Finance (No. 2) Bill

House of Commons

Session 2010 - 11
Internet Publications
Other Bills before Parliament

Finance (No. 2) Bill

Finance (No. 2) Bill
Schedule 2 — Venture capital schemes
29

(c)
a relevant concession applied to the individual in respect of those
receipts, and
(d)
the individual did not derive any taxable income, other than
qualifying care receipts, from the trade.
      (2)
Sections 824 to 827 of ITTOIA 2005 (capital allowances) are to have effect as
5
if the individual had been a relevant individual for—
(a)
the pre-commencement tax year, or
(b)
if sub-paragraph (1)(a)(ii) applies, the pre-commencement tax year
and each earlier tax year in the series.
      (3)
“The pre-commencement tax year” means the tax year immediately
10
preceding—
(a)
for an individual who makes an election under paragraph 36, the tax
year 2011-12,
(b)
otherwise, the tax year 2010-11.
      (4)
“Relevant concession” has the same meaning as in paragraph 36.
15
Schedule 2
Section 5

Venture capital schemes
Enterprise investment scheme
1     (1)
Part 5 of ITA 2007 (enterprise investment scheme) is amended as follows.
      (2)
In section 179 (meaning of “qualifying business activity”)—
20
(a)
in subsection (2)(b)(i), omit “wholly or mainly in the United
Kingdom”,
(b)
omit subsection (3),
(c)
in subsection (4)(b)(i) and (ii), omit “wholly or mainly in the United
Kingdom”, and
25
(d)
omit subsection (5).
      (3)
In section 180 (overview of Chapter 4), before paragraph (a) insert—
“(za)
UK permanent establishment (see section 180A),
(zb)
financial health (see section 180B),”.
      (4)
Before section 181 insert—
30
“180A
The UK permanent establishment requirement
(1)
The issuing company must meet the UK permanent establishment
requirement throughout period B.
(2)
The UK permanent establishment requirement is that the issuing
company has a permanent establishment in the United Kingdom.
35
180B
The financial health requirement
(1)
The issuing company must meet the financial health requirement at
the beginning of period B.

Finance (No. 2) Bill
Schedule 2 — Venture capital schemes
30

(2)
The financial health requirement is that the issuing company is not
in difficulty.
(3)
The issuing company is “in difficulty” if it is reasonable to assume
that it would be regarded as a firm in difficulty for the purposes of
the Community Guidelines on State Aid for Rescuing and
5
Restructuring Firms in Difficulty (2004/C 244/02).”
      (5)
After section 191 (and before the italic heading “Excluded activities”) insert—
“191A
Meaning of “permanent establishment”
(1)
This section applies for the purposes of this Part.
(2)
A company has a “permanent establishment” in the United Kingdom
10
if (and only if)—
(a)
it has a fixed place of business there through which the
business of the company is wholly or partly carried on, or
(b)
an agent acting on behalf of the company has and habitually
exercises there authority to enter into contracts on behalf of
15
the company.
(3)
For the purposes of this section “fixed place of business” includes
(without prejudice to the generality of that expression)—
(a)
a place of management,
(b)
a branch,
20
(c)
an office,
(d)
a factory,
(e)
a workshop,
(f)
a mine, an oil or gas well, a quarry or any other place of
extraction of natural resources, and
25
(g)
a building site or construction or installation project.
(4)
If the condition in subsection (5) is met, a company is not regarded as
having a permanent establishment in the United Kingdom by reason
of the fact that—
(a)
a fixed place of business is maintained there for the purpose
30
of carrying on activities for the company, or
(b)
an agent carries on activities there for and on behalf of the
company.
(5)
The condition is that, in relation to the business of the company as a
whole, the activities carried on are only of a preparatory or auxiliary
35
character.
(6)
For this purpose “activities of a preparatory or auxiliary character”
include (without prejudice to the generality of that expression)—
(a)
the use of facilities for the purpose of storage, display or
delivery of goods or merchandise belonging to the company,
40
(b)
the maintenance of a stock of goods or merchandise
belonging to the company for the purpose of storage, display
or delivery,
(c)
the maintenance of a stock of goods or merchandise
belonging to the company for the purpose of processing by
45
another person, and

Finance (No. 2) Bill
Schedule 2 — Venture capital schemes
31

(d)
purchasing goods or merchandise, or collecting information,
for the company.
(7)
A company is not regarded as having a permanent establishment in
the United Kingdom by reason of the fact that it carries on business
there through an agent of independent status (including a broker or
5
a general commission agent) acting in the ordinary course of the
agent’s business.
(8)
A company is not regarded as having a permanent establishment in
the United Kingdom by reason of the fact that it controls a company
that—
10
(a)
is resident there, or
(b)
carries on business there (whether through a permanent
establishment or otherwise).
(9)
The Treasury may by regulations amend this section.”
Venture capital trusts
15
2     (1)
Part 6 of ITA 2007 (venture capital trusts) is amended as follows.
      (2)
In section 274 (requirements for the giving of approval)—
(a)
in the table in subsection (2), in the first entry, in column 2, for
“included in the official UK list” substitute “admitted to trading on a
regulated market”,
20
(b)
in the last entry in the table, in columns 1 and 2, for “30%” substitute
“70%”,
(c)
in paragraphs (c) and (d) of subsection (3), for “30%” substitute
“70%”, and
(d)
at the end insert—
25
    “(4)
In this section “regulated market” has the same meaning as
in Directive 2004/39/EC of the European Parliament and
of the Council on markets in financial instruments (see
Article 4.1(14)).
      (5)
The Treasury may by regulations amend—
30
(a)
the first entry in the table in subsection (2) (the
listing condition), or
(b)
subsection (4).”
      (3)
In section 275(3)(b) (alternative requirements for the giving of approval), for
“30%” substitute “70%”.
35
      (4)
In section 278(1) (conditions relating to value of investments: general), for
“30%” substitute “70%”.
      (5)
In section 280(2) (conditions relating to qualifying holdings and eligible
shares), for “30%” substitute “70%”.
      (6)
In section 285 (interpretation of Chapter 3 of Part 6), for subsection (3)
40
substitute—
“(3A)
For the purposes of this Chapter, shares in a company are “eligible”
unless they carry—

Finance (No. 2) Bill
Schedule 2 — Venture capital schemes
32

(a)
a present or future preferential right to dividends that is
within subsection (3B),
(b)
a present or future preferential right to the company’s assets
on its winding up, or
(c)
a present or future right to be redeemed.
5
(3B)
A preferential right to dividends carried by a share in a company is
within this subsection if—
(a)
the amount of any dividends payable pursuant to the right,
or the date or dates on which they are payable, depend to any
extent on a decision of the company, the holder of the share
10
or any other person, or
(b)
the amount of any dividends that become payable at any time
pursuant to the right includes any amount that became
payable at any earlier time pursuant to the right, but has not
been paid.”
15
      (7)
In section 286 (qualifying holdings: introduction), in subsection (3), before
paragraph (a) insert—
“(za)
UK permanent establishment (see section 286A),
(zb)
financial health (see section 286B),”.
      (8)
Before section 287 insert—
20
“286A
The UK permanent establishment requirement

The requirement of this section, at any time on or after the issue of
the relevant holding, is that the relevant company has a permanent
establishment in the United Kingdom at all times from the issue of
the holding to the time in question.
25
286B
The financial health requirement
(1)
The requirement of this section is that the relevant company is not, at
the time of the issue of the relevant holding, in difficulty.
(2)
The relevant company is “in difficulty” if it is reasonable to assume
that it would be regarded as a firm in difficulty for the purposes of
30
the Community Guidelines on State Aid for Rescuing and
Restructuring Firms in Difficulty (2004/C 244/02).”
      (9)
In section 289(5) (the proportion of eligible shares requirement), for “285(3)”
substitute “285(3A) and (3B)”.
     (10)
In section 291 (carrying on of qualifying activity requirement)—
35
(a)
in subsection (2), for “A qualifying trade carried on wholly or mainly
in the United Kingdom” substitute “Carrying on a qualifying trade”,
(b)
in subsection (3), omit “wholly or mainly in the United Kingdom”,
and
(c)
in subsection (4)(b), omit “wholly or mainly in the United Kingdom”.
40
     (11)
In section 300(2) (meaning of “qualifying trade”), for paragraphs (a) and (b)
substitute—
“(a)
that a trade will be derived which will be a qualifying trade,
or
(b)
that a trade will benefit which is or will be a qualifying
45
trade,”.

Finance (No. 2) Bill
Schedule 2 — Venture capital schemes
33

     (12)
After section 302 (and before the italic heading “Excluded activities”) insert—
“302A
Meaning of “permanent establishment”
(1)
This section applies for the purposes of this Chapter.
(2)
A company has a “permanent establishment” in the United Kingdom
if (and only if)—
5
(a)
it has a fixed place of business there through which the
business of the company is wholly or partly carried on, or
(b)
an agent acting on behalf of the company has and habitually
exercises there authority to enter into contracts on behalf of
the company.
10
(3)
For the purposes of this section “fixed place of business” includes
(without prejudice to the generality of that expression)—
(a)
a place of management,
(b)
a branch,
(c)
an office,
15
(d)
a factory,
(e)
a workshop,
(f)
a mine, an oil or gas well, a quarry or any other place of
extraction of natural resources, and
(g)
a building site or construction or installation project.
20
(4)
If the condition in subsection (5) is met, a company is not regarded as
having a permanent establishment in the United Kingdom by reason
of the fact that—
(a)
a fixed place of business is maintained there for the purpose
of carrying on activities for the company, or
25
(b)
an agent carries on activities there for and on behalf of the
company.
(5)
The condition is that, in relation to the business of the company as a
whole, the activities carried on are only of a preparatory or auxiliary
character.
30
(6)
For this purpose “activities of a preparatory or auxiliary character”
include (without prejudice to the generality of that expression)—
(a)
the use of facilities for the purpose of storage, display or
delivery of goods or merchandise belonging to the company,
(b)
the maintenance of a stock of goods or merchandise
35
belonging to the company for the purpose of storage, display
or delivery,
(c)
the maintenance of a stock of goods or merchandise
belonging to the company for the purpose of processing by
another person, and
40
(d)
purchasing goods or merchandise, or collecting information,
for the company.
(7)
A company is not regarded as having a permanent establishment in
the United Kingdom by reason of the fact that it carries on business
there through an agent of independent status (including a broker or
45
a general commission agent) acting in the ordinary course of the
agent’s business.

Finance (No. 2) Bill
Schedule 2 — Venture capital schemes
34

(8)
A company is not regarded as having a permanent establishment in
the United Kingdom by reason of the fact that it controls a company
that—
(a)
is resident there, or
(b)
carries on business there (whether through a permanent
5
establishment or otherwise).
(9)
The Treasury may by regulations amend this section.”
     (13)
In section 313 (interpretation of Chapter 4 of Part 6)—
(a)
in subsection (6), omit the “and” at the end of paragraph (a) and after
paragraph (b) insert “, and
10
(c)
any right to dividends carried by shares in the
company where the shares—
(i)
are eligible shares, and
(ii)
are held by the investing company.”, and
(b)
after subsection (7) insert—
15
“(8)
In subsection (6) “eligible shares” has the same meaning as in
Chapter 3 (see section 285(3A) and (3B)).”
Interpretation
3     (1)
Chapter 1 of Part 16 of ITA 2007 (definitions) is amended as follows.
      (2)
In section 989 (the definitions), omit the definition of “permanent
20
establishment”.
      (3)
After section 1007 insert—
“1007A
Meaning of “permanent establishment”
(1)
In the Income Tax Acts “permanent establishment”, in relation to a
company, is to be read in accordance with Chapter 2 of Part 24 of
25
CTA 2010.
(2)
This section does not apply for the purposes of—
(a)
Part 5 of this Act (see instead section 191A), or
(b)
Chapter 4 of Part 6 of this Act (see instead section 302A).”
4     (1)
Schedule 4 to that Act (index of defined expressions) is amended as follows.
30
      (2)
In column 2 of the entry for “eligible shares (in Chapter 3 of Part 6)”, for
“285(3)” substitute “285(3A) and (3B)”.
      (3)
In column 1 of the entry for “the 30% eligible shares condition (in Chapter 3
of Part 6)”, for “30%” substitute “70%”.
      (4)
For the entry for “permanent establishment” substitute—
35

“permanent establishment (except in
section 1007A

Part 5 and Chapter 4 of Part 6)

permanent establishment (in Part 5)
section 191A

Finance (No. 2) Bill
Schedule 2 — Venture capital schemes
35

permanent establishment (in Chapter
section 302A”.

4 of Part 6)

Consequential repeal
5
In consequence of the amendment made by paragraph 3(2), omit paragraph
562(6) of Schedule 1 to CTA 2010.
5
Commencement of amendments relating to 70% eligible shares condition
6     (1)
The amendments made by paragraphs 2(2)(b) and (c), (3) to (6) and 4(2) and
(3) have effect in relation to accounting periods ending on or after the
commencement day.

This is subject to the following provisions of this paragraph.
10
      (2)
The amendments mentioned in sub-paragraph (1) do not have effect in
relation to shares or securities held by a company (“the investing company”)
if the shares or securities—
(a)
are issued before the commencement day, or
(b)
are issued on or after that day and are acquired by the investing
15
company by means of the investment of protected money.
      (3)
In this paragraph “protected money” means—
(a)
money raised by the issue before the commencement day of shares
in or securities of the investing company, or
(b)
money derived from the investment of such money.
20
Commencement of other provisions of this Schedule
7     (1)
The amendments made by paragraph 1 have effect in relation to shares
issued on or after the commencement day.
      (2)
The amendments made by paragraph 2(2)(a) and (d) have effect in relation
to accounting periods ending on or after the commencement day (and have
25
effect in relation to shares issued at any time).
      (3)
The amendments made by paragraphs 2(7), (8) and (10) to (12), 3, 4(4) and 5
have effect in relation to shares or securities issued on or after the
commencement day.
      (4)
The amendments made by paragraph 2(9) and (13) have effect in relation to
30
shares issued at any time.
Meaning of “the commencement day”
8     (1)
In paragraphs 6 and 7 “the commencement day” means such day as the
Treasury may by order appoint.
      (2)
An order may appoint different days for different provisions or different
35
purposes.