Session 2010 - 11
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Other Bills before Parliament

Finance (No. 3) Bill


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

210

 

etc), after subsection (1) insert—

“(1A)   

But this section does not apply if—

(a)   

the manufactured overseas 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

5

Kingdom, and

(b)   

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

for the accounting period in which it is paid.”

23    (1)  

Section 923 (foreign payers of manufactured overseas dividends: the reverse

charge) is amended as follows.

10

      (2)  

After subsection (1) insert—

“(1A)   

This section also applies if—

(a)   

a UK resident company pays a manufactured overseas

dividend in the course of a trade carried on through a

permanent establishment in a territory outside the United

15

Kingdom, and

(b)   

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

for the accounting period in which it is paid.”

      (3)  

After subsection (2) insert—

“(2A)   

But this section does not apply if—

20

(a)   

the recipient is a UK resident company which receives the

manufactured overseas dividend for the purposes of a trade

carried on by the recipient 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 received.”

      (4)  

In subsection (3), insert at the end “and section 922(1A) did not apply.”

TIOPA 2010

24         

TIOPA 2010 is amended as follows.

25         

In section 18 (entitlement to credit for foreign tax reduces UK tax by amount

30

of credit), after subsection (3) insert—

“(3A)   

References in subsection (3) to tax payable under the law of a

territory outside the United Kingdom do not include tax paid by a

company in relation to which an election under section 18A of CTA

2009 (exemption for profits or losses of overseas permanent

35

establishments) has effect in respect of a relevant profits amount or

relevant losses amount within the meaning of that section.”

26         

For section 43 substitute—

“43     

Profits attributable to permanent establishments for purposes of

section 42(2)

40

(1)   

This section applies in determining for the purposes of section 42(2)

the amount of the profits of a UK resident company on which

corporation tax is or would be chargeable that is attributable to a

 
 

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

211

 

permanent establishment of the company in a territory outside the

United Kingdom.

(2)   

The amount of the profits of the company that is attributable to the

permanent establishment is the amount that the permanent

establishment would have made if it were a distinct and separate

5

enterprise which—

(a)   

engaged in the same or similar activities under the same or

similar conditions, and

(b)   

dealt wholly independently with the company.

(3)   

In applying subsection (2) assume that—

10

(a)   

the permanent establishment has the same credit rating as the

company, and

(b)   

(subject to subsection (5)) the permanent establishment has

such equity and loan capital as it could reasonably be

expected to have if the equity and loan capital of the

15

company were allocated in accordance with subsection (4).

(4)   

The allocation is one made on a just and equitable basis between the

permanent establishments in territories outside the United Kingdom

through which the company carries on business and the entity that

the company would consist of if each such permanent establishment

20

were an entity distinct and separate from the company.

(5)   

If the permanent establishment is in a full treaty territory (within the

meaning of Chapter 3A of Part 2 of CTA 2009) subsection (3)(b) has

effect subject to the double taxation arrangements having effect in

relation to the territory.

25

(6)   

Subsections (3)(b) to (5) prevail over any allotment of equity or loan

capital to the permanent establishment made by the company.

(7)   

If the company is an insurance company (within the meaning given

by section 431(2) of ICTA), in applying subsection (2) assume that the

permanent establishment has such free assets as it would have in the

30

circumstances described in that subsection.

(8)   

The Commissioners for Her Majesty’s Revenue and Customs may by

regulations make provision as to the meaning of “free assets” in

subsection (7).”

27    (1)  

Section 78 (meaning of “overseas permanent establishment”) is amended as

35

follows.

      (2)  

In subsection (2)—

(a)   

in paragraph (a), for “and define the expression,” substitute “which

contain a relevant non-discrimination provision,”, and

(b)   

in paragraph (b)—

40

(i)   

for “but do not define the expression,” substitute “which do

not contain a relevant non-discrimination provision,”, and

(ii)   

for “is to be read in accordance with Chapter 2 of Part 24 of

CTA 2010.” substitute “has the meaning given by the Model

Tax Convention on Income and on Capital published by the

45

Organisation for Economic Co-operation and Development

in July 2010 (“the OECD”) or such other document published

 
 

Finance (No. 3) Bill
Schedule 13 — Profits of foreign permanent establishments etc
Part 3 — Commencement and transitional provision

212

 

by the OECD in place of it as is designated from time to time

by order made by the Treasury.”

      (3)  

After that subsection insert—

“(3)   

In subsection (2) “relevant non-discrimination provision” means a

provision to the effect that the taxation on a permanent

5

establishment of an enterprise 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.”

10

28         

In section 263 (tax treatment of financing costs and income: net debt of a

company), after subsection (4) insert—

“(4A)   

For the purposes of subsections (3) and (4), if the company is one in

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

effect anything that would otherwise form part of the company’s

15

relevant liabilities or relevant assets does not do so if and to the

extent that amounts in respect of it are left out of account under that

section.”

29         

After section 317 insert—

“317A   

 Companies with permanent establishments profits election

20

(1)   

This section applies if, apart from this section, an amount is a

financing expense amount or a financing income amount of a

company in relation to which an election under section 18A of CTA

2009 has effect.

(2)   

It is treated as not being a financing expense amount or a financing

25

income amount of the company if and to the extent that it is left out

of account under that section.”

Part 3

Commencement and transitional provision

Commencement

30

30         

The amendments made by this Schedule come into force on the day on

which this Act is passed.

Condition B of motive test

31    (1)  

This paragraph applies in relation to a company carrying on business

through a permanent establishment in an accounting period which is the

35

first relevant accounting period or an accounting period beginning less than

12 months after the beginning of the first relevant accounting period (an

“affected relevant accounting period”) if the company carried on the

business through the permanent establishment throughout the period of 12

months ending with the day before that on which this Act is passed (“the

40

pre-commencement year”).

      (2)  

Condition B in section 18H of CTA 2009 (as inserted by this Schedule) is

assumed to be met in relation to an affected relevant accounting period if—

 
 

Finance (No. 3) Bill
Schedule 13 — Profits of foreign permanent establishments etc
Part 3 — Commencement and transitional provision

213

 

(a)   

the gross income attributable to the permanent establishment for the

affected relevant accounting period does not exceed by more than

10% the gross income attributable to the permanent establishment

for the period of 12 months ending immediately before the beginning

of the first relevant accounting period (or, if the affected relevant

5

accounting period is less than 12 months, such proportion of that

gross income as the length of the affected relevant accounting period

bears to 12 months),

(b)   

there has been no major change in the nature or conduct of the

business carried on through the permanent establishment in the

10

period (“the relevant period”) beginning with the pre-

commencement year and ending with the end of the affected

relevant accounting period, and

(c)   

no asset attributable to the permanent establishment was previously

owned, and no part of the business carried on through the

15

permanent establishment in the affected relevant accounting period

was previously carried on, by a company whose chargeable profits

and creditable tax (if any) for any accounting period ending within

the relevant period were (or, but for an agreement made or

undertaking given, would have been) apportioned under section

20

747(3) of ICTA.

      (3)  

For the purposes of sub-paragraph (2) “major change in the nature or

conduct of the business” includes—

(a)   

a major change in the type of property dealt in, or services or facilities

provided, in the business, and

25

(b)   

a major change in customers, outlets or markets of the business.

      (4)  

A reference in sub-paragraph (3) to a change includes a change which is

achieved gradually as a result of a series of transfers.

32    (1)  

This paragraph applies in relation to a company (“company A”) carrying on

business through a permanent establishment in an accounting period which

30

is the first relevant accounting period or an accounting period beginning less

than 12 months after the beginning of the first relevant accounting period

(an “affected relevant accounting period”) if a company which—

(a)   

was a non-UK resident company, and

(b)   

was controlled by company A,

35

           

(“company B”) carried on the business throughout the period of 12 months

ending with the day before that on which this Act is passed (“the pre-

commencement year”).

      (2)  

Condition B in section 18H of CTA 2009 (as inserted by this Schedule) is

assumed to be met in relation to an affected relevant accounting period if—

40

(a)   

the gross income attributable to the permanent establishment for the

affected relevant accounting period does not exceed by more than

10% the gross income of the business for the period of 12 months

ending immediately before the beginning of the first relevant

accounting period of the company (or, if the affected relevant

45

accounting period is less than 12 months, such proportion of that

gross income as the length of the affected relevant accounting period

bears to 12 months),

(b)   

there has been no major change in the nature or conduct of the

business carried on through the permanent establishment in the

50

period (“the relevant period”) beginning with the pre-

 
 

Finance (No. 3) Bill
Schedule 13 — Profits of foreign permanent establishments etc
Part 3 — Commencement and transitional provision

214

 

commencement year and ending with the end of the affected

relevant accounting period,

(c)   

company B was not a company whose chargeable profits and

creditable tax (if any) for any accounting period ending within the

relevant period were (or, but for an agreement made or undertaking

5

given, would have been) apportioned under section 747(3) of ICTA,

and

(d)   

no asset attributable to the permanent establishment was previously

owned, and no part of the business carried on through the

permanent establishment in the affected relevant accounting period

10

was previously carried on, by such a company.

      (3)  

Sub-paragraphs (3) and (4) of paragraph 31 apply for the purposes of sub-

paragraph (2).

      (4)  

Section 1124 of CTA 2010 (meaning of “control”) applies for the purposes of

this paragraph.

15

Large pre-commencement losses

33    (1)  

This paragraph applies if—

(a)   

there is a relevant losses amount exceeding £50 million in the case of

a company in relation to any relevant foreign territory for any

accounting period beginning within the period of 6 years ending

20

with the day before that on which this Act is passed, and

(b)   

(apart from this paragraph) the accounting period would not be an

affected prior accounting period for the purposes of section 18J(2) of

CTA 2009 (as inserted by this Schedule).

      (2)  

The accounting period, and every later accounting period of the company

25

before the first relevant accounting period of the company which would not

otherwise be an affected prior accounting period for those purposes, is an

affected prior accounting period for those purposes.

Section 62A of CAA 2001

34         

For the purposes of section 62A of CAA 2001 (as inserted by this Schedule)—

30

(a)   

where the qualifying expenditure in respect of the plant or

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

question does not exceed £50 million, an accounting period ending

more than 12 months before the day on which this Act is passed is

not a relevant preceding accounting period, and

35

(b)   

where it does, any accounting period beginning within the period of

6 years ending with the day before that on which this Act is passed

which (apart from this paragraph) would not be a relevant preceding

accounting period is such a period.

Section 43(8) of TIOPA 2010: free assets

40

35         

Until provision made under subsection (8) of section 43 of TIOPA 2010 (as

substituted by this Schedule) has effect, “free assets” in subsection (7) of that

section has the meaning given by regulation 3 of the Non-resident Insurance

Companies Regulations 2003 (S.I. 2003/2714).

 
 

 
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Revised 31 March 2011