|
| |
|
(a) | business establishment (see paragraph 12I), |
| |
(b) | intellectual property business (see paragraph 12J), |
| |
(c) | other business activities (see paragraph 12K) |
| |
(d) | UK connection (see paragraph 12L), and |
| |
(e) | finance income (see paragraph 12M). |
| 5 |
| |
12I (1) | The requirement of this paragraph is that throughout the |
| |
accounting period C has a business establishment in the territory |
| |
| |
(2) | For the purposes of sub-paragraph (1)— |
| 10 |
(a) | paragraph 5(2) to (5) (special rules about residence of the |
| |
company) applies as it applies for the purposes of Part 2 of |
| |
| |
(b) | paragraph 7 (meaning of “business establishment”) applies |
| |
as it applies for the purposes of paragraph 6(1)(a). |
| 15 |
Intellectual property business |
| |
12J (1) | The requirement of this paragraph is that C’s main business, |
| |
throughout the accounting period, consists of the exploitation of |
| |
intellectual property which does not have a relevant UK |
| |
| 20 |
(2) | For the purposes of sub-paragraph (1), if any part of C’s main |
| |
business consists of the exploitation of intellectual property which |
| |
has a relevant UK connection, that part is to be ignored if it is an |
| |
insignificant part of C’s main business. |
| |
(3) | Intellectual property has a relevant UK connection if— |
| 25 |
(a) | at any time during the accounting period or the 6 years |
| |
immediately preceding that period, it has been held by a |
| |
person resident in the United Kingdom, or |
| |
(b) | activities relating to the creation, maintenance or |
| |
enhancement of the intellectual property (other than |
| 30 |
activities of an incidental or insignificant nature) have been |
| |
carried on by a person who for some or all of the period— |
| |
(i) | beginning when the activities were first carried on |
| |
| |
(ii) | ending at the end of the accounting period, |
| 35 |
| was related to C and within the charge to United Kingdom |
| |
| |
Other business activities |
| |
12K (1) | The requirement of this paragraph is that— |
| |
(a) | C does not, at any time during the accounting period, carry |
| 40 |
on any activities otherwise than in the course of its main |
| |
| |
(b) | if it carries on any such activities (“secondary activities”), |
| |
the secondary activities condition is met. |
| |
|
| |
|
| |
|
(2) | The secondary activities condition is that either— |
| |
(a) | the secondary activities do not, at any time during the |
| |
accounting period, constitute a substantial part of the |
| |
activities of C’s business taken as a whole, or |
| |
(b) | section 748(1)(b) or (ba) would apply to prevent an |
| 5 |
apportionment under section 747(3) falling to be made as |
| |
regards that period, if C’s business consisted only of the |
| |
secondary activities carried on by it during the accounting |
| |
| |
| 10 |
12L (1) | The requirement of this paragraph is that C does not have a |
| |
significant connection with the United Kingdom during the |
| |
| |
(2) | C has a significant connection with the United Kingdom during |
| |
the accounting period if— |
| 15 |
(a) | all or a substantial proportion of C’s gross income for that |
| |
period consists of income from the exploitation of |
| |
intellectual property which derives from persons within |
| |
the charge to United Kingdom tax, or |
| |
(b) | during that period C incurs expenditure (other than |
| 20 |
expenditure of an incidental or insignificant nature) on— |
| |
(i) | R&D sub-contractor payments, or |
| |
(ii) | the creation, development or maintenance of |
| |
relevant intellectual property, |
| |
| and that expenditure forms part of the income of a person |
| 25 |
who for some or all of that period is related to C and within |
| |
the charge to United Kingdom tax. |
| |
| |
“R&D sub-contractor payment” means a payment made by C |
| |
to another person in respect of research and development |
| 30 |
contracted out by C to that person; |
| |
“relevant intellectual property” means intellectual property |
| |
which does not have a relevant UK connection (see |
| |
paragraph 12J(3)) and which C exploits in the course of its |
| |
| 35 |
| |
12M | The requirement of this paragraph is that not more than 5% of C’s |
| |
gross income for the accounting period consists of finance income |
| |
(within the meaning of paragraph 12F(3)). |
| |
Interpretation of Part 2B |
| 40 |
12N (1) | For the purpose of this Part of this Schedule— |
| |
“intellectual property” is to be construed in accordance with |
| |
| |
“United Kingdom tax” means corporation tax or income tax; |
| |
| and paragraph 12G (meaning of “gross income”) applies as it |
| 45 |
applies for the purposes of Part 2A of this Schedule. |
| |
|
| |
|
| |
|
(2) | For the purposes of this Part of this Schedule a person is “related” |
| |
to C at a particular time if at that time— |
| |
(a) | the person is connected or associated with C, |
| |
(b) | the person has a 25 per cent assessable interest in C in the |
| |
case of the accounting period of C in which that time falls |
| 5 |
(within the meaning of paragraph 6(4C)), or |
| |
(c) | if C is a controlled foreign company in the accounting |
| |
period in which that time falls by virtue of subsection (1A) |
| |
of section 747, the person is connected or associated with |
| |
either or both of the two persons mentioned in that |
| 10 |
| |
(3) | In the case of a company which is within the charge to United |
| |
Kingdom tax only because it carries on a trade in the United |
| |
Kingdom through a permanent establishment there— |
| |
(a) | for the purposes of paragraphs 12J(3)(b), the activities |
| 15 |
carried on by the company are such of the activities as are |
| |
carried on through that establishment, |
| |
(b) | for the purposes of paragraph 12L(2)(a), the income |
| |
derived from that company is such of the income so |
| |
derived as is attributable to that establishment, and |
| 20 |
(c) | for the purposes of paragraph 12L(2)(b), the income of that |
| |
company is such of its income as is attributable to that |
| |
| |
| |
Amendment of small chargeable profits exception |
| 25 |
4 (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. |
| |
(2) | In subsection (1), after paragraph (d) insert— |
| |
“(da) | the relevant profits for the accounting period, after any |
| |
adjustment required by subsection (3C), do not exceed— |
| 30 |
| |
(ii) | if the accounting period is less than 12 months, a |
| |
proportionately reduced amount; or”. |
| |
(3) | After subsection (3) insert— |
| |
“(3A) | The reference in subsection (1)(da) to the relevant profits for an |
| 35 |
accounting period are to the sum of— |
| |
(a) | the profits of the company for that period calculated in |
| |
accordance with generally accepted accounting practice |
| |
(disregarding any exempt distributions and any capital gains |
| |
or losses), before any adjustment required or authorised by |
| 40 |
law in calculating chargeable profits, |
| |
(b) | any amount which accrues during that period to the trustees |
| |
of a settlement in relation to which the company is a settlor or |
| |
| |
(c) | the company’s share of any income which accrues during |
| 45 |
that period to a partnership of which the company is a |
| |
| |
|
| |
|
| |
|
(3B) | For the purposes of subsection (3A)— |
| |
(a) | “exempt distribution” means a distribution (within the |
| |
meaning of Part 23 of CTA 2010) which would be excluded |
| |
from the company’s chargeable profits by reason of it being |
| |
exempt for the purposes of Part 9A of CTA 2009 (company |
| 5 |
| |
(b) | where there is more than one settlor or beneficiary in relation |
| |
to the settlement mentioned in subsection (3A)(b), the income |
| |
is to be apportioned between the company and the other |
| |
settlors or beneficiaries on a just and reasonable basis, and |
| 10 |
(c) | the company’s share of any income which accrues to a |
| |
partnership as mentioned in subsection (3A)(c) is to be |
| |
determined by apportioning that income between the |
| |
company and the other partners on a just and reasonable |
| |
| 15 |
| and in subsection (3A) and this subsection “partnership” includes an |
| |
entity established under the law of a country or territory outside the |
| |
United Kingdom of a similar character to a partnership; and |
| |
“partner” is to be read accordingly. |
| |
(3C) | For the purposes of subsection (1)(da), Part 4 of TIOPA 2010 (transfer |
| 20 |
pricing) applies in relation to the calculation of the relevant profits |
| |
for the accounting period as it applies in relation to the calculation of |
| |
the chargeable profits for that period. |
| |
(3D) | But where the difference made in the amount of the relevant profits |
| |
for the period as a result of the application of subsection (3C) would |
| 25 |
(disregarding this subsection) not exceed £50,000, no adjustment |
| |
under that subsection is to be made.” |
| |
(4) | In subsection (6) for “section” substitute “sections 748ZA and”. |
| |
5 | After that section insert— |
| |
“748ZA | Exclusion of small profits exemptions |
| 30 |
(1) | Nothing in section 748(1)(da) prevents an apportionment falling to |
| |
be made as regards an accounting period (“the relevant accounting |
| |
period”) of a controlled foreign company (“X”) if condition A, B or C |
| |
| |
(2) | Condition A is that at any time before the end of the relevant |
| 35 |
accounting period a scheme is entered into and— |
| |
(a) | in the absence of this subsection, in consequence of the |
| |
scheme, section 748(1)(da) would apply to prevent an |
| |
apportionment falling to made as regards the relevant |
| |
accounting period of X, and |
| 40 |
(b) | the main purpose, or one of the main purposes, of any party |
| |
to the scheme in entering into the scheme is to secure that |
| |
section 748(1)(da) prevents an apportionment falling to be |
| |
made as regards that period, or that period and one or more |
| |
other accounting periods of X. |
| 45 |
(3) | Condition B is that at any time before the end of the relevant |
| |
accounting period a scheme is entered into and— |
| |
(a) | in consequence of the scheme profits are shifted to X from |
| |
| |
|
| |
|
| |
|
(b) | the main purpose or one of the main purposes of any party to |
| |
the scheme in entering into the scheme is to ensure that |
| |
section 748(1)(da) prevents an apportionment falling to be |
| |
made as regards the chargeable profits of one or more |
| |
controlled foreign companies for one or more accounting |
| 5 |
| |
(c) | the relevant accounting period of X falls wholly or partly |
| |
within that accounting period or those accounting periods. |
| |
(4) | For the purposes of subsection (3), profits are shifted to X from Y if it |
| |
is reasonable to suppose that in the absence of the scheme, and any |
| 10 |
similar scheme, the whole or a part of the income which is reflected |
| |
in X’s profits would have been reflected in Y’s profits. |
| |
(5) | Condition C is that, in determining X’s chargeable profits for the |
| |
relevant accounting period— |
| |
(a) | section 418(5) of CTA 2009 (loan relationships involving |
| 15 |
connected debtor and creditor where debits exceed credits) |
| |
has effect so as to treat X, for the purposes of Part 5 of that |
| |
Act, as bringing into account for that period credits in respect |
| |
of a loan relationship, or |
| |
(b) | Part 21B of CTA 2010 (group mismatch schemes) has effect so |
| 20 |
as to exclude an amount from being brought into account as |
| |
a debit or credit for the purposes of Part 5 of CTA 2009 (loan |
| |
relationships) or Part 7 of that Act (derivative contracts). |
| |
(6) | For the purposes of this section— |
| |
“apportionment” means an apportionment under section |
| 25 |
| |
“scheme” means any scheme, arrangements or understanding |
| |
of any kind whatever, whether or not legally enforceable, |
| |
involving one or more transactions.” |
| |
| 30 |
Temporary exemption following reorganisation etc |
| |
6 (1) | Section 748 of ICTA (cases where section 747(3) does not apply) is amended |
| |
| |
(2) | After subsection (1)(e) insert “; or |
| |
(f) | the accounting period ends during an exempt period in |
| 35 |
relation to the company (see Part 3A of Schedule 25).” |
| |
(3) | In subsection (3) for “(e)” substitute “(f)”. |
| |
7 | After section 751AB of that Act (inserted by paragraph 2 of this Schedule) |
| |
| |
“751AC | Reduction in chargeable profits following an exempt period |
| 40 |
(1) | This section applies if— |
| |
(a) | an exempt period in relation to a controlled foreign company |
| |
ends in accordance with paragraph 15F(2) of Schedule 25 |
| |
(time exempt period ends if there is an early termination |
| |
event), other than by reason of an early termination event |
| 45 |
within paragraph 15F(3)(b), |
| |
|
| |
|
| |
|
(b) | an accounting period (“the relevant accounting period”) of |
| |
the company ends after that exempt period but before the |
| |
time the exempt period would have ended had paragraph |
| |
15F(2) of that Schedule not applied, |
| |
(c) | an apportionment under section 747(3) would fall to be made |
| 5 |
as regards the relevant accounting period, and |
| |
(d) | a company resident in the United Kingdom (“the UK resident |
| |
company”) has a relevant interest in the controlled foreign |
| |
| |
(2) | The UK resident company may make an application to the |
| 10 |
Commissioners for Her Majesty’s Revenue and Customs for the |
| |
chargeable profits of the controlled foreign company for that |
| |
accounting period (“the chargeable profits”) to be reduced to an |
| |
amount (“the specified amount”) specified in the application (which |
| |
| 15 |
(3) | If the Commissioners grant the application— |
| |
(a) | the chargeable profits are treated as reduced to the specified |
| |
| |
(b) | the controlled foreign company’s creditable tax (if any) for |
| |
that period is treated as reduced by so much of that tax as, on |
| 20 |
a just and reasonable basis, relates to the reduction in the |
| |
| |
| for the purpose of applying section 747(3) to (5) for determining the |
| |
sum (if any) chargeable on the UK resident company under section |
| |
747(4)(a) (but for no other purpose). |
| 25 |
(4) | The Commissioners may grant the application only if— |
| |
(a) | they are satisfied that the specified amount is not less than the |
| |
| |
(b) | they have not previously granted an application made by the |
| |
UK resident company in respect of the relevant accounting |
| 30 |
period under section 751A or 751AB. |
| |
(5) | “The relevant amount” means the amount (if any) equal to so much |
| |
of the chargeable profits as it is just and reasonable to regard as |
| |
| |
(a) | the relevant transaction which triggered the end of the |
| 35 |
| |
(b) | any later relevant transaction occurring before the time the |
| |
exempt period would have ended had paragraph 15F(2) of |
| |
| |
(6) | “Relevant transaction” has the meaning given by paragraph 15E of |
| 40 |
Schedule 25 (and it does not matter if the transaction occurs pursuant |
| |
to an agreement entered into by the controlled foreign company |
| |
before the relevant time (within the meaning of paragraph 15G of |
| |
| |
8 | In Schedule 25 to that Act (cases where section 747(3) does not apply), before |
| 45 |
|
| |
|
| |
|
Part 4 of that Schedule insert— |
| |
| |
| |
| |
15A | The provisions of this Part of this Schedule have effect for the |
| 5 |
purposes of section 748(1)(f). |
| |
Beginning of exempt period |
| |
15B | An exempt period begins in relation to a company (“X”) at the time |
| |
it becomes a controlled foreign company (“the relevant time”), but |
| |
only if the requirements of paragraph 15C or 15D are met. |
| 10 |
15C (1) | The requirements of this paragraph are that— |
| |
(a) | X was not, at any time before the relevant time, under the |
| |
control of persons resident in the United Kingdom, |
| |
(b) | no asset owned by X, or part of the business carried on by |
| |
X, at the relevant time was previously owned, or carried |
| 15 |
| |
(i) | was under such control at any time it owned the |
| |
asset or carried on the part of the business, and |
| |
(ii) | is or has been related to X, |
| |
(c) | condition A, B, C or D is met, and |
| 20 |
(d) | no disqualifying relevant transaction occurs (see |
| |
| |
(2) | Condition A is that, immediately before the relevant time, X— |
| |
(a) | was in existence, but |
| |
(b) | was not a member of the same group of companies as any |
| 25 |
person who, at the relevant time, was a controlling UK |
| |
| |
| |
(a) | at the relevant time X is controlled by a company which is |
| |
resident in the United Kingdom, and |
| 30 |
(b) | immediately before that time, X was controlled by that |
| |
same company but that company was not then resident in |
| |
| |
| |
(a) | at the relevant time— |
| 35 |
(i) | X is controlled by a company which is resident in |
| |
the United Kingdom (“the intermediate parent”), |
| |
| |
(ii) | the intermediate parent is controlled by a company |
| |
which is not resident in the United Kingdom (“the |
| 40 |
| |
(b) | immediately before that time X was controlled by the |
| |
parent but not the intermediate parent. |
| |
|
| |
|