Session 2010 - 11
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Finance (No. 3) Bill


Finance (No. 3) Bill
Schedule 13 — Profits of foreign permanent establishments etc
Part 1 — Amendments of CTA 2009

203

 

opening negative amount in relation to the territory at the beginning

of the accounting period.

(4)   

The company may, in its company tax return for that relevant

accounting period, specify to which part of the relevant profits

amount of the company for the territory for the accounting period

5

section 18A(1) is to apply by virtue of subsection (3).

18N     

Residual opening negative amount: “matching”

(1)   

At the end of each relevant accounting period of the company

(starting with the first) the residual opening negative amount is to be

reduced (or further reduced) by the amount of any residual

10

aggregate relevant profits amount of the company for the accounting

period (but not to below nil).

(2)   

For the purposes of this section the “residual opening negative

amount”, at the beginning of the company’s first relevant accounting

period, is—

15

(a)   

the total opening negative amount of the company at that

time, less

(b)   

the aggregate of the streamed opening negative amounts of

the company at that time.

(3)   

For the purposes of this section the “residual aggregate relevant

20

profits amount”, in relation to an accounting period, means the

amount (if any) by which—

(a)   

the aggregate relevant profits amount of the company for the

accounting period, exceeds

(b)   

the aggregate of so much of any relevant profits amounts of

25

the company for the accounting period as has effect to bring

about a reduction under section 18M(1) for the accounting

period.

(4)   

In any relevant accounting period of the company for which there is

a reduction under subsection (1), section 18A(1) does not apply in

30

relation to the residual aggregate relevant profits amount of the

company for the accounting period.

(5)   

But in the case of the last relevant accounting period of the company

for which there is a reduction under subsection (1), section 18A(1) is

disapplied by subsection (4) only in relation to so much of the

35

residual aggregate relevant profits amount of the company for the

accounting period as is equal to the residual opening negative

amount of the company at the beginning of the accounting period.

(6)   

The company may, in its company tax return for that relevant

accounting period, specify to which of the amounts forming part of

40

the residual aggregate relevant profits amount of the company for

the accounting period section 18A(1) is to apply by virtue of

subsection (4).

18O     

Transfers of foreign permanent establishment business

(1)   

This section applies if—

45

(a)   

business carried on by a company (“the transferor”) through

a permanent establishment in a territory outside the United

 
 

Finance (No. 3) Bill
Schedule 13 — Profits of foreign permanent establishments etc
Part 1 — Amendments of CTA 2009

204

 

Kingdom is transferred to a connected company that is (or

later becomes) a UK resident company (“the transferee”), and

(b)   

section 18A is disapplied by sections 18K to 18N to a lesser

extent in the case of the companies (taken together) than it

would be disapplied in the case of the transferee if the

5

business transferred was at all material times carried on by

the transferee.

(2)   

Those sections are to be taken to apply in relation to the transferee

(and, where appropriate, the transferor) in such manner as is

appropriate to secure that section 18A is disapplied to the same

10

extent as it would be if the business were at all material times carried

on by the transferee.

Special cases

18P     

Exclusions

(1)   

If a company is a small company at any time during a relevant

15

accounting period, there is for that relevant accounting period no

relevant profits amount or relevant losses amount for the purposes

of this Chapter in relation to any relevant foreign territory that is not

a full treaty territory.

(2)   

If a company is a close company at any time during a relevant

20

accounting period, so much of the profits of the company for the

relevant accounting period as derives from gains which are

chargeable gains for the purposes of corporation tax is not to be

regarded as forming part of a relevant profits amount or relevant

losses amount of the company for the purposes of this Chapter.

25

18Q     

Insurance companies

(1)   

So much of the profits or losses of a company as consists of profits or

losses arising from basic life assurance and general annuity business

(as defined in section 431(2) of ICTA) is not to be regarded as forming

part of a relevant profits amount or relevant losses amount of the

30

company for the purposes of this Chapter.

(2)   

In determining what part of any items brought into account as

mentioned in section 83(2)(a), (b), (c) or (d) of FA 1989 (receipts to be

taken into account) as profits attributable to a permanent

establishment in a territory outside the United Kingdom through

35

which the company carries on business are referable to life assurance

business or gross roll-up business, section 432E of ICTA

(apportionment: participating funds) has effect as if—

(a)   

references in that section to the surplus of the relevant

business were to the surplus of the business carried on

40

through the permanent establishment, and

(b)   

as if subsections (3) to (4A) of that section and section 432F of

that Act were omitted.

(3)   

No amount which, by virtue of any enactment, is to be regarded as

being brought into account by a company as an increase in the value

45

of non-linked assets is to be regarded for the purposes of this Chapter

as being attributable to a permanent establishment in a territory

 
 

Finance (No. 3) Bill
Schedule 13 — Profits of foreign permanent establishments etc
Part 1 — Amendments of CTA 2009

205

 

outside the United Kingdom through which the company carries on

business.

(4)   

Any election under section 107(4) of FA 2000 (general insurance:

adjustment for technical provision) is to be ignored for the purposes

of this Chapter.

5

Interpretation

18R     

Meaning of “full treaty territory”

(1)   

For the purposes of this Chapter a territory is a “full treaty territory”

if—

(a)   

double taxation arrangements have been made in relation to

10

the territory, and

(b)   

the arrangements contain a relevant non-discrimination

provision.

(2)   

“Relevant non-discrimination provision” means a provision to the

effect that the taxation on a permanent establishment of an enterprise

15

of a state which is party to the arrangements (a “contracting state”) is

not to be less favourably levied in any other contracting state than

the taxation levied on enterprises of that other contracting state

carrying on the same activities.

18S     

Other interpretation

20

In this Chapter—

“company tax return” has the same meaning as in Schedule 18

to FA 1998 (see paragraph 3(1));

“double taxation arrangements” means arrangements that have

effect under section 2(1) of TIOPA 2010;

25

“the OECD model” means the Model Tax Convention on

Income and on Capital published by the Organisation for

Economic Co-operation and Development in July 2010 (“the

OECD”) or such other document published by the OECD in

place of it as is designated from time to time by order made

30

by the Treasury;

“small company” means a micro or small enterprise, as defined

in the Annex to Commission Recommendation 2003/361/EC

of 6 May 2003.”

5          

In section 775(4) (intangible fixed assets: cases where transfers within group

35

provisions do not apply), omit the “or” at the end of paragraph (a) and insert

at the end “, or

(c)   

an election under section 18A has effect in relation to the

transferor and the asset has at any time been held by the

transferor wholly or partly for the purposes of a permanent

40

establishment in a territory outside the United Kingdom

through which the transferor carries on business.”

6          

After section 776 insert—

“776A   

 Assets held for exempt permanent establishment: partial exemption

(1)   

This section applies if subsection (1) of section 775 is disapplied by

45

paragraph (c) of subsection (4) of that section in the case of an asset

 
 

Finance (No. 3) Bill
Schedule 13 — Profits of foreign permanent establishments etc
Part 1 — Amendments of CTA 2009

206

 

which has not at all times when the election under section 18A had

effect been held by the transferor wholly for the purposes of a

permanent establishment such as is mentioned in that paragraph.

(2)   

The asset is treated for the purposes of this Part as having been

acquired by the transferee for such amount as is appropriate having

5

regard to the operation of section 18A.”

7          

In section 803(b) (assets held for non-taxable activities excluded from Part

10), insert at the end “, otherwise than as a result of Chapter 3A of Part 2.”

8          

In section 1007(2)(b) (relief if employee etc acquires shares), insert at the end

“or would be but for section 18A.”

10

9          

In section 1015(2)(b) (relief if employee etc obtains share option), insert at the

end “or would be but for section 18A.”

10         

In Schedule 4 to that Act (index of defined expressions), insert at the

appropriate places—

 

“adjusted (in relation to a relevant profits

section 18G(3)”

 

15

 

amount) (in Chapter 3A of Part 2)

  
 

“aggregate relevant profits amount (in

section 18K(5)”

 
 

Chapter 3A of Part 2)

  
 

“company tax return (in Chapter 3A of Part

section 18S”

 
 

2)

  

20

 

“double taxation arrangements (in Chapter

section 18S”

 
 

3A of Part 2)

  
 

“foreign permanent establishments amount

section 18A(4)”

 
 

(in Chapter 3A of Part 2)

  
 

“full treaty territory (in Chapter 3A of Part 2)

section 18R”

 

25

 

“the OECD model (in Chapter 3A of Part 2)

section 18S”

 
 

“relevant accounting period (in Chapter 3A

section 18A(3)”

 
 

of Part 2)

  
 

“relevant foreign territory (in Chapter 3A of

section 18A(5)”

 
 

Part 2)

  

30

 

“relevant losses amount (in Chapter 3A of

section 18A(7)”

 
 

Part 2)

  
 

“relevant profits amount (in Chapter 3A of

section 18A(6)”

 
 

Part 2)

  
 

“small company (in Chapter 3A of Part 2)

section 18S”

 

35

 

“total opening negative amount” (in Chapter

section 18J(2)”.

 
 

3A of Part 2)

  
 
 

Finance (No. 3) Bill
Schedule 13 — Profits of foreign permanent establishments etc
Part 2 — Amendments of other Acts

207

 

Part 2

Amendments of other Acts

ICTA

11         

In paragraph 4(1) of Schedule 24 to ICTA (assumptions for calculating

chargeable profits etc of foreign companies: election or claim to give

5

maximum relief assumed to be made), insert at the end “except that the

company shall be assumed not to have made an election under section 18A

of CTA 2009.”

TCGA 1992

12         

In TCGA 1992, after section 276 insert—

10

“276A   

 No gain/no loss: foreign permanent establishment exemption

On a no gain/no loss disposal by a company in relation to which an

election under section 18A of CTA 2009 (exemption for profits or

losses of foreign permanent establishments) has effect, the amount of

the consideration which would secure that neither a gain nor a loss

15

would accrue to the company on the disposal is to be arrived at after

taking account of the operation of the provisions of Chapter 3A of

Part 2 of that Act.”

CAA 2001

13         

CAA 2001 is amended as follows.

20

14         

In section 15 (plant and machinery allowances: qualifying activities), after

subsection (2) insert—

“(2A)   

A business carried on through one or more permanent

establishments outside the United Kingdom by a company in

relation to which an election under section 18A of CTA 2009 has

25

effect—

(a)   

is an activity separate from any other activity of the company,

and

(b)   

is to be regarded as an activity all the profits and gains from

which are not, or (if there were any) would not be, chargeable

30

to tax.”

15         

In the Table in section 61 (disposal events and disposal values), after item 6

insert—

 

“6A. Disposal event to which

The relevant transition value

 
 

section 62A applies.

(see section 62A).”,

 

35

           

and in column 1 of item 7, for “6” substitute “6A”.

 
 

Finance (No. 3) Bill
Schedule 13 — Profits of foreign permanent establishments etc
Part 2 — Amendments of other Acts

208

 

16         

After section 62 insert—

“62A    

Cases in which disposal value is transition value

(1)   

Subject as follows, this section applies where an election under

section 18A of CTA 2009 has effect in relation to a company and the

operation of section 15(2A) brings about a disposal event consisting

5

of plant or machinery beginning to be used for purposes other than

those of a qualifying activity.

(2)   

Where this section applies to a disposal event, the disposal value is

the transition value.

(3)   

The transition value is such amount as gives rise to neither a

10

balancing allowance nor a balancing charge.

(4)   

This section does not apply if—

(a)   

the qualifying expenditure in respect of the plant or

machinery, or of the group of assets of which it forms part at

any time during a relevant accounting period, exceeds £5

15

million, and

(b)   

the company has used the plant or machinery otherwise than

for the purposes of a permanent establishment in a territory

outside the United Kingdom at any time during a relevant

preceding accounting period.

20

(5)   

For the purposes of subsection (4)(a) plant or machinery used

together constitutes a group of assets.

(6)   

In subsection (4) “relevant preceding accounting period” means the

accounting period in which the election under section 18A is made

or an earlier accounting period ending less than 6 years before the

25

end of that accounting period.”

ITA 2007

17         

ITA 2007 is amended as follows.

18         

In section 879(1) (interest paid on advances from banks), insert at the end “or

is a bank that would be within the charge to corporation tax as respects the

30

interest apart from section 18A of CTA 2009.”

19    (1)  

Section 918 (manufactured dividends on UK shares: REITs) is amended as

follows.

      (2)  

After subsection (3) insert—

“(3A)   

But subsection (3) does not apply if—

35

(a)   

the manufactured dividend is paid by a UK resident

company in the course of a trade carried on through a

permanent establishment in a territory outside the United

Kingdom, and

(b)   

section 18A of CTA 2009 has effect in relation to the company

40

for the accounting period in which it is paid.”

 
 

Finance (No. 3) Bill
Schedule 13 — Profits of foreign permanent establishments etc
Part 2 — Amendments of other Acts

209

 

      (3)  

In subsection (4), for paragraphs (a) and (b) substitute—

“(a)   

is non-UK resident and pays the manufactured dividend

otherwise than in the course of a trade carried on through a

branch or agency in the United Kingdom, or

(b)   

is a UK resident company and pays the manufactured

5

dividend in the course of a trade carried on through a

permanent establishment in a territory outside the United

Kingdom and section 18A of CTA 2009 has effect in relation

to the company for the accounting period in which it is

paid,”.

10

      (4)  

After subsection (5) insert—

“(5A)   

But a UK resident is not a United Kingdom recipient if—

(a)   

it is a UK resident company which receives the manufactured

dividend for the purposes of a trade carried on by the

recipient through a permanent establishment in a territory

15

outside the United Kingdom, and

(b)   

section 18A of CTA 2009 has effect in relation to the company

for the accounting period in which it is received.”

20         

In section 919 (manufactured interest on UK securities: payments by UK

residents etc), after subsection (1) insert—

20

“(1A)   

But this section does not apply if—

(a)   

the manufactured interest is paid by a UK resident company

in the course of a trade carried on through a permanent

establishment in a territory outside the United Kingdom, and

(b)   

section 18A of CTA 2009 has effect in relation to the company

25

for the accounting period in which it is paid.”

21    (1)  

Section 920 (foreign payers of manufactured interest: the reverse charge) is

amended as follows.

      (2)  

After subsection (1) insert—

“(1A)   

This section also applies if—

30

(a)   

a UK resident company pays manufactured interest in the

course of a trade carried on through a permanent

establishment in a territory outside the United Kingdom, and

(b)   

section 18A of CTA 2009 has effect in relation to the company

for the accounting period in which it is paid.”

35

      (3)  

After subsection (2) insert—

“(2A)   

But this section does not apply if—

(a)   

the recipient is a UK resident company which receives the

manufactured interest for the purposes of a trade carried on

by the recipient through a permanent establishment in a

40

territory outside the United Kingdom, and

(b)   

section 18A of CTA 2009 has effect in relation to the company

for the accounting period in which it is received.”

      (4)  

In subsection (3), insert at the end “and section 919(1A) did not apply.”

22         

In section 922 (manufactured overseas dividends: payments by UK residents

45

 
 

 
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Revised 31 March 2011