Finance (No. 3) Bill

Session 2010 - 11
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Finance (No. 3) Bill

Finance (No. 3) Bill
Schedule 3 — Tainted charity donations
Part 1 — Income tax
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Supplementary
809ZP
Connected charities

For the purposes of this Chapter, a “connected charity” in relation to
another charity means a charity which is connected with that other
charity in a matter relating to the structure, administration or control
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of either charity.
809ZQ
Connected persons
(1)
Section 993 (meaning of “connected” persons) applies for the
purposes of this Chapter—
(a)
subject to section 809ZP, and
10
(b)
as if, after subsection (7) there were inserted the provision in
subsection (2).
(2)
That provision is—
“(8)
A person who is a beneficiary of a settlement is connected
with—
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(a) a person in the capacity as trustee of the settlement, and
(b) the settlor in relation to the settlement.
(9)
For the purposes of this section—
(a) a man and woman living together as husband and wife are
treated as if they were husband and wife,
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(b) two people of the same sex living together as if they were civil
partners of each other are treated as if they were civil partners
of each other, and
(c) “close company” includes a company that would be a close
company if it were resident in the United Kingdom.”
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809ZR
Minor definitions
(1)
In this Chapter—
“arrangements” includes any scheme, arrangement or
understanding of any kind, whether or not legally
enforceable, involving a single transaction or two or more
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transactions;
“charity” includes a registered club within the meaning of
section 658(6) of CTA 2010 (meaning of “community amateur
sports club” and “registered club”).
(2)
In this Chapter, in the case of a charitable trust, references to a charity
35
being entitled to a repayment of, or liable to pay, tax are to be read as
references to the trustees of the trust being so entitled or liable.”

Finance (No. 3) Bill
Schedule 3 — Tainted charity donations
Part 2 — Corporation tax
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Part 2
Corporation tax
2
After Part 21B of CTA 2010 (inserted by Schedule 5 to this Act) insert—
“Part 21C
5
Tainted charity donations
Introduction
939A
Overview of Part
(1)
This Part makes provision for removing entitlement to corporation
tax reliefs where a person makes a relievable charity donation which
10
is a tainted donation.
(2)
See Chapter 8 of Part 13 of ITA 2007 and section 257A of TCGA 1992
for the removal of entitlement to other reliefs, and the ways in which
other income tax advantages are counteracted, where a person
makes a relievable charity donation which is a tainted donation.
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939B
Relievable charity donations
(1)
In this Chapter “relievable charity donation” means a gift or other
disposal which—
(a)
is made by a person to a charity, and
(b)
is eligible for tax relief.
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(2)
A gift or other disposal is eligible for tax relief if one or both of the
following apply—
(a)
(ignoring the tainted donation provisions) tax relief would be
available in respect of it under a relevant relieving provision;
(b)
the charity is entitled to claim a repayment of tax in respect of
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it.
(3)
“The tainted donation provisions” are—
(a)
this Part,
(b)
section 257A of TCGA 1992 (tainted charity donations:
disapplication of section 257), and
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(c)
Chapter 8 of Part 13 of ITA 2007 (tainted charity donations:
removal of income tax relief etc).
(4)
The following are “relevant relieving provisions”—
(a)
section 257 of TCGA 1992 (gifts of chargeable assets),
(b)
section 63(2)(a), (aa) and (ab) of CAA 2001 (gifts of plant and
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machinery),
(c)
Part 12 of ITEPA 2003 (payroll giving),
(d)
section 108 of ITTOIA 2005 (gifts of trading stock),
(e)
Chapters 2 and 3 of Part 8 of ITA 2007 (gift aid and gifts of
shares),
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(f)
section 105 of CTA 2009 (gifts of trading stock), and

Finance (No. 3) Bill
Schedule 3 — Tainted charity donations
Part 2 — Corporation tax
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(g)
Part 6 of this Act (charitable donations relief).
(5)
For the purposes of this Part, an amount of income which arises
under a UK settlement and to which a charity is entitled under the
terms of the settlement is to be regarded as an amount gifted to the
charity by the trustees of the settlement.
5

“UK settlement” has the same meaning as in section 628 of ITTOIA
2005.
Tainted donations
939C
Tainted donations
(1)
For the purposes of this Part, a relievable charity donation is a tainted
10
donation if (and only if) Conditions A, B and C are met.
(2)
Condition A is that—
(a)
a linked person enters into arrangements (whether before or
after the donation is made), and
(b)
it is reasonable to assume from either or both of—
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(i)
the likely effects of the donation and the
arrangements, and
(ii)
the circumstances in which the donation is made and
the circumstances in which the arrangements are
entered into,
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that the donation would not have been made and the
arrangements would not have been entered into
independently of one another.
(3)
“Linked person” means—
(a)
the person who made the donation (“the donor”), or
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(b)
a person who is connected with the donor at a relevant time.
(4)
In subsection (3) “relevant time” means a time during the period
which begins with the earliest, and ends with the latest, of the
following times—
(a)
the time when the arrangements are entered into as
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mentioned in subsection (2);
(b)
the time when the relievable charity donation is made;
(c)
the time when the arrangements are first materially
implemented.
(5)
Condition B is that the main purpose, or one of the main purposes,
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of the linked person in entering into the arrangements is to obtain a
financial advantage—
(a)
directly or indirectly from the charity to which the donation
is made or a connected charity,
(b)
for one or more linked persons who are not charities (each of
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whom is referred to in this Part as “a potentially advantaged
person”).
(6)
Condition C is that the donor is not—
(a)
a qualifying charity-owned company, or
(b)
a relevant housing provider linked with the charity to which
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the donation is made.

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Part 2 — Corporation tax
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(7)
For the purposes of subsection (6)(b) a relevant housing provider is
linked with the charity if (and only if)—
(a)
one is wholly owned, or subject to control, by the other, or
(b)
both are wholly owned, or subject to control, by the same
person.
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(8)
In this section—
“qualifying charity-owned company”, in relation to a relievable
charity donation, means a company which—
(a)
is wholly owned by one or more charities, at least one
of which is the charity to which the donation is made
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or a connected charity, and
(b)
has not previously been under the control of, and
does not carry on a trade or business previously
carried on by, one or more of the following—
(i)
a potentially advantaged person;
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(ii)
a person (other than a charity) who, at any
time within the period of 4 years ending with
the day on which paragraph (a) was first
satisfied, was connected with a person who is
a potentially advantaged person;
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“relevant housing provider” means a body which is—
(a)
a non-profit registered provider of social housing, or
(b)
entered on a register maintained under section 1 of
the Housing Act 1996, section 20 of the Housing
(Scotland) Act 2010 (asp 17) or Article 14 of the
25
Housing (Northern Ireland) Order 1992 (S.I. 1992/
1725 (N.I. 15)).
(9)
Section 200 (company wholly owned by a charity) applies for the
purposes of subsection (8), and for those purposes references in that
section to “charity” include a registered club within the meaning of
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section 658(6).
(10)
This section is subject to section 939E (certain financial advantages to
be ignored).
939D
Circumstances in which financial advantage deemed to be obtained
(1)
This section applies for the purposes of Condition B.
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(2)
Subsection (3) applies where the arrangements entered into by the
linked person (as mentioned in Condition A) involve a transaction to
which—
(a)
that or another linked person (“X”), and
(b)
another person (“Y”),
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are parties.
(3)
X obtains a financial advantage from the charity to which the
donation is made or a connected charity if—
(a)
the terms of the transaction are less beneficial to Y or more
beneficial to X (or both) than those which might reasonably
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be expected in a transaction concluded between parties
dealing at arm’s length, or

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Part 2 — Corporation tax
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(b)
the transaction is not of a kind which a person dealing at
arm’s length and in place of Y might reasonably be expected
to make.
(4)
Nothing in this section is intended to limit the circumstances in
which a linked person may be regarded as obtaining a financial
5
advantage for the purposes of section 939C.
(5)
In this section—
“Condition A” and “Condition B” have the same meaning as in
section 939C;
“linked person” has the meaning given by section 939C(3);
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“transaction” includes (for example)—
(a)
the sale or letting of property,
(b)
the provision of services,
(c)
the exchange of property,
(d)
the provision of a loan or any other form of financial
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assistance, and
(e)
investment in a business.
939E
Certain financial advantages to be ignored
(1)
When determining whether a relievable charity donation is a tainted
donation, a financial advantage within subsection (2), (3), (4) or (5) is
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to be ignored.
(2)
A financial advantage is within this subsection if the person for
whom it is obtained applies the advantage for charitable purposes
only.
(3)
A financial advantage is within this subsection if (ignoring the
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tainted donation provisions) it is—
(a)
a benefit associated with a gift which is a qualifying donation
for the purposes of Chapter 2 of Part 8 of ITA 2007 (gift aid),
or
(b)
a benefit associated with a payment which is a qualifying
30
payment for the purposes of Chapter 2 of Part 6 (charitable
donations relief: payments to charity).
(4)
A financial advantage is within this subsection if (ignoring the
tainted donation provisions)—
(a)
the relievable charity donation is a disposal in respect of
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which tax relief would be available under Chapter 3 of Part 8
of ITA 2007 (gifts of shares, securities and real property to
charities etc) or Chapter 3 of Part 6 (charitable donations:
certain disposals to charity), and
(b)
the advantage is a benefit the value of which would be taken
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into account in determining the relievable amount in respect
of the disposal for the purposes of the Chapter in question.
(5)
A financial advantage is within this subsection if (ignoring the
tainted donation provisions)—
(a)
the relievable charity donation is a gift in respect of which tax
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relief would be available under section 108 of ITTOIA 2005 or
section 105 of CTA 2009 (gifts of trading stock to charities
etc), and

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Part 2 — Corporation tax
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(b)
the advantage is a benefit attributable to the making of the
gift in respect of which an amount would be brought into
account under section 109 of ITTOIA 2005 or section 108 of
CTA 2009 (receipt of benefits by donor or connected person).
(6)
In this section—
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“benefit associated with a gift” has the meaning given by section
417 of ITA 2007;
“benefit associated with a payment” has the meaning given by
section 196;
“the tainted donation provisions” has the meaning given by
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section 939B(3).
Removal of reliefs
939F
Removal of corporation tax relief in respect of tainted donations etc
(1)
This section applies where a tainted donation is made by a company.
(2)
Where (ignoring this Part) corporation tax relief would be available
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in respect of the tainted donation, that relief is not available.
(3)
Where—
(a)
(ignoring this Part) corporation tax relief would be available
in respect of an associated donation, and
(b)
entitlement to that relief is not withdrawn by subsection (2),
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that relief is not available.
(4)
In this section —
“associated donation”, in relation to a tainted donation, means
a relievable charity donation made—
(a)
in accordance with the relevant arrangements, and
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(b)
by a person, other than—
(i)
a qualifying charity-owned company in
relation to that relievable charity donation, or
(ii)
a relevant housing provider linked (within the
meaning of section 939C(7)) with the charity
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to which that donation is made;
“corporation tax relief” means relief under—
(a)
section 63(2)(a), (aa) or (ab) of CAA 2001 (gifts of plant
and machinery), so far as it applies in relation to
corporation tax,
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(b)
section 105 of CTA 2009 (gifts of trading stock), or
(c)
Part 6 of CTA 2010 (charitable donations relief);
“qualifying charity-owned company” has the meaning given by
section 939C(8) (except that paragraph (b) of that definition
does not apply);
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“relevant housing provider” has the meaning given by section
939C(8);
“the relevant arrangements”, in relation to a tainted donation,
means the arrangements by reference to which Conditions A
to C in section 939C are met.
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