Finance Act 1998

Treatment of chargeable profits and creditable tax apportioned to company carrying on life assurance business E+W+S+N.I.

13 After section 755 of the Taxes Act 1988 there shall be inserted— E+W+S+N.I.

“755A Treatment of chargeable profits and creditable tax apportioned to company carrying on life assurance business.

(1) This section applies in any case where—

(a) an amount (“the apportioned profit") of a controlled foreign company’s chargeable profits for an accounting period falls to be apportioned under section 747(3) to a company resident in the United Kingdom (“the UK company");

(b) the UK company carries on life assurance business in that one of its accounting periods (“the relevant accounting period") in which ends the accounting period of the controlled foreign company; and

(c) the property or rights which represent the UK company’s relevant interest in the controlled foreign company constitute to any extent assets of the UK company’s long term business fund.

(2) Subsections (3) and (4) below apply if, in the case of the relevant accounting period, the UK company is not charged to tax under Case I of Schedule D in respect of its profits from life assurance business.

(3) Where this subsection applies, the “appropriate rate” for the purposes of section 747(4)(a) and paragraph 1 of Schedule 26 in relation to the policy holders’ part of any BLAGAB apportioned profit shall be—

(a) if a single rate of tax under section 88A(1) of the M1 Finance Act 1989 (lower corporation tax rate on certain insurance company profits) is applicable in relation to the relevant accounting period, that rate; or

(b) if more than one such rate of tax is applicable in relation to the relevant accounting period, the average of those rates over the whole of that period.

(4) Where this subsection applies, the “appropriate rate” for the purposes of section 747(4)(a) and paragraph 1 of Schedule 26 shall be nil in relation to so much of the apportioned profit as is referable to—

(a) pension business,

(b) life reinsurance business, or

(c) overseas life assurance business,

carried on by the UK company.

(5) If, in the case of the relevant accounting period, the UK company is charged to tax under Case I of Schedule D in respect of its profits from life assurance business, the “appropriate rate” for the purposes of—

(a) section 747(4)(a), and

(b) paragraph 1 of Schedule 26,

shall be nil in relation to so much of the apportioned profit as is referable to the UK company’s relevant interest so far as represented by assets of its long term business fund.

(6) If, in the case of the relevant accounting period,—

(a) the UK company is not charged to tax under Case I of Schedule D in respect of its profits from life assurance business,

(b) any creditable tax of the controlled foreign company falls to be apportioned to the UK company, and

(c) the apportioned profit is to any extent referable to a category of business specified in paragraphs (a) to (c) of subsection (4) above,

so much of the creditable tax so apportioned as is attributable to the apportioned profit so far as so referable shall be left out of account for the purposes of this Chapter, other than section 747(3) and this section, and shall be treated as extinguished.

(7) If, in the case of the relevant accounting period,—

(a) the UK company is charged to tax under Case I of Schedule D in respect of its profits from life assurance business, and

(b) any creditable tax of the controlled foreign company falls to be apportioned to the UK company,

so much of the creditable tax so apportioned as is attributable to so much of the apportioned profit as is referable to the UK company’s relevant interest so far as represented by assets of the UK company’s long term business fund shall be left out of account for the purposes of this Chapter, other than section 747(3) and this section, and shall be treated as extinguished.

(8) Any set off under paragraph 1 or 2 of Schedule 26 against the UK company’s liability to tax under section 747(4)(a) in respect of the apportioned profit shall be made against only so much of that liability as is attributable to the eligible part of the apportioned profit.

(9) Accordingly, in the application of paragraph 2 of Schedule 26 in relation to the apportioned profit, in the definition of “the relevant maximum” in sub-paragraph (3)—

(a) the reference to the liability to tax referred to in sub-paragraph (1) of that paragraph shall be taken as a reference to only so much of that liability as is attributable to the eligible part of the apportioned profit; and

(b) in paragraph (a), for the amount there described there shall be substituted a reference to the eligible part of the apportioned profit.

(10) For the purposes of this section, the “eligible part" of the apportioned profit is any BLAGAB apportioned profit, other than the policy holders’ part.

(11) For the purposes of this section, the “policy holders’ part” of any BLAGAB apportioned profit is—

(a) in a case where subsection (4) of section 88A of the M2 Finance Act 1989 applies, the whole; and

(b) in any other case, the fraction described in subsection (5)(b) of that section.

(12) In this section—

• “BLAGAB apportioned profit” means so much of the apportioned profit as is referable to basic life assurance and general annuity business carried on by the UK company;

• “long term business fund” has the meaning given by section 431(2).

(13) For the purposes of this section, the part of the apportioned profit which is referable to—

(a) pension business,

(b) life reinsurance business,

(c) overseas life assurance business, or

(d) basic life assurance and general annuity business,

carried on by the UK company is the part which would have been so referable under section 432A had the apportioned profit been a dividend paid to the UK company at the end of the accounting period mentioned in subsection (1)(a) above in respect of the property or rights which represent the UK company’s relevant interest in the controlled foreign company.

(14) For the purposes of this section, any attribution of creditable tax to a particular part of the apportioned profit shall be made in the proportion which that part of the apportioned profit bears to the whole of the apportioned profit.”

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Marginal Citations

M1 1989 c. 26.

M2 1989 c. 26.