b)
the amount that would have been guaranteed in the absence of the
special relationship, and
(c)
the consideration for the guarantee and other terms which would have
been agreed in the absence of the special relationship.
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(3)
Subsection (2) has effect subject to subsections (4) and (5).
(4)
If—
(a)
a company (“G”) provides a guarantee in respect of another company
with which it has a special relationship, and
(b)
it is not part of G’s business to provide guarantees generally,
20

the fact that it is not part of G’s business to provide guarantees generally is to
be disregarded in applying subsection (2).
(5)
Section 147(1)(d) is to be read as requiring that, in the determination of any of
the matters mentioned in subsection (6), no account is to be taken of (or of any
inference capable of being drawn from) any guarantee provided by a company
25
with which the issuing company has a participatory relationship.
(6)
The matters are—
(a)
the appropriate level or extent of the issuing company’s overall
indebtedness,
(b)
whether it might be expected that the issuing company and a particular
30
person would have become parties to a transaction involving—
(i)
the issue of a security by the issuing company, or
(ii)
the making of a loan, or a loan of a particular amount, to the
issuing company, and
(c)
the rate of interest and other terms that might be expected to be
35
applicable in any particular case to such a transaction.
154
Interpretation of sections 152 and 153
(1)
Subsections (3) to (7) apply for the purposes of sections 152 and 153.
(2)
Subsection (6) applies also for the purposes of subsection (7)(a).
(3)
“Special relationship” means any relationship by virtue of which the
40
participation condition is met (see section 148) in the case of the affected
persons concerned.
(4)
Any reference to a guarantee includes—
(a)
a reference to a surety, and

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(b)
a reference to any other relationship, arrangements, connection or
understanding (whether formal or informal) such that the person
making the loan to the issuing company has a reasonable expectation
that in the event of a default by the issuing company the person will be
paid by, or out of the assets of, one or more companies.
5
(5)
One company (“A”) has a “participatory relationship” with another (“B”) if—
(a)
one of A and B is directly or indirectly participating in the management,
control or capital of the other, or
(b)
the same person or persons is or are directly or indirectly participating
in the management, control or capital of each of A and B.
10
(6)
“Security” includes securities not creating or evidencing a charge on assets.
(7)
Any—
(a)
interest payable by a company on money advanced without the issue
of a security for the advance, or
(b)
other consideration given by a company for the use of money so
15
advanced,

is to be treated as if payable or given in respect of a security issued for the
advance by the company, and references to a security are to be read
accordingly.
155
“Potential advantage” in relation to United Kingdom taxation
20
(1)
Subsection (2) applies for the purposes of this Part.
(2)
The actual provision confers a potential advantage on a person in relation to
United Kingdom taxation wherever, disregarding this Part, the effect of
making or imposing the actual provision, instead of the arm’s length
provision, would be one or both of Effects A and B.
25
(3)
Effect A is that a smaller amount (which may be nil) would be taken for tax
purposes to be the amount of the person’s profits for any chargeable period.
(4)
Effect B is that a larger amount (or, if there would not otherwise have been
losses, any amount of more than nil) would be taken for tax purposes to be the
amount for any chargeable period of any losses of the person.
30
(5)
In determining for the purposes of subsection (3) or (4) the amount that would
be taken for tax purposes to be the amount of the profits or losses for a year of
assessment in the case of a non-UK resident, there is to be left out of account
any income of that person which is—
(a)
disregarded income within the meaning given by section 813 of ITA
35
2007 (limits on liability to income tax of non-UK residents), or
(b)
disregarded company income within the meaning given by section 816
of that Act.
(6)
For the purposes of subsections (2) to (4)—
(a)
Part 7 (tax treatment of financing costs and income), and
40
(b)
paragraph E of the list in section 1000(1) of CTA 2010 (excessive interest
etc treated as a distribution),

are to be disregarded.

Taxation (International and Other Provisions) Bill
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156
“Losses” and “profits”
(1)
In this Part “losses” includes amounts which are not losses but in respect of
which relief may be given in accordance with—
(a)
section 57 of ITTOIA 2005 (pre-trading expenses),
(b)
section 88 of ITA 2007 (carry forward of certain interest),
5
(c)
section 61 of CTA 2009 (pre-trading expenses),
(d)
sections 387 to 391 of CTA 2009 (insurance companies: non-trading
deficits on loan relationships),
(e)
Chapter 16 of Part 5 of CTA 2009 (non-trading deficits on loan
relationships),
10
(f)
section 1223 of CTA 2009 (excess of management expenses), or
(g)
Part 5 of CTA 2010 (group relief).
(2)
In this Part “profits” includes income.
“Direct participation” in management, control or capital of a person
157
Direct participation
15
(1)
Subsection (2) applies for the purposes of—
(a)
this Part,
(b)
in Part 2, section 132(7), and
(c)
in Part 5, section 219(2).
(2)
A person is directly participating in the management, control or capital of
20
another person at a particular time if, and only if, that other person is at that
time—
(a)
a body corporate or a firm, and
(b)
controlled by the first person.
“Indirect participation” in management, control or capital of a person
25
158
Indirect participation: defined by sections 159 to 162
(1)
This section is about how to read the references, in this Part and in some other
provisions of this Act, to indirect participation.
(2)
For the purposes of sections 148(2)(a) and (3)(a) and 175(2)(a), a person is
indirectly participating in the management, control or capital of another
30
person only if section 159, 160 or 161 so provides.
(3)
For the purposes of sections 148(2)(b) and (3)(b) and 175(2)(b), a person is
indirectly participating in the management, control or capital of another
person only if section 159, 160 or 162 so provides.
(4)
For the purposes of—
35
(a)
sections 154(5) and 204(4),
(b)
in Part 2, section 132(7), and
(c)
in Part 5, section 219(2),

a person is indirectly participating in the management, control or capital of
another person only if section 159 or 160 so provides.
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159
Indirect participation: potential direct participant
(1)
Subsection (2) applies for the purposes of—
(a)
sections 148(2) and (3), 154(5), 175(2) and 204(4),
(b)
in Part 2, section 132(7), and
(c)
in Part 5, section 219(2).
5
(2)
A person (“P”) is indirectly participating in the management, control or capital
of another person (“A”) at a particular time if P would be directly participating
in the management, control or capital of A at that time if the rights and powers
attributed to P included all the rights and powers mentioned in subsection (3)
that are not already attributed to P for the purpose of deciding under section
10
157 whether P is directly participating in the management, control or capital of
A.
(3)
The rights and powers referred to in subsection (2) are—
(a)
rights and powers which P is entitled to acquire at a future date,
(b)
rights and powers which P will, at a future date, become entitled to
15
acquire,
(c)
rights and powers of persons other than P so far as they are rights or
powers falling within subsection (4),
(d)
rights and powers of any person with whom P is connected (see section
163), and
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(e)
rights and powers which would be attributed by subsection (2) to a
person with whom P is connected were it being decided under that
subsection whether that connected person is indirectly participating in
the management, control or capital of A.
(4)
Rights and powers fall within this subsection so far as they—
25
(a)
are required, or may be required, to be exercised in any one or more of
the following ways—
(i)
on behalf of P,
(ii)
under the direction of P, or
(iii)
for the benefit of P, and
30
(b)
are not confined, in a case where a loan has been made by one person
to another, to rights and powers conferred in relation to property of the
borrower by the terms of any security relating to the loan.
(5)
In subsections (3)(c) to (e) and (4), the references to a person’s rights and
powers include references to any rights or powers which the person either—
35
(a)
is entitled to acquire at a future date, or
(b)
will, at a future date, become entitled to acquire.
(6)
In paragraph (e) of subsection (3), the reference to rights and powers which
would be attributed to a connected person includes a reference to rights and
powers which, by applying that paragraph wherever one person is connected
40
with another, would be so attributed to the connected person through a
number of persons each of whom is connected with at least one of the others.
(7)
References in this section—
(a)
to rights and powers of a person, or
(b)
to rights and powers which a person is or will become entitled to
45
acquire,

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include references to rights or powers which are exercisable by that person, or
(when acquired by that person) will be exercisable, only jointly with one or
more other persons.
160
Indirect participation: one of several major participants
(1)
Subsection (2) applies for the purposes of—
5
(a)
sections 148(2) and (3), 154(5), 175(2) and 204(4),
(b)
in Part 2, section 132(7), and
(c)
in Part 5, section 219(2).
(2)
A person is indirectly participating in the management, control or capital of
another person at a particular time if the first person is, at that time, one of a
10
number of major participants in that other person’s enterprise.
(3)
For the purposes of this section, a person (“A”) is a major participant in another
person’s enterprise at a particular time if at that time—
(a)
that other person (“the subordinate”) is a body corporate or firm, and
(b)
the 40% test is met in the case of each of two persons—
15
(i)
who, taken together, control the subordinate, and
(ii)
of whom one is A.
(4)
For the purposes of this section, the 40% test is met in the case of each of two
persons wherever each of them has interests, rights and powers representing
at least 40% of the holdings, rights and powers in respect of which the pair of
20
them fall to be taken as controlling the subordinate.
(5)
For the purposes of this section—
(a)
the question whether a person is controlled by any two or more persons
taken together, and
(b)
any question whether the 40% test is met in the case of a person who is
25
one of two persons,

is to be determined after attributing to each of the persons all the rights and
powers which would be attributed by section 159(2) to a person were it being
decided under section 159(2) whether that person is indirectly participating in
the management, control or capital of another person.
30
(6)
References in this section—
(a)
to rights and powers of a person, or
(b)
to rights and powers which a person is or will become entitled to
acquire,

include references to rights or powers which are exercisable by that person, or
35
(when acquired by that person) will be exercisable, only jointly with one or
more other persons.
161
Indirect participation: sections 148 and 175: financing cases
(1)
Subsection (2) applies for the purposes of sections 148(2)(a) and (3)(a) and
175(2)(a).
40
(2)
A person (“P”) is indirectly participating in the management, control or capital
of another (“A”) at the time of the making or imposition of the actual provision
if—

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(a)
the actual provision relates, to any extent, to financing arrangements
for A,
(b)
A is a body corporate or firm,
(c)
P and other persons acted together in relation to the financing
arrangements, and
5
(d)
P would be taken to have control of A if, at any relevant time, there
were attributed to P the rights and powers of each of the other persons
mentioned in paragraph (c).
(3)
It is immaterial for the purposes of subsection (2)(c) whether P and the other
persons acting together in relation to the financing arrangements did so at the
10
time of the making or imposition of the actual provision or at some earlier time.
(4)
In subsection (2)(d) “relevant time” means—
(a)
a time when P and the other persons were acting together in relation to
the financing arrangements, or
(b)
a time in the period of six months beginning with the day on which they
15
ceased so to act.
(5)
In determining for the purposes of subsection (2)(d) whether P would be taken
to have control of another person (“A”), the rights and powers of any person
(and not just P) are to be taken to include those that would be attributed to that
person by section 159(2) were it being decided under section 159(2) whether
20
that person is indirectly participating in the management, control or capital of
A.
(6)
In this section “financing arrangements” means arrangements made for
providing or guaranteeing, or otherwise in connection with, any debt, capital
or other form of finance.
25
162
Indirect participation: sections 148 and 175: further financing cases
(1)
Subsection (2) applies for the purposes of sections 148(2)(b) and (3)(b) and
175(2)(b).
(2)
A person (“Q”) is indirectly participating in the management, control or capital
of each of the affected persons at the time of the making or imposition of the
30
actual provision if—
(a)
the actual provision relates, to any extent, to financing arrangements
for one of the affected persons (“B”),
(b)
B is a body corporate or firm,
(c)
Q and other persons acted together in relation to the financing
35
arrangements, and
(d)
Q would be taken to have control of both B and the other affected
person if, at any relevant time, there were attributed to Q the rights and
powers of each of the other persons mentioned in paragraph (c).
(3)
It is immaterial for the purposes of subsection (2)(c) whether Q and the other
40
persons acting together in relation to the financing arrangements did so at the
time of the making or imposition of the actual provision or at some earlier time.
(4)
In subsection (2)(d) “relevant time” means—
(a)
a time when Q and the other persons were acting together in relation to
the financing arrangements, or
45

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(b)
a time in the period of six months beginning with the day on which they
ceased so to act.
(5)
In determining for the purposes of subsection (2)(d) whether Q would be taken
to have control of another person (“A”), the rights and powers of any person
(and not just Q) are to be taken to include those that would be attributed to that
5
person by section 159(2) were it being decided under section 159(2) whether
that person is indirectly participating in the management, control or capital of
A.
(6)
In this section “financing arrangements” means arrangements made for
providing or guaranteeing, or otherwise in connection with, any debt, capital
10
or other form of finance.
163
Meaning of “connected” in section 159
(1)
Subsections (2) and (3) apply for the purposes of section 159 and this section.
(2)
Two persons are connected with each other if one of them is an individual and
the other is—
15
(a)
the individual’s spouse or civil partner,
(b)
a relative of the individual,
(c)
a relative of the individual’s spouse or civil partner, or
(d)
the spouse, or civil partner, of a person within paragraph (b) or (c).
(3)
Two persons are connected with each other if one of them is a trustee of a
20
settlement and the other is—
(a)
a person who in relation to that settlement is a settlor, or
(b)
a person who is connected with a person within paragraph (a).
(4)
In this section—
“relative” means brother, sister, ancestor or lineal descendant, and
25
“settlement” and “settlor” have the same meaning as in section 620 of
ITTOIA 2005.
Application of OECD principles
164
Part to be interpreted in accordance with OECD principles
(1)
This Part is to be read in such manner as best secures consistency between—
30
(a)
the effect given to sections 147(1)(a), (b) and (d) and (2) to (6), 148 and
151(2), and
(b)
the effect which, in accordance with the transfer pricing guidelines, is
to be given, in cases where double taxation arrangements incorporate
the whole or any part of the OECD model, to so much of the
35
arrangements as does so.
(2)
Subsection (1) has effect subject to—
section 147(1)(c) and (7) (oil-related provision to which Part does not
apply),
sections 205 and 206 (rules for oil-related ring-fence trades),
40
section 217(3) to (7) (provision for sales of oil),