Finance (No. 3) Bill

Session 2010 - 11
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Finance (No. 3) Bill

Finance (No. 3) Bill
Schedule 10 — Company ceasing to be member of group
168

(6)
Where under this section the gain accruing to company A on a sale
referred to in subsection (3) or (6) of section 179 is treated as reduced
by an amount (“the permitted deduction”), the subsection in
question has effect, so far as it provides for the immediate
reacquisition of the asset by company A, as if the reference to market
5
value of the asset were to its market value less the permitted
deduction.”
5
In TCGA 1992, the following provisions are repealed—
(a)
section 179A (reallocation within group of gain or loss accruing
under section 179);
10
(b)
section 179B (roll-over of degrouping charge on business assets);
(c)
Schedule 7AB (roll-over of degrouping charge: modification of
enactments).
Substantial shareholding exemption
6     (1)
Schedule 7AC to TCGA 1992 (exemptions for disposals by companies with
15
substantial shareholdings) is amended as follows.
      (2)
After paragraph 15 insert—
“Effect of transfer of trading assets within a group
15A   (1)
For the purposes of this Part, the period for which the investing
company is treated as holding a substantial shareholding in the
20
company invested in is extended in accordance with sub-
paragraph (3) if the following conditions are met.
      (2)
The conditions are—
(a)
that, immediately before the disposal, the investing
company holds a substantial shareholding in the company
25
invested in,
(b)
that an asset which, at the time of the disposal, is being
used for the purposes of a trade carried on by the company
invested in was transferred to it by the investing company
or another company,
30
(c)
that, at the time of the transfer of the asset, the company
invested in, the investing company and, if different, the
company which transferred the asset were all members of
the same group, and
(d)
that the asset was previously used by a member of the
35
group (other than the company invested in) for the
purposes of a trade carried on by that member at a time
when it was such a member.
      (3)
The investing company is to be treated as having held the
substantial shareholding at any time during the final 12 month
40
period when the asset was used as mentioned in sub-paragraph
(2)(d) (if it did not hold a substantial shareholding at that time).
      (4)
“The final 12 month period” means the period of 12 months
ending with the time of the disposal.”
      (3)
In paragraph 19 (requirements relating to the company invested in), after
45

Finance (No. 3) Bill
Schedule 10 — Company ceasing to be member of group
169

sub-paragraph (2) insert—
   “(2A)
If the conditions in paragraph 15A(2)(b) to (d) are met, sub-
paragraph (2B) applies for the purpose of determining whether
the requirement of sub-paragraph (1)(a) is satisfied.
     (2B)
The company invested in is to be treated as having been a trading
5
company at any time during the final 12 month period when the
asset was used as mentioned in paragraph 15A(2)(d) (if it was not
a trading company at that time).
     (2C)
“The final 12 month period” has the meaning given in paragraph
15A(4).”
10
Intangible fixed assets: degrouping
7     (1)
Part 8 of CTA Act 2009 (intangible fixed assets) is amended as follows.
      (2)
In section 780 (deemed realisation and reacquisition at market value), in
subsection (5)(b) before “associated” insert “certain”.
      (3)
In section 783 (associated companies leaving group at same time), for
15
subsection (1) substitute—
“(1)
Where two companies cease to be members of a group at the same
time, section 780 does not apply in relation to a transfer by one of the
companies to the other if condition A or B is met.
(1A)
Condition A is that the companies—
20
(a)
are both 75% subsidiaries and effective 51% subsidiaries of
another company on the date of the transfer, and
(b)
remain both 75% subsidiaries and effective 51% subsidiaries
of that other company until immediately after they cease to
be members of the group.
25
(2)
Condition B is that one of the companies—
(a)
is both a 75% subsidiary and an effective 51% subsidiary of
the other on the date of the transfer, and
(b)
remains both a 75% subsidiary and an effective 51%
subsidiary of the other until immediately after the companies
30
cease to be members of the group.”,

and, in the section heading, for “Associated” substitute “Certain associated”.
      (4)
In section 788 (provisions supplementing provisions about degrouping), for
subsection (3) substitute—
“(3)
For the purposes of those sections and this section two companies are
35
associated with each other if one is a 75% subsidiary of the other or
both are 75% subsidiaries of another company.”
Consequential repeals
8
In consequence of the repeals made by paragraph 5, the following are also
repealed—
40
(a)
in IHTA 1984, section 97(1)(a)(iii) and the “or” before it,
(b)
in FA 2002, section 42(1) and (3)(a),
(c)
in F(No.2)A 2005, in Schedule 4, paragraphs 8 and 10(3), and

Finance (No. 3) Bill
Schedule 11 — Pre-entry losses
170

(d)
in FA 2009, in Schedule 12, paragraph 2.
Commencement
9     (1)
The amendments made by paragraphs 1 to 5 and 8 have effect in relation to
any disposal of an asset by one company (“company B”) to another company
(“company A”) made at a time when company B is a member of a group, if—
5
(a)
company A ceases to be a member of the group on or after the
passing of this Act, or
(b)
where company A ceased to be such a member before the passing of
this Act in circumstances where section 179(6) to (8) of TCGA 1992
applied, company A ceases to satisfy the conditions in section 179(7)
10
of that Act on or after the passing of this Act.
      (2)
The amendments made by paragraph 6 have effect in relation to disposals of
shares made on or after the passing of this Act.
      (3)
The amendments made by paragraph 7 have effect in relation to any
disposal of an asset by one company (“company B”) to another company
15
(“company A”) made at a time when company B is a member of a group, if—
(a)
company A ceases to be a member of the group on or after the
passing of this Act, or
(b)
where company A ceased to be such a member before the passing of
this Act in circumstances where section 783 of CTA 2009 applied,
20
company A ceases to be a member of another group on or after the
passing of this Act.
Schedule 11
Section 46

Pre-entry losses
TCGA 1992
25
1
In section 177A of TCGA 1992 (restriction on set-off of pre-entry losses), omit
“and losses accruing on assets held by any company at such a time”.
2
Schedule 7A to that Act (restriction on set-off of pre-entry losses) is amended
as follows.
3     (1)
Paragraph 1 (application and construction of Schedule) is amended as
30
follows.
      (2)
In sub-paragraph (1) for “is or has been” substitute “becomes”.
      (3)
For sub-paragraph (2) substitute—
    “(2)
In this Schedule “pre-entry loss”, in relation to any company,
means any allowable loss that accrued to that company at a time
35
before it became a member of the relevant group.”
      (4)
Omit sub-paragraphs (3), (3A), (4) and (5).
      (5)
In sub-paragraph (6) for “Subject to” to “if” substitute “If”.
      (6)
Omit sub-paragraph (8).

Finance (No. 3) Bill
Schedule 11 — Pre-entry losses
171

4
Omit paragraphs 2 to 5 (determination of pre-entry proportion of losses on
pre-entry assets).
5     (1)
Paragraph 6 (restrictions on the deduction of pre-entry losses) is amended as
follows.
      (2)
In sub-paragraph (2)—
5
(a)
omit paragraph (a) (and the “and” after it), and
(b)
in paragraph (b), omit “in any other case”.
      (3)
In sub-paragraph (3)—
(a)
omit paragraph (a) (and the “and” after it), and
(b)
in paragraph (b), omit “in the case of an election under sub-
10
paragraph (2)(b) above,”.
6     (1)
Paragraph 7 (gains from which pre-entry losses are to be deductible) is
amended as follows.
      (2)
In sub-paragraph (1), for paragraph (c) substitute—
“(c)
on the disposal of any asset in respect of which the conditions
15
in sub-paragraph (1A) are met.”
      (3)
After that sub-paragraph insert—
   “(1A)
The conditions referred to in sub-paragraph (1)(c) are—
(a)
that the asset was acquired, on or after the entry date, by—
(i)
the company to which the pre-entry loss accrued
20
(“company A”), or
(ii)
a company which, at the time of the acquisition,
was a group company of company A,

from a person who at the time of the acquisition was not a
group company of company A, and
25
(b)
that the asset has not, since its acquisition from that person,
been used or held for any purposes other than those of a
trade or business which—
(i)
was being carried on by company A immediately
before the entry date, and
30
(ii)
continued until the disposal to be carried on by
company A or a company which, when it carried
on the trade or business, was a group company of
company A.
     (1B)
For the purposes of sub-paragraph (1A), a company is a “group
35
company of company A” at any time when it is a member of a
group of companies of which company A is also a member.
     (1C)
Where a company, having become a member of the relevant
group, subsequently becomes a member of another group (“the
new group”)—
40
(a)
sub-paragraph (1) continues to have effect, in relation to
any loss which accrued to the company before it became a
member of the relevant group, by reference to the date on
which it became such a member, and
(b)
accordingly, that sub-paragraph does not apply separately
45
in relation to the loss by reason of it also having accrued to

Finance (No. 3) Bill
Schedule 11 — Pre-entry losses
172

the company before it became a member of the new
group.”
      (4)
Omit sub-paragraph (2),
      (5)
In sub-paragraph (3)—
(a)
omit “, without prejudice to paragraph 9 below”,
5
(b)
omit paragraph (b), and
(c)
in paragraph (c), “for sub-paragraphs (1)(c) and (2)(c)” substitute
“sub-paragraph (1A)”.
      (6)
For sub-paragraph (4) substitute—
    “(4)
Sub-paragraphs (4A) and (4B) apply for determining for the
10
purposes of this paragraph whether an asset on the disposal of
which a chargeable gain accrues was an asset held by a company
immediately before the entry date (a “pre-entry asset”).
     (4A)
Except as provided by sub-paragraph (4B), an asset is not a pre-
entry asset if—
15
(a)
the company which held the asset at the entry date is not
the company which makes the disposal, and
(b)
since the entry date that asset has been disposed of
otherwise than by a disposal to which section 171 applies.
     (4B)
Without prejudice to sub-paragraph (4C), where, on a disposal to
20
which section 171 does not apply—
(a)
an asset would cease to be a pre-entry asset by virtue of
sub-paragraph (4A), but
(b)
the company making the disposal retains an interest in or
over the asset in question,
25

that interest is a pre-entry asset.
     (4C)
For the purposes of this paragraph—
(a)
an asset acquired or held by a company at any time and an
asset held at a later time by that company, or by any
company which is or has been a member of the same group
30
of companies as that company, is to be treated as the same
asset if the value of the second asset is derived in whole or
in part from the first asset, and
(b)
if—
(i)
any asset is treated (whether by virtue of
35
paragraph (a) or otherwise) as the same as an asset
held by a company at a later time, and
(ii)
the first asset would have been a pre-entry asset in
relation to that company,

the second asset is also to be treated as a pre-entry asset in
40
relation to that company;

and paragraph (a) applies, in particular, where the second asset is
a freehold and the first asset is a leasehold the lessee of which
acquires the reversion.”
      (7)
In sub-paragraph (5) omit “or (2)” (in both places).
45
      (8)
In sub-paragraph (6) omit “or (2)”.

Finance (No. 3) Bill
Schedule 11 — Pre-entry losses
173

7     (1)
Paragraph 8 (change of a company’s nature) is amended as follows.
      (2)
In sub-paragraph (1)—
(a)
after “trade” (in each place) insert “or business”,
(b)
in paragraph (a) for “carried on by that company” substitute “which
was carried on by that company immediately before it became a
5
member of that group”, and
(c)
for “paragraph 7(1)(c) and (2)(c)” substitute “paragraph 7(1A)”.
      (3)
For sub-paragraph (2) substitute—
    “(2)
In sub-paragraph (1) “a major change in the nature or conduct of a
trade or business” includes—
10
(a)
a major change in the type of property dealt in, or services
or facilities provided, in the trade or business,
(b)
a major change in customers, markets or outlets of the
trade or business, or
(c)
in the case of a company with investment business (within
15
the meaning of section 1218 of CTA 2009), a major change
in the nature of the investments held;

and this paragraph applies even if the change is the result of a
gradual process which began outside the period of three years
mentioned in sub-paragraph (1)(a).”
20
8
Omit paragraph 9 (identification of “the relevant group” and application of
Schedule to every connected group).
9
In paragraph 11 (continuity provisions), omit sub-paragraph (3)(b) (and the
“and” before it).
Consequential provision
25
10
Omit the following provisions (which relate to the provisions repealed by
paragraphs 1 to 9)—
(a)
in FA 1994, sections 93(8) to (10) and 94;
(b)
in FA 1998, section 138;
(c)
in FA 2000, in Schedule 29, paragraph 7(2) to (5);
30
(d)
in F(No 2)A 2005, section 65(2), (3) and (5).
Commencement
11    (1)
The amendments made by this Part of this Schedule have effect on and after
commencement in relation to the deduction of any pre-entry loss within
paragraph 1(2) of Schedule 7A to TCGA 1992 (as substituted by paragraph 3
35
of this Schedule) regardless of—
(a)
whether the loss accrued before or on or after commencement, and
(b)
whether the company which accrued the loss became a member of
the relevant group (within the meaning of that Schedule) before or
on or after commencement.
40
      (2)
In this paragraph “commencement” means the day on which this Act is
passed.

Finance (No. 3) Bill
Schedule 12 — Controlled foreign companies
Part 1 — Exemptions for companies with limited UK connection
174

Transitional provision
12    (1)
Sub-paragraph (2) applies where, immediately before commencement,
Schedule 7A to TCGA 1992 had effect, in the case of a company which is or
has been a member of a group of companies (“the relevant group”) in
relation to a loss of that company within paragraph 1(2)(b) of that Schedule
5
(pre-entry proportion of an allowable loss that has accrued to a company on
the disposal of a pre-entry asset).
      (2)
On and after commencement that loss is to be treated, for the purposes of
Schedule 7A to TCGA 1992, as if it were a pre-entry loss within the meaning
of paragraph 1(2) of that Schedule (as substituted by paragraph 3 of this
10
Schedule) which accrued to that company immediately before it became a
member of the relevant group.
      (3)
In this paragraph “commencement” means the day on which this Act is
passed.
Schedule 12
15
Section 47

Controlled foreign companies
Part 1
Exemptions for companies with limited UK connection
1     (1)
Section 748 of ICTA (cases where apportionment of chargeable profits and
creditable tax under section 747(3) does not apply) is amended as follows.
20
      (2)
In subsection (1), in paragraph (b) for “that Schedule” substitute “Schedule
25”.
      (3)
After that paragraph insert—
“(ba)
the company is exempt for that period by virtue of Part 2A of
that Schedule (exemption for trading companies with limited
25
UK connection); or
(bb)
the company is exempt for that period by virtue of Part 2B of
that Schedule (exemption for companies exploiting
intellectual property with limited UK connection); or”.
2
After section 751AA of that Act insert—
30
“751AB
Reduction in chargeable profits: failure to qualify for exemptions
(1)
This section applies if—
(a)
an apportionment under section 747(3) would fall to be made
as regards an accounting period (“the relevant accounting
period”) of a controlled foreign company,
35
(b)
but for a relevant failure, section 748(1)(ba) or (bb) would
have prevented such an apportionment, and
(c)
a company resident in the United Kingdom (“the UK resident
company”) has a relevant interest in the controlled foreign
company in that period.
40
(2)
“Relevant failure” means—