Details of the Schedule
Part 1 – Abolition of the Existing Regime
4.Paragraph 1 repeals the Treasury Consent legislation at section 765 of ICTA the reporting requirement at section 765A together with the offence of failure to comply with section 765 and interpretative provisions at sections 766 and 767.
5.Paragraph 2 contains consequential amendments removing section 765A from the scope of the penalty provisions relating to special returns in section 98 of the Taxes Management Act 1970 (TMA).
6.Paragraph 3 carries the effect of the repeals in paragraph 1 and 2 into the Finance Acts which have previously amended sections 765 to 767.
Part 2 – Reporting Requirement
7.Paragraph 4 describes the reporting requirement. It applies to any UK corporate parent which is a ‘reporting body’ at the time that a reportable event or transaction occurs. Such reportable events or transactions must be reported to an officer of HMRC within six months.
8.The report must include such information relating to the event or transactions as is specified in regulations made by the Commissioners for Her Majesty’s Revenue and Customs (the Commissioners). The purpose of the report is to enable the Commissioners to consider whether or not the event or transaction gives rise to an advantage in relation to UK taxation.
9.Paragraphs 5 and 6 define the situations in which a body corporate will be a ‘reporting body’. A group of companies will generally only have one reporting body, which will be the top UK resident holding company, although not necessarily the group’s ultimate parent company. However some groups may have more than one reporting body. In such cases the Schedule provides a mechanism whereby the reporting bodies may collectively nominate one of their number to be responsible for all aspects of the reporting requirement.
10.Paragraph 5 sets out a general condition that a body corporate, referred to as ‘Body A’, can only be a reporting body when it is a ‘UK corporate parent’ which is defined in paragraph 7 as the top UK resident holding company of a group which is not itself controlled by a UK resident body corporate.
11.However sub-paragraphs (2) to (5) then set out four additional conditions, any one of which must also be met before Body A can be considered to be a reporting body.
12.These rules establish a reporting body to be the parent company of a UK owned group or a UK resident company which heads part of a foreign owned group. If a group is structured as, for example, two or more parallel sub-groups controlled by a foreign parent then the UK resident parents of each sub-group will be reporting bodies in respect of their subsidiaries unless between them they nominate a single reporting body.
13.Paragraph 6 contains the rules governing the nominating process. A nomination can only be made where two or more UK corporate parents are controlled by the same foreign parent, although the arrangement does not have to cover all such corporate parents. Under the arrangement the nominated reporting body will be responsible for all the requirements of the Schedule on behalf of the other parties.
14.Sub-paragraph (3) empowers a party to a nominating arrangement to withdraw from it unilaterally.
15.Sub-paragraphs (4) and (5) enable the Commissioners to make regulations governing the nominating arrangements and specify that such regulations may include provision regarding entry and withdrawal from an arrangement and the related information that must be supplied to HMRC. They may also specify the circumstances in which a body corporate is treated as withdrawing from an arrangement.
16.Paragraph 7 defines ‘UK corporate parent’ as a UK resident body corporate which controls one or more bodies corporate that are not resident in the UK and is not itself controlled by a UK body corporate.
17.Paragraph 8 sets out what is meant by reportable transactions or events. The basic test is that their value must exceed £100 million. No report is required below that limit.
18.The paragraph goes on to specify that only certain categories of events and transactions are reportable. These categories are:
an issue of shares or debentures by a foreign subsidiary;
a transfer by the reporting body, or a transfer caused or permitted by the reporting body, of shares or debentures of a foreign subsidiary in which the reporting body has an interest; or
any situation which results in a foreign subsidiary becoming, or ceasing to be, a controlling partner in a partnership.
19.Additional categories may be specified in regulations made by the Commissioners.
20.Sub-paragraph (3) sets out that for the purposes of the Schedule a foreign subsidiary is a controlling partner in a partnership if, whether alone or taken together with one or more other partners that are also subsidiaries, it controls the partnership.
21.Sub-paragraphs (4) to (6) empower the Commissioners to make regulations about how the value of an event or transaction is to be determined for the purposes of the reporting requirement.
22.Sub-paragraph (7) specifies that the Commissioners may increase the £100 million limit specified in the Schedule.
23.Paragraph 9 sets out the circumstances in which otherwise reportable transactions are excluded from the reporting requirement. Broadly these cover transactions carried out in the ordinary course of a trade, between residents in the same territory or the giving of any security by a foreign subsidiary to a financial institution. The Commissioners are also empowered to add to these exclusions in regulations.
24.Paragraph 10 establishes that failure to comply with the reporting requirement will result in a penalty being chargeable under section 98 of TMA. Such penalty will not exceed £300 for the initial failure with a further additional penalty not exceeding £60 for each day on which the failure continues after the initial penalty was imposed.
25.Paragraph 11 states that regulations and orders made under Part 2 of the Schedule are to be made by statutory instrument, subject to negative resolution.
26.Paragraph 12 contains interpretative provisions. In particular it sets out that for the purposes of the Schedule ‘control’ in relation to a body corporate means the power of a person to secure that the affairs of the body corporate are conducted in accordance with that person’s wishes, whether this is achieved by:
the holding of shares or the possession of voting power in or in relation to that or any other body corporate; or
any powers conferred by the articles of association or other document regulating that or any other body corporate.
27.Where two or more persons taken together have this power then they shall be taken to control the body corporate.
28.‘Control’ in relation to a partnership control means the right to a share of more than 50 per cent of the assets, or of more than 50 per cent of the income, of the partnership.
29.Definitions are also included for ‘foreign’, ‘partnership’, ‘subsidiary’, ‘transaction’ and ‘series of transactions’.
Part 3 – Commencement etc.
30.Paragraph 13 specifies that the schedule has effect in relation to events taking place and transactions carried out on or after 1 July 2009.
31.Paragraph 14 contains two transitional provisions. The first provides that any reports in respect of events or transactions occurring before 1 October 2009 should be reported by 1 April 2010. This is intended to allow companies a period of time in which to establish internal procedures to monitor reportable transactions and events.
32.The second specifies that regulations made under the Schedule may come in to force on or after 1 July 2009 so long as they are made within one year of the Finance Act being passed.