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Corporation Tax (Northern Ireland) Act 2015

Section 1: Trading Profits Taxable at the Northern Ireland Rate

12.Section 1 inserts new Part 8B into CTA 2010.

Chapter 1

13.Chapter 1 is an introductory Chapter which introduces the purpose of each Chapter of Part 8B.

Chapter 2

14.Chapter 2 explains how the Northern Ireland rate is to be set. The Northern Ireland Assembly has the power to set the rate for one or more future financial years by way of a resolution. Once set, the Northern Ireland Assembly may cancel that rate by resolution, which will have effect provided the cancelling resolution is passed before the beginning of the financial year to which the rate applies. Section 357IA(6) authorises the setting of a nil rate.

15.If a rate is not set by resolution for a financial year, the rate for that year will be the rate set for the previous financial year. Until the Northern Ireland Assembly exercises the power to set a rate for the first time, the Northern Ireland rate will be the UK main rate.

Chapter 3

16.Chapter 3 provides for corporation tax to be charged at the Northern Ireland rate on Northern Ireland profits as distinct from mainstream profits. It also provides for the existing rules on loss reliefs to be modified to deal with the existence of different rates of corporation tax.

17.Section 357JA charges Northern Ireland profits to corporation tax at the Northern Ireland rate. Section 357JB provides for the way in which loss relief under section 37 of CTA 2010 (relief for trade losses against total profits) works if a company has Northern Ireland losses or mainstream losses. If it has both types of loss in a single period, relief is available separately for each. A Northern Ireland loss is to be relieved, so far as possible, first against Northern Ireland profits before relief is given against mainstream profits. Likewise, a mainstream loss is to be relieved first so far as possible against mainstream profits before being relieved against Northern Ireland profits.

18.If a Northern Ireland loss is to be set against mainstream profits and at any time during the accounting period the Northern Ireland rate is lower than the main rate, Chapter 3 provides for that loss to be taken into account by reference to a formula at section 357JJ in order to reflect the difference between the Northern Ireland rate and the main corporation tax rate. The loss carry forward, group and consortium relief rules are similarly modified.

19.Section 357JH modifies Chapter 4 of Part 5 of CTA 2010, (claims for group relief), so that claims made by reference to “available total profits” are made, in the context of a revalued Northern Ireland loss, by reference to the deduction given by the revalued Northern Ireland loss against the available total profits.

20.Section 357JI provides that the reference to a loss in section 944(2) and (3), which concern the transfer of a trade without a change in ownership, has effect as if the reference to a loss made by the predecessor in the transferred trade were to the Northern Ireland loss or mainstream loss of the transferred trade as appropriate. That treatment is sustained in the successor company.

Chapter 4

21.Chapter 4 sets out the basic definitions which apply for the purposes of Part 8B. A company will be a Northern Ireland company if it carries on a qualifying trade and meets either the SME condition at section 357KA(2) or the large company condition at section 357KA(3).

22.Section 357KB provides that a trade carried on by a company (other than in a partnership) will be a qualifying trade if the company is within the charge to corporation tax in relation to that trade and the trade is not an excluded trade.

23.The definition of “qualifying trade” includes provision enabling a company to make a one-off election under section 357KB to bring in profits attributable to the back-office functions of certain trades which would otherwise be excluded trades. Chapter 17 defines the meaning of an excluded trade and includes the power to define the meaning of back-office activities.

24.The SME condition is met if a company is an SME as defined at section 357KC and is a Northern Ireland employer. It will be a Northern Ireland employer if the Northern Ireland workforce conditions set out at section 357KE are met in relation to the relevant accounting period, or in relation to the period of 12 months preceding that accounting period.

25.The Northern Ireland workforce conditions are met if at least 75% of a company’s UK staff time and costs relate to work carried out in Northern Ireland. If this test is not met then the company is not a Northern Ireland employer, it will not meet the SME condition and all of its trading profits will be chargeable at the UK main rate of corporation tax.

26.Section 357KE(8) provides a regulation-making power for HMRC to specify descriptions of deductions which are, or are not, to be regarded as workforce expenses.

27.The large company condition is met if the company is not an SME and has a Northern Ireland regional establishment (NIRE) which is defined in Chapter 5.

Chapter 5

28.A company will have a NIRE if the company has a fixed place of business in Northern Ireland through which it wholly or partly carries on its business or if it carries on its business in Northern Ireland through a dependent agent.

29.A NIRE will not exist where the business is carried on through an agent of independent status. This Chapter sets out the conditions to determine whether an agent is of independent status.

Chapter 6

30.Chapter 6 determines which profits and losses of a qualifying trade of a company which is a Northern Ireland company by virtue of the SME condition at section 357KA(2) are Northern Ireland profits or Northern Ireland losses.

31.The Northern Ireland profits and losses of a Northern Ireland SME company are all the profits and losses of a qualifying trade except to the extent that they arise from excluded activities (re-insurance and the exploration or exploitation of UK sector of the continental shelf). The definition of “qualifying trade” covers cases where a company makes a one-off election under section 357KB to bring in profits attributable to the back-office functions of certain trades which would otherwise be excluded trades.

32.Section 357MB sets out how the back-office profits of an excluded trade for which an election under section 357KB has been made are to be determined. The profits are imputed on a percentage mark-up basis. Each back-office deduction is marked up at a rate of 5 per cent.

33.Section 357MB(3) provides a power for the Treasury to vary the rate which is used to arrive at the value of the imputed profits of back-office activities.

Chapter 7

34.Chapter 7 identifies the profits and losses of a trade of a large company which are Northern Ireland profits or Northern Ireland losses. The rules set out in this Chapter for the attribution of profit to the NIRE follow internationally recognised principles similar to those governing the attribution of profits to a permanent establishment which are set out at Chapter 4 of Part 2 of CTA 2009.

35.The profits or losses of the qualifying trade can comprise either Northern Ireland profits or losses, mainstream profits or losses or a combination of both. The Northern Ireland profits and losses of a qualifying trade of a company which is a Northern Ireland company by virtue of the large company condition at section 357KA(3) are those which are attributable to a NIRE and which do not arise from an excluded activity.

36.The definition of “qualifying trade” covers cases where a company makes a one-off election under section 357KB to bring in profits attributable to the back-office functions of certain trades which would otherwise be excluded trades.

37.Northern Ireland profits and losses are attributable to the NIRE on the principle that it is a separate enterprise, engaging in the same or similar activities as if it were wholly independent from the company, and as if transactions between the NIRE and the company were made at arm’s length.

38.Provision is made for the attribution of allowable expenses incurred for the purpose of the NIRE, but no deduction is allowable for internal royalties or similar payments paid by the NIRE to any other part of the company for the use of intangible assets. No deduction is allowable for interest or other financing costs paid by the NIRE to any other part of the company. A deduction will, however, be allowed for any contribution by the NIRE to the costs of creating an intangible asset and any contribution received by the NIRE towards such costs will be attributable to it.

39.Internal royalties or other similar amounts received by the NIRE from other parts of the company will not be brought into account when calculating the profits attributable to the NIRE. Internal interest or other financing income received from any other part of the company will not be attributable to the NIRE.

40.Section 357NB sets out how the back-office profits of an excluded trade for which an election under section 357KB has been made are to be determined. The profits are imputed on a percentage mark-up basis. Each back-office deduction is marked up at a rate of 5 per cent.

41.Section 357NB(3) provides a power for the Treasury to vary the rate which is used to arrive at the value of the imputed profits of back-office activities.

Chapter 8

42.Part 8 of CTA 2009 sets out how a company’s gains and losses in connection with intangible fixed assets are calculated and brought into account for corporation tax purposes. Chapter 8 deals with the calculation of Northern Ireland profits or losses where the company holds intangible fixed assets within Part 8 of CTA 2009 for the purpose of a trade carried on by it in Northern Ireland.

43.Where Chapter 8 applies, the basic rules for computing Northern Ireland profits are determined without regard to any intangible fixed assets held by the company for the purposes of its Northern Ireland trade. After this amount has been determined, the total “Northern Ireland intangible credits” for the period are added and the total “Northern Ireland intangibles debits” for the period are subtracted.

44.Chapter 8 provides separate definitions for Northern Ireland intangibles credits and debits depending on whether the company is a Northern Ireland company by virtue of the SME condition (NI SME) or by virtue of the large company condition (NI large company). Both definitions use the terms “pre-commencement asset”, “realisation credit”, “realisation debit” and “Northern Ireland element”, which are defined elsewhere in Chapter 8.

45.Where the company is an NI SME, the Northern Ireland intangibles credits are the credits treated under Part 8 of CTA 2009 as receipts of a qualifying trade for the period, except for credits from pre-commencement assets and realisation credits, together with the Northern Ireland element of each realisation credit. Where the company carries on an excluded activity there is an additional restriction to exclude credits attributable to assets held for the purpose of the excluded activity.

46.The Northern Ireland intangible debits for an NI SME are calculated in the same way with the simple replacement of “credit” with “debit” and “receipt” with “expense”.

47.Where the company is an NI large company, the definition of the Northern Ireland intangibles credits and debits is the same as that of an NI SME with the additional requirement that credits or debits treated as receipts or expenses of a qualifying trade would, in accordance with the separate enterprise principle, be attributable to the company’s NIRE. If the company carries on an excluded activity, the credits or debits attributable to assets held for the purpose of that activity are excluded.

48.A realisation credit or realisation debit is a credit or debit which is brought into account under Chapter 4 of Part 8 of CTA 2009, is treated under section 747 of that Act as a receipt or expense of the trade, and does not relate to a pre-commencement asset (see section 357OD).

49.The Northern Ireland element of a realisation credit or debit is the amount that will be charged or relieved at the Northern Ireland rate of corporation tax. It is calculated in accordance with provisions which take account of the extent to which the intangible fixed asset in question has been held for the purposes of an activity that is subject to the Northern Ireland rate.

50.An intangible fixed asset is a “pre-commencement asset” if it was created before the commencement day (as defined at section 5 of the Act; see paragraph 156 below). The general rule is that intangible fixed assets are treated as having been created before the commencement day if they were held by the company or another person at any time before that day. This rule is subject to two provisions which cover goodwill and film production.

51.Goodwill is treated as created before the commencement day in a case in which the business in question was carried on by any person before that date and on or after the commencement day in any other case.

52.In the case of an asset representing production expenditure on a film, the asset is treated as created when the film is completed.

53.Chapter 8 provides that where the company has fungible assets, and section 858 of CTA 2009 has treated some of those assets as an asset created on or after 1 April 2002, that post 1 April 2002 asset may be further divided into two assets for the purpose of the Chapter 8 commencement rule; one such asset treated as a pre-commencement asset and therefore treated as created before the commencement day, and the other as one created after the commencement day. There are special rules regarding the realisation and acquisition of fungible assets.

54.Any realisation is treated as diminishing the pre-commencement asset first. There are also rules to identify any realisations and acquisitions that are essentially diminishing the pre-commencement asset while increasing the post-commencement asset.

55.There are rules covering the situation where a company acquires an intangible fixed asset from another person where the acquired asset is created on or after the commencement day and that asset derives its value in whole or part from any other asset which was a pre-commencement asset. In such circumstances the acquired asset is treated as a pre-commencement asset so far as its value derives from that other asset. Where appropriate the acquired asset is treated as two separate assets, one a pre-commencement asset and the other a post-commencement asset.

56.There are also rules covering the situation where a company acquires an intangible fixed asset as a consequence of, or otherwise in connection with, the disposal of a pre-commencement asset by another person. In such cases the acquired asset is treated as a pre-commencement asset for the purposes of this Chapter.

57.For related provisions about the disposal by a company that is not a Northern Ireland company of an intangible fixed asset that has previously been held in circumstances where credits and debits relating to it were or would have been subject to the Northern Ireland rate, see the amendment made by paragraph 1 of Schedule 2 (see paragraph 147 below).

Chapter 9

58.Chapter 9 modifies the treatment of research and development (R&D) expenditure credit under Part 3 (trading income) of CTA 2009.

59.Chapter 6A of Part 3 of CTA 2009 makes provision for R&D expenditure credit to be brought into account as a receipt in calculating the profits of a trade. Where a company is entitled to an R&D expenditure credit for a period and the company is a Northern Ireland company, Chapter 9 provides that the credit forms part of the mainstream profits or losses of the trade.

60.Chapter 9 also modifies Chapters 2 and 7 of Part 13 of CTA 2009 with regard to additional relief for expenditure on research and development in relation to expenditure incurred by a company in an accounting period in which it is a Northern Ireland company.

61.Chapter 2 of Part 13 of CTA 2009 makes provision for relief for R&D expenditure incurred by a company which is a small or medium size enterprise. It provides for an additional deduction for qualifying Chapter 2 (R&D) expenditure. Any resultant Chapter 2 loss may be surrendered for a payable tax credit.

62.Chapter 9 of Part 8B of CTA 2010 provides that where some of the Chapter 2 R&D expenditure is Northern Ireland expenditure (as defined in new section 357P(2)) an adjusted percentage is used to calculate the amount of additional deduction for the purposes of Chapter 2 of Part 13 of CTA 2009. The adjusted percentage is set to give the same cash value of the relief the company would have received if none of the Chapter 2 R&D expenditure were Northern Ireland expenditure.

63.Chapter 9 of Part 8B CTA 2010 modifies how the amount of R&D tax credit available under Chapter 2 of Part 13 CTA 2009 is calculated where the company has Northern Ireland Chapter 2 surrenderable losses (as defined in new section 357PC(3)(a)) to ensure the same amount of R&D tax credit is payable under section 1054 of CTA 2009, and that any losses carried forward after a claim for R&D tax credits is reduced by the losses surrendered.

64.Chapter 7 of Part 13 of CTA 2009 makes provision for the relief for R&D expenditure incurred by large companies on vaccine or medicine research. It provides for an additional deduction for qualifying Chapter 7 (R&D) expenditure.

65.Chapter 9 of Part 8B of CTA 2010 provides that where some expenditure that is eligible for relief under Chapter 7 of Part 13 CTA 2009 is Northern Ireland expenditure, an adjusted percentage is used to calculate the amount of additional deduction. The adjusted percentage is set to give the same cash value of the relief the company would have received if none of the Chapter 7 R&D expenditure was Northern Ireland expenditure.

Chapter 10

66.Chapter 10 modifies the operation of Part 14 of CTA 2009 (remediation of contaminated or derelict land) in relation to expenditure incurred by a company in an accounting period in which it is a Northern Ireland company.

67.Part 14 of CTA 2009 provides for an additional deduction for qualifying land remediation expenditure. This deduction together with any tax deductible land remediation expenditure is deducted from the income arising from land remediation. Any resultant loss may be surrendered for a payable tax credit.

68.Chapter 10 of Part 8B provides that where some of the qualifying expenditure is Northern Ireland expenditure (as defined by new section 357Q(2)(a)), an adjusted percentage is used to calculate the amount of additional deduction for the purposes of Part 14 of CTA 2009. The adjusted percentage is set to give the same cash value of the relief the company would have received if none of the expenditure were Northern Ireland expenditure.

69.Chapter 10 of Part 8B also provides that the same amount of land remediation tax credit is payable under section 1154 of CTA 2009 and that any losses carried forward from after a claim for land remediation tax credits are reduced by the losses surrendered.

Chapter 11

70.Chapter 11 modifies the operation of Part 15 of CTA 2009 (film tax relief) in relation to expenditure incurred by a company which is a Northern Ireland company in an accounting period.

71.Part 15 of CTA 2009 provides for an additional deduction for qualifying expenditure on a qualifying film. This deduction together with any tax deductible film expenditure is deducted from the income arising from the film. Any resultant loss may be surrendered for a payable tax credit.

72.Chapter 11 of Part 8B provides that where all or some of the qualifying expenditure is Northern Ireland expenditure (as defined by new section 357R(2)(a)), the company is entitled to a supplementary deduction. The amount of the supplementary deduction is set to give the same cash value of the relief the company would have received if none of the expenditure was Northern Ireland expenditure.

73.Chapter 11 of Part 8B also ensures that the same amount of film tax credit is payable under section 1201 of CTA 2009 and that the restricted loss relief rules for film losses are maintained.

Chapter 12

74.Chapter 12 modifies the operation of Part 15A of CTA 2009 (television production) in relation to expenditure incurred by a company which is a Northern Ireland company in an accounting period.

75.Part 15A of CTA 2009 provides for an additional deduction for qualifying expenditure on a qualifying relevant television programme. This deduction together with any tax deductible relevant television programme expenditure is deducted from the income arising from the relevant television programme. Any resultant loss may be surrendered for a payable tax credit.

76.Chapter 12 of Part 8B provides that where all or some of the qualifying expenditure is Northern Ireland expenditure (as defined in new section 357S(2)(a)), the company is entitled to a supplementary deduction. The amount of the supplementary deduction is set to give the same cash value of the relief the company would have received if none of the expenditure were Northern Ireland expenditure.

77.Chapter 12 also ensures that the same amount of television tax credit is payable under section 1216CH of CTA 2009 and that the restricted loss relief rules for television losses are maintained.

Chapter 13

78.Chapter 13 modifies the operation of Part 15B of CTA 2009 (video games production) in relation to expenditure incurred by a company which is a Northern Ireland company in an accounting period.

79.Part 15B of CTA 2009 provides for an additional deduction for qualifying expenditure on a qualifying video game. This deduction together with any tax deductible video game expenditure is deducted from the income arising from the video game. Any resultant loss may be surrendered for a payable tax credit.

80.Chapter 13 of Part 8B provides that where all or some of the qualifying expenditure is Northern Ireland expenditure (as defined in new section 357T(2)(a)), the company is entitled to a supplementary deduction. The amount of the supplementary deduction is set to give the same cash value of the relief the company would have received if none of the expenditure were Northern Ireland expenditure.

81.Chapter 13 also ensures that the same amount of video game tax credit is payable under section 1217CH of CTA 2009 and that the restricted loss relief rules for video game losses are maintained.

Chapter 14

82.Chapter 14 modifies the operation of Part 15C of CTA 2009 (theatrical productions) in relation to expenditure incurred by a company which is a Northern Ireland company in an accounting period.

83.Part 15C of CTA 2009 provides for an additional deduction for qualifying expenditure on a qualifying theatrical production. This deduction together with any tax deductible theatrical production expenditure is deducted from the income arising from the theatrical production. Any resultant loss may be surrendered for a payable tax credit.

84.Chapter 14 of Part 8B provides that where all or some of the qualifying expenditure is Northern Ireland expenditure (as defined in new section 357U(2)(a)), the company is entitled to a supplementary deduction. The amount of the supplementary deduction is set to give the same cash value of the relief the company would have received if none of the expenditure were Northern Ireland expenditure.

85.Chapter 14 also ensures that the same amount of theatre tax credit is payable under section 1217K of CTA 2009 and that the restricted loss relief rules for theatre losses are maintained.

Chapter 15

86.Chapter 15 modifies the operation of Part 8A of CTA 2010 (profits from the exploitation of patents etc.) where a company is a Northern Ireland company.

87.Under Part 8A of CTA 2010, a company may elect that any relevant IP profits of a trade of the company for an accounting period for which it is a qualifying company are chargeable at an IP rate of corporation tax. Effect is given to an election by allowing a deduction to be made in calculating the profits of the trade for the period.

88.Section 357VA modifies section 357A to provide for a mainstream deduction and a Northern Ireland deduction.

89.The mainstream deduction is calculated in accordance with section 357A but by reference to relevant mainstream IP profits of the trade. The relevant mainstream IP profits of the trade are so much of the relevant IP profits of the trade as are not Northern Ireland IP profits of the trade.

90.Section 357VA sets out how the amount of the Northern Ireland deduction is calculated and provides that a deduction is only due if the Northern Ireland rate is higher than the special IP rate of corporation tax specified in section 357A(4).

91.The mainstream deduction is allowable as a deduction in computing mainstream profits or mainstream losses in accordance with Chapters 6 and 7 of Part 8B of CTA 2010.

92.The Northern Ireland deduction is allowable as a deduction in computing the Northern Ireland profits or Northern Ireland losses in accordance with Chapters 6 and 7.

93.The relevant Northern Ireland IP profits of a Northern Ireland company meeting the SME condition which does not carry on an excluded trade are set out in section 357VB. The company’s relevant Northern Ireland IP profits are the relevant IP profits of the trade excluding any amounts treated by section 747 of CTA 2009 as receipts or expenses of a trade in respect of pre-commencement assets. Any relevant IP profits attributable to qualifying IP right or licence to such a right held by the company for the purposes of an excluded activity are also excluded.

94.The relevant Northern Ireland IP profits of a Northern Ireland company meeting the large company condition which does not carry on an excluded trade are set out in section 357VC. The company’s relevant Northern Ireland IP profits are the appropriate proportion of the relevant IP profits. This proportion is the proportion of the profits of the company’s trade attributable to relevant rights that are attributable to either the company’s NIRE in accordance with Chapter 7 or are Northern Ireland intangibles credits or debits under Chapter 8. Relevant rights are qualifying IP rights, or exclusive licences to qualifying IP rights, which are held by the company.

95.In computing the relevant IP profits section 357VD makes clear that any set-off amounts under Chapter 5 of Part 8A are taken into account before the provisions of this Chapter are applied.

Chapter 16

96.Chapter 16 provides for the inclusion of the profit share of a corporate partner within the Northern Ireland regime where a partnership meets the definition of a Northern Ireland firm as set out at section 357WA. A Northern Ireland firm is a partnership which carries on a qualifying partnership trade as defined at section 357WB and meets either the SME partnership condition or the large partnership condition.

97.The definition of “qualifying partnership trade” means a trade carried on by a firm which is not an excluded trade. The definition includes where a firm makes a one-off election under section 357WB to bring in profits attributable to the back-office functions of certain trades which would otherwise be excluded.

98.The normal rules for determining the amount of a partner’s profit or loss apply but where the profits or losses of a firm’s trade are a combination of both Northern Ireland profits or Northern Ireland losses and mainstream profits or losses, the firm’s profit sharing arrangements are treated as applying separately in relation to each category.

99.If the rules under section 1263 of CTA 2009 require that the corporate partner’s share of profit of the trade is neither a profit nor a loss, the corporate partner is similarly treated as having no profit or loss for each category of profit or loss. If the corporate partner’s share of the profit of the trade is reduced, each category of profit or loss is reduced by the same proportion.

100.If the rules under section 1264 of CTA 2009 require that the corporate partner’s share of loss of the trade is neither a profit nor a loss, the corporate partner is similarly treated as having no profit or loss for each category of profit or loss. If the corporate partner’s share of the loss of the trade is reduced, each category of profit or loss is reduced by the same proportion.

101.Northern Ireland profits or losses or mainstream profits or losses may be increased or reduced by capital allowances or charges under CAA 2001.

102.Section 357WE modifies specified provisions of Chapters 6 and 7 in their application to Northern Ireland firms. Section 357WF modifies Chapter 8 (intangible fixed assets) in its application to Northern Ireland firms. Section 357WG modifies specified provisions in Chapter 15 (exploitation of patents etc) in their application to Northern Ireland firms.

Chapter 17

103.Chapter 17 specifies the trades and activities which are excluded trades and activities. An excluded trade is a trade which includes certain kinds of lending, investment and investment management, the long term business of insurance companies, re-insurance trade or an oil and gas “ring fence trade”. An excluded activity is an activity of effecting or carrying out re-insurance contracts, or an activity carried on in connection with exploration or exploitation activity or in connection with exploration or exploitation rights in the UK sector of the continental shelf.

104.Section 357XH provides for a power for the Treasury to amend, by regulations, the definitions of excluded trades and excluded activities.

105.Section 357XI provides a power for Treasury to specify, by regulations, the activities that are, or are not, back-office activities, or to specify circumstances in which activities are, or are not, to be regarded as back-office activities.

106.Such regulations may make different provision for different purposes and make incidental, supplemental, consequential and transitional provision and savings.

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