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Taxation (International and Other Provisions) Act 2010

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Taxation (International and Other Provisions) Act 2010 is up to date with all changes known to be in force on or before 26 January 2022. There are changes that may be brought into force at a future date. Changes that have been made appear in the content and are referenced with annotations. Help about Changes to Legislation

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Part 1U.K.Overview

1Overview of ActU.K.

(1)The following Parts contain provisions relating to international aspects of taxation—

(a)Parts 2 and 3 (double taxation relief),

(b)Parts 4 and 5 (transfer pricing and advance pricing agreements),

F1(c). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

[F2(ca)Part 6A (hybrid and other mismatches),]

F3(d). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(e)Part 8 (offshore funds [F4etc]),

[F5(f)Part 9A (controlled foreign companies), and

(g)Part 10 (corporate interest restriction).]

(2)Part 9 contains amendments of tax legislation to relocate enactments to appropriate places.

(3)In particular, Part 9 contains amendments of TCGA 1992, ITTOIA 2005 and ITA 2007 that insert provisions relating to—

(a)oil activities (see section 364 and Schedule 1),

(b)alternative finance arrangements (see section 365 and Schedule 2),

(c)leasing arrangements involving finance leases or loans (see section 367 and Schedule 3),

(d)sale and lease-back etc (see section 368 and Schedule 4),

(e)factoring of income etc (see section 369 and Schedule 5), and

(f)UK representatives of non-UK residents (see section 370 and Schedule 6).

(4)Part [F611] contains provisions of general application (including definitions for the purposes of the Act).

(5)For abbreviations used in this Act see section [F7500], and for defined expressions used in Parts 2 to 8 see Schedule 11.

Textual Amendments

F1S. 1(1)(c) omitted (with effect in accordance with Sch. 10 para. 22(b) of the amending Act) by virtue of Finance Act 2016 (c. 24), Sch. 10 para. 10(a)

F2S. 1(1)(ca) inserted (15.9.2016) by Finance Act 2016 (c. 24), Sch. 10 para. 10(b)

F3S. 1(1)(d) repealed (with effect in accordance with Sch. 5 para. 26(1) of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 5 para. 11(1)(a)

F4Word in s. 1(1)(e) inserted (retrospective to 5.12.2013) by Finance Act 2014 (c. 26), s. 289(5)(a)(6)

F5S. 1(1)(f)(g) inserted (with effect in accordance with Sch. 5 para. 25(1)(2) of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 5 para. 13(b)

F6Word in s. 1(4) substituted (with effect in accordance with Sch. 5 para. 25(1)(2) of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 5 para. 10(4)(d)(i)

F7Word in s. 1(5) substituted (with effect in accordance with Sch. 5 para. 25(1)(2) of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 5 para. 10(4)(d)(ii)

Part 2U.K.Double taxation relief

Modifications etc. (not altering text)

C1Pt. 2 modified by 1988 c. 1, Sch. 19ABA paras. 26-28 (as inserted (with effect in accordance with s. 381(1) of the amending Act) by Taxation (International and Other Provisions) Act 2010 (c. 8), s. 381(1), Sch. 8 para. 34(3) (with Sch. 9 paras. 1-9, 22))

C2Pt. 2 applied by 2010 c. 4, s. 269DL(6) (as inserted (with effect in accordance with Sch. 3 Pt. 3 of the amending Act) by Finance (No. 2) Act 2015 (c. 33), Sch. 3 para. 1)

CHAPTER 1U.K.Double taxation arrangements and unilateral relief arrangements

Double taxation arrangementsU.K.

2Giving effect to arrangements made in relation to other territoriesU.K.

(1)If Her Majesty by Order in Council declares—

(a)that arrangements specified in the Order have been made in relation to any territory outside the United Kingdom with a view to affording relief from double taxation in relation to taxes within subsection (3), and

(b)that it is expedient that those arrangements should have effect,

those arrangements have effect.

[F8(1A)For the purposes of this section, arrangements made with a view to affording relief from double taxation include any arrangements which modify the effect of arrangements so made.]

(2)If arrangements have effect under subsection (1), they have effect in accordance with section 6.

(3)The taxes are—

(a)income tax,

(b)corporation tax,

(c)capital gains tax,

(d)petroleum revenue tax, and

(e)any taxes imposed by the law of the territory that are of a similar character to taxes within paragraphs (a) to (d).

(4)In this Part “double taxation arrangements” means arrangements that have effect under subsection (1).

Textual Amendments

F8S. 2(1A) inserted (retrospectively and with application in accordance with s. 32(5) of the amending Act) by Finance Act 2018 (c. 3), s. 32(1)(4)

3Arrangements may include retrospective or supplementary provisionU.K.

(1)Section 2(1) gives effect to arrangements even if the arrangements include—

(a)provision for relief from tax for periods before the passing of this Act, or

(b)provision for relief from tax for periods before the making of the arrangements.

(2)Section 2(1) gives effect to arrangements even if the arrangements include—

(a)provision as to income that is not subject to double taxation,

(b)provision as to chargeable gains that are not subject to double taxation, F9...

(c)provision as to foreign-field consideration that is not subject to double taxation [F10or

(d)provision conferring (with or without other functions) functions relating to the determination of matters arising under the arrangements on a public authority in the United Kingdom or in a territory outside the United Kingdom.]

(3)In subsection (2)(c) “foreign-field consideration” means consideration brought into charge to tax under section 12 of the Oil Taxation Act 1983 (charge to petroleum revenue tax on consideration in respect of United Kingdom use of a foreign field asset).

Textual Amendments

F9Word in s. 3(2)(b) omitted (retrospectively and with application in accordance with s. 32(5) of the amending Act) by virtue of Finance Act 2018 (c. 3), s. 32(2)(a)(4)

F10S. 3(2)(d) and word inserted (retrospectively and with application in accordance with s. 32(5) of the amending Act) by Finance Act 2018 (c. 3), s. 32(2)(b)(4)

4Meaning of “double taxation” in sections 2 and 3U.K.

(1)For the purposes of sections 2 and 3, any amount within subsection (2) is to be treated as having been payable.

(2)An amount is within this subsection if it is an amount of tax that would have been payable under the law of a territory outside the United Kingdom but for a relief—

(a)given under the law of the territory with a view to promoting industrial, commercial, scientific, educational or other development in a territory outside the United Kingdom, and

(b)about which provision is made in double taxation arrangements.

(3)References in sections 2 and 3 to double taxation are to be read in accordance with subsection (1).

5Orders under section 2: contents and procedureU.K.

(1)If an Order under section 2 (“the later Order”) revokes an earlier Order under that section, the later Order may contain transitional provisions that appear to Her Majesty to be necessary or expedient.

(2)An Order under section 2 is not to be submitted to Her Majesty in Council unless a draft of the Order has been laid before and approved by a resolution of the House of Commons.

6The effect given by section 2 to double taxation arrangementsU.K.

(1)Subject to this Part and Part 18 of ICTA, double taxation arrangements have effect in accordance with subsections (2) to (4) despite anything in any enactment.

(2)Double taxation arrangements have effect in relation to income tax and corporation tax so far as the arrangements provide—

(a)for relief from income tax or corporation tax,

(b)for taxing income of non-UK resident persons that arises from sources in the United Kingdom,

(c)for taxing chargeable gains accruing to non-UK resident persons on the disposal of assets in the United Kingdom,

(d)for determining the income or chargeable gains to be attributed to non-UK resident persons,

(e)for determining the income or chargeable gains to be attributed to agencies, branches or establishments in the United Kingdom of non-UK resident persons, [F11or ]

(f)for determining the income or chargeable gains to be attributed to UK resident persons who have special relationships with non-UK resident persons, F12...

F12(g). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(3)Double taxation arrangements have effect in relation to capital gains tax so far as the arrangements provide—

(a)for relief from capital gains tax,

(b)for taxing capital gains accruing to non-UK resident persons on the disposal of assets in the United Kingdom,

(c)for determining the capital gains to be attributed to non-UK resident persons,

(d)for determining the capital gains to be attributed to agencies, branches or establishments in the United Kingdom of non-UK resident persons, or

(e)for determining the capital gains to be attributed to UK resident persons who have special relationships with non-UK resident persons.

(4)Double taxation arrangements have effect in relation to petroleum revenue tax so far as the arrangements provide for relief from petroleum revenue tax charged under section 12 of the Oil Taxation Act 1983 (charge to petroleum revenue tax on consideration in respect of United Kingdom use of a foreign field asset).

(5)In the case of relief under this Chapter that is not also relief under Chapter 2, the relief is not available in respect of special withholding tax (a corresponding rule applies in relation to relief under Chapter 2 as a result of the definition of foreign tax given by section 21).

(6)Relief under subsection (2)(a), (3)(a) or (4) requires a claim.

(7)In subsection (3) “UK resident person” and “non-UK resident person” have the meaning given by section 989 of ITA 2007.

(8)In subsection (5) “special withholding tax” has the same meaning as in Part 3 (see section 136).

Textual Amendments

F11Word in s. 6(2) inserted (with effect in accordance with Sch. 1 para. 73 of the amending Act) by Finance Act 2016 (c. 24), Sch. 1 para. 68(2)(a)

F12S. 6(2)(g) and word omitted (with effect in accordance with Sch. 1 para. 73 of the amending Act) by virtue of Finance Act 2016 (c. 24), Sch. 1 para. 68(2)(b)

Modifications etc. (not altering text)

C3S. 6(1) excluded by 2005 c. 5, s. 608W(4) (as inserted (with effect in accordance with Sch. 3 para. 7 of the amending Act) by Finance Act 2019 (c. 1), Sch. 3 para. 4)

C4S. 6(1) excluded by 1992 c. 12, Sch. 1A para. 11 (as inserted (with effect in accordance with Sch. 1 paras. 120, 123 of the amending Act) by Finance Act 2019 (c. 1), Sch. 1 para. 14)

7General regulationsU.K.

(1)The Commissioners for Her Majesty's Revenue and Customs may make regulations generally for carrying out the provisions of the treaty sections or any double taxation arrangements.

(2)Regulations under subsection (1) may in particular provide for securing that relief from taxation imposed by the law of the territory to which any double taxation arrangements relate does not enure for the benefit of persons not entitled to that relief.

(3)Subsection (4) applies to tax if—

(a)the tax is deductible from a payment but, in order to comply with double taxation arrangements, has not been deducted, and

(b)it is discovered that the arrangements did not apply to that payment.

(4)Regulations under subsection (1) may in particular provide for authorising recovery of tax to which this subsection applies—

(a)by assessment on the person entitled to the payment from which the tax is not deducted, or

(b)by deduction from subsequent payments.

(5)In subsection (1) “the treaty sections” means—

  • sections 2 to 6,

  • section 134(1), and

  • section 134(3) to (6) so far as relating to section 134(1).

(6)This section does not apply in relation to—

(a)petroleum revenue tax, or

(b)taxes imposed by the law of a territory outside the United Kingdom that—

(i)are of a similar character to petroleum revenue tax, and

(ii)are not of a similar character to income tax, corporation tax or capital gains tax.

Unilateral relief arrangementsU.K.

8Interpretation: “unilateral relief arrangements” means rules 1 to 9, etcU.K.

(1)In this Part “unilateral relief arrangements”, in relation to a territory outside the United Kingdom, means the rules set out in sections 9 to 17.

(2)In sections 11 to 17, and in Chapter 2 (except section 29) in its application to relief under unilateral relief arrangements, references to tax payable or paid under the law of a territory outside the United Kingdom include only—

(a)taxes which are charged on income and which correspond to income tax,

(b)taxes which are charged on income or chargeable gains and which correspond to corporation tax, and

(c)taxes which are charged on capital gains and which correspond to capital gains tax.

(3)For the purposes of subsection (2), tax may correspond to income tax, corporation tax or capital gains tax even though it—

(a)is payable under the law of a province, state or other part of a country, or

(b)is levied by or on behalf of a municipality or other local body.

9Rule 1: the unilateral entitlement to credit for non-UK taxU.K.

(1)Credit for tax—

(a)paid under the law of the territory,

(b)calculated by reference to income arising, or any chargeable gain accruing, in the territory, and

(c)corresponding to UK tax,

is to be allowed against any income tax or corporation tax calculated by reference to that income or gain.

(2)Credit for tax—

(a)paid under the law of the territory,

(b)calculated by reference to any capital gain accruing in the territory, and

(c)corresponding to UK tax,

is to be allowed against any capital gains tax calculated by reference to that gain.

(3)For the purposes of subsection (1), profits from, or remuneration for, personal or professional services performed in the territory are to be treated as income arising in the territory.

(4)For the purposes of subsection (1)(c), tax corresponds to UK tax if—

(a)it is charged on income and corresponds to income tax, or

(b)it is charged on income or chargeable gains and corresponds to corporation tax.

(5)For the purposes of subsection (2)(c), tax corresponds to UK tax if it is charged on capital gains and corresponds to capital gains tax.

(6)For the purposes of subsections (4) and (5), tax may correspond to income tax, corporation tax or capital gains tax even though it—

(a)is payable under the law of a province, state or other part of a country, or

(b)is levied by or on behalf of a municipality or other local body.

(7)If the territory is the Isle of Man or any of the Channel Islands, subsections (1)(b) and (2)(b) have effect with the omission of “in the territory”.

(8)Subsections (1) and (2) are subject to sections 11 and 12.

10Rule 2: accrued income profitsU.K.

(1)Subsection (2) applies if—

(a)a person is treated under section 628(5) of ITA 2007 as making accrued income profits in an interest period,

(b)the person would, were the person to become entitled in the relevant tax year to any interest on the securities concerned, be liable in respect of the interest to tax chargeable under ITTOIA 2005 on relevant foreign income, and

(c)the person is liable under the law of the territory to tax in respect of interest payable on the securities at the end of the interest period or the person would be so liable if the person were entitled to that interest.

(2)Credit is to be allowed against income tax calculated by reference to the accrued income profits.

(3)The amount of the credit allowed under subsection (2) is given by—

where—

AIP is the amount of the accrued income profits, and

FTR is the rate of tax to which the person is or would be liable as mentioned in subsection (1)(c).

(4)Subsection (2) is subject to section 11.

(5)In subsection (1)(b) “the relevant tax year” means the tax year in which, under section 617(2) of ITA 2007, the accrued income profits are treated as made.

(6)Expressions used in this section and in Chapter 2 of Part 12 of ITA 2007 (accrued income profits) have the same meaning as in that Chapter.

11Rule 3: interaction between double taxation arrangements and rules 1 and 2U.K.

(1)Credit for tax paid under the law of the territory is not allowed under section 9 or 10 in the case of any income or gains if any credit for that tax is allowable in respect of that income or those gains under double taxation arrangements made in relation to the territory.

(2)If credit in respect of an amount of tax may be allowed under double taxation arrangements made in relation to the territory, credit is not allowed under section 9 or 10 in respect of that tax.

(3)If double taxation arrangements made in relation to the territory contain express provision to the effect that relief by way of credit is not to be given under the arrangements in cases or circumstances specified or described in the arrangements, credit is not allowed under section 9 or 10 in those cases or circumstances.

12Rule 4: cases in which, and calculation of, credit allowed for tax on dividendsU.K.

(1)Credit under section 9 for overseas tax on a dividend paid by a company (“P”) resident in the territory is allowed only if section 13, 14, 15 or 16 so provides.

(2)If credit is allowed in principle as a result of at least one of sections 14, 15 and 16, any tax in respect of P's profits that is paid by P under the law of the territory is to be taken into account in considering whether any, and (if so) what, credit is in fact to be allowed under section 9 in respect of the dividend.

(3)If credit is allowed in principle as a result of at least one of sections 15 and 16, there is to be taken into account, as if it were tax payable under the law of the territory, any tax that would be so taken into account under section 63(5) if the recipient of the dividend—

(a)directly or indirectly controlled, or

(b)were a subsidiary of a company that directly or indirectly controlled,

at least 10% of the voting power in P.

(4)For the purposes of subsection (3), the recipient is a subsidiary of another company if the other company controls, directly or indirectly, at least 50% of the voting power in the recipient.

13Rule 5: credit for tax charged directly on dividendU.K.

(1)This section applies for the purposes of section 12(1).

(2)Credit under section 9 for overseas tax on a dividend paid by a company (“P”) resident in the territory is allowed if—

(a)the overseas tax is charged directly on the dividend (whether by charge to tax, deduction of tax at source or otherwise), and

(b)neither P nor the recipient of the dividend would have borne any of that tax if the dividend had not been paid.

14Rule 6: credit for underlying tax on dividend paid to 10% associate of payerU.K.

(1)This section applies for the purposes of section 12(1).

(2)Credit under section 9 for overseas tax on a dividend paid by a company (“P”) resident in the territory is allowed if conditions A and B are met.

(3)Condition A is that—

(a)the recipient of the dividend is a company resident in the United Kingdom, or

(b)the recipient is a company resident outside the United Kingdom but the dividend forms part of the profits of a permanent establishment of the recipient in the United Kingdom.

(4)Condition B is that the recipient—

(a)directly or indirectly controls, or

(b)is a subsidiary of a company which directly or indirectly controls,

at least 10% of the voting power in P.

(5)For the purposes of subsection (4), the recipient is a subsidiary of another company if the other company controls, directly or indirectly, at least 50% of the voting power in the recipient.

15Rule 7: credit for underlying tax on dividend paid to sub-10% associateU.K.

(1)This section applies for the purposes of section 12(1).

(2)Credit under section 9 for overseas tax on a dividend paid by a company (“P”) resident in the territory is allowed if each of conditions A to C is met.

(3)Condition A is that—

(a)the recipient of the dividend is a company resident in the United Kingdom, or

(b)the recipient is a company resident outside the United Kingdom but the dividend forms part of the profits of a permanent establishment of the recipient in the United Kingdom.

(4)Condition B is that the recipient—

(a)directly or indirectly controls, or

(b)is a subsidiary of a company which directly or indirectly controls,

less than 10% of the voting power in P.

(5)If condition B is met, in subsection (6) “the held percentage” means the voting power in P which is directly or indirectly controlled by—

(a)the recipient, or

(b)a company of which the recipient is a subsidiary.

(6)Condition C is that—

(a)the held percentage has been reduced below 10%,

(b)the recipient shows that the reduction below the 10% limit (and any further reduction)—

(i)could not have been prevented by any reasonable endeavours on the part of the recipient, a parent or an associate, and

(ii)was due to a cause or causes not reasonably foreseeable by the recipient, a parent or an associate when control of the relevant voting power was acquired, and

(c)the recipient shows that no reasonable endeavours on the part of the recipient, a parent or an associate could have restored, or (as the case may be) increased, the held percentage to at least 10%.

(7)For the purposes of subsection (6) a company is an “associate” if—

(a)the company is neither the recipient nor a parent,

(b)before the reduction, the voting power in P that is in question was controlled otherwise than directly by the recipient, and

(c)the company is relevant for determining whether, before the reduction, the recipient—

(i)indirectly controlled, or

(ii)was a subsidiary of a company which directly or indirectly controlled,

at least 10% of the voting power in P.

(8)In subsections (6) and (7) “parent” means a company of which the recipient is a subsidiary.

(9)In subsection (6) “the relevant voting power” means—

(a)the voting power in P as a result of which relief was due under section 14 before the reduction, or

(b)if control of the whole of that voting power was not acquired at the same time, that part of the voting power of which control was last acquired.

(10)For the purposes of this section, the recipient is a subsidiary of another company if the other company controls, directly or indirectly, at least 50% of the voting power in the recipient.

16Rule 8: credit for underlying tax on dividend paid by exchanged associateU.K.

(1)This section applies for the purposes of section 12(1).

(2)Credit under section 9 for overseas tax on a dividend paid by a company (“P”) resident in the territory is allowed if each of conditions A to C is met.

(3)Condition A is that—

(a)the recipient of the dividend is a company resident in the United Kingdom, or

(b)the recipient is a company resident outside the United Kingdom but the dividend forms part of the profits of a permanent establishment of the recipient in the United Kingdom.

(4)Condition B is that the recipient—

(a)directly or indirectly controls, or

(b)is a subsidiary of a company which directly or indirectly controls,

less than 10% of the voting power in P.

(5)If condition B is met, in subsection (6) “the held percentage” means the voting power in P which is directly or indirectly controlled by—

(a)the recipient, or

(b)a company of which the recipient is a subsidiary.

(6)Condition C is that—

(a)the held percentage has been acquired in exchange for voting power in another company (“X”),

(b)before the exchange, the recipient—

(i)directly or indirectly controlled, or

(ii)was a subsidiary of a company which directly or indirectly controlled,

at least 10% of the voting power in X,

(c)the recipient shows that the exchange (and any reduction after the exchange)—

(i)could not have been prevented by any reasonable endeavours on the part of the recipient, a parent or an associate, and

(ii)was due to a cause or causes not reasonably foreseeable by the recipient, a parent or an associate when control of the relevant voting power was acquired, and

(d)the recipient shows that no reasonable endeavours on the part of the recipient, a parent or an associate could have restored, or (as the case may be) increased, the held percentage to at least 10%.

(7)For the purposes of subsection (6) a company is an “associate” if—

(a)the company is neither the recipient nor a parent,

(b)before the exchange, the voting power in X that is in question was controlled otherwise than directly by the recipient, and

(c)the company is relevant for determining whether, before the exchange, the recipient—

(i)indirectly controlled, or

(ii)was a subsidiary of a company which directly or indirectly controlled,

at least 10% of the voting power in X.

(8)In subsections (6) and (7) “parent” means a company of which the recipient is a subsidiary.

(9)In subsection (6) “the relevant voting power” means—

(a)the voting power in X as a result of which relief was due under section 14 before the exchange, or

(b)if control of the whole of that voting power was not acquired at the same time, that part of the voting power of which control was last acquired.

(10)For the purposes of this section, the recipient is a subsidiary of another company if the other company controls, directly or indirectly, at least 50% of the voting power in the recipient.

17Rule 9: credit in relation to dividends for spared taxU.K.

(1)Subsection (2) applies if—

(a)under the law of the territory, an amount of tax (“the spared tax”) would, but for a relief, have been payable by a company resident in the territory (“company A”) in respect of any of its profits,

(b)company A pays a dividend out of those profits to another company resident in the territory (“company B”),

(c)company B, out of profits which consist of or include the whole or part of that dividend, pays a dividend to a company resident in the United Kingdom (“company C”), and

(d)the circumstances are such that, had company B been resident in the United Kingdom, it would have been entitled, as a result of the operation of section 20(2) in relation to double taxation arrangements made in relation to the territory, to treat the spared tax for the purposes of Chapter 2 as having been payable.

(2)The spared tax is to be taken into account—

(a)for the purposes of sections 9 to 16, and

(b)subject to section 31(4), for the purposes of Chapter 2 in its application to relief under these rules in relation to the dividend paid to company C,

as if it had been payable and paid.

(3)References in these rules and that Chapter—

(a)to tax payable or chargeable, or

(b)to tax not chargeable directly or by deduction,

are to be read in accordance with subsection (2).

(4)Except as provided by subsection (2), in relation to any dividend paid—

(a)by a company resident in the territory,

(b)to a company resident in the United Kingdom,

credit as a result of these rules is not to be given under section 63(5) in respect of tax which would have been payable under the law of the territory, or under the law of any other territory outside the United Kingdom, but for a relief.

(5)Subsection (4) has effect despite any double taxation arrangements—

(a)made in relation to the territory, or

(b)made in relation to any other territory outside the United Kingdom,

which make provision about a relief given, under the law of the territory in relation to which the arrangements are made, with a view to promoting industrial, commercial, scientific, educational or other development in a territory outside the United Kingdom.

(6)In this section “these rules” means sections 9 to 16 and this section.

CHAPTER 2U.K.Double taxation relief by way of credit

Effect to be given to credit for foreign tax allowed against UK taxU.K.

18Entitlement to credit for foreign tax reduces UK tax by amount of the creditU.K.

(1)Subsection (2) applies if—

(a)under double taxation arrangements, or

(b)under unilateral relief arrangements for a territory outside the United Kingdom,

credit is to be allowed against any income tax, corporation tax or capital gains tax chargeable in respect of any income or chargeable gain.

(2)The amount of those taxes chargeable in respect of the income or gain is to be reduced by the amount of the credit.

(3)In subsection (1) “credit”—

(a)in relation to double taxation arrangements, means credit for tax payable under the law of the territory in relation to which the arrangements are made, and

(b)in relation to unilateral relief arrangements for a territory outside the United Kingdom, means credit for tax payable under the law of that territory,

but see sections 12(3) and 63(5) (dividends: certain tax payable otherwise than under the law of a territory treated as payable under that law).

[F13(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 establishments) has effect in respect of a relevant profits amount or relevant losses amount within the meaning of that section.]

(4)Subsection (2) applies subject to—

(a)the following provisions of this Chapter,

(b)section 106 (Chapter 1 and this Chapter operate for capital gains tax purposes separately from their operation for the purposes of other United Kingdom taxes), and

(c)Chapter 2 of Part 18 of ICTA (double taxation relief: pooling of foreign dividends paid before 1 July 2009).

(5)Credit is allowed under subsection (2) against any tax only if, under the arrangements concerned, credit is allowable against that tax.

(6)Credit against income tax is given effect at Step 6 of the calculation in section 23 of ITA 2007.

Textual Amendments

F13S. 18(3A) inserted (19.7.2011) by Finance Act 2011 (c. 11), Sch. 13 paras. 26, 31

19Time limits for claims for relief under section 18(2)U.K.

(1)Subsections (2) and (3) apply to a claim for relief under section 18(2).

(2)If the claim is for credit for foreign tax in respect of any income or chargeable gain charged to income tax or capital gains tax for a tax year, the claim must be made on or before—

(a)the fourth anniversary of the end of that tax year, or

(b)if later, the 31 January following the tax year in which the foreign tax is paid.

(3)If the claim is for credit for foreign tax in respect of any income or chargeable gain charged to corporation tax for an accounting period, the claim must be made not more than—

(a)four years after the end of that accounting period, or

(b)if later, one year after the end of the accounting period in which the foreign tax is paid.

20Foreign tax includes tax spared because of international development reliefU.K.

(1)Subsections (2) and (4) apply if the arrangements are double taxation arrangements.

(2)For the purposes of this Chapter, any amount within subsection (3) is to be treated as having been payable.

(3)An amount is within this subsection if it is an amount of tax that would have been payable under the law of a territory outside the United Kingdom but for a relief—

(a)given under the law of that territory with a view to promoting industrial, commercial, scientific, educational or other development in a territory outside the United Kingdom, and

(b)about which provision is made in double taxation arrangements.

(4)References in this Chapter—

(a)to tax payable or chargeable, or

(b)to tax not chargeable directly or by deduction,

are to be read in accordance with subsection (2).

(5)Subsections (2) and (4) have effect subject to—

(a)subsection (6), and

(b)sections 31(4) and 32(5) (income and gains not to be increased in calculations under section 31 or 32 by amounts treated by this section as having been payable).

(6)If section 63(5) applies because conditions A and B in section 63 are met, relief is not given in accordance with section 63(5) (relief for certain tax underlying dividends paid between related companies) because of this section unless double taxation arrangements make express provision for the relief.

(7)Subsection (6) does not affect the operation of section 17(2) (treatment, for purposes of unilateral relief, of dividend paid by foreign company that has received dividends from a company benefiting from tax-sparing relief).

Interpretation of ChapterU.K.

21Meaning of “the arrangements”, “the non-UK territory”, “foreign tax” etcU.K.

(1)In this Chapter (except section 18)—

  • the arrangements” means the arrangements mentioned in section 18(1),

  • the non-UK territory” means the territory mentioned in section 18(3),

  • foreign tax” means tax chargeable under the law of the non-UK territory—

    (a)

    for which credit may be allowed under the arrangements, and

    (b)

    which is not special withholding tax, and

  • underlying tax” means, in relation to any dividend, tax which is not chargeable in respect of that dividend directly or by deduction.

(2)In subsection (1) “special withholding tax” has the same meaning as in Part 3 (see section 136).

(3)The definitions in subsection (1) are to be read with sections 17(3) and 20(4) (meaning of references to tax payable or chargeable, and of references to tax not chargeable directly or by deduction).

(4)See also section 8(2) (meaning of references to tax payable or paid under the law of a territory outside the United Kingdom).

Credits where same income charged to income tax in more than one tax yearU.K.

22Credit for foreign tax on overlap profit if credit for that tax already allowedU.K.

(1)Subsection (2) applies in relation to foreign tax (“FT”) paid in respect of any income if—

(a)the income is overlap profit, and

(b)credit for FT would have been allowed under section 18(2) against income tax chargeable for a tax year (“year L”) in respect of the income but for the fact that credit for FT had been allowed against income tax chargeable in respect of the income for a previous tax year.

(2)Credit for FT is allowed against income tax chargeable for year L in respect of the income.

(3)The amount of credit allowed for year L under subsection (2) in respect of the income must not exceed the difference between—

(a)T, and

(b)the amount of credit which was in fact allowed, under subsection (2) or section 18(2), in respect of the income for any earlier tax year or years.

(4)For the purposes of subsection (3)(a), T is the amount (“A”) of the foreign tax charged on the income, but this is subject to subsections (5) to (7).

(5)If Y exceeds FP—

where—

Y is the number of tax years for which credit is allowed, under subsection (2) or section 18(2), against income tax in respect of the income, and

FP is the number of foreign periods of assessment.

(6)For the purposes of subsection (5), a tax year or foreign period of assessment for which part only of the income is charged to tax is counted not as one year or period but as a fraction of a year or period, the fraction being—

where—

P is that part of the income, and

W is the whole of the income.

(7)If the same income is charged to different foreign taxes for different foreign periods of assessment—

(a)subsection (5) (read with subsection (6)) is to be applied separately to each of those taxes, and

(b)T is the sum of those taxes after subsection (5) has been applied to them in accordance with paragraph (a).

(8)In this section—

  • overlap profit” has the same meaning as in Chapter 15 of Part 2 of ITTOIA 2005 (see [F14sections 204 and 204A] of that Act), and

  • foreign period of assessment”, in relation to any income, means a period for which the income is, under the law of the non-UK territory, charged to the foreign tax concerned.

Textual Amendments

F14Words in s. 22(8) substituted (with effect in accordance with Sch. 3 para. 13 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 3 para. 12(a)

23Time limits for claims for relief under section 22(2)U.K.

(1)Relief under section 22(2) requires a claim.

(2)Any claim for relief by way of credit under section 22(2) against income tax for any tax year must be made on or before the fifth anniversary of the 31 January following that tax year, subject to subsection (3).

(3)If there is more than one tax year in respect of which such relief may be given, any claim for the relief must be made on or before the fifth anniversary of the 31 January following the later of those tax years.

24Claw-back of relief under section 22(2)U.K.

(1)Subsections (4) and (5) apply if—

(a)credit against income tax for any tax year is allowed under section 22(2) in respect of any income (“the original income”), and

(b)the original income, or any part of it, contributes to an amount which, under section 205 or 220 of ITTOIA 2005, is deducted in calculating profits of a later tax year (“the later year”).

(2)For the purposes of subsections (4) and (5), amount A is the difference between—

(a)the amount of the credit which, as a result of the application of sections 18(2) and 22(2) and subsection (5) of this section, has been allowed against income tax in respect of so much of the original income as contributes as mentioned in subsection (1), and

(b)the amount of the credit which, ignoring sections 22 and 23 and this section, would have been allowed under section 18(2) against income tax in respect of so much of the original income as contributes as mentioned in subsection (1).

(3)For the purposes of subsections (4) and (5), amount B is the amount of credit which, on the assumption that no amount were deducted under section 205 or 220 of ITTOIA 2005, would be allowable under section 18(2) against income tax in respect of income arising in the later year from the same source as the original income.

(4)If amount A exceeds amount B—

(a)no credit is allowed for income arising from that source in the later year,

(b)an amount of income tax equal to the excess is charged for the later year, and

(c)the liable person is liable for the tax.

(5)If amount B exceeds amount A, the liable person is allowed for the later year an amount of credit equal to the excess.

(6)In subsections (4) and (5) “the liable person” means the person liable for income tax charged on the income (if any) arising in the later year from the same source as the original income.

(7)For the purposes of subsections (1) to (6), it is to be assumed that, where an amount is deducted under section 220 of ITTOIA 2005, each of the overlap profits added together at Step 1 of the calculation in subsection (3) of that section contributes to that amount in the proportion which that overlap profit bears to the total that is the result of that Step.

(8)In this section—

(a)overlap profit” has the same meaning as in Chapter 15 of Part 2 of ITTOIA 2005 (see [F15sections 204 and 204A] of that Act), and

(b)references to income arising in any year include income received in the year that is income on which income tax is to be calculated by reference to the amount of income received in the United Kingdom.

Textual Amendments

F15Words in s. 24(8) substituted (with effect in accordance with Sch. 3 para. 13 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 3 para. 12(b)

Cases in which credit not allowedU.K.

25Credit not allowed if relief allowed against overseas taxU.K.

(1)Subsection (2) applies if relief may be allowed—

(a)under the arrangements, or

(b)under the law of the non-UK territory in consequence of the arrangements,

in respect of an amount of tax that would, but for the relief, be payable under the law of that territory.

(2)Credit under section 18(2) is not allowed in respect of that tax, whether or not the relief has been used.

26Credit not allowed under arrangements unless taxpayer is UK residentU.K.

(1)Credit under section 18(2) against income tax, corporation tax or capital gains tax for a chargeable period is not allowed unless the person in respect of whose income or chargeable gains the tax is chargeable is UK resident for that period.

(2)Sections 28 to 30 (credit under unilateral relief arrangements allowed to some non-UK resident persons) contain exceptions to subsection (1).

(3)In subsection (1) so far as it relates to capital gains tax “chargeable period” means tax year (see section 288(1ZA) of TCGA 1992).

(4)In subsection (1) so far as it relates to capital gains tax “UK resident” has the meaning given by section 989 of ITA 2007.

27Credit not allowed if person elects against creditU.K.

Credit under section 18(2) against income tax, corporation tax or capital gains tax charged on any income or chargeable gains of a person is not allowed if the person elects for credit not to be allowed in respect of that income or those gains.

Exceptions to requirement to be UK residentU.K.

28Unilateral relief for Isle of Man or Channel Islands taxU.K.

(1)Subsection (2) applies if the arrangements—

(a)are unilateral relief arrangements for a territory outside the United Kingdom, and

(b)provide for credit to be allowed for tax paid under the law of the Isle of Man (“the Isle of Man tax”).

(2)Credit under section 18(2) against any of the UK taxes for a chargeable period may be allowed for the Isle of Man tax if the person in respect of whose income or chargeable gains the UK tax is payable is—

(a)resident for that period in the United Kingdom, or

(b)resident for that period in the Isle of Man.

(3)Subsection (4) applies if the arrangements—

(a)are unilateral relief arrangements for a territory outside the United Kingdom, and

(b)provide for credit to be allowed for tax paid under the law of any of the Channel Islands (“the Channel Islands tax”).

(4)Credit under section 18(2) against any of the UK taxes for a chargeable period may be allowed for the Channel Islands tax if the person in respect of whose income or chargeable gains the UK tax is payable is—

(a)resident for that period in the United Kingdom, or

(b)resident for that period in any of the Channel Islands.

(5)Each of the following is a UK tax for the purposes of this section—

(a)income tax,

(b)corporation tax, and

(c)capital gains tax.

(6)In subsections (2) and (4) so far as they relate to capital gains tax “chargeable period” means tax year (see section 288(1ZA) of TCGA 1992).

29Unilateral relief for tax on income from employment or officeU.K.

(1)Subsection (3) applies if the arrangements are unilateral relief arrangements for a territory outside the United Kingdom.

(2)In subsection (3) “overseas tax” means tax—

(a)paid under the law of the territory,

(b)charged on income and corresponding to income tax or to corporation tax, and

(c)calculated by reference to income from an office or employment the duties of which are performed wholly or mainly in the territory.

(3)Credit for overseas tax may be allowed under section 18(2) against income tax for a tax year—

(a)calculated by reference to that income, and

(b)charged on employment income,

if the person performing the duties is resident in the United Kingdom, or resident in the territory, for that year.

(4)For the purposes of subsection (2)(b) tax may correspond to income tax or corporation tax even though it—

(a)is payable under the law of a province, state or other part of a country, or

(b)is levied by or on behalf of a municipality or other local body.

30Unilateral relief for non-UK tax on non-resident's UK branch or agency etcU.K.

(1)Subsection (2) applies if the arrangements are unilateral relief arrangements for a territory outside the United Kingdom.

(2)Credit for tax within subsection (3) or (4) may be allowed under section 18(2) against any of the UK taxes if the territory is not one in which the person or company concerned is liable to tax by reason of domicile, residence or place of management.

(3)Tax is within this subsection if the arrangements provide for credit for it to be allowed against income tax or corporation tax, and it is paid under the law of the territory in respect of the income or chargeable gains—

(a)of a branch or agency in the United Kingdom of a non-UK resident person who is not a company, or

(b)of a permanent establishment in the United Kingdom of a non-UK resident company.

(4)Tax is within this subsection if the arrangements provide for credit for it to be allowed against capital gains tax, and it is paid under the law of the territory in respect of the capital gains—

(a)of a branch or agency in the United Kingdom of a non-UK resident person who is not a company, or

(b)of a permanent establishment in the United Kingdom of a non-UK resident company.

(5)Relief under subsection (2) may not exceed the relief which would have been available if—

(a)the branch or agency, or permanent establishment, had been a UK resident person, and

(b)the income or gains had been income or gains of that person.

(6)Each of the following is a UK tax for the purposes of subsection (2)—

(a)income tax,

(b)corporation tax, and

(c)capital gains tax.

(7)In this section so far as it relates to capital gains tax—

  • branch or agency” has the meaning given by section 10(6) of TCGA 1992,

  • company” has the same meaning as in TCGA 1992 (see section 288 of that Act),

  • permanent establishment”, in relation to a company, has the meaning given by Chapter 2 of Part 24 of CTA 2010, and

  • “UK resident” or “non-UK resident”, in relation to a company or other person, has the meaning given by section 989 of ITA 2007.

Calculating income or gains in respect of which credit is allowedU.K.

31Calculation of income or gain where remittance basis does not applyU.K.

(1)Subsection (2) applies if—

(a)under the arrangements, credit is to be allowed for foreign tax in respect of any income or gain, and

(b)section 32(2) (cases where UK tax payable by reference to amount received in UK) does not apply.

(2)In calculating the amount of the income or gain for the purposes of income tax, corporation tax or capital gains tax—

(a)no deduction is to be made for foreign tax or special withholding tax, whether in respect of the same or any other income or gain, and

(b)if the credit is for foreign tax in respect of a dividend, the amount of the dividend is to be treated as increased by any underlying tax within subsection (3).

(3)In relation to a dividend, underlying tax is within this subsection if—

(a)under the arrangements it is to be taken into account in considering whether any, and (if so) what, credit is to be allowed in respect of the dividend,

(b)because the amount given by Step 2 of the calculation under section 58 is more than the amount given by Step 3 of that calculation, it is not to be taken into account in considering the questions mentioned in paragraph (a), or

(c)under section 60(3) it is not to be taken into account in considering those questions.

(4)The amount of any income or gain is not to be increased under subsection (2)(b) by reference to any foreign tax which, although not payable, is treated by section 20(2) as having been payable.

(5)Subsections (1) to (4) have effect for the purposes of corporation tax despite—

(a)section 464(1) of CTA 2009 (matters to be brought into account in the case of loan relationships only under Part 5 of that Act), and

(b)section 906(1) of CTA 2009 (matters to be brought into account in respect of intangible fixed assets only under Part 8 of that Act).

(6)In this section “special withholding tax” means special withholding tax—

(a)within the meaning of Part 3 (see section 136), and

(b)in respect of which a claim has been made under that Part.

32Calculation of amount received where UK tax charged on remittance basisU.K.

(1)Subsection (2) applies if—

(a)under the arrangements, credit is to be allowed for foreign tax in respect of any income or capital gain, and

(b)income tax or capital gains tax is payable by reference to the amount received in the United Kingdom.

(2)For the purposes of whichever of income tax and capital gains tax is payable as mentioned in subsection (1)(b), the amount received is to be treated as increased—

(a)by the amount of the foreign tax in respect of the income or gain,

(b)by the amount of any special withholding tax levied in respect of the income or gain, but see subsection (4), and

(c)if the credit is for foreign tax in respect of a dividend, by any underlying tax that under the arrangements is to be taken into account in considering whether any, and (if so) what, credit is to be allowed in respect of the dividend.

(3)For the purposes of subsection (4), a gain is a “special gain” if—

(a)it is a chargeable gain that accrues to a person on a disposal by the person of assets,

(b)the consideration for the disposal consists of or includes an amount of savings income, and

(c)special withholding tax is levied in respect of the whole or any part of the consideration for the disposal.

(4)If the credit is for foreign tax in respect of a gain that is a special gain, the amount of the increase under subsection (2)(b) is given by—

where—

AWT is the amount of special withholding tax levied in respect of the whole or the part of the consideration for the disposal concerned,

GUK is the amount of the gain received in the United Kingdom, and

SG is the amount of the gain.

(5)The amount of any income or gain is not to be increased under this section by reference to any foreign tax which, although not payable, is treated by section 20(2) as having been payable.

(6)In this section—

  • savings income” has the same meaning as in Part 3 (see section 136), and

  • special withholding tax” means special withholding tax—

    (a)

    within the meaning of Part 3 (see section 136), and

    (b)

    in respect of which a claim has been made under that Part.

Limits on credit: general rulesU.K.

33Limit on credit: minimisation of the foreign taxU.K.

(1)The credit under section 18(2) must not exceed the credit which would be allowed had all reasonable steps been taken—

(a)under the law of the non-UK territory, and

(b)under double taxation arrangements made in relation to that territory,

to minimise the amount of tax payable in that territory.

(2)The steps mentioned in subsection (1) include—

(a)claiming, or otherwise securing the benefit of, reliefs, deductions, reductions or allowances, and

(b)making elections for tax purposes.

(3)For the purposes of subsection (1), any question as to the steps which it would have been reasonable for a person to take is to be determined on the basis of what the person might reasonably be expected to have done in the absence of relief under this Part.

34Reduction in credit: payment by reference to foreign taxU.K.

(1)Subsection (2) applies if—

(a)credit for foreign tax is to be allowed to a person (“P”) under the arrangements, and

[F16(b)a tax authority makes a payment by reference to that tax, and that payment—

(i)is made to P or a person connected with P, or

(ii)is made to some other person directly or indirectly in consequence of a scheme that has been entered into.]

(2)The amount of that credit is to be reduced by an amount equal to that payment.

(3)Whether a person is connected with P is determined in accordance with section 1122 of CTA 2010.

[F17(4)In subsection (1)(b)(ii) “scheme” includes any scheme, arrangement or understanding of any kind, whether or not legally enforceable, involving a single transaction or two or more transactions.]

Textual Amendments

F16S. 34(1)(b) substituted (with effect in accordance with s. 292(8) of the amending Act) by Finance Act 2014 (c. 26), s. 292(2)

F17S. 34(4) inserted (with effect in accordance with s. 292(8) of the amending Act) by Finance Act 2014 (c. 26), s. 292(3)

35Disallowed credit: use as a deductionU.K.

(1)Subsection (2) applies if the application of section 36(2) or 42(2) prevents an amount of credit for foreign tax from being allowable against income tax or corporation tax.

(2)The taxpayer's income is to be treated as reduced by the amount of the disallowed credit.

(3)Subsection (4) applies if the application of section 40(2) prevents an amount of credit for foreign tax from being allowable against capital gains tax.

(4)The taxpayer's chargeable gains are to be treated as reduced by the amount of the disallowed credit.

(5)Subsection (2) or (4) applies only so far as the amount of disallowed credit does not exceed the amount of any loss attributable to the income or gain in respect of which the foreign tax was paid.

(6)For the purposes of subsection (5), payment of the foreign tax is to be taken into account despite section 31(2).

Limit on, and reduction of, credit against income taxU.K.

36Amount of limitU.K.

(1)This section is about the amount of credit allowed under section 18(2) against a person's income tax for any tax year.

(2)The amount of credit in respect of income from any particular source must not exceed the difference between—

(a)the amount of income tax to which the person would be liable for the tax year if the person were charged to income tax on—

and

(b)the amount of income tax to which the person would be liable for the tax year if the person were charged to income tax on—

(3)If credit is allowed (whether or not under the same tax-relief arrangements) in respect of income from more than one source, apply subsection (2) successively to the income from each source, taking the sources in the order which will result in the greatest reduction in the person's income tax liability for the tax year.

(4)In subsection (2)—

  • TI is the person's total income for the tax year,

  • X is the income (if any) to which subsection (2) has already been applied, and

  • C is the income in respect of which the credit is to be allowed.

(5)The rules for calculating an amount of income tax under subsection (2) are—

(a)the calculation is to be made in accordance with sections 31 and 32, and

(b)no credit is to be allowed for foreign tax, and

(c)no reduction is to be made under section 26 of FA 2005 (trusts for the benefit of a vulnerable beneficiary), but

(d)any other income tax reduction under the Income Tax Acts is to be made.

(6)See section 29(2) and (3) of ITA 2007 (tax reductions limited by reference to tax liability) for further limits on the total amount of credit for foreign tax to be allowed to a person against income tax.

(7)For the purposes of subsection (3) the following are “tax-relief arrangements”—

(a)double taxation arrangements, and

(b)unilateral relief arrangements for a territory outside the United Kingdom.

37Credit against tax on trade income: further rulesU.K.

(1)Apply section 36(2) in accordance with subsections (2) to (5) if the tax against which the credit is to be allowed is income tax on trade income.

(2)Treat the reference to income from any particular source as a reference to trade income arising out of a transaction, arrangement or asset.

(3)C is the income arising out of the transaction, arrangement or asset in connection with which the credit arises.

(4)In calculating an amount of income tax under section 36(2) deduct, from the income arising out of the transaction, arrangement or asset in connection with which the credit arises, deductions which would be allowed in a calculation of the taxpayer's liability in respect of that income.

(5)Treat section 36(3) as referring—

(a)to trade income instead of income, and

(b)to a transaction, arrangement or asset instead of a source.

(6)In subsection (4) “deductions” includes a just and reasonable apportionment of deductions that relate—

(a)partly to the income arising out of the transaction, arrangement or asset in connection with which the credit arises, and

(b)partly to other matters.

(7)In this section “trade income” means income chargeable to tax under—

(a)Chapter 2 or 18 of Part 2 of ITTOIA 2005 (trade profits and post-cessation receipts), or

(b)Chapter 3 or 10 of Part 3 of ITTOIA 2005 (profits of property businesses and post-cessation receipts).

38Credit against tax on royalties: further rulesU.K.

(1)Subsection (2) applies if—

(a)the arrangements are double taxation arrangements, and

(b)royalties, as defined in the arrangements, are paid in respect of an asset in more than one foreign jurisdiction.

(2)For the purposes of section 36(2)—

(a)royalty income arising in more than one foreign jurisdiction in a tax year in respect of the asset is to be treated as a single item of income, and

(b)credits available for foreign tax in respect of the royalty income are to be aggregated accordingly.

(3)In this section “foreign jurisdiction” means a jurisdiction outside the United Kingdom.

39Credit reduced by reference to accrued income lossesU.K.

(1)Subsection (5) applies if each of conditions A to C is met.

(2)Condition A is that a person is entitled under section 18(2) to credit against income tax.

(3)Condition B is that the income tax is calculated by reference to income consisting of interest in respect of which the person is entitled under section 679 of ITA 2007 (no income tax on interest so far as matched by accrued income losses) to an exemption from liability to income tax.

(4)Condition C is that—

(a)the arrangements are unilateral relief arrangements for a territory outside the United Kingdom and the credit is allowed as a result of section 9, or

(b)the arrangements are double taxation arrangements and the credit is allowed as a result of the inclusion in the arrangements of any provision corresponding to that section.

(5)The amount of the credit is to be reduced to the amount given by—

where—

I is the amount of the interest,

E is the amount of the exemption, and

C is the amount the credit would be apart from this subsection.

(6)Expressions used in this section and in Chapter 2 of Part 12 of ITA 2007 (accrued income profits) have the same meaning in this section as in that Chapter.

Limit on credit against capital gains taxU.K.

40Amount of limitU.K.

(1)This section is about the amount of credit allowed under section 18(2) against a person's capital gains tax for any tax year.

(2)The amount of credit in respect of any particular capital gain must not exceed the difference between—

(a)the amount of capital gains tax to which the person would be liable for the tax year if the person were charged to capital gains tax on—

and

(b)the amount of capital gains tax to which the person would be liable for the tax year if the person were charged to capital gains tax on—

(3)If credit is allowed (whether or not under the same tax-relief arrangements) in respect of more than one capital gain, apply subsection (2) successively to each capital gain, taking the gains in the order which will result in the greatest reduction in the person's capital gains tax liability for the tax year.

(4)In subsection (2)—

  • TG is the total amount of the chargeable gains accruing to the person in the tax year,

  • X is the total amount of the gains (if any) to which subsection (2) has already been applied, and

  • C is the amount of the gain in respect of which the credit is to be allowed.

(5)The rules for calculating an amount of capital gains tax under subsection (2) are—

(a)the calculation is to be made in accordance with sections 31 and 32, and

(b)no credit is to be allowed for foreign tax.

(6)For the purposes of subsection (3) the following are “tax-relief arrangements”—

(a)double taxation arrangements, and

(b)unilateral relief arrangements for a territory outside the United Kingdom.

Limit on total credit against income tax and capital gains taxU.K.

41Amount of limitU.K.

(1)In subsection (2) “the total credit” means—

where—

F is the total credit, under all tax-relief arrangements, allowed under section 18(2) against a person's income tax for any tax year, and

G is the total credit, under all tax-relief arrangements, allowed under section 18(2) against the person's capital gains tax for that tax year.

(2)The total credit is not to be more than—

where—

I is the total income tax payable by the person for the tax year,

C is the total capital gains tax payable by the person for the tax year, and

A is the total amount of the tax treated under section 414 of ITA 2007 (gift aid) as deducted from gifts made by the person in the tax year.

(3)In calculating I and C for the purposes of subsection (2), no reduction is to be made for credit under section 18(2).

(4)Subsection (2) applies in addition to sections 36 and 40.

(5)For the purposes of subsection (1) the following are “tax-relief arrangements”—

(a)double taxation arrangements, and

(b)unilateral relief arrangements for a territory outside the United Kingdom.

Limit on credit against corporation taxU.K.

42Amount of limitU.K.

(1)Subsection (2) is about the amount of credit allowed under section 18(2) against corporation tax to which a company is liable in respect of any income or chargeable gain.

(2)The credit must not exceed—

where—

R is the rate of corporation tax payable by the company, before any credit under this Part, on the company's income or chargeable gains for the accounting period in which the income arises or the gain accrues, and

IG is the amount of the income or gain (but see subsection (3)).

(3)For the purposes of applying subsection (2), IG is reduced (or extinguished) by any amount allocated to it under—

  • section 52(2) (general deductions),

  • section 53(2) (earlier years' deficits on loan relationships),

  • section 54(2) or (4) (debits on loan relationships),

  • section 55(5) (current year's deficits on loan relationships), or

  • section 56(2) (debits on intangible fixed assets).

(4)Subsection (2) is to be read with—

  • section 43, which, if the company has a permanent establishment outside the United Kingdom, is about attributing profits to the establishment for the purposes of applying subsection (2),

  • sections 44 to 49, which modify how subsection (2) applies in connection with allowing credit against tax on trade income (as defined in section 44), [F18section 49B, which requires subsection (2) to be applied separately to certain non-trading credits, and]

  • sections 50 and 51, which require subsection (2) to be applied as if corporation tax were charged in a modified way on profits of the company for the period from loan relationships and intangible fixed assets.

[F19(5)See also section 49A which contains an additional limit on credit allowed in certain cases involving CFCs.]

Textual Amendments

F18Words in s. 42(4) substituted (with effect in accordance with s. 292(9)(10) of the amending Act) by Finance Act 2014 (c. 26), s. 292(6)

F19S. 42(5) inserted (retrospective to 1.1.2013) by Finance Act 2013 (c. 29), Sch. 47 paras. 12, 21

Modifications etc. (not altering text)

C5S. 42 excluded by 2010 c. 4, s. 269DL(8)(a) (as inserted (with effect in accordance with Sch. 3 Pt. 3 of the amending Act) by Finance (No. 2) Act 2015 (c. 33), Sch. 3 para. 1)

[F2043Profits attributable to permanent establishments for purposes of section 42(2)U.K.

(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 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 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—

(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 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 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.

(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 F21... , in applying subsection (2) assume that the permanent establishment has such free assets as it would have in the 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).]

Textual Amendments

F20S. 43 substituted (19.7.2011) by Finance Act 2011 (c. 11), Sch. 13 paras. 27, 31, 37

F21Words in s. 43(7) omitted (17.7.2012) by virtue of Finance Act 2012 (c. 14), Sch. 16 para. 233

44Credit against tax on trade incomeU.K.

(1)Apply section 42(2) in accordance with subsections (2) and (3) if the tax against which the credit is to be allowed is corporation tax on income that is trade income.

(2)The amount of the credit must not exceed the corporation tax attributable to the income arising out of the transaction, arrangement or asset in connection with which the credit arises.

(3)In calculating the amount of corporation tax attributable to any income, take into account—

(a)deductions which would be allowed in calculating the company's liability, and

(b)expenses of a company connected with the company, so far as reasonably attributable to the income,

but see section 49 (restriction if company is a bank or is connected with a bank).

(4)In subsection (3)(a) “deductions” includes a just and reasonable apportionment of deductions that relate—

(a)partly to the transaction, arrangement or asset from which the income arises, and

(b)partly to other matters.

(5)Section 1122 of CTA 2010 (meaning of “connected”) applies for the purposes of subsection (3)(b).

(6)In this section “trade income” means—

(a)income chargeable to tax under Chapter 2 or 15 of Part 3 of CTA 2009 (trade profits and post-cessation receipts),

(b)income chargeable to tax under Chapter 3 or 9 of Part 4 of CTA 2009 (profits of property businesses and post-cessation receipts),

(c)income which arises from a source outside the United Kingdom and is chargeable to tax under section 979 of CTA 2009 (charge to tax on income not otherwise charged), and

(d)any other income or profits which by a provision of ICTA is or are—

(i)chargeable to tax under Chapter 2 of Part 3 of CTA 2009, or

(ii)calculated in the same way as the profits of a trade,

but does not include income to which section 99 of this Act (insurance companies) applies.

(7)In subsection (6) the references—

(a)to income chargeable under Chapter 15 of Part 3 of CTA 2009, and

(b)to income chargeable under Chapter 9 of Part 4 of CTA 2009,

do not include income that would, but for the repeal by CTA 2009 of section 103 of ICTA (post-cessation receipts where pre-cessation profits calculated on an earnings basis and other post-cessation receipts that become due or are ascertained after cessation), have been chargeable to corporation tax under that section.

45Credit against tax on trade income: anti-avoidance rulesU.K.

(1)If a company (“A”) carrying on a trade giving rise to trade income enters into a scheme or arrangement with another person (“B”) a main purpose of which is to alter the effect of section 44(2) and (3) in relation to A, income received in pursuance of the scheme or arrangement is to be treated for the purposes of section 44(2) and (3) as trade income of B (and not as income of A).

(2)Income of a person (“D”) is to be treated for the purposes of section 44 as trade income (if it is not otherwise trade income) of D if—

(a)the income is received by D as part of a scheme or arrangement entered into by D and a connected person (“C”),

(b)had C received the income, it would be reasonable to assume that it would be trade income of C, and

(c)a main purpose of the scheme or arrangement is to produce the result that section 44(2) and (3) will not have effect in relation to the income because it is received by D.

(3)For the purposes of subsection (2)(b) it is to be assumed that, in the case of any relevant transaction to which a relevant person is a party, C were that party to the transaction.

(4)In subsection (3)—

  • relevant person” means—

    (a)

    D, or

    (b)

    any other connected person who is a party to the scheme or arrangement mentioned in subsection (2), and

  • relevant transaction” means any of the transactions giving rise to the income mentioned in subsection (2)(b).

(5)In subsections (2) to (4) “connected person” means a person with whom D is connected.

(6)Section 1122 of CTA 2010 (meaning of “connected”) applies for the purposes of subsection (5).

(7)In this section “trade income” has the same meaning as in section 44.

46Applying section 44(2): asset in hedging relationship with derivative contractU.K.

(1)If an asset is in a hedging relationship with a derivative contract, section 44(2) applies in relation to the asset as if the income arising from the asset is the income arising from the asset and the contract taken together, subject to subsection (2).

(2)Take account of the income or loss from the derivative contract only so far as reasonably attributable to the hedging relationship.

(3)For the purposes of subsection (1), an asset is in a hedging relationship with a derivative contract if—

(a)the asset is acquired as a hedge of risk in connection with the contract, or

(b)the contract is entered into as a hedge of risk in connection with the asset.

(4)If an asset or a contract is wholly or partly designated as a hedge for the purposes of a person's accounts, that is conclusive for the purposes of subsection (3).

47Applying section 44(2): royalty incomeU.K.

(1)Subsection (2) applies if—

(a)the arrangements are double taxation arrangements, and

(b)royalties, as defined in the arrangements, are paid in respect of an asset in more than one foreign jurisdiction.

(2)For the purposes of section 44(2)—

(a)royalty income arising in more than one foreign jurisdiction in an accounting period in respect of the asset is to be treated as income arising from a single asset, and

(b)credits available for foreign tax in respect of the royalty income are to be aggregated accordingly.

(3)In this section “foreign jurisdiction” means a jurisdiction outside the United Kingdom.

48Applying section 44(2): “portfolio” of transactions, arrangements or assetsU.K.

(1)Subsection (5) applies if each of conditions A to C is met.

(2)Condition A is that transactions, arrangements or assets are treated by a taxpayer as a series or group (“the portfolio”).

(3)Condition B is that credits for foreign tax arise in respect of the portfolio.

(4)Condition C is that—

(a)it is not reasonably practicable to prepare a separate calculation of income for the purposes of section 44(2) in respect of each transaction, arrangement or asset, or

(b)a separate calculation of income in respect of each transaction, arrangement or asset for the purposes of section 44(2) would not, compared with an aggregated calculation, make a material difference to the amount of credit for foreign tax which is allowable.

(5)The income arising from the portfolio, or part of the portfolio, may be aggregated and apportioned for the purposes of section 44(2) in a just and reasonable manner.

49Restricting section 44(3) if company is a bank or connected with a bankU.K.

(1)Section 44(3) is subject to subsection (2) of this section if—

(a)the company is a bank or is connected with a bank, and

(b)the amount of the included funding costs is significantly less than the amount of the notional funding costs.

(2)The amount of the notional funding costs is to be included in the amount to be taken into account under section 44(3), but only so far as it exceeds the amount of the included funding costs.

(3)In this section—

  • the company” means the company mentioned in section 44(3)(a),

  • included funding costs” means the total of the funding costs that are—

    (a)

    incurred by the company, or any company connected with the company, in respect of capital used to fund the relevant transaction, and

    (b)

    included in the amount to be taken into account under section 44(3) before the application of subsection (2) of this section,

  • notional funding costs” means the funding costs that the relevant bank would incur (on the basis of its average funding costs) in respect of the capital that would be needed to wholly fund the relevant transaction if that transaction were funded in that way,

  • the relevant bank” means the bank that is the company, or with which the company is connected, and

  • the relevant transaction” means the transaction, arrangement or asset from which the income mentioned in section 44(1) arises.

(4)The following provisions apply for the purposes of this section—

  • section 1120 of CTA 2010 (meaning of “bank”), and

  • section 1122 of CTA 2010 (meaning of “connected”).

[F2249ALimit on credit in cases involving qualifying loan relationships of CFCsU.K.

(1)This section applies if—

(a)a claim is made under Chapter 9 of Part 9A (controlled foreign companies: exemptions for profits from qualifying loan relationships) in relation to an accounting period (“the relevant period”) of a CFC (“the creditor CFC”),

(b)in the relevant period, the creditor CFC has a qualifying loan relationship in relation to which another CFC is the ultimate debtor by virtue of section 371IG(4) or (5), and

(c)a UK resident company (“the relevant UK company”) has loan relationship credits which arise in the relevant period from—

(i)loan B (see section 371IG(3)(b)), or

(ii)loans out of which loan B is wholly or partly funded (directly or indirectly).

(2)So far as any credit allowed under section 18(2) to the relevant UK company is referable to loan relationship credits falling within subsection (1)(c) which arise in an accounting period of the relevant UK company, the credit must not exceed—

where—

R has the same meaning as in section 42(2), and

S is—

(a)

the relevant UK company's share of the relevant profit amount (see subsection (4)), or

(b)

if only X% of the total amount of the loan relationship credits falling within subsection (1)(c) arises in the accounting period, X% of the relevant UK company's share of the relevant profit amount.

(If the amount given by the formula above is nil, no credit is allowed.)

(3)The limit on credit contained in subsection (2) is in addition to the limit given by section 42(2).

(4)Take the following steps to determine the relevant profit amount and the relevant UK company's share of that amount.

  • Step 1 Determine the total amount of the loan relationship credits which arise in the relevant period from loan B to the person who made loan B.

  • Step 2 Deduct from the amount determined at step 1 above the credits from the creditor CFC's qualifying loan relationship determined at step 1 in section 371IF for the relevant period. The result is the relevant profit amount.

  • Step 3 On a just and reasonable basis, apportion the relevant profit amount amongst all the persons falling within subsection (5) (although the amount apportioned to a person may be nil). The relevant UK company's share of the relevant profit amount is the amount apportioned to it (and is nil if no amount is apportioned to it).

(5)The following persons (apart from the creditor CFC) fall within this subsection—

(a)the person who made loan B, and

(b)any person who has made or received a loan out of which loan B is wholly or partly funded (directly or indirectly).

(6)In this section—

(a)references to loan B do not include any part of loan B—

(i)which loan A (see section 371IG(3)(a)) is not made and used to fund, or

(ii)in relation to which the requirement of section 371IG(3)(c) is not met,

(b)loan relationship credit” means, in relation to a person, a credit which the person has under Part 5 of CTA 2009 or would have were the person a UK resident company within the charge to corporation tax, and

(c)loan” has the same meaning as it has in Chapter 9 of Part 9A.]

Textual Amendments

F22S. 49A inserted (retrospective to 1.1.2013) by Finance Act 2013 (c. 29), Sch. 47 paras. 13, 21

[F2349BApplying section 42(2) to non-trading credits from loan relationships etcU.K.

(1)Subsection (2) applies for the purposes of section 42(2) if—

(a)the company has a non-trading credit relating to an item, and

(b)there is in respect of that item an amount of foreign tax for which, under the arrangements, credit is allowable against United Kingdom tax.

(2)Credit for the foreign tax in respect of that item must not exceed—

where—

R has the same meaning as in section 42(2),

NTC is the amount of the non-trading credit, and

D is the amount given by subsection (3).

(3)D in the formula in subsection (2) is calculated as follows—

  • Step 1 Calculate the total amount (“TNTD”) of the non-trading debits which are to be brought into account by the company—

    (a)

    in the same accounting period, and

    (b)

    in respect of the same loan relationship, derivative contract or intangible fixed asset,

    as the non-trading credit.

  • Step 2 Calculate the total (“A”) of the amounts which, as amount D, have already been deducted under subsection (2) from other non-trading credits which are to be brought into account in the same period and in respect of the same relationship, contract or asset.

  • Step 3 Calculate the amount given by—

  • Step 4 If the amount calculated at step 3 is greater than or equal to NTC, then D equals NTC. Otherwise, D is the amount calculated at step 3.

(4)In this section—

  • intangible fixed asset” has the same meaning as in Part 8 of CTA 2009,

  • non-trading credit” means—

    (a)

    a non-trading credit for the purposes of Part 5 of CTA 2009 (which is about loan relationships but also has application in relation to deemed loan relationships and derivative contracts), or

    (b)

    a non-trading credit for the purposes of Part 8 of CTA 2009 (intangible fixed assets), and

  • non-trading debit” means—

    (a)

    a non-trading debit for the purposes of Part 5 of CTA 2009, or

    (b)

    a non-trading debit for the purposes of Part 8 of CTA 2009.]

Textual Amendments

F23S. 49B inserted (with effect in accordance with s. 292(9)(10) of the amending Act) by Finance Act 2014 (c. 26), s. 292(7)

Calculating tax for purposes of section 42(2)U.K.

50Tax for period on loan relationshipsU.K.

(1)Subsection (2) applies for the purposes of section 42(2) if the company has at least one non-trading credit for the period that is eligible for double taxation relief.

(2)Assume that the charge to corporation tax on income, as applied by section 299 of CTA 2009, is charged on TNTC, not on the non-trading profits that the company has for the period in respect of its loan relationships.

(3)For the purposes of subsection (1), a non-trading credit relating to an item is “eligible for double taxation relief” if there is in respect of that item an amount of foreign tax for which, under the arrangements, credit is allowable against United Kingdom tax calculated by reference to that item.

(4)In this section—

  • non-trading credit” means a non-trading credit for the purposes of Part 5 of CTA 2009 (loan relationships), and

  • “TNTC” is the total amount of the company's non-trading credits for the period.

51Tax for period on intangible fixed assetsU.K.

(1)Subsection (2) applies for the purposes of section 42(2) if the company has at least one non-trading credit for the period that is eligible for double taxation relief.

(2)Assume that the charge to corporation tax on income, as applied by section 752 of CTA 2009, is charged on TNTC, not on the non-trading gains arising to the company in the period on intangible fixed assets.

(3)For the purposes of subsection (1), a non-trading credit relating to an item is “eligible for double taxation relief” if there is in respect of that item an amount of foreign tax for which, under the arrangements, credit is allowable against United Kingdom tax calculated by reference to that item.

(4)In this section—

  • non-trading credit” means a non-trading credit for the purposes of Part 8 of CTA 2009 (intangible fixed assets), and

  • “TNTC” is the total amount of the company's non-trading credits for the period.

Allocation of deductions etc to profits for purposes of section 42U.K.

52General deductionsU.K.

(1)Subsection (2) applies for the purposes of section 42 if in the accounting period there is any amount (“the deduction”) that for corporation tax purposes is deductible from, or otherwise allowable against, profits of more than one description.

(2)The company may allocate the deduction in such amounts, and to such of its profits for the period, as it thinks fit.

53Earlier years' non-trading deficits on loan relationshipsU.K.

(1)Subsection (2) applies for the purposes of section 42 if an amount (“the deficit”) is carried forward to the period under section 457(1) of CTA 2009 (non-trading deficits on loan relationships set against profits of subsequent years).

(2)The deficit can be allocated only to the company's non-trading profits for the period, but the company may allocate the deficit to such of those profits, and in such amounts, as the company thinks fit.

(3)In this section “non-trading profits” has the meaning given by section 457(5) of CTA 2009.

54Non-trading debits on loan relationshipsU.K.

(1)Subsection (2) applies for the purposes of section 42 if the company has at least one non-trading credit for the period that is eligible for double taxation relief.

(2)That much of the company's non-trading debits for the period as is given by the formula—

may be allocated by the company to such of its profits for the period, and in such amounts, as the company thinks fit, but this is subject to subsection (4).

(3)Subsection (4) applies for the purposes of section 42 if—

(a)the company has at least one non-trading credit for the period that is eligible for double taxation relief, and

(b)the company sets the whole or part of XS against profits of the period in pursuance of a current-year provision or claim.

(4)So much of the company's non-trading debits as is equal to that amount of XS must be allocated to the profits against which that amount of XS is set in pursuance of the current-year provision or claim.

(5)In this section, if the company has a non-trading deficit (“D”) on its loan relationships for the period—

  • CB is so much of D as is the subject of a carry-back claim,

  • CF is so much of D as is carried forward to a subsequent accounting period in accordance with a carry-forward provision,

  • GR is so much of D as is surrendered as group relief under section 99 of CTA 2010, and

  • if

(6)For the purposes of subsections (1) and (3), a non-trading credit relating to an item is “eligible for double taxation relief” if there is in respect of that item an amount of foreign tax for which, under the arrangements, credit is allowable against United Kingdom tax calculated by reference to that item.

(7)In this section—

  • carry-back claim” means a claim—

    (a)

    under section 389(1) of CTA 2009 (insurance companies: carry-back, to earlier accounting periods, of non-trading deficit on loan relationships), or

    (b)

    under section 459(1)(b) [F24or 463B(1)(b)] of CTA 2009 (carry-back: other companies),

  • carry-forward provision” means—

    (a)

    section 391 of CTA 2009 (insurance companies), or

    (b)

    section 457(1) [F25, 463G(5) or 463H(4)] of CTA 2009 (other companies),

  • current-year provision or claim” means—

    (a)

    section 388(1) of CTA 2009 (insurance companies: non-trading deficit on loan relationships set against current year's profits), or

    (b)

    a claim under section 459(1)(a) [F26or 463B(1)(a)] of CTA 2009 (other companies: setting of deficit against current year's profits),

  • non-trading credit” means a non-trading credit for the purposes of Part 5 of CTA 2009 (loan relationships),

  • non-trading debit” means a non-trading debit for the purposes of that Part, and

  • “TNTD” is the total amount of the company's non-trading debits for the period.

Textual Amendments

F24Words in s. 54(7) inserted (with effect in accordance with Sch. 4 para. 190 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 4 para. 176(a)

F25Words in s. 54(7) inserted (with effect in accordance with Sch. 4 para. 190 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 4 para. 176(b)

F26Words in s. 54(7) inserted (with effect in accordance with Sch. 4 para. 190 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 4 para. 176(c)

55Current year's non-trading deficits on loan relationshipsU.K.

(1)Subsection (5) applies for the purposes of section 42 if conditions A and B are met.

(2)Condition A is that the company—

(a)has no non-trading credits for the period, or

(b)has non-trading credits for the period but none of those credits is eligible for double taxation relief.

(3)For the purposes of subsection (2)(b), a non-trading credit relating to an item is “eligible for double taxation relief” if there is in respect of that item an amount of foreign tax for which, under the arrangements, credit is allowable against United Kingdom tax calculated by reference to that item.

(4)Condition B is that an amount (“the deficit”) is set against any of the company's profits for the period—

(a)under section 388(1) of CTA 2009 (insurance company's non-trading deficit on loan relationships set against current year's profits), or

(b)under section 459(1)(a) [F27or 463B(1)(a)] of CTA 2009 (other company's non-trading deficit on loan relationships set against current year's profits).

(5)The deficit can be allocated only to profits against which the deficit is set under section 388(1) [F28, 459(1)(a) or 463B(1)(a)] of CTA 2009.

(6)In this section “non-trading credit” means a non-trading credit for the purposes of Part 5 of CTA 2009 (loan relationships).

Textual Amendments

F27Words in s. 55(4)(b) inserted (with effect in accordance with Sch. 4 para. 190 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 4 para. 177(a)

F28Words in s. 55(5) substituted (with effect in accordance with Sch. 4 para. 190 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 4 para. 177(b)

56Non-trading debits on intangible fixed assetsU.K.

(1)Subsection (2) applies for the purposes of section 42 if the company has at least one non-trading credit for the period that is eligible for double taxation relief.

(2)That much of the company's non-trading debits for the period as is given by the formula—

may be allocated by the company to such of its profits for the period, and in such amounts, as the company thinks fit.

(3)In subsection (2)—

  • TNTD is the total amount of the company's non-trading debits for the period, and

  • CF is the amount (if any) carried forward to the next accounting period under section 753(3) of CTA 2009 (carry forward of non-trading loss so far as neither subject to a claim to set it against profits of current period nor surrendered by way of group relief).

(4)For the purposes of subsection (1), a non-trading credit relating to an item is “eligible for double taxation relief” if there is in respect of that item an amount of foreign tax for which, under the arrangements, credit is allowable against United Kingdom tax calculated by reference to that item.

(5)In this section—

  • non-trading credit” means a non-trading credit for the purposes of Part 8 of CTA 2009 (intangible fixed assets), and

  • non-trading debit” means a non-trading debit for the purposes of that Part.

Taking account of foreign tax underlying dividendsU.K.

57Credit in respect of dividend: taking account of underlying taxU.K.

(1)Subsections (2) and (3) apply if, as a result of provision made by the arrangements, underlying tax is to be taken into account in considering whether any and (if so) what credit is to be allowed against corporation tax, income tax or capital gains tax in respect of a dividend.

(2)The amount of underlying tax to be taken into account as a result of the provision is to be calculated—

(a)under section 58 if the dividend is one paid by a company resident outside the United Kingdom to a company resident in the United Kingdom, and

(b)under section 61 if the dividend is not one paid by a company resident outside the United Kingdom to a company resident in the United Kingdom.

(3)No underlying tax is to be taken into account as a result of the provision if, under the law of any territory outside the United Kingdom, a deduction is allowed to a resident of the territory in respect of an amount determined by reference to the dividend.

(4)See also—

(a)section 63 (underlying tax paid in the United Kingdom, or otherwise outside the non-UK territory, treated in some cases as underlying tax paid in the non-UK territory), and

(b)section 65 (underlying tax paid in respect of profits of a company which pays a dividend treated in some cases as underlying tax paid in respect of profits of company to which dividend is paid).

58Calculation if dividend paid by non-resident company to resident companyU.K.

(1)A calculation under this section (see section 57(2)(a)) is as follows—

  • Step 1 Calculate the amount of the foreign tax borne on the relevant profits by the company paying the dividend.

  • Step 2 Calculate how much of that amount is properly attributable to the proportion of the relevant profits represented by the dividend.

  • Step 3 Calculate the amount given by—

    where—

    D is the amount of the dividend,

    PA is the amount given by the calculation at Step 2, and

    M is the rate of corporation tax applicable to profits of the recipient for the accounting period in which the dividend is received or, if there is more than one such rate, the average rate over the whole of that accounting period.

  • Step 4 If under the law of the non-UK territory the dividend has been increased for tax purposes by an amount to be—

    (a)

    set off against the recipient's own tax under that law, or

    (b)

    paid to the recipient so far as it exceeds the recipient's own tax under that law,

    calculate the amount of the increase.

  • Step 5 If the amount given by the calculation at Step 2 is less than the amount given by the calculation at Step 3, UT is the amount given by the calculation at Step 2 but reduced by any amount calculated at Step 4.

  • Step 6 If the amount given by the calculation at Step 2 is equal to or more than the amount given by the calculation at Step 3, UT is the amount given by the calculation at Step 3 but reduced by any amount calculated at Step 4.

(2)In this section “UT” means the amount of underlying tax to be taken into account as a result of the provision mentioned in section 57(1).

59Meaning of “relevant profits” in section 58U.K.

(1)This section applies for the purposes of section 58.

(2)“Relevant profits”, if the dividend is within subsection (3), means the profits in respect of which the dividend is treated as paid for the purposes of section 931H of CTA 2009 (dividends derived from transactions not designed to reduce tax).

(3)A dividend is within this subsection if—

(a)it is received in an accounting period of the recipient in which the recipient is not a small company for the purposes of Part 9A of CTA 2009 (company distributions: see section 931S of that Act), and

(b)for the purposes of section 931H of that Act, it is treated as paid in respect of profits other than relevant profits (see subsection (4) of that section).

(4)“Relevant profits”, if the dividend is not within subsection (3) but is paid for a specified period, means—

(a)the distributable profits of that period, plus

(b)if the total dividend exceeds those profits, so much of the distributable profits of preceding periods as is equal to the excess.

(5)“Relevant profits”, if the dividend is not within subsection (3) and is not paid for a specified period, means—

(a)the distributable profits of the last period for which accounts of the company were made up which ended before the dividend became payable, plus

(b)if the total dividend exceeds those profits, so much of the distributable profits of preceding periods as is equal to the excess.

(6)In subsection (4)(b) or (5)(b), the reference to distributable profits of preceding periods does not include—

(a)profits previously distributed, or

(b)profits previously treated as relevant profits for the purposes of [F29section 58 or 61 of this Act], section 799 of ICTA or section 506 of the Income and Corporation Taxes Act 1970.

(7)For the purposes of subsection (4)(b) or (5)(b), the profits of the most recent preceding period are to be taken into account first, then the profits of the next most recent preceding period, and so on.

(8)In this section “distributable profits”, in relation to a company, means the profits available for distribution as shown in accounts relating to the company—

(a)drawn up in accordance with the law of the country or territory under whose law the company is incorporated or formed, and

(b)making no provision for reserves, bad debts, impairment losses or contingencies other than such as is required to be made under the law of that country or territory.

(9)The reference in subsection (6)(b) to section 799 of ICTA is without prejudice to the generality of paragraph 4(1) of Schedule 9 (references to rewritten provisions include references to superseded provisions).

Textual Amendments

F29Words in s. 59(6)(b) substituted (retrospectively and with effect in accordance with art. 1(2) of the amending S.I.) by Taxation (International and Other Provisions) Act 2010 (Amendment) Order 2010 (S.I. 2010/2901), arts. 1(1), 4(2)

60Underlying tax to be left out of account on claim to that effectU.K.

(1)Subsection (2) applies if—

(a)under the arrangements a company resident in the United Kingdom makes a claim for an allowance by way of credit in accordance with this Chapter, and

(b)the claim relates to a dividend paid to the company by a company resident outside the United Kingdom.

(2)The claim may be framed so as to exclude amounts of underlying tax specified for the purpose in the claim.

(3)Any amounts of underlying tax so excluded are to be left out of account for the purposes of section 57.

61Calculation if section 58 does not applyU.K.

A calculation under this section (see section 57(2)(b)) is as follows—

  • Step 1 Calculate the amount of the foreign tax borne on the relevant profits by the body corporate paying the dividend.

  • Step 2 Calculate how much of that amount is properly attributable to the proportion of the relevant profits represented by the dividend.

  • Step 3 If under the law of the non-UK territory the dividend has been increased for tax purposes by an amount to be—

    • set off against the recipient's own tax under that law, or

    • paid to the recipient so far as it exceeds the recipient's own tax under that law,

    calculate the amount of the increase.

  • Step 4 The amount of underlying tax to be taken into account as a result of the provision mentioned in section 57(1) is the amount given by the calculation at Step 2 but reduced by any amount calculated at Step 3.

62Meaning of “relevant profits” in section 61U.K.

(1)This section applies for the purposes of section 61.

(2)“Relevant profits”, if the dividend is paid for a specified period, means—

(a)the profits of that period, plus

(b)if the total dividend exceeds the distributable profits of that period, so much of the distributable profits of preceding periods as is equal to the excess.

(3)“Relevant profits”, if the dividend is not paid for a specified period but is paid out of specified profits, means those profits.

(4)“Relevant profits”, if the dividend is paid neither for a specified period nor out of specified profits, means—

(a)the profits of the last period for which accounts of the body corporate paying the dividend were made up which ended before the dividend became payable, plus

(b)if the total dividend exceeds the distributable profits of that period, so much of the distributable profits of preceding periods as is equal to the excess.

(5)In subsection (2)(b) or (4)(b), the reference to distributable profits of preceding periods does not include—

(a)profits previously distributed, or

(b)profits previously treated as relevant profits for the purposes of [F30section 58 or 61 of this Act], section 799 of ICTA or section 506 of the Income and Corporation Taxes Act 1970.

(6)For the purposes of subsection (2)(b) or (4)(b), the profits of the most recent preceding period are first to be taken into account, then the profits of the next most recent preceding period, and so on.

(7)In this section “distributable profits”, in relation to a period, means profits available for distribution of the period.

(8)The reference in subsection (5)(b) to section 799 of ICTA is without prejudice to the generality of paragraph 4(1) of Schedule 9 (references to rewritten provisions include references to superseded provisions).

Textual Amendments

F30Words in s. 62(5)(b) substituted (retrospectively and with effect in accordance with art. 1(2) of the amending S.I.) by Taxation (International and Other Provisions) Act 2010 (Amendment) Order 2010 (S.I. 2010/2901), arts. 1(1), 4(3)

Taking account of tax underlying dividends that is not foreign taxU.K.

63Non-UK company dividend paid to 10% investor: relief for UK and other taxU.K.

(1)If condition A is met, and one of conditions B and C is met, subsection (5) applies for the purpose of allowing, under the arrangements, credit against corporation tax in respect of a dividend paid by a company resident outside the United Kingdom (“the overseas company”) to another company (“the recipient company”).

(2)Condition A is that the recipient company—

(a)controls directly or indirectly, or

(b)is a subsidiary of a company which controls directly or indirectly,

at least 10% of the voting power in the overseas company.

(3)Condition B is that the recipient company is resident in the United Kingdom.

(4)Condition C is that—

(a)the recipient company is resident outside the United Kingdom, but

(b)the dividend forms part of the profits of a permanent establishment of the recipient company in the United Kingdom.

(5)There is to be taken into account, as if it were tax payable under the law of the territory (“territory R”) in which the overseas company is resident—

(a)any income tax or corporation tax payable by the overseas company in respect of its profits, and

(b)any tax which, under the law of any territory outside the United Kingdom other than territory R, is payable by the overseas company in respect of its profits.

(6)For the purposes of subsection (2), one company (“S”) is a subsidiary of another company (“P”) if P controls, directly or indirectly, at least 50% of the voting power in S.

Tax underlying dividend treated as underlying tax paid by dividend's recipientU.K.

64Meaning of “dividend-paying chain” of companiesU.K.

(1)For the purposes of sections 65, 67 and 70 there is a dividend-paying chain if—

(a)condition A is met, and

(b)one of conditions B to D is met.

(2)Condition A is that a company (“the second company”) pays a dividend to another company (“the first company”).

(3)Condition B is that there is a third company which is a 10% associate of, and pays a dividend to, the second company.

(4)Condition C is that there is a succession of companies consisting of—

(a)a third company which is a 10% associate of, and pays a dividend to, the second company, and

(b)a fourth company which is a 10% associate of, and pays a dividend to, the third company.

(5)Condition D is that there is a succession of companies consisting of—

(a)a third company which is a 10% associate of, and pays a dividend to, the second company, and

(b)two or more companies (the fourth and fifth companies, and so on) each of which is a 10% associate of, and pays a dividend to, the company above it in the succession.

(6)For the purposes of this section, a company (“X”) is a 10% associate of another company (“H”) if H—

(a)controls directly or indirectly, or

(b)is a subsidiary of a company which controls directly or indirectly,

at least 10% of the voting power in X or at least 10% of the ordinary share capital of X.

(7)For the purposes of subsection (6), a company (“S”) is a subsidiary of another company (“P”) if P controls, directly or indirectly, at least 50% of the voting power in S.

65Relief for underlying tax paid by company lower in dividend-paying chainU.K.

(1)Subsection (4) applies if conditions E and F are met.

(2)Condition E is that there is a dividend-paying chain (see section 64) in which—

(a)the first company is the recipient company mentioned in section 63, and

(b)the second company is the overseas company mentioned in that section.

(3)Condition F is that there is underlying tax, payable by a company (“L”) lower in the chain than the second company, that would be taken into account under this Part if—

(a)the dividend paid by L to the company (“K”) above L in the chain had been paid—

(i)by a company resident outside the United Kingdom to a company resident in the United Kingdom, and

(ii)at the time when the dividend paid by the second company is received by the first company, and

(b)double taxation arrangements had provided for the underlying tax to be taken into account.

(4)The underlying tax is to be treated—

(a)for the purposes of section 63(5), and

(b)for the purposes of subsection (3),

as tax paid by K in respect of its profits, but see section 66 (limitations).

(5)In applying section 63 for the purpose of deciding whether condition F is met, read section 63(2) as if “ , or at least 10% of the ordinary share capital of, ” were inserted after “at least 10% of the voting power in”.

(6)Section 58 (first method of calculating amount of underlying tax to be taken into account) does not apply for the purposes of subsections (3) and (4) unless the company referred to in subsection (2)(a) is resident in the United Kingdom and, even if that company is resident in the United Kingdom, section 58 applies for those purposes only—

(a)if K and L are not resident in the same territory, or

(b)in such other cases as may be prescribed by regulations made by the Treasury.

(7)Section 61 (second method of calculation) applies for the purposes of subsections (3) and (4) if section 58 does not apply for those purposes.

66Limitations on section 65(4)U.K.

(1)Section 65(4) is subject to the limitations set out in subsections (2) and (3).

(2)No tax is to be taken into account in respect of a dividend paid by a company resident in the United Kingdom except—

(a)corporation tax, and

(b)any tax for which the company is entitled to credit under this Part.

(3)No tax is to be taken into account in respect of a dividend paid by a company resident outside the United Kingdom to another such company unless it could have been taken into account, under the provisions of this Part other than section 65(4), had the other company been resident in the United Kingdom.

Tax underlying dividends: restriction of relief, and particular casesU.K.

67Restriction of relief if underlying tax at rate higher than rate of corporation taxU.K.

(1)Subsection (6) applies if—

(a)conditions A and B are met, and

(b)one of conditions C and D is met.

(2)Condition A is that a company (“the claimant company”) makes a claim for an allowance by way of credit in accordance with this Part.

(3)Condition B is that the claim relates to underlying tax on a dividend paid to the claimant company by a company resident outside the United Kingdom (“the overseas company”).

(4)Condition C is that the underlying tax is, or includes, an amount in respect of tax payable at a high rate by the overseas company and—

(a)that amount would not be, or would not be included in, the underlying tax, or

(b)any part of that amount would not be included in the underlying tax,

but for the existence of, or but for there having been, an avoidance scheme (see section 68).

(5)Condition D is that—

(a)there is a dividend-paying chain (see section 64) in which—

(i)the first company is the claimant company, and

(ii)the second company is the overseas company, and

(b)the underlying tax is, or includes, an amount in respect of tax payable at a high rate by a company lower in the chain than the overseas company and—

(i)that amount would not be, or would not be included in, the underlying tax, or

(ii)any part of that amount would not be included in the underlying tax,

but for the existence of, or but for there having been, an avoidance scheme (see section 68).

(6)The amount of credit to which the claimant company is entitled on the claim is to be determined as if the tax payable at a high rate had instead been tax at the relievable rate.

(7)For the purposes of this section, tax payable by a company is “tax payable at a high rate” so far as the amount payable exceeds the amount that would represent tax at the relievable rate on the profits of the company which, for the purposes of this Part, are taken to bear the payable tax.

(8)In this section “the relievable rate” means the rate of corporation tax in force when the dividend mentioned in subsection (3) was paid.

68Meaning of “avoidance scheme” in section 67U.K.

(1)In section 67 “avoidance scheme” means any scheme or arrangement in respect of which each of conditions A to C is met.

(2)Condition A is that the purpose, or one of the main purposes, of the scheme or arrangement is to have an amount of underlying tax taken into account on a claim for an allowance by way of credit in accordance with this Part.

(3)Condition B is that the parties to the scheme or arrangement include—

(a)the company which is the claimant company for the purposes of section 67,

(b)a company related to the claimant company, or

(c)a person connected with the claimant company.

(4)Condition C is that the parties to the scheme or arrangement include a person who was not under the control of the claimant company at any time before the doing of anything as part of, or in pursuance of, the scheme or arrangement.

(5)For the purposes of subsection (3)(b), a company (“R”) is related to the claimant company if the claimant company—

(a)controls directly or indirectly, or

(b)is a subsidiary of a company which controls directly or indirectly,

at least 10% of the voting power in R.

(6)For the purposes of subsection (3)(c), whether a person is connected with another is determined in accordance with section 1122 of CTA 2010.

(7)For the purposes of subsection (4), a person who is a party to a scheme or arrangement is to be taken to have been under the control of the claimant company at all the following times—

(a)any time when the claimant company would have been taken (in accordance with sections 450 and 451 of CTA 2010) to have had control of the person for the purposes of Part 10 of CTA 2010 (close companies),

(b)any time when the claimant company would have been so taken if sections 450 and 451 of CTA 2010 applied (with the necessary modifications) in the case of partnerships and unincorporated associations as they apply in the case of companies, and

(c)any time when the person acted in relation to the scheme or arrangement, or any proposal for it, either directly or indirectly under the direction of the claimant company.

(8)For the purposes of subsection (5), the claimant company is a subsidiary of another company (“P”) if P controls, directly or indirectly, at least 50% of the voting power in the claimant company.

(9)In this section “arrangement” means an arrangement of any kind, whether in writing or not.

69Dividends paid out of transferred profitsU.K.

(1)This section applies if—

(a)a company resident outside the United Kingdom (“company A”) has paid tax under the law of a territory outside the United Kingdom in respect of any of its profits,

(b)some or all of those profits become profits of another company resident outside the United Kingdom (“company B”) otherwise than as a result of the payment of a dividend to company B, and

(c)company B pays a dividend out of those profits to another company, wherever resident.

(2)If this section applies, this Part has effect, so far as relating to the determination of underlying tax in relation to any dividend paid—

(a)by any company resident outside the United Kingdom (whether or not company B),

(b)to a company resident in the United Kingdom,

as if company B had paid the tax paid by company A in respect of those profits of company A which have become profits of company B as mentioned in subsection (1)(b).

(3)But the amount of relief under this Part which is allowable to a company resident in the United Kingdom is not to exceed the amount which would have been allowable to that company had those profits become profits of company B as a result of the payment of a dividend by company A to company B.

70Underlying tax reflecting interest on loansU.K.

(1)Subsection (2) applies if—

(a)a bank, or a company connected with a bank, makes a claim for an allowance by way of credit in accordance with this Chapter,

(b)there is a dividend-paying chain (see section 64) in which—

(i)the first company is the claimant, and

(ii)the second company is a company resident outside the United Kingdom,

(c)the claimant—

(i)controls directly or indirectly, or

(ii)is a subsidiary of a company which controls directly or indirectly,

at least 10% of the voting power in the second company,

(d)the claim relates to underlying tax on a dividend paid by the second company,

(e)that underlying tax is, or includes, tax payable under the law of a territory outside the United Kingdom on, or by reference to, interest or dividends earned or received in the course of its business by a company (“the receiving company”) which is—

(i)the second company, or

(ii)a company lower in the chain than the second company, and

(f)section 44 would have applied to the receiving company had it been resident in the United Kingdom.

(2)The amount of the credit for the tax mentioned in subsection (1)(e) (“the non-UK tax”) is not to exceed the sum equal to corporation tax, at the rate in force at the time the non-UK tax was chargeable, on—

where—

ID is the amount of the interest or dividends mentioned in subsection (1)(e), and

E is the amount of the receiving company's expenditure which is properly attributable to the earning of that interest or those dividends.

(3)For the purposes of subsection (1)(a)—

(a)bank” means a company carrying on, in the United Kingdom or elsewhere, any trade which includes the receipt of interest or dividends, and

(b)whether a company is connected with a bank is determined in accordance with section 1122 of CTA 2010.

(4)For the purposes of subsection (1)(c), the claimant is a subsidiary of another company (“P”) if P controls, directly or indirectly, at least 50% of the voting power in the claimant.

71Foreign taxation of group as single entityU.K.

(1)Subsections (2) and (3) apply in relation to a claim for credit in respect of underlying tax in relation to a dividend paid by a company resident outside the United Kingdom to a company resident in the United Kingdom if, under the law of a territory outside the United Kingdom, tax is payable by any one company resident in the territory (“the responsible company”) in respect of the aggregate profits, or aggregate profits and aggregate gains, of—

(a)that company and another company resident in the territory, or

(b)that company and two or more other companies resident in the territory,

taken together as a single taxable entity.

(2)This Part, so far as relating to the determination of underlying tax in relation to any dividend paid by any of the companies mentioned in subsection (1)(a) or (b) (the “non-resident companies”) to another company (“the payee company”), has effect as if—

(a)the non-resident companies, taken together, were a single company,

(b)anything done by or in relation to any of the non-resident companies (including the payment of the dividend) were done by or in relation to that single company, and

(c)that single company were related to the payee company if the company which actually pays the dividend is related to the payee company.

(3)In particular, this Part has effect as if—

(a)the relevant profits for the purposes of section 58 is a single aggregate figure in respect of that single company, and

(b)the tax paid in the territory by the responsible company is tax paid in the territory by that single company.

(4)For the purposes of this section, a company (“X”) is related to another company (“H”) if H—

(a)controls directly or indirectly, or

(b)is a subsidiary of a company which controls directly or indirectly,

at least 10% of the voting power in X.

(5)For the purposes of subsection (4), H is a subsidiary of another company (“P”) if P controls, directly or indirectly, at least 50% of the voting power in H.

[F31Adjustment of foreign tax on profits of overseas permanent establishmentU.K.

Textual Amendments

F31Ss. 71A, 71B and cross-heading inserted (with effect in accordance with s. 30(5)(7) of the amending Act) by Finance Act 2018 (c. 3), s. 30(2)

71ACircumstances in which section 71B appliesU.K.

(1)Section 71B has effect in relation to an accounting period of a company resident in the United Kingdom which has an overseas permanent establishment (“the PE”) if, in that or any earlier accounting period, condition A or B is met.

(2)Condition A is met in relation to an accounting period if, for the purposes of any tax chargeable under the law of the PE territory—

(a)a loss or other amount attributable to the PE is deducted from or otherwise allowed against amounts of any person other than the company, and

(b)as a result, there is a decrease in the tax chargeable in respect of a foreign taxable period ending in the accounting period.

(3)Condition B is met in relation to an accounting period if—

(a)tax is chargeable under the law of the PE territory in respect of the aggregate profits, or aggregate profits or gains, of the PE and persons other than the company,

(b)a loss or other amount attributable to the PE is deducted from or otherwise allowed against, or is brought into account as a deduction or other allowance in calculating, amounts other than amounts of the PE, and

(c)as a result, there is a decrease in the tax chargeable in respect of a foreign taxable period ending in the accounting period.

(4)In this section—

  • foreign taxable period” means any period in respect of which the tax in question is chargeable under the law of the PE territory, and

  • the PE territory” means the territory in which the PE is situated.

71BReduction of foreign tax paid on profits of overseas PEU.K.

(1)For the purposes of allowing credit relief under this Part, the amount of foreign tax paid in respect of the company's qualifying income from the PE in the accounting period is reduced (but not below nil) by the relevant amount for that period.

(2)In calculating any amount chargeable to corporation tax, any deduction for an amount of foreign tax paid in respect of the company's qualifying income from the PE in the accounting period is reduced (but not below nil) by the relevant amount for that period.

(3)In this section “the relevant amount” for the accounting period means the total of—

(a)the amount of the decrease in the tax chargeable in respect of a foreign taxable period ending in the accounting period (if the accounting period is one in relation to which condition A or B in section 71A is met), and

(b)any excess tax carried forward to the accounting period.

(4)For this purpose excess tax is carried forward to the accounting period so far as the relevant amount for the previous accounting period exceeds the amount of foreign tax paid in respect of the company's qualifying income from the PE in that previous period.

(5)In determining the relevant amount, a deduction or allowance of the kind referred to in condition A or B in section 71A is to be ignored if it results in a deduction or other allowance that is reduced under section 259JC (counteraction where mismatch arises because of a relevant multinational and the UK is the parent jurisdiction).

(6)If, for any accounting period, it becomes necessary for the relevant amount to be reduced or increased, an adjustment may be made (whether or not by an officer of Revenue and Customs)—

(a)by way of an assessment, the modification of an assessment, amendment or disallowance of a claim, or otherwise, and

(b)despite any time limit imposed by or under any enactment.

(7)In this section “the company's qualifying income from the PE” means the profits of the PE which are profits chargeable under Chapter 2 of Part 3 of CTA 2009 of a trade carried on partly, but not wholly, outside the United Kingdom.]

Unrelieved foreign tax on profits of overseas permanent establishmentU.K.

72Application of section 73(1)U.K.

(1)Section 73(1) applies if, in an accounting period of a company resident in the United Kingdom—

(a)the amount of the credit for foreign tax which under the arrangements would, if section 42 were ignored, be allowable against corporation tax in respect of the company's qualifying income from an overseas permanent establishment, exceeds

(b)the amount of the credit for foreign tax which under the arrangements is allowed against corporation tax in respect of the company's qualifying income from that overseas permanent establishment.

(2)For the purposes of subsection (1) and section 73(1), the company's qualifying income from an overseas permanent establishment is the profits of the overseas permanent establishment which are—

(a)profits, chargeable under Chapter 2 of Part 3 of CTA 2009, of a trade carried on partly, but not wholly, outside the United Kingdom, F32...

F32(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(3)In sections 73 to 78—

  • the company” means the company mentioned in subsection (1),

  • the excess” means the excess referred to in that subsection,

  • the PE” means the overseas permanent establishment mentioned in that subsection, and

  • period A” means the accounting period mentioned in that subsection.

Textual Amendments

F32S. 72(2)(b) and word omitted (17.7.2012) by virtue of Finance Act 2012 (c. 14), Sch. 16 para. 234

73Carry-forward and carry-back of unrelieved foreign taxU.K.

(1)For the purposes of allowing credit relief under this Part, the excess is to be treated—

(a)as if it were foreign tax paid in respect of, and calculated by reference to, the company's qualifying income from the PE in the accounting period after period A (whether or not the company in fact has any qualifying income from that source in the accounting period after period A), or

(b)in accordance with the rules in section 74, as if it were foreign tax paid in respect of, and calculated by reference to, the company's qualifying income from the PE in one or more of the recent periods, or

(c)partly as mentioned in paragraph (a) and partly as mentioned in paragraph (b).

(2)If in period A the company ceases to have the PE, the excess, so far as it is not treated as mentioned in subsection (1)(b), is to be reduced to nil (so that none of the excess is to be treated as mentioned in subsection (1)(a)).

(3)If an amount is treated as mentioned in subsection (1)(b) it is not to be so treated for the purpose of any further application of subsection (1).

(4)In subsection (1)(b) “recent period” means an accounting period which is earlier than period A but begins not more than 3 years before period A.

74Rules for carrying back unrelieved foreign taxU.K.

(1)This section sets out the rules mentioned in section 73(1)(b).

(2)The first rule is that—

(a)credit for the excess, or for any remaining balance of the excess, is allowed against corporation tax in respect of a later recent period, before

(b)credit for any of the excess is allowed against corporation tax in respect of any earlier recent period.

(3)The second rule is that, before allowing credit for any of the excess against corporation tax in respect of income of any particular accounting period (“period P”), credit for foreign tax is allowed—

(a)first for foreign tax in respect of the income of period P, other than amounts which are foreign tax as a result of applying section 73(1) to an excess from an accounting period other than period P, and

(b)then for amounts which are foreign tax as a result of applying section 73(1) to an excess from an accounting period before period P.

(4)In subsection (2) “recent period” means an accounting period which is earlier than period A but begins not more than 3 years before period A.

75Two or more establishments treated as a single establishmentU.K.

(1)Subsection (2) applies if, under the law of a territory outside the United Kingdom, tax is charged in respect of the profits of two or more overseas permanent establishments in that territory, taken together.

(2)For the purposes of the provisions of sections 72 to 78 other than the excepted provisions, those overseas permanent establishments are to be treated as if they together constituted a single overseas permanent establishment.

(3)In subsection (2) “the excepted provisions” means section 73(2), this section and section 77.

76Former and subsequent establishments regarded as distinct establishmentsU.K.

(1)If the company—

(a)at any time ceases to have a particular overseas permanent establishment in a particular territory (“the old establishment”), but

(b)subsequently again has an overseas permanent establishment in that territory (“the new establishment”),

the old establishment and the new establishment are, for the purposes of the provisions of sections 72 to 78 other than the excepted provisions, to be regarded as different overseas permanent establishments.

(2)In subsection (1) “the excepted provisions” means sections 73(2), 75 and 77.

77Claims for relief under section 73(1)U.K.

(1)The excess is to be treated as mentioned in section 73(1) only on a claim.

(2)A claim under subsection (1) must specify—

(a)the amount (if any) of the excess which is to be treated as mentioned in section 73(1)(a), and

(b)the amount (if any) of the excess which is to be treated as mentioned in section 73(1)(b).

(3)A claim under subsection (1) must be made not more than—

(a)4 years after the end of period A, or

(b)if later, 1 year after the end of the accounting period in which the foreign tax concerned is paid.

78Meaning of “overseas permanent establishment”U.K.

(1)For the purposes of sections [F33 71A] to 76 “overseas permanent establishment” means [F34, in relation to a company,] a permanent establishment through which the company carries on a trade in a territory outside the United Kingdom.

(2)In subsection (1) “permanent establishment”—

(a)if the arrangements are double taxation arrangements [F35which contain a relevant non-discrimination provision], has the meaning given by the arrangements, and

(b)if the arrangements are double taxation arrangements [F36which do not contain a relevant non-discrimination provision], or if the arrangements are unilateral relief arrangements for a territory outside the United Kingdom, [F37has the meaning given by 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 by the Treasury.]

[F38(3)In subsection (2) “relevant non-discrimination provision” means a provision to the effect that the taxation on a permanent 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.]

Textual Amendments

F33Word in s. 78(1) substituted (15.3.2018) by Finance Act 2018 (c. 3), s. 30(3)(a)

F34Words in s. 78(1) inserted (15.3.2018) by Finance Act 2018 (c. 3), s. 30(3)(b)

F35Words in s. 78(2)(a) substituted (19.7.2011) by Finance Act 2011 (c. 11), Sch. 13 paras. 28(2)(a), 31

F36Words in s. 78(2)(b) substituted (19.7.2011) by Finance Act 2011 (c. 11), Sch. 13 paras. 28(2)(b)(i), 31

F37Words in s. 78(2)(b) substituted (19.7.2011) by Finance Act 2011 (c. 11), Sch. 13 paras. 28(2)(b)(ii), 31

F38S. 78(3) inserted (19.7.2011) by Finance Act 2011 (c. 11), Sch. 13 paras. 28(3), 31

Action after adjustment of amount payable by way of UK or foreign taxU.K.

79Time limits for action if tax adjustment makes credit excessive or insufficientU.K.

(1)Subsection (2) applies to a claim or assessment if—

(a)the amount of any credit given under the arrangements is reduced under section 34, or becomes excessive or insufficient by reason of any adjustment of the amount of any tax payable either in the United Kingdom or under the law of any other territory,

(b)the reduction or adjustment gives rise to the claim or assessment, and

(c)the claim or assessment is made not later than 6 years from the time when all material determinations have been made, whether in the United Kingdom or elsewhere.

(2)Nothing in—

(a)the Tax Acts, and

(b)the enactments relating to capital gains tax,

limiting the time for the making of assessments, or limiting the time for the making of claims for relief, applies to the assessment or claim.

(3)In subsection (1)(c) “material determination” means an assessment, reduction, adjustment or other determination that is material in determining whether any, and (if so) what, credit is to be given.

80Duty to give notice that adjustment has rendered credit excessiveU.K.

(1)This section applies if—

(a)any credit for foreign tax has been allowed to a person under the arrangements,

(b)later, the amount of that credit is reduced under section 34, or becomes excessive as a result of an adjustment of the amount of any tax payable under the law of a territory outside the United Kingdom, and

(c)the reduction or adjustment is not a Lloyd's adjustment (see subsection (5)).

(2)The person must give notice that a reduction has been made or that the amount of the credit has become excessive as a result of the making of an adjustment.

(3)Notice under subsection (2) is to be given—

(a)to an officer of Revenue and Customs, and

(b)within one year from when the reduction or adjustment is made.

(4)If the person fails to comply with the requirements imposed by subsections (2) and (3), the person is liable to a penalty not greater than the amount by which the credit has been reduced or has become excessive as a result of the adjustment.

(5)For the purposes of subsection (1)(c), the reduction or adjustment is a “Lloyd's adjustment” if the consequences of the reduction or adjustment in relation to the credit are to be given effect in accordance with regulations under—

(a)section 182(1) of FA 1993 (regulations about individual members of Lloyd's), or

(b)section 229 of FA 1994 (regulations relating to corporate members of Lloyd's).

(6)In this section so far as it relates to capital gains tax “notice” means notice in writing.

Schemes and arrangements designed to increase relief: anti-avoidanceU.K.

[F3981Countering effect of avoidance arrangementsU.K.

(1)This section applies if each of conditions A to D of section 82 is met in relation to a person.

(2)The effects of a scheme or arrangement that are referable to the purpose referred to in condition B of that section are to be counteracted by the making of such adjustments as are necessary.

(3)Any adjustments required to be made by this section (whether or not by an officer of Revenue and Customs) may be made by way of—

(a)an assessment,

(b)the modification of an assessment, or

(c)amendment or disallowance of a claim,

or otherwise.]

Textual Amendments

F39S. 81 substituted (with effect in accordance with s. 31(6) of the amending Act) by Finance Act 2018 (c. 3), s. 31(2)

82Conditions for the purposes of section 81(1)U.K.

(1)Conditions A to D are the conditions mentioned in section 81(1).

(2)Condition A is that, in respect of any income or chargeable gain—

(a)taken into account for the purposes of determining a person's liability to UK tax in a chargeable period, or

(b)to be taken into account for the purposes of determining a person's liability to UK tax in a chargeable period,

there is an amount of foreign tax for which, under the arrangements, credit is allowable against UK tax for the period.

(3)Condition B is that there is a scheme or arrangement the main purpose of which, or one of the main purposes of which, is to cause an amount of foreign tax to be taken into account in the person's case for the period.

(4)Condition C is that the scheme or arrangement is within section 83.

(5)Condition D is that T is more than a minimal amount, where T is the sum of—

(a)the total amount of the claims for credit that the person has made, or is in a position to make, for the period (“the counteraction period”), and

(b)the total amount of all connected-person claims.

(6)In subsection (5) “connected-person claim” means a claim that any person connected to the person has made, or is in a position to make, for any chargeable period that overlaps the counteraction period by at least one day.

(7)In this section—

  • chargeable period”, in relation to capital gains tax, means tax year (see section 288(1ZA) of TCGA 1992),

  • foreign tax” includes any tax which for the purpose of allowing credit under the arrangements against corporation tax is treated by section 63(5) as if it were tax payable under the law of the non-UK territory, and

  • UK tax” means income tax, corporation tax or capital gains tax.

(8)Section 286 of TCGA 1992 (meaning of “connected”) applies for the purposes of subsection (6) so far as applying in relation to capital gains tax.

83Schemes and arrangements referred to in section 82(4)U.K.

(1)For the purposes of section 82(4), a scheme or arrangement is within this section if it is within subsection (2) or (4).

(2)A scheme or arrangement is within this subsection if—

(a)it is not an underlying-tax scheme or arrangement, and

(b)one or more of sections 84 to 88 apply to it.

(3)For the purposes of this section, a scheme or arrangement is an “underlying-tax” scheme or arrangement if its main purpose, or one of its main purposes, is to cause an amount of underlying tax allowable in respect of a dividend paid by an overseas-resident body corporate to be taken into account in a person's case.

(4)A scheme or arrangement is within this subsection if—

(a)it is an underlying-tax scheme or arrangement, and

(b)one or more of sections 84 to 88 would, on the assumption in subsection (5), apply to it.

(5)The assumption is that the body corporate is resident in the United Kingdom.

(6)Nothing in subsection (5) requires it to be assumed that there is any change in the place or places at which the body corporate carries on its activities.

(7)In subsection (3) “overseas-resident” means resident in a territory outside the United Kingdom.

84Section 83(2) and (4): schemes enabling attribution of foreign taxU.K.

(1)This section applies to a scheme or arrangement if—

(a)the scheme or arrangement enables a participant to pay, in respect of a source of income or chargeable gain, an amount of foreign tax, and

(b)all or part of that amount of foreign tax is properly attributable to another source of income or chargeable gain.

(2)In subsection (1) “participant” means a person who is party to, or concerned in, the scheme or arrangement.

85Section 83(2) and (4): schemes about effect of paying foreign taxU.K.

(1)This section applies to a scheme or arrangement if, under the scheme or arrangement, the condition in subsection (2) is met in relation to a person (“C”) who for a chargeable period has claimed, or is in a position to claim, any credit that under the arrangements is to be allowed for [F40in respect of the payment of an amount of foreign tax (“the FT amount”)].

[F41(2) The condition is that, when C entered into the scheme or arrangement, it could reasonably be expected that the effect on the foreign-tax total of the FT amount being paid or payable would be to increase that total by less than amount X.]

(3)In [F42subsection (2)]

  • the foreign-tax total” means the amount found by—

    (a)

    totalling the amounts of foreign tax paid or payable by the participants in respect of the transaction or transactions forming part of the scheme or arrangement, and

    (b)

    taking into account any reliefs that arise to the participants, including any reliefs arising to any one or more of the participants as a consequence of [F43the FT amount being paid or payable F44...], and

  • amount X” means the amount allowable to C as a credit in respect of the payment of the FT amount.

(4)In subsection (3)—

  • participant” means a person who is party to, or concerned in, the scheme or arrangement, and

  • reliefs” means reliefs, deductions, reductions or allowances against or in respect of any tax.

(5)In subsection (1) so far as it relates to capital gains tax “chargeable period” means tax year (see section 288(1ZA) of TCGA 1992).

Textual Amendments

F40Words in s. 85(1) substituted (with effect in accordance with Sch. 11 para. 5(3) of the amending Act) by Finance Act 2010 (c. 13), Sch. 11 para. 5(1)(a)

F41S. 85(2) substituted (with effect in accordance with Sch. 11 para. 5(3) of the amending Act) by Finance Act 2010 (c. 13), Sch. 11 para. 5(1)(b)

F42Words in s. 85(3) substituted (with effect in accordance with Sch. 11 para. 5(3) of the amending Act) by Finance Act 2010 (c. 13), Sch. 11 para. 5(1)(c)(i)

F43Words in s. 85(3) substituted (with effect in relation to amounts of foreign tax payable on or after 21.10.2009 in accordance with Sch. 11 para. 3 of the amending Act) by Finance Act 2010 (c. 13), Sch. 11 para. 2(3)

F44Words in s. 85(3) omitted (with effect in accordance with Sch. 11 para. 5(3) of the amending Act) by virtue of Finance Act 2010 (c. 13), Sch. 11 para. 5(1)(c)(ii)

[F4585ASection 83(2) and (4): schemes involving deemed foreign taxU.K.

(1)This section applies to a scheme or arrangement if in relation to a claimant—

(a)an amount (“amount X”) is treated by virtue of a provision of the Tax Acts as if it were an amount of foreign tax paid or payable [F46by the claimant] in respect of a source of income, and

(b)condition A or B is met.

(2)Condition A is met if, when the claimant entered into the scheme or arrangement, it could reasonably be expected that, under the scheme or arrangement, no real foreign tax would be paid or payable by a participant.

(3)Condition B is met if, when the claimant entered into the scheme or arrangement, it could reasonably be expected that, under the scheme or arrangement—

(a)an amount of real foreign tax (“the RFT amount”) would be paid or payable by a participant, but

(b) the effect on the foreign-tax total of the RFT amount being so paid or payable would be to increase the foreign-tax total by less than the amount allowable to the claimant as a credit in respect of amount X.

(4)In this section—

  • claimant ” means a person who for a chargeable period has claimed, or is in a position to claim, for any credit that under the arrangements is to be allowed for foreign tax;

  • the foreign-tax total ” has the meaning given by section 85(3), except that the reference to “the FT amount being paid or payable [F47by C]” must be read as a reference to “the RFT amount being paid or payable by any of them”;

  • income ” includes a chargeable gain;

  • participant ” means a person who is party to, or concerned in, the scheme or arrangement;

  • real foreign tax ” means—

    (a)

    in a case involving section 10 (accrued income profits), the foreign tax chargeable in respect of the interest on the securities, as mentioned in subsection (1)(c) of that section,

    (b)

    F48...

    (c)

    in any other case, the foreign tax chargeable in respect of the source of income of which the source mentioned in subsection (1)(a) is representative.]

Textual Amendments

F45S. 85A inserted (with effect in accordance with Sch. 11 para. 4(2)(3) of the amending Act) by Finance Act 2010 (c. 13), Sch. 11 para. 4(1)

F46Words in s. 85A(1)(a) omitted (with effect in accordance with Sch. 11 para. 5(3) of the amending Act) by virtue of Finance Act 2010 (c. 13), Sch. 11 para. 5(2)(a)

F47Words in s. 85A(4) omitted (with effect in accordance with Sch. 11 para. 5(3) of the amending Act) by virtue of Finance Act 2010 (c. 13), Sch. 11 para. 5(2)(b)

F48Words in s. 85A(4) omitted (1.1.2014) by virtue of Finance Act 2013 (c. 29), Sch. 1 para. 52, Sch. 29 para. 48(2)

86Section 83(2) and (4): schemes about claims or elections etcU.K.

(1)This section applies to a scheme or arrangement if F49...—

(a)a step is taken by a participant, or

(b)a step that could have been taken by a participant is not taken,

and that action or failure to act has the effect of increasing, or giving rise to, a claim by a participant for an allowance by way of credit under this Part.

(2)The steps mentioned in subsection (1) are steps that may be taken—

(a)under the law of any territory, or

(b)under double taxation arrangements made in relation to any territory.

(3)The steps mentioned in subsection (1) include—

(a)claiming, or otherwise securing the benefit of, reliefs, deductions, reductions or allowances, and

(b)making elections for tax purposes.

[F50(3A)Reference in subsection (1) to a step that is taken or not taken by a participant includes one that was taken or not taken by a participant before the scheme or arrangement was made.

(3B)The reason for taking or not taking a step does not matter so long as it has the effect mentioned in subsection (1).]

(4)In subsection (1) “participant” means a person who is party to, or concerned in, the scheme or arrangement.

Textual Amendments

F49Words in s. 86(1) omitted (with effect in accordance with Sch. 11 para. 6(2) of the amending Act) by virtue of Finance Act 2010 (c. 13), Sch. 11 para. 6(1)(a)

F50S. 86(3A)(3B) inserted (with effect in accordance with Sch. 11 para. 6(2) of the amending Act) by Finance Act 2010 (c. 13), Sch. 11 para. 6(1)(b)

87Section 83(2) and (4): schemes that would reduce a person's tax liabilityU.K.

(1)This section applies to a scheme or arrangement if, under the scheme or arrangement, the condition in subsection (2) is met in relation to a person [F51(“P”)] who for a chargeable period has claimed, or is in a position to claim, any credit that under the arrangements is to be allowed for foreign tax.

(2)The condition is that amount A is less than amount B.

(3)Amount A is [F52the total amount of UK tax payable by P and such persons (if any) as are connected with P] in respect of income and chargeable gains arising in the chargeable period.

(4)Amount B is [F53the total amount of UK tax that would be payable by P and such persons (if any) as are connected with P] in respect of income and chargeable gains arising in the chargeable period if, in determining that amount, the transactions forming part of the scheme or arrangement were disregarded.

(5)In this section “UK tax” means income tax, corporation tax and capital gains tax.

(6)In this section so far as it relates to capital gains tax “chargeable period” means tax year (see section 288(1ZA) of TCGA 1992).

[F54(7)For the purposes of this section, whether a person is connected with P is determined in accordance with section 1122 of CTA 2010.]

Textual Amendments

F51Letter in s. 87(1) inserted (with effect in accordance with s. 31(7) of the amending Act) by Finance Act 2018 (c. 3), s. 31(3)(a)

F52Words in s. 87(3) substituted (with effect in accordance with s. 31(7) of the amending Act) by Finance Act 2018 (c. 3), s. 31(3)(b)

F53Words in s. 87(4) substituted (with effect in accordance with s. 31(7) of the amending Act) by Finance Act 2018 (c. 3), s. 31(3)(c)

F54S. 87(7) inserted (with effect in accordance with s. 31(7) of the amending Act) by Finance Act 2018 (c. 3), s. 31(3)(d)

88Section 83(2) and (4): schemes involving tax-deductible paymentsU.K.

(1)This section applies to a scheme or arrangement if the scheme or arrangement includes—

(a)the making by a person (“P”) of a relevant payment or payments, and

(b)the giving, in respect of the payment or payments, of qualifying consideration.

(2)For the purposes of subsection (1), a payment is a “relevant payment” if all or part of it may be brought into account—

(a)in calculating P's income for the purposes of income tax or corporation tax, or

(b)in calculating P's chargeable gains for the purposes of capital gains tax.

(3)For the purposes of subsection (1), consideration is “qualifying consideration” if—

(a)all or part of it consists of a payment made to P or a person connected with P, and

(b)tax is chargeable in respect of the payment under the law of a territory outside the United Kingdom.

(4)In this section “payment” includes a transfer of money's worth.

(5)For the purposes of this section, whether a person is connected with another is determined in accordance with section 1122 of CTA 2010.

F5589Contents of counteraction noticeU.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F55Ss. 89-95 omitted (with effect in accordance with s. 31(6) of the amending Act) by virtue of Finance Act 2018 (c. 3), s. 31(4)

F5590Consequences of counteraction noticesU.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F55Ss. 89-95 omitted (with effect in accordance with s. 31(6) of the amending Act) by virtue of Finance Act 2018 (c. 3), s. 31(4)

F5591Counteraction notices given before tax return madeU.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F55Ss. 89-95 omitted (with effect in accordance with s. 31(6) of the amending Act) by virtue of Finance Act 2018 (c. 3), s. 31(4)

F5592Counteraction notices given after tax return madeU.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F55Ss. 89-95 omitted (with effect in accordance with s. 31(6) of the amending Act) by virtue of Finance Act 2018 (c. 3), s. 31(4)

F5593Amendment, closure notices and discovery assessments in section 92 casesU.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F55Ss. 89-95 omitted (with effect in accordance with s. 31(6) of the amending Act) by virtue of Finance Act 2018 (c. 3), s. 31(4)

F5594Information made available for the purposes of section 92(4)U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F55Ss. 89-95 omitted (with effect in accordance with s. 31(6) of the amending Act) by virtue of Finance Act 2018 (c. 3), s. 31(4)

F5595Interpretation of sections 89 to 94U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F55Ss. 89-95 omitted (with effect in accordance with s. 31(6) of the amending Act) by virtue of Finance Act 2018 (c. 3), s. 31(4)

Insurance companiesU.K.

96Companies with overseas branches: restriction of creditU.K.

(1)Subsection (4) applies if credit for foreign tax—

(a)which is payable in respect of insurance business carried on by a company through a permanent establishment in the non-UK territory, and

(b)which is calculated otherwise than wholly by reference to profits arising in the non-UK territory,

is to be allowed (in accordance with this Part) against corporation tax charged under section 35 of CTA 2009 F56... in respect of the profits F57... of [F58non-BLAGAB long-term business] carried on by the company in an accounting period (in this section called “the relevant UK-taxable profits”).

(2)For the purposes of subsection (1)(b), the cases in which foreign tax is “calculated otherwise than wholly by reference to profits arising in the non-UK territory” are those cases in which the charge to tax in the non-UK territory is within subsection (3).

(3)A charge to tax is within this subsection if it is such a charge made otherwise than by reference to profits as (by disallowing their deduction in calculating the amount chargeable) to require sums payable and other liabilities arising under policies to be treated as sums or liabilities falling to be met out of amounts subject to tax in the hands of the company.

(4)If this subsection applies, the amount of the credit is not to exceed the greater of—

(a)any such part of the foreign tax as is charged by reference to profits arising in the non-UK territory, and

(b)the shareholders' share of the foreign tax.

(5)For the purposes of subsection (4), the shareholders' share of the foreign tax is so much of that tax as is represented by the fraction—

where—

A is an amount equal to the amount of the relevant UK-taxable profits before making any deduction authorised by subsection (7), and

B is an amount equal to the excess of—

(a)

the amount taken into account as receipts of the company in calculating those profits, apart from premiums and sums received by virtue of a claim under a reinsurance contract, over

(b)

the amount taken into account as expenses in calculating those profits.

(6)If there is no such excess, or if the profits are greater than any excess, the whole of the foreign tax is the shareholders' share; and, subject to that, if there are no profits, none of the foreign tax is the shareholders' share.

(7)If, by virtue of this section, the credit for any foreign tax is less than it otherwise would be, section 31(2)(a) does not prevent a deduction being made for the difference in calculating the relevant UK-taxable profits.

Textual Amendments

F56Words in s. 96(1) omitted (17.7.2012) by virtue of Finance Act 2012 (c. 14), Sch. 16 para. 235(a)

F57Words in s. 96(1) omitted (17.7.2012) by virtue of Finance Act 2012 (c. 14), Sch. 16 para. 235(b)

F58Words in s. 96(1) substituted (17.7.2012) by Finance Act 2012 (c. 14), Sch. 16 para. 235(c)

[F5997Companies with more than one category of business: restriction of creditU.K.

(1)This section applies if—

(a)an insurance company carries on more than one category of long-term business in an accounting period, and

(b)there arises to the company in that period any income or gain (“the relevant income”) in respect of which credit for foreign tax is to be allowed under the arrangements.

(2)The amount of the credit for foreign tax which, under the arrangements, is allowable against corporation tax in respect of so much of the relevant income as is referable, in accordance with Part 2 of FA 2012, to a particular category of business must not exceed the fraction of the foreign tax which, in accordance with subsection (3), is attributable to that category of business.

(3)The fraction of the foreign tax that is attributable to the category of business in question is the fraction given by—

where—

RPRI is the amount of the relevant income referable to the category of business in question in accordance with section 97A, and

TRI is the total amount of the relevant income.

Textual Amendments

F59Ss. 97, 97A substituted (17.7.2012) for s. 97 by Finance Act 2012 (c. 14), Sch. 16 para. 236

97ACommercial allocation of relevant income to different categories of long-term businessU.K.

(1)The amount of the relevant income that, for the purposes of section 97, is to be regarded as referable to a category of business is to be determined in accordance with an acceptable commercial method adopted by the company for the period of account in which the relevant income arises.

(2)A method is an “acceptable commercial method” if, in all the circumstances, it can reasonably be regarded as providing a fair method for the purposes of section 97 for determining for a period of account the amount of any income or gain arising in the period that is referable to a particular category of long-term business carried on by the company.

(3)The Treasury may make regulations for the purposes of this section—

(a)prescribing cases in which a method is, or is not, to be regarded as an acceptable commercial method, and

(b)prescribing cases in which the only acceptable commercial method is to be a method prescribed, or of a description prescribed, in the regulations.

(4)Subject to any provision made by regulations under subsection (3), the method adopted for the purposes of this section for a period of account must be consistent with the method adopted for the purposes of section 98 or 115 of FA 2012 for that period.]

Textual Amendments

F59Ss. 97, 97A substituted (17.7.2012) for s. 97 by Finance Act 2012 (c. 14), Sch. 16 para. 236

F6098Attribution for section 97 purposes if category is gross roll-up businessU.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F60S. 98 omitted (17.7.2012) by virtue of Finance Act 2012 (c. 14), Sch. 16 para. 237

99Allocation of expenses etc in calculations under section 35 of CTA 2009U.K.

(1)Subsection (2) has effect if—

(a)an insurance company carries on any category of insurance business in a period of account,

(b)a calculation in accordance with the provisions applicable for the purposes of section 35 of CTA 2009 (charge on trade profits) falls to be made in relation to that category of business for that period, and

(c)there arises to the company in that period any income or gain in respect of which credit for foreign tax is to be allowed under the arrangements.

(2)The amount of the credit for foreign tax which, under the arrangements, is to be allowed against corporation tax in respect of so much of that income or gain as is referable to the category of business concerned (“the relevant income”) is to be limited by treating the amount of the relevant income as reduced in accordance with sections 100 and 101.

(3)In determining the amount of credit for foreign tax which is to be allowed as mentioned in subsection (2), the relevant income is not to be reduced except in accordance with that subsection.

(4)If a 75% subsidiary of an insurance company is acting in accordance with a scheme or arrangement and—

(a)the purpose, or one of the main purposes, of the scheme or arrangement is to prevent or restrict the application of subsection (2) to the insurance company, and

(b)the subsidiary does not carry on insurance business of any description,

the amount of corporation tax attributable (apart from this subsection) to any item of income or gain arising to the subsidiary is to be found by setting off against that item the amount of expenses that would be attributable to it under section 100(1) if that item had arisen directly to the insurance company.

(5)If the credit allowed for any foreign tax is, by virtue of subsection (2), less than it would be if the relevant income were not treated as reduced in accordance with that subsection, section 31(2)(a) does not prevent a deduction being made for the difference in calculating the profits of the category of business concerned.

(6)If, by virtue of subsection (4), the credit allowed for any foreign tax is less than it would be apart from that subsection, section 31(2)(a) does not prevent a deduction being made for the difference in calculating the income of the 75% subsidiary.

(7)For the purposes of the operation of this section in relation to any income or gain in respect of which credit is to be allowed under the arrangements, the amount of the income or gain that is referable to a category of insurance business is the same fraction of the income or gain as the fraction of the foreign tax that is attributable to that category of business in accordance with sections 97 and [F6197A].

Textual Amendments

F61Word in s. 99(7) substituted (17.7.2012) by Finance Act 2012 (c. 14), Sch. 16 para. 238

100First limitation for purposes of section 99(2)U.K.

(1)The first limitation for the purposes of section 99(2) is to treat the amount of the relevant income as reduced (but not below nil) for the purposes of this Chapter by the amount of expenses (if any) attributable to the relevant income.

(2)For the purposes of subsection (1), the amount of expenses attributable to the relevant income is the appropriate fraction of the total relevant expenses of the category of business concerned for the period of account in question.

(3)In subsection (2) “the appropriate fraction” means the fraction given by—

where—

RI is the amount of the relevant income before any reduction in accordance with section 99(2), and

TI is the total income of the category of business concerned for the period of account in question, but if that would result in TI being nil, TI is instead the amount described in subsection (4).

(4)That amount is so much in total of the income and gains—

(a)which arise to the company in the period of account in question, and

(b)in respect of which credit for foreign tax is to be allowed under any double taxation arrangements or under unilateral relief arrangements for any territory outside the United Kingdom,

as are referable to the category of business concerned (before any reduction in accordance with section 99(2)).

(5)Subsection (4) is to be read with section 104 (determining how much of any income or gain is referable to a category of business).

(6)In this section “the relevant income” has the meaning given by section 99(2).

101Second limitation for purposes of section 99(2)U.K.

(1)If—

(a)the amount of the relevant income after any reduction under section 100(1),

exceeds—

(b)the relevant fraction of the profits of the category of business concerned for the period of account in question which are chargeable to corporation tax,

the second limitation is to treat the relevant income as further reduced (but not below nil) for the purposes of this Chapter to an amount equal to that fraction of those profits.

(2)In subsection (1) “the relevant fraction” means the fraction given by—

where—

“RI” is the amount of the relevant income before any reduction in accordance with section 99(2), and

“the referable share of total relievable income and gains” is so much in total of the income and gains—

(a)

which arise to the company in the period of account in question, and

(b)

in respect of which credit for foreign tax is to be allowed under any double taxation arrangements or under unilateral relief arrangements for any territory outside the United Kingdom,

as are referable to the category of business concerned (before any reduction in accordance with section 99(2)).

(3)In subsection (1), any reference to the profits of a category of business is a reference to those profits after the set off of any losses of that category of business which have arisen in any previous accounting period.

(4)Subsection (2) is to be read with section 104 (determining how much of any income or gain is referable to a category of business).

(5)In this section “the relevant income” has the meaning given by section 99(2).

F62102Interpreting sections 99 to 101 for life assurance or gross roll-up businessU.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F62S. 102 omitted (17.7.2012) by virtue of Finance Act 2012 (c. 14), Sch. 16 para. 239

103Interpreting sections 99 to 101 F63... U.K.

(1)This section has effect for the interpretation of sections 99 to 101 F64...

(2)The “total income” of the category of business concerned for any period of account is the amount (if any) by which—

(a)the sum of the amounts specified in subsection (3),

exceeds—

(b)the sum of the amounts specified in subsection (4).

(3)The amounts mentioned in subsection (2)(a) are—

(a)earned premiums, net of reinsurance,

(b)investment income and gains, and

(c)other technical income, net of reinsurance.

(4)The amounts mentioned in subsection (2)(b) are—

(a)acquisition costs,

(b)the change in deferred acquisition costs, and

(c)losses on investments.

(5)The “total relevant expenses” of the category of business concerned for any period of account is the sum of—

(a)the claims incurred, net of reinsurance,

(b)the changes in other technical provisions, net of reinsurance,

(c)the change in the equalisation provision, and

(d)investment management expenses,

unless that sum is a negative amount, in which case the total relevant expenses is to be taken to be nil.

(6)The amounts to be taken into account for the purposes of the paragraphs of subsections (3) to (5) are the amounts taken into account for the purposes of corporation tax.

(7)Expressions used—

(a)in the paragraphs of subsections (3) to (5), and

(b)in the provisions of section B of Part 1 of Schedule 3 to the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (S.I. 2008/410) which relate to the profit and loss account format (within the meaning of paragraph 1(1) and (2) of that Schedule),

have the same meaning in those paragraphs as they have in those provisions.

Textual Amendments

F63Words in s. 103 heading omitted (17.7.2012) by virtue of Finance Act 2012 (c. 14), Sch. 16 para. 240(3)

F64Words in s. 103(1) omitted (17.7.2012) by virtue of Finance Act 2012 (c. 14), Sch. 16 para. 240(2)

104Interpreting sections 100 and 101: amounts referable to category of businessU.K.

(1)This section applies for the purposes of the operation of sections 100 and 101 in relation to any income or gain in respect of which credit is to be allowed under any double taxation arrangements or under unilateral relief arrangements for a territory outside the United Kingdom.

(2)The amount of the income or gain that is referable to a category of insurance business is the same fraction of the income or gain as the fraction found under subsection (3).

(3)Apply sections 97 and [F6597A] in relation to—

(a)that category of business,

(b)the income or gain, and

(c)the double taxation arrangements, or unilateral relief arrangements, mentioned in subsection (1),

in order to find the fraction of the foreign tax that is attributable to that category of business.

Textual Amendments

F65Word in s. 104(3) substituted (17.7.2012) by Finance Act 2012 (c. 14), Sch. 16 para. 241

CHAPTER 3U.K.Miscellaneous provisions

Application of Part for capital gains tax purposesU.K.

105Meaning of “chargeable gain”U.K.

In this Part so far as it relates to capital gains tax “chargeable gain” has the same meaning as in TCGA 1992 (see, in particular, section 15(2) of that Act).

106Chapters 1 and 2 apply to capital gains tax separately from other taxesU.K.

(1)Subsection (2) applies if foreign gains tax may be brought into account under Chapters 1 and 2 so far as they apply for capital gains tax purposes.

(2)The foreign gains tax is not to be taken into account under those Chapters so far as they apply otherwise than for capital gains tax purposes.

(3)Subsection (2) applies whether or not relief in respect of the foreign gains tax is given under those Chapters so far as they apply for capital gains tax purposes.

(4)Foreign non-gains tax is not be taken into account under those Chapters so far as they apply for capital gains tax purposes.

(5)In this section—

  • foreign gains tax” means any tax which—

    (a)

    is imposed by the law of a territory outside the United Kingdom, and

    (b)

    is of a similar character to capital gains tax, and

  • foreign non-gains tax” means tax which—

    (a)

    is imposed by the law of a territory outside the United Kingdom, and

    (b)

    is not foreign gains tax.

When foreign tax disregarded in applying Part for corporation tax purposesU.K.

107Disregard of foreign tax referable to derivative contractU.K.

(1)In applying this Part for corporation tax purposes in relation to a company, disregard tax within subsection (2).

(2)Tax is within this subsection in relation to a company so far as the tax—

(a)is tax under the law of a territory outside the United Kingdom, and

(b)is attributable, on a just and reasonable apportionment, to so much of a notional interest payment as, on such an apportionment, is attributable to a time when the company is not a party to the derivative contract concerned.

(3)For the purposes of this section, a payment is a “notional interest payment” if—

(a)a derivative contract specifies—

(i)a notional principal amount,

(ii)a period, and

(iii)a rate of interest,

(b)the amount of the payment is determined (wholly or mainly) by applying a rate to the specified notional principal amount for the specified period, and

(c)the value of the rate is the same at all times as that of the specified rate of interest.

108Disregard of foreign tax attributable to interest under a loan relationshipU.K.

(1)In applying this Part for corporation tax purposes in relation to a company, disregard tax within subsection (2).

(2)Tax is within this subsection in relation to a company so far as the tax—

(a)is tax under the law of a territory outside the United Kingdom, and

(b)is attributable, on a just and reasonable apportionment, to interest accruing under a loan relationship at a time when the company is not a party to the relationship.

(3)Tax within subsection (2) is not to be disregarded under subsection (1) if the tax is also within section 109 or 110.

109Repo cases in which no disregard under section 108U.K.

(1)Tax attributable to interest accruing to a company under a loan relationship is within this section if—

(a)at the time when the interest accrues, the company has ceased to be a party to the relationship by reason of having made the initial sale under or in accordance with any debtor repo relating to the relationship, and

(b)that time is in the period for which the repo has effect.

(2)In this section—

  • debtor repo” has the meaning given by the repo-definition section,

  • the initial sale”, in relation to a debtor repo, means the sale mentioned in condition C in the repo-definition section, and

  • the repo-definition section” means section 548 of CTA 2009.

(3)In this section, a reference to the period for which a debtor repo has effect is to the period from the making of the initial sale until the earlier of—

(a)the time when the subsequent purchase mentioned in condition D in the repo-definition section takes place, and

(b)the time when it becomes apparent that that subsequent purchase will not take place.

110Stock-lending cases in which no disregard under section 108U.K.

(1)Tax attributable to interest accruing to a company under a loan relationship is within this section if—

(a)at the time when the interest accrues, the company has ceased to be a party to the relationship by reason of having made the initial transfer under or in accordance with any stock lending arrangement relating to that relationship, and

(b)that time is in the period for which the arrangement has effect.

(2)In this section—

  • the initial transfer”, in relation to a stock lending arrangement, means the transfer mentioned in section 263B(1)(a) of TCGA 1992, and

  • stock lending arrangement” has the meaning given by section 263B of TCGA 1992.

(3)In this section, a reference to the period for which a stock lending arrangement has effect is to the period from the making of the initial transfer until the earlier of—

(a)the time when the transfer mentioned in section 263B(1)(b) of TCGA 1992 takes place, and

(b)the time when it becomes apparent that that transfer will not take place.

Special rules for discretionary trustsU.K.

111When payment to beneficiary treated as arising from foreign sourceU.K.

(1)Subsection (6) applies if each of conditions A to D is met.

(2)Condition A is that a payment is made by trustees of a settlement.

(3)Condition B is that income tax is treated under section 494 of ITA 2007 (treatment of discretionary payments by trustees) as having been paid in relation to the payment.

(4)Condition C is that the income arising under the settlement includes taxed overseas income.

(5)Condition D is that the trustees certify—

(a)that the payment is one made out of income consisting of, or including, taxed overseas income of an amount, and from a source, stated in the certificate, and

(b)that that amount of taxed overseas income arose to the trustees not earlier than 6 years before the end of the tax year in which the payment is made.

(6)The person to whom the payment is made may claim that the payment, up to the certified amount, is to be treated for the purposes of this Part as income received by the person—

(a)from the certified source, and

(b)in the tax year in which the payment is made.

(7)In this section “taxed overseas income”, in relation to a settlement, means income in respect of which the trustees are entitled to credit under this Part for tax under the law of a territory outside the United Kingdom.

Deduction for foreign tax where no credit allowedU.K.

112Deduction from income for foreign tax (instead of credit against UK tax)U.K.

(1)The amount of any income arising in any place outside the United Kingdom is reduced for the purposes of the Tax Acts—

(a)by any amount which has been paid in respect of non-UK tax on that income in the place where the income arose, or

(b)if subsection (2) applies, by the lesser amount mentioned in that subsection.

(2)This subsection applies if credit would, were it allowable in respect of the income, be reduced under section 39 (reduction by reference to accrued income losses) to the lesser amount given by section 39(5).

[F66(2A)But if X is less than Y, an amount equal to the difference between X and Y must be subtracted from the amount by which any income of a person (“the relevant income”) is reduced under subsection (1)(a).

(2B)In subsection (2A)—

  • X is the amount of the relevant income that the person would (disregarding this section) be required to bring into account for income tax or corporation tax purposes, less any deduction that the person would be allowed to make for the amount paid in respect of non-UK tax, and

  • Y is the amount of the relevant income (that is to say, the amount on which the amount in respect of non-UK tax is paid).]

(3)If—

(a)income of any person (“P”) is reduced under subsection (1) by an amount paid in respect of tax on that income in the place where the income arose, and

[F67(b)a tax authority makes a payment by reference to that tax, and that payment—

(i)is made to P or a person connected with P, or

(ii)is made to some other person directly or indirectly in consequence of a scheme that has been entered into,]

the amount of P's income is increased by the amount of the payment.

[F68(3A)Subsection (3B) applies if—

(a)the requirements of section 49A(1)(a) to (c) are met,

(b)amounts have been paid in respect of non-UK tax on loan relationship credits falling within section 49A(1)(c) which arise in an accounting period of the relevant UK company, and

(c)apart from subsection (3B), Z would exceed

where—

Z is—

i

the total amount of any reductions under subsection (1) for amounts paid in respect of that non-UK tax, less

ii

the total amount of any increases under subsection (3) for payments made by reference to that non-UK tax, and

c

R and S have the same meaning as in section 49A(2).

R and S have the same meaning as in section 49A(2).

(3B)The total amount of the reductions under subsection (1) is to be reduced so that Z equals]

(4)Subsection (1)—

(a)has effect subject to section 31(2)(a) (no deduction for foreign tax if credit allowed and UK tax calculated otherwise than by reference to the amount received in the United Kingdom),

[F69(aa)has effect subject to section 71B(2) (reduction of foreign tax paid on profits of overseas permanent establishment),]

(b)has effect subject to section 143(5) and (6) (no deduction for special withholding tax if UK tax calculated otherwise than by reference to the amount received in the United Kingdom),

(c)does not apply to income the tax on which is to be calculated by reference to the amount of income received in the United Kingdom, and

(d)does not require any income to be reduced by an amount of underlying tax which, under section 60(3), is to be left out of account for the purposes of section 57.

(5)Subsection (1) has effect for corporation tax purposes despite—

(a)section 464(1) of CTA 2009 (matters to be brought into account in the case of loan relationships only under Part 5 of that Act), and

(b)section 906(1) of that Act (matters to be brought into account in respect of intangible fixed assets only under Part 8 of that Act).

(6)In [F70this section]non-UK tax” means tax under the law of a territory outside the United Kingdom.

(7)For the purposes of subsection (3), whether a person is connected with P is determined in accordance with section 1122 of CTA 2010.

[F71(8)In subsection (3)(b)(ii) “scheme” includes any scheme, arrangement or understanding of any kind, whether or not legally enforceable, involving a single transaction or two or more transactions.]

Textual Amendments

F66S. 112(2A)(2B) inserted (with effect in accordance with Sch. 11 para. 7(2) of the amending Act) by Finance Act 2010 (c. 13), Sch. 11 para. 7(1)

F67S. 112(3)(b) substituted (with effect in accordance with s. 292(8) of the amending Act) by Finance Act 2014 (c. 26), s. 292(4)

F68S. 112(3A)(3B) inserted (retrospective to 1.1.2013) by Finance Act 2013 (c. 29), Sch. 47 paras. 14(2), 21

F69S. 112(4)(aa) inserted (15.3.2018) by Finance Act 2018 (c. 3), s. 30(4)

F70Words in s. 112(6) substituted (retrospective to 1.1.2013) by Finance Act 2013 (c. 29), Sch. 47 paras. 14(3), 21

F71S. 112(8) inserted (with effect in accordance with s. 292(8) of the amending Act) by Finance Act 2014 (c. 26), s. 292(5)

113Deduction from capital gain for foreign tax (instead of credit against UK tax)U.K.

(1)Subsection (2) applies to tax if it is—

(a)chargeable under the law of any territory outside the United Kingdom on the disposal of an asset, and

(b)borne by the person making the disposal.

(2)The tax is allowable as a deduction in the calculation of the gain.

(3)Subsection (2) is subject to—

(a)Chapters 1 and 2 so far as they apply for corporation tax purposes (see, in particular, section 31),

(b)Chapters 1 and 2 so far as they apply for capital gains tax purposes (see, in particular, section 31), and

(c)section 143 (which includes provision about taking account of special withholding tax when calculating a gain for capital gains tax purposes).

(4)In subsection (1) “asset” and “disposal” have the same meaning as in TCGA 1992 (see, in particular, section 21 and the following provisions of TCGA 1992).

114Time limits for action if tax adjustment makes reduction too large or too smallU.K.

(1)Subsection (2) applies to a claim or assessment if—

(a)the amount of any reduction under section 112(1) or 113(2) becomes excessive or insufficient by reason of any adjustment of the amount of any tax payable either in the United Kingdom or under the law of any territory outside the United Kingdom, or a person's income is increased under section 112(3),

(b)the adjustment or increase gives rise to the claim or assessment, and

(c)the claim or assessment is made not later than 6 years from the time when all material determinations have been made, whether in the United Kingdom or elsewhere.

(2)No time-limit rule applies to the assessment or claim.

(3)In subsection (1)(c) “material determination” means (as the case may be)—

(a)an assessment, adjustment, increase or other determination that is material in determining whether any, and (if so) what, reduction is to be made under section 112(1) or increase is to be made under section 112(3), or

(b)an assessment, adjustment or other determination that is material in determining whether any, and (if so) what, reduction is to be made under section 113(2).

(4)In subsection (2) “time-limit rule” means anything—

(a)in TMA 1970,

(b)in ICTA,

(c)in TCGA 1992, or

(d)in any other provision of the Tax Acts,

limiting the time for the making of assessments or limiting the time for the making of claims for relief.

115Duty to give notice that adjustment has rendered reduction too largeU.K.

(1)This section applies if—

(a)the amount of any of a person's income is reduced under section 112(1),

(b)that reduction (“the original reduction”) later becomes excessive as a result of an adjustment of the amount of any tax payable under the law of a territory outside the United Kingdom or an increase under section 112(3), and

(c)the adjustment or increase is not a Lloyd's adjustment.

(2)This section also applies if—

(a)a deduction is allowed under section 113(2) in the case of a person making a disposal, and

(b)that deduction (“the original reduction”) later becomes excessive as a result of an adjustment of the amount of any tax payable under the law of a territory outside the United Kingdom.

(3)The person must give notice that the original reduction has become excessive as a result of the making of an adjustment or increase.

(4)Notice under subsection (3) is to be given—

(a)to an officer of Revenue and Customs, and

(b)within one year from when the adjustment or increase was made.

(5)If the person fails to comply with the requirements imposed by subsections (3) and (4), the person is liable to a penalty not greater than the amount given by—

where—

A is the amount of tax payable by the person for the reduction period after giving effect to the reduction that ought to be made under section 112(1) or (as the case may be) under section 113(2), and

B is the amount that would have been the tax payable by the person for that period after giving effect instead to the original reduction.

(6)In subsection (5) “the reduction period” means the tax year, or accounting period of a company for corporation tax purposes, for which the original reduction was made.

(7)For the purposes of subsection (1)(c), the adjustment or increase is a “Lloyd's adjustment” if the consequences of the adjustment or increase in relation to the reduction are to be given effect in accordance with regulations under—

(a)section 182(1) of FA 1993 (regulations about individual members of Lloyd's), or

(b)section 229 of FA 1994 (regulations relating to corporate members of Lloyd's).

(8)In subsection (2) “disposal” has the same meaning as in TCGA 1992 (see, in particular, section 21(2) and the following provisions of TCGA 1992).

(9)In this section so far as it relates to capital gains tax “notice” means notice in writing.

European cross-border transfers of businessU.K.

116Introduction to section 117U.K.

(1)Subject to subsections (4) to (6), section 117 applies if condition A or B is met.

(2)Condition A is that—

(a)a company resident in the United Kingdom transfers to a company resident in [F72a] member State the whole or part of a business which immediately before the transfer the transferor carried on in a member State F73... through a permanent establishment, and

(b)the transfer includes—

(i)the transfer of an asset or liability representing a loan relationship,

(ii)the transfer of rights and liabilities under a derivative contract, or

(iii)the transfer of intangible fixed assets that are chargeable intangible assets in relation to the transferor immediately before the transfer and in the case of one or more of which the proceeds of realisation exceed the costs recognised for tax purposes.

(3)Condition B is that—

(a)a company resident in the United Kingdom transfers part of its business to one or more companies,

(b)the part of the transferor's business which is transferred was carried on immediately before the transfer in a member State F74... through a permanent establishment,

(c)at least one transferee is resident in a member State F75...

(d)the transferor continues to carry on a business after the transfer,

(e)the condition in subsection (2)(b) is met, and

(f)the transfer—

(i)is made in exchange for the issue of shares in or debentures of each transferee to each person holding shares in or debentures of the transferor, or

(ii)is not so made only because, and only so far as, a transferee is prevented from so issuing such shares or debentures by section 658 of the Companies Act 2006 (general rule against limited company acquiring own shares) or by a corresponding provision of the law of [F76a] member State preventing such an issue.

(4)If a transfer that meets condition A or B includes such a transfer as is mentioned in subsection (2)(b)(i), section 117—

(a)only applies as respects the transfer so mentioned as a result of the transfer meeting condition A if the transfer is wholly or partly in exchange for shares or debentures issued by the transferee to the transferor, and

(b)only applies as respects the transfer so mentioned as a result of the transfer meeting condition B if each transferee is resident in a [F77relevant state], but not necessarily the same one.

(5)If a transfer that meets condition A or B includes such a transfer as is mentioned in subsection (2)(b)(ii), section 117—

(a)only applies as respects the transfer so mentioned as a result of the transfer meeting condition A if the transfer is wholly or partly in exchange for shares or debentures issued by the transferee to the transferor or to the persons holding shares in or debentures of the transferor,

(b)only applies as respects the transfer so mentioned as a result of the transfer meeting condition B if each transferee is resident in a [F78relevant state], but not necessarily the same one, and

(c)only applies as respects the transfer so mentioned if the transferor makes a claim under this section in respect of it.

(6)If a transfer that meets condition A or B includes such a transfer as is mentioned in subsection (2)(b)(iii), section 117—

(a)only applies as respects the transfer so mentioned as a result of the transfer meeting condition A if—

(i)the companies mentioned in subsection (2)(a) are companies incorporated under the law of a [F79relevant state], and

(ii)the transfer is wholly or partly in exchange for shares or other securities issued by the transferee to the transferor,

(b)only applies as respects the transfer so mentioned as a result of the transfer meeting condition B if—

(i)the transferor and at least one of the transferees mentioned in subsection (3)(a) is a company so incorporated, and

(ii)the transfer is in exchange for shares or debentures issued by the transferee to the persons holding shares in or debentures of the transferor, and

(c)only applies as respects the transfer so mentioned if—

(i)the transfer includes the whole of the assets of the transferor used for the purposes of the business or part, or the whole of those assets other than cash, and

(ii)the transferor makes a claim under this section in respect of the transfer so mentioned.

(7)No claim may be made under subsection (6) in respect of a transfer in relation to which a claim is made under section 827 of CTA 2009 (claims to postpone charge on transfer of assets to non-UK resident company).

[F80(7A)In this section “relevant state” means the United Kingdom or a member State.]

(8)For the purposes of this section, a company is resident in a [F81relevant state] if—

(a)it is within a charge to tax under the law of the [F82relevant state] as being resident for that purpose, and

(b)it is not regarded, for the purpose of any double taxation relief arrangements to which the [F82relevant state] is a party, as resident in a territory not within a [F81relevant state].

Textual Amendments

117Tax treated as chargeable in respect of transfer of loan relationship, derivative contract or intangible fixed assetsU.K.

(1)If tax would have been chargeable under the law of one or more F83... member States in respect of the transfer mentioned in section 116(2)(b)(i), (ii) or (iii) but for the Mergers Directive, this Part applies, and any double taxation arrangements apply, as if that tax had been chargeable.

(2)In calculating tax notionally chargeable under subsection (1), it is to be assumed—

(a)that, to the extent permitted by the law of the F84... member State, losses arising on the transfer mentioned in section 116(2)(b)(i), (ii) or (iii) are set against gains arising on that transfer, and

(b)that any relief due to the transferor under that law is claimed.

(3)Subsection (1) does not apply if—

(a)the transfer of business mentioned in section 116(2)(a) or (3)(a) is not effected for genuine commercial reasons, or

(b)that transfer of business forms part of a scheme or arrangements of which the main purpose, or one of the main purposes, is avoiding liability to corporation tax, capital gains tax or income tax.

(4)But subsection (3) does not prevent subsection (1) from applying if before the transfer—

(a)the appropriate applicant has applied to the Commissioners for Her Majesty's Revenue and Customs, and

(b)the Commissioners have notified the appropriate applicant that they are satisfied subsection (3) will not have that effect.

(5)In subsection (4) “the appropriate applicant” means—

(a)in a case where tax chargeable in respect of such a transfer as is mentioned in section 116(2)(b)(i) or (ii) is concerned, the companies mentioned in section 116(2)(a) or (3)(a), and

(b)in a case where tax chargeable in respect of such a transfer as is mentioned in section 116(2)(b)(iii) is concerned, the transferor.

(6)Sections 427 and 428 of CTA 2009 (procedure and decisions on applications for clearance) have effect in relation to subsection (4) as in relation to section 426(2) of that Act, taking the references in section 428 to section 426(2)(b) as references to subsection (4)(b) of this section.

European cross-border mergersU.K.

F85118Introduction to section 119U.K.

(1)Section 119 applies if each of conditions A to E is met and—

(a)in the case of a merger within subsection (2)(a) or (b), condition F is met,

(b)in the case of a merger within subsection (2)(c), conditions F and G are met, and

(c)in the case of a merger within subsection (2)(d), condition G is met.

(2)Condition A is that—

(a)an SE is formed by the merger of two or more companies in accordance with Articles 2(1) and 17(2)(a) or (b) of Council Regulation (EC) No. 2157/2001 on the Statute for a European company (Societas Europaea),

F86(b)an SCE is formed by the merger of two or more co-operative societies, at least one of which is a [F87registered society within the meaning of the Co-operative and Community Benefit Societies Act 2014 or a society registered or treated as registered under the Industrial and Provident Societies Act (Northern Ireland) 1969], in accordance with Articles 2(1) and 19 of Council Regulation (EC) No. 1435/2003 on the Statute for a European Co-operative Society (SCE),

(c)a merger is effected by the transfer by one or more companies of all their assets and liabilities to a single existing company, or

(d)a merger is effected by the transfer by two or more companies of all their assets and liabilities to a single new company (other than an SE or an SCE) in exchange for the issue by the transferee, to each person holding shares in or debentures of a transferor, of shares or debentures.

(3)Condition B is that each merging company is resident in a [F88relevant state].

(4)Condition C is that the merging companies are not all resident in the same [F89relevant state].

(5)Condition D is that in the course of the merger a company resident in the United Kingdom (“company A”) transfers to a company resident in [F90a] member State all assets and liabilities relating to a business which company A carried on in a member State F91... through a permanent establishment (but see subsection (9)).

(6)Condition E is that the transfer mentioned in subsection (5) includes—

(a)the transfer of an asset or liability representing a loan relationship,

(b)the transfer of rights and liabilities under a derivative contract, or

(c)the transfer of intangible fixed assets—

(i)that are chargeable intangible assets in relation to company A immediately before the transfer, and

(ii)in the case of one or more of which the proceeds of realisation exceed the cost recognised for tax purposes.

(7)Condition F is that—

(a)the transfer of assets and liabilities to the transferee in the course of the merger is made in exchange for the issue of shares or debentures by the transferee to each person holding shares in or debentures of a transferor, or

(b)paragraph (a) is not met in relation to the transfer of those assets and liabilities only because, and only so far as, the transferee is prevented from so issuing such shares or debentures by section 658 of the Companies Act 2006 (general rule against limited company acquiring own shares) or by a corresponding provision of the law of [F92a] member State preventing such an issue.

(8)Condition G is that in the course of the merger each transferor ceases to exist without being in liquidation (within the meaning given by section 247 of the Insolvency Act 1986).

(9)In the case of a merger within subsection (2)(a) or (b), in determining whether section 119 applies in respect of such a transfer as is mentioned in subsection (6)(c), condition D is regarded as met even if all liabilities relating to the business which company A carried on are not transferred as mentioned in subsection (5).

(10)For the purposes of this section, a company is resident in a [F93relevant state] if—

(a)it is within a charge to tax under the law of the [F94relevant state] as being resident for that purpose, and

(b)it is not regarded, for the purpose of any double taxation relief arrangements to which the [F94relevant state] is a party, as resident in a territory not within a [F93relevant state].

(11)In this section—

  • co-operative society” means a [F95registered society within the meaning of the Co-operative and Community Benefit Societies Act 2014, a society registered or treated as registered under the Industrial and Provident Societies Act (Northern Ireland) 1969] or a similar society governed by the law of a member State, F96...

  • [F97“relevant state” means the United Kingdom or a member State,]

  • SE” and “SCE” have the same meaning as in CTA 2009 (see section 1319 of that Act),

  • the transferee” means—

    (a)

    in relation to a merger within subsection (2)(a), the SE,

    (b)

    in relation to a merger within subsection (2)(b), the SCE, and

    (c)

    in relation to a merger within subsection (2)(c) or (d), the company to which assets and liabilities are transferred, and

  • transferor” means—

    (a)

    in relation to a merger within subsection (2)(a), a company merging to form the SE,

    (b)

    in relation to a merger within subsection (2)(b), a co-operative society merging to form the SCE, and

    (c)

    in relation to a merger within subsection (2)(c) or (d), a company transferring all of its assets and liabilities.

Textual Amendments

F85S. 118(11) amendment to earlier affecting provision 2014 c. 14 Sch. 4 para. 171(3) (1.8.2014) by Finance Act 2014 (c. 26), Sch. 39 paras. 14(b), 15

F86S. 118(2)(b) amendment to earlier affecting provision 2014 c. 14 Sch. 4 para. 171(2) (1.8.2014) by Finance Act 2014 (c. 26), Sch. 39 paras. 14(a), 15

F87Words in s. 118(2)(b) substituted (1.8.2014) by Co-operative and Community Benefit Societies Act 2014 (c. 14), s. 154, Sch. 4 para. 171(2) (with Sch. 5) (as amended by 2014 c. 26, Sch. 39 paras. 14(a), 15)

F95Words in s. 118(11) substituted (1.8.2014) by Co-operative and Community Benefit Societies Act 2014 (c. 14), s. 154, Sch. 4 para. 171(3) (with Sch. 5) (as amended by 2014 c. 26, Sch. 39 paras. 14(b), 15)

119Tax treated as chargeable in respect of transfer of loan relationship, derivative contract or intangible fixed assetsU.K.

(1)If tax would have been chargeable under the law of one or more F98... member States in respect of the transfer mentioned in section 118(6)(a), (b) or (c) but for the Mergers Directive, this Part applies, and any double taxation arrangements apply, as if that tax had been chargeable.

(2)In calculating tax notionally chargeable under subsection (1) in respect of the transfer mentioned in section 118(6)(a) or (b), it is to be assumed—

(a)that, to the extent permitted by the law of the F99... member State, losses arising on that transfer are set against gains arising on that transfer, and

(b)that any relief due to company A under that law is claimed.

(3)Subsection (1) does not apply if—

(a)the merger is not effected for genuine commercial reasons, or

(b)the merger forms part of a scheme or arrangements of which the main purpose, or one of the main purposes, is avoiding liability to corporation tax, capital gains tax or income tax.

(4)But subsection (3) does not prevent subsection (1) from applying if before the merger—

(a)any of the merging companies has applied to the Commissioners for Her Majesty's Revenue and Customs, and

(b)the Commissioners have notified the merging companies that they are satisfied subsection (3) will not have that effect.

(5)Sections 427 and 428 of CTA 2009 (procedure and decisions on applications for clearance) have effect in relation to subsection (4) as in relation to section 426(2) of that Act, taking the references in section 428 to section 426(2)(b) as references to subsection (4)(b) of this section.

(6)In this section “company A”, “the merger” and “the merging companies” have the same meaning as in section 118.

Transparent entities involved in cross-border transfers and mergersU.K.

120Introduction to section 121U.K.

(1)Section 121 applies if, as a result of—

(a)a relevant loan relationship transaction,

(b)a relevant derivative contracts transaction, or

(c)a relevant intangible fixed assets transaction,

tax would have been chargeable under the law of a member State F100... in respect of a relevant profit but for the Mergers Directive.

(2)In this section “relevant loan relationship transaction” means—

(a)a transfer of a kind which meets condition A or B in section 421 of CTA 2009 or would meet one of those conditions if—

(i)the business or part of the business transferred were carried on by the transferor in the United Kingdom, and

(ii)the condition in section 421(3)(c) or (4)(f) of that Act were met,

and in relation to which the transferor or transferee or one of the transferees is a transparent entity, or

(b)a merger of a kind mentioned in section 431(2) of that Act which meets—

(i)conditions B to D in section 431,

(ii)in the case of a merger within section 431(3)(a), (b) or (c), condition E in section 431, and

(iii)in the case of a merger within section 431(3)(c) or (d), condition F in section 431,

and in relation to which one or more of the merging companies is a transparent entity.

(3)In this section “relevant derivative contracts transaction” means—

(a)a transfer of a kind which meets condition A or B in section 674 of CTA 2009 or would meet one of those conditions if—

(i)the business or part of the business transferred were carried on by the transferor in the United Kingdom, and

(ii)the condition in section 674(2)(c) or (3)(f) of that Act were met,

and in relation to which the transferor is a transparent entity, or

(b)a merger of a kind mentioned in section 682(2) of that Act which meets—

(i)conditions B to D in section 682,

(ii)in the case of a merger within section 682(2)(a), (b) or (c), condition E in section 682, and

(iii)in the case of a merger within section 682(2)(c) or (d), condition F in section 682,

and in relation to which one or more of the merging companies is a transparent entity.

(4)In this section “relevant intangible fixed assets transaction” means—

(a)a transfer—

(i)which is of a kind which meets condition A or B in section 819 of CTA 2009, or would meet one of those conditions if the business or part of the business transferred were carried on by the transferor in the United Kingdom, and

(ii)in relation to which the transferor or transferee or one of the transferees is a transparent entity, or

(b)a merger—

(i)which is of a kind mentioned in section 821(2) of that Act,

(ii)which meets conditions B and C in section 821,

(iii)which, if it is a merger within section 821(2)(a), (b) or (c), meets condition D in section 821,

(iv)which, if it is a merger within section 821(2)(c) or (d), meets condition E in section 821,

(v)in the course of which no qualifying assets are transferred to which section 818 of that Act (company reconstruction involving transfer of business) applies, and

(vi)in relation to which one or more of the merging companies is a transparent entity.

(5)In this section “relevant profit” means—

(a)in the case of a transfer within subsection (2)(a), a profit accruing to a transparent entity in respect of a loan relationship (or which would be treated as accruing if it were not transparent) because of the transfer of assets or liabilities representing a loan relationship by the transparent entity to the transferee,

(b)in the case of a merger within subsection (2)(b), a profit accruing to a transparent entity in respect of a loan relationship (or which would be treated as accruing if it were not transparent) because of the transfer of assets or liabilities representing a loan relationship by the transparent entity to another company in the course of the merger,

(c)in the case of a transfer within subsection (3)(a), a profit accruing to a transparent entity in respect of a derivative contract (or which would be treated as accruing if it were not transparent) because of the transfer of rights and liabilities under the derivative contract by the transparent entity to the transferee,

(d)in the case of a merger within subsection (3)(b), a profit accruing to a transparent entity in respect of a derivative contract (or which would be treated as accruing if it were not transparent) because of the transfer of rights and liabilities under the derivative contract by the transparent entity to another company in the course of the merger,

(e)in the case of a transfer within subsection (4)(a), a profit which would be treated as accruing to a transparent entity in respect of an intangible fixed asset, because of the transfer of intangible fixed assets by the transparent entity, if it were not transparent, and

(f)in the case of a merger within subsection (4)(b), a profit which would be treated as accruing to a transparent entity in respect of an intangible fixed asset, because of the transfer of intangible fixed assets by the transparent entity in the course of the merger, if it were not transparent.

(6)In this section “transparent entity” means a company which is resident in a member State F101... and does not have an ordinary share capital.

121Tax treated as chargeable in respect of relevant transactionsU.K.

(1)This Part applies, and any double taxation arrangements apply, as if the tax that would have been chargeable as mentioned in section 120(1) had been chargeable.

(2)In calculating tax notionally chargeable under subsection (1), it is to be assumed—

(a)that, to the extent permitted by the law of the F102... member State mentioned in section 120(1), losses arising on the relevant transfer are set against profits arising on it, and

(b)that any relief available under that law is claimed.

(3)In this section “the relevant transfer” means—

(a)the transfer of assets or liabilities mentioned in section 120(5)(a) or (b),

(b)the transfer of rights and liabilities mentioned in section 120(5)(c) or (d), or

(c)the transfer of intangible fixed assets mentioned in section 120(5)(e) or (f).

Cross-border transfers and mergers: chargeable gainsU.K.

122Tax treated as chargeable in respect of gains on transfer of non-UK businessU.K.

(1)Subsection (3) applies if—

(a)section 140C or 140F of TCGA 1992 applies, and

(b)gains accruing to company A on the transfer would have been chargeable to tax under the law of the host State but for the Mergers Directive.

(2)In this section—

  • “company A”—

    (a)

    means the transferor within the meaning given by subsection (1) or (1A) of section 140C of TCGA 1992 if that subsection applies, and

    (b)

    has the meaning given by section 140F(2) of TCGA 1992 if it applies,

  • the host State” means the member State F103... mentioned, in whichever of the transfer subsections applies, as the location in which company A carries on a business or part of a business,

  • the transfer” means the transfer made by company A that is mentioned in whichever of the transfer subsections applies, and

  • the transfer subsections” means—

    (a)

    section 140C(1) of TCGA 1992 (transfer, of non-UK business or part, by UK resident “company” to one resident in another member State),

    (b)

    section 140C(1A) of TCGA 1992 (transfer, of part of non-UK business, by UK resident “company” to transferees including a “company” resident in another member State), and

    (c)

    section 140F(2) of TCGA 1992 (transfer of assets and liabilities of non-UK business, by UK resident “company” or co-operative society to one resident in another member State, as part of genuine merger of two or more “companies” or societies).

(3)This Part applies, and any double taxation arrangements apply, as if the tax mentioned in subsection (4) were tax payable under the law of the host State.

(4)That tax is the tax, calculated on the required basis, which but for the Mergers Directive would have been payable under the law of the host State in respect of the gains.

(5)For the purposes of subsection (4) “the required basis” is that—

(a)so far as permitted under the law of the host State, any losses arising on the transfer are set against any gains arising on the transfer, and

(b)any relief available to company A under the law of the host State has been duly claimed.

Interpretation of sections related to the Mergers DirectiveU.K.

123Interpretation of sections 116 to 122U.K.

In sections 116 to 122 and this section—

  • company” means any entity listed as a company in [F104Part A of Annex I] to the Mergers Directive,

  • derivative contract” has the same meaning as in Part 7 of CTA 2009,

  • “intangible fixed assets” and “chargeable intangible assets”, in relation to any person, have the same meaning as in Part 8 of CTA 2009,

  • loan relationship” has the same meaning as in Part 5 of CTA 2009,

  • the Mergers Directive” means Council Directive [F1052009/133/EC,]

  • proceeds of realisation”, in relation to intangible fixed assets, has the meaning given in section 739 of CTA 2009, and

  • recognised for tax purposes” has the same meaning as in Part 8 of CTA 2009.

Cases about being taxed otherwise than in accordance with double taxation arrangementsU.K.

124Giving effect to solutions to cases and mutual agreements resolving casesU.K.

(1)Subsections (2) and (4) apply if under, and for the purposes of, double taxation arrangements made in relation to a territory outside the United Kingdom—

(a)a person presents, to the Commissioners for Her Majesty's Revenue and Customs or to an authority in the territory, a case concerning the person's being taxed (whether in the United Kingdom or the territory) otherwise than in accordance with the arrangements, and

(b)the Commissioners arrive at a solution to the case or make a mutual agreement with an authority in the territory for the resolution of the case.

(2)The Commissioners are to give effect to the solution or mutual agreement despite anything in any enactment, and any such adjustment as is appropriate in consequence may be made.

(3)An adjustment under subsection (2) may be made by way of discharge or repayment of tax, the allowance of credit against tax payable in the United Kingdom, the making of an assessment or otherwise.

(4)A claim for relief under any provision of—

(a)the Tax Acts,

(b)the enactments relating to capital gains tax, or

(c)the enactments relating to petroleum revenue tax,

may be made in pursuance of the solution or mutual agreement at any time before the end of the period of 12 months following the notification of the solution or mutual agreement to the person affected, even if that involves making the claim after a deadline imposed by another enactment.

125Effect of, and deadline for, presenting a caseU.K.

(1)This section applies if double taxation arrangements include provision for a person to present a case—

(a)to the Commissioners for Her Majesty's Revenue and Customs, or

(b)to an officer of Revenue and Customs,

concerning the person's being taxed otherwise than in accordance with the arrangements.

(2)The presentation of any such case under and in accordance with the arrangements—

(a)does not constitute a claim for relief under the Tax Acts, the enactments relating to capital gains tax or the enactments relating to petroleum revenue tax, and

(b)is accordingly not subject to section 42 of TMA 1970 or any other enactment relating to the making of such claims.

(3)Any such case must be presented before the end of—

(a)the period of 6 years following the end of the chargeable period to which the case relates, or

(b)such longer period as may be specified in the arrangements.

The Arbitration ConventionU.K.

126Meaning of “the Arbitration Convention”U.K.

In sections 127 and 128 “the Arbitration Convention” means the Convention, on the elimination of double taxation in connection with the adjustment of profits of associated enterprises, concluded on 23 July 1990 by the parties to the treaty establishing the European Economic Community (90/436/EEC).

127Giving effect to agreements, decisions and opinions under the ConventionU.K.

(1)In this section “Convention determination” means—

(a)an agreement or decision, made under the Arbitration Convention by the Commissioners for Her Majesty's Revenue and Customs (or their authorised representative) and any other competent authority, on the elimination of double taxation, or

(b)an opinion, delivered by an advisory commission set up under the Arbitration Convention, on the elimination of double taxation.

(2)Subsection (3) applies if the Arbitration Convention requires the Commissioners to give effect to a Convention determination.

(3)The Commissioners are to give effect to the Convention determination despite anything in any enactment, and any such adjustment as is appropriate in consequence may be made.

(4)An adjustment under subsection (3) may be made by way of discharge or repayment of tax, the allowance of credit against tax payable in the United Kingdom, the making of an assessment or otherwise.

(5)An enactment which imposes deadlines for the making of claims for relief under any provision of the Tax Acts does not apply to a claim made in pursuance of a Convention determination.

128Disclosure under the ConventionU.K.

(1)The obligation as to secrecy imposed by any enactment does not prevent—

(a)the Commissioners for Her Majesty's Revenue and Customs, or

(b)any authorised Revenue and Customs official,

from disclosing information required to be disclosed under the Arbitration Convention in pursuance of a request made by an advisory commission set up under the Convention.

(2)In this section “Revenue and Customs official” means any person who is or was—

(a)a Commissioner for Her Majesty's Revenue and Customs,

(b)an officer of Revenue and Customs,

(c)a person acting on behalf of the Commissioners for Her Majesty's Revenue and Customs,

(d)a person acting on behalf of an officer of Revenue and Customs, or

(e)a member of a committee established by the Commissioners for Her Majesty's Revenue and Customs.

[F106International dispute-resolution instruments and agreementsU.K.

Textual Amendments

F106Ss. 128A-128C and cross-heading inserted (12.2.2019) by Finance Act 2019 (c. 1), s. 83

128APower by regulations to give effect to international obligations etcU.K.

(1)The Treasury may make regulations for, or in connection with, giving effect to or enabling effect to be given to—

(a)Council Directive (EU) 2017/1852 of 10 October 2017 on tax dispute resolution mechanisms in the European Union (“the Directive”);

(b)any instrument modifying or supplementing the Directive;

(c)any international agreements or arrangements that deal with—

(i)matters dealt with by the Directive,

(ii)matters that are similar to any of those dealt with by the Directive, or

(iii)any other matters that relate to or are connected with the resolution of disputes in relation to double taxation arrangements.

(2)The provision that may be made by regulations under this section includes (in particular)—

(a)provision as to the effect of any arrangements that the Commissioners for Her Majesty’s Revenue and Customs may make with authorities of territories outside the United Kingdom;

(b)provision conferring or imposing functions, rights or obligations, or authorising the conferral or imposition of functions, rights or obligations, on a person (including a commission, tribunal or court);

(c)provision under which the Commissioners or other persons may exercise discretions;

(d)provision about procedure in relation to the resolution of disputes;

(e)provision about costs, expenses and fees;

(f)provision imposing penalties or creating criminal offences;

(g)provision about appeals;

(h)provision about the form and manner in which, or time within which, things are to be done;

(i)provision supplementing section 128B.

(3)The regulations may—

(a)make provision having effect in relation to periods before the regulations come into force;

(b)make provision by reference to an instrument or document as it has effect from time to time;

(c)make provision about things done, or to be done, in territories outside the United Kingdom;

(d)make different provision for different purposes;

(e)make consequential, incidental, supplemental, transitional, transitory or saving provision;

(f)make provision amending, repealing, revoking or disapplying, or modifying the effect of, any enactment (whenever passed or made).

(4)The regulations may not create a criminal offence punishable on indictment with imprisonment for more than two years.

(5)Regulations under this section containing anything that amends or repeals a provision of primary legislation may not be made unless a draft of the regulations has been laid before, and approved by a resolution of, the House of Commons.

In this subsection “primary legislation” means—

(a)an Act,

(b)an Act of the Scottish Parliament,

(c)a Measure or Act of the National Assembly for Wales, or

(d)Northern Ireland legislation.

(6)In subsections (2) and (3) and sections 128B and 128C, a reference to a commission, tribunal, court or other person includes a reference to a commission, tribunal, court or other person in a territory outside the United Kingdom.

128BGiving effect to requirements under section 128A regulationsU.K.

(1)Subsection (2) applies if anything in regulations under section 128A requires the Commissioners for Her Majesty’s Revenue and Customs to give effect to an agreement, decision or opinion made or given by—

(a)the Commissioners (or their authorised representative),

(b)the competent authority of a territory outside the United Kingdom, or

(c)any commission, tribunal, court or other person.

(2)The Commissioners are to give effect to the agreement, decision or opinion despite anything in any enactment, and any such adjustment as is appropriate in consequence may be made.

(3)An adjustment under subsection (2) may be made by way of discharge or repayment of tax, the allowance of credit against tax payable in the United Kingdom, the making of an assessment or otherwise.

128CDisclosure under international obligations etcU.K.

(1)The obligation as to secrecy imposed by any enactment does not prevent—

(a)the Commissioners for Her Majesty’s Revenue and Customs,

(b)a person who is or was an authorised Revenue and Customs official,

(c)a person who is or was a member of a committee or other body established by the Commissioners for Her Majesty’s Revenue and Customs (or jointly by the Commissioners and an authority of a territory outside the United Kingdom), or

(d)a person specified, or of a description specified, in regulations made by the Treasury,

from disclosing information required to be disclosed under a relevant instrument or agreement in pursuance of a request made by any person.

(2)In this section—

  • “relevant instrument or agreement” means an instrument, agreement or arrangement referred to, or of a kind referred to, in section 128A(1);

  • “Revenue and Customs official” means—

    (a)

    a Commissioner for Her Majesty’s Revenue and Customs;

    (b)

    an officer of Revenue and Customs;

    (c)

    a person acting on behalf of the Commissioners for Her Majesty’s Revenue and Customs;

    (d)

    a person acting on behalf of an officer of Revenue and Customs.]

Disclosure of informationU.K.

129Disclosure where relief given overseas for tax paid in the United KingdomU.K.

(1)Subsection (2) applies if the law of a territory outside the United Kingdom makes provision allowing, in respect of the payment of—

(a)income tax,

(b)corporation tax,

(c)capital gains tax, or

(d)petroleum revenue tax,

relief from tax payable under that law.

(2)The obligation as to secrecy imposed upon Revenue and Customs officials by—

(a)the Tax Acts,

(b)the enactments relating to capital gains tax, and

(c)the enactments relating to petroleum revenue tax,

does not prevent disclosure, to the authorised officer of the authorities of the territory, of such facts as may be necessary to enable the proper relief to be given under the law of the territory.

(3)The reference in subsection (1) to tax payable under the law of the territory includes only—

(a)taxes which are charged on income and which correspond to income tax,

(b)taxes which are charged on income or chargeable gains and which correspond to corporation tax,

(c)taxes which are charged on capital gains and which correspond to capital gains tax, and

(d)taxes which—

(i)are charged on amounts corresponding to amounts on which petroleum revenue tax is charged, and

(ii)correspond to petroleum revenue tax.

(4)For the purposes of subsection (3), tax may correspond to income tax, corporation tax, capital gains tax or petroleum revenue tax even though it—

(a)is payable under the law of a province, state or other part of a country, or

(b)is levied by or on behalf of a municipality or other local body.

(5)In this section “Revenue and Customs official” means any person who is or was—

(a)a Commissioner for Her Majesty's Revenue and Customs,

(b)an officer of Revenue and Customs,

(c)a person acting on behalf of the Commissioners for Her Majesty's Revenue and Customs,

(d)a person acting on behalf of an officer of Revenue and Customs, or

(e)a member of a committee established by the Commissioners for Her Majesty's Revenue and Customs.

Interpretation of double taxation arrangementsU.K.

130Interpreting provision about UK taxation of profits of foreign enterprisesU.K.

(1)Subsection (4) applies if double taxation arrangements make the provision, however expressed, mentioned in subsection (2).

(2)The provision is that the profits of an enterprise within subsection (3) are not to be subject to United Kingdom tax except so far as they are attributable to a permanent establishment of the enterprise in the United Kingdom.

(3)An enterprise is within this subsection if the enterprise—

(a)is resident outside the United Kingdom, or

(b)carries on a trade, or profession or business, the control or management of which is situated outside the United Kingdom.

(4)The provision does not prevent income of a person resident in the United Kingdom being chargeable to income tax or corporation tax.

(5)Subsection (4)—

(a)does not apply in relation to income of a person resident in the United Kingdom if section 858 of ITTOIA 2005 (UK resident partner is taxable on share of firm's income despite any double taxation arrangements) applies to the income, and

(b)does not apply in relation to income of a company resident in the United Kingdom if section 1266(2) of CTA 2009 (UK resident company that is partner in a firm is taxable on share of firm's income despite any double taxation arrangements) applies to the income.

(6)A person is resident in the United Kingdom for the purposes of this section if the person is resident in the United Kingdom for the purposes of the double taxation arrangements.

[F107130AInterpreting provision about UK taxation of pensions etcU.K.

(1)Subsection (3) applies if double taxation arrangements make the provision, however expressed, mentioned in subsection (2).

(2)The provision is that pensions and other similar remuneration which—

(a)arise outside the United Kingdom, and

(b)are paid to persons who are resident in the United Kingdom,

are not to be subject to United Kingdom tax.

(3)That provision does not prevent a pension or other similar remuneration of a person resident in the United Kingdom being chargeable to income tax if—

(a)the pension or other similar remuneration is paid out of sums or assets that were the subject of a relevant transfer or related sums or assets, and

(b)the relevant transfer or any transaction forming part of that transfer was, or formed part of, a tax avoidance scheme.

(4)But nothing in subsection (3) prevents credit being allowed under Chapter 2 of this Part (double taxation relief by way of credit) against any tax so charged.

(5)In determining whether a pension or other similar remuneration is paid out of sums or assets within subsection (3)(a), it is to be assumed that it is paid out of such sums or assets in priority to any other sums or assets.

(6)A “relevant transfer”, in respect of any sums or assets, is a transaction or series of transactions as a result of which—

(a)the sums or assets are transferred out of a pension scheme, and

(b)the sums or assets or related sums or assets (or both) are transferred into the pension scheme under which the pension or other similar remuneration is paid.

(7)A scheme is a “tax avoidance scheme” if the main purpose, or one of the main purposes, of any party to the scheme in entering into the scheme is to secure an income tax advantage for any person under this Part by virtue of provision mentioned in subsection (2) made by double taxation arrangements.

(8)For the purposes of subsection (7)—

(a)scheme” includes any scheme, arrangements or understanding of any kind whatever, whether or not legally enforceable, involving a single transaction or two or more transactions,

(b)it does not matter whether or not the double taxation arrangements were in existence at the time the tax avoidance scheme was entered into or given effect to, and

(c)income tax advantage” is to be construed in accordance with section 572A(3) to (5) of ITA 2007.

(9)In this section—

  • pension” and “other similar remuneration” have the same meaning as in the Model Tax Convention on Income and on Capital published (from time to time) by the Organisation for Economic Co-operation and Development;

  • pension scheme” has the same meaning as in Part 4 of FA 2004 (see section 150 of that Act);

  • related sums or assets”, in relation to other sums or assets (“the original sums or assets”), means sums or assets which arise, or (directly or indirectly) derive, from the original sums or assets or from sums or assets which so arise or derive.]

Textual Amendments

F107S. 130A inserted (with effect in accordance with s. 72(2) of the amending Act) by Finance Act 2011 (c. 11), s. 72(1)

131Interpreting provision about interest influenced by special relationshipU.K.

(1)Subsections (3) and (6) apply if double taxation arrangements—

(a)make provision, whether for relief or otherwise, in relation to interest (as defined in the arrangements), and

(b)contain a special relationship rule.

(2)A “special relationship rule” is provision that—

(a)applies if the amount of the interest paid is, because of a special relationship, greater than the amount (“the ordinary amount”) that would have been paid in the absence of the relationship, and

(b)has the effect that the provision mentioned in subsection (1)(a) is to apply only to the ordinary amount.

(3)The special relationship rule is to be read as requiring account to be taken of all factors, including—

(a)the question whether the loan would have been made at all in the absence of the special relationship,

(b)the amount which the loan would have been in the absence of the special relationship, and

(c)the rate of interest, and the other terms, which would have been agreed in the absence of the special relationship.

(4)Subsection (3) does not apply if the special relationship rule expressly requires regard to be had to the debt on which interest is paid in determining the excess interest (and accordingly expressly limits the factors to be taken into account).

(5)If—

(a)a company (“L”) makes a loan to another company with which it has a special relationship, and

(b)it is not part of L's business to make loans generally,

the fact that it is not part of L's business to make loans generally is to be disregarded in applying subsection (3).

(6)The special relationship rule is to be read as requiring the taxpayer—

(a)to show that there is no special relationship, or

(b)if there is a special relationship, to show the amount of interest that would have been paid in the absence of the relationship.

132Interpreting provision about royalties influenced by special relationshipU.K.

(1)Subsection (3) and section 133 apply if double taxation arrangements—

(a)make provision, whether for relief or otherwise, in relation to royalties (as defined in the arrangements), and

(b)contain a special relationship rule.

(2)A “special relationship rule” is provision that—

(a)applies if the amount of the royalties paid is, because of a special relationship, greater than the amount (“the ordinary amount”) that would have been paid in the absence of the relationship, and

(b)has the effect that the provision mentioned in subsection (1)(a) is to apply only to the ordinary amount.

(3)The special relationship rule is to be read as requiring account to be taken of all factors, including—

(a)the question whether the agreement under which the royalties are paid would have been made at all in the absence of the special relationship,

(b)the rate or amounts of royalties, and the other terms, which would have been agreed in the absence of the special relationship, and

(c)if subsection (4) applies, the factors specified in subsection (5).

(4)This subsection applies if the asset in respect of which the royalties are paid, or any asset which that asset represents or from which it is derived, has previously been in the beneficial ownership of—

(a)the person (“PR”) who is liable to pay the royalties,

(b)a person who is, or has at any time been, an associate of PR,

(c)a person who has at any time carried on a business which, at the time when the liability to pay the royalties arises, is being carried on in whole or in part by PR, or

(d)a person who is, or has at any time been, an associate of a person within paragraph (c).

(5)The factors mentioned in subsection (3)(c) are—

(a)the amounts which were paid under the transaction, or under each of the transactions in a series of transactions, as a result of which the asset has come to be an asset of the beneficial owner for the time being,

(b)the amounts which would have been paid under that transaction, or under each of those transactions, in the absence of a special relationship, and

(c)the question whether the transaction, or series of transactions, would have taken place in the absence of a special relationship.

(6)Subsection (3) does not apply if the special relationship rule expressly requires regard to be had to the use, right or information for which royalties are paid in determining the excess royalties (and accordingly expressly limits the factors to be taken into account).

(7)For the purposes of this section, a person (“A”) is an associate of another person (“B”) at a given time if—

(a)A was directly or indirectly participating in the management, control or capital of B at that time, or

(b)the same person was, or the same persons were, directly or indirectly participating in the management, control or capital of A and B at that time.

(8)For the interpretation of subsection (7), see sections 157(1), 158(4), 159(1) and 160(1) (which have the effect that references in subsection (7) to direct or indirect participation are to be read in accordance with provisions of Chapter 2 of Part 4).

133Special relationship rule for royalties: matters to be shown by taxpayerU.K.

(1)If this section applies (as to which, see section 132(1)), the special relationship rule is to be read as requiring the taxpayer to show—

(a)the absence of any special relationship, or

(b)as the case may be, the rate or amounts of royalties that would have been payable in the absence of the special relationship.

(2)The requirement under subsection (1)(a) includes whichever is applicable of the following requirements.

(3)The first of those requirements is—

(a)to show that no person of any of the descriptions in section 132(4)(a) to (d) has previously been the beneficial owner of the asset in respect of which the royalties are paid, and

(b)to show that no person of any of those descriptions has previously been the beneficial owner of any asset which that asset represents or from which it is derived.

(4)The second of those requirements is—

(a)to show that the transaction, or series of transactions, mentioned in section 132(5)(a) would have taken place in the absence of a special relationship, and

(b)to show the amounts which would have been paid under the transaction, or under each of the transactions in the series of transactions, in the absence of a special relationship.

AssessmentsU.K.

134Correcting assessments where relief is availableU.K.

(1)Subsections (5) and (6) apply if—

(a)under double taxation arrangements, relief may be given in the United Kingdom, or in the territory in relation to which the arrangements are made, in respect of any income or any chargeable gain, and

(b)condition A or B is met.

(2)Subsections (5) and (6) also apply if—

(a)under unilateral relief arrangements for a territory outside the United Kingdom, relief may be given in respect of any income or any chargeable gain, and

(b)condition A or B is met.

(3)Condition A is that it appears that the assessment—

(a)to income tax or corporation tax made in respect of the income, or

(b)to corporation tax or capital gains tax made in respect of the gain,

is not made in respect of the full amount of the income or gain.

(4)Condition B is that it appears that the assessment—

(a)to income tax or corporation tax made in respect of the income, or

(b)to corporation tax or capital gains tax made in respect of the gain,

is incorrect having regard to the credit, if any, to be given under the arrangements.

(5)Assessments may be made that are necessary to ensure—

(a)that the full amount of the income or gain is assessed, and

(b)that the proper credit, if any, is given.

(6)If the income is entrusted to any person in the United Kingdom for payment, an assessment under subsection (5) may be made on the recipient of the income.

(7)An officer of Revenue and Customs may make amendments—

(a)of assessments or determinations, or

(b)of decisions on claims,

that are necessary in consequence of Chapter 1 so far as it applies for petroleum revenue tax purposes.

Part 3U.K.Double taxation relief for special withholding tax

IntroductoryU.K.

135Relief under this Part: introductoryU.K.

(1)This Part (except sections 144 and 145) applies for the purpose of giving relief from double taxation in respect of special withholding tax.

(2)Relief under this Part—

(a)is given by set-off against income tax or capital gains tax, and

(b)so far as it cannot be given by set-off against income tax or capital gains tax, is given by repayment.

136Interpretation of PartU.K.

(1)Subsections (2) to (7) have effect for the purposes of this Part.

(2)Double taxation arrangements” means arrangements that have effect under section 2(1) (double taxation relief by agreement with territories outside the United Kingdom).

(3)International arrangements”, in relation to a territory, means arrangements made in relation to that territory with a view to ensuring the effective taxation of savings income—

(a)under the law of the United Kingdom, or

(b)under that law and the law of the territory.

(4)The Savings Directive” means Council Directive 2003/48/EC of 3 June 2003 on taxation of savings income in the form of interest payments.

(5)“Savings income”—

(a)in the case of special withholding tax levied under the law of a member State, has the same meaning as the expression “interest payment” has for the purposes of the Savings Directive (see Articles 6 and 15 of the Directive), and

(b)in the case of special withholding tax levied under the law of a territory other than a member State, has the same meaning as the corresponding expression has for the purposes of the international arrangements concerned.

(6)Special withholding tax” means a withholding tax (however described) levied under the law of a territory outside the United Kingdom implementing—

(a)in the case of a member State, Article 11 of the Savings Directive (withholding tax to be levied in Belgium, Luxembourg and Austria for the period described in the Directive), or

(b)in the case of a territory other than a member State, any corresponding provision of international arrangements (whatever the period for which the provision is to have effect).

(7)In the application of this Part in relation to capital gains tax, expressions used in this Part and in TCGA 1992 have the same meaning in this Part as in TCGA 1992.

Credit etc for special withholding taxU.K.

137Income tax credit etc for special withholding taxU.K.

(1)Subsection (5) applies if each of conditions A to C is met.

(2)Condition A is that a person—

(a)is liable to income tax for a tax year in respect of a payment of savings income, or

(b)would be liable to income tax for a tax year in respect of a payment of savings income but for any exemption or relief.

(3)Condition B is that special withholding tax is levied in respect of the payment.

(4)Condition C is that the person is UK resident for the tax year.

(5)On the making of a claim, income tax (“the deemed tax”) is to be treated as having been—

(a)paid by or on behalf of the person for the tax year, and

(b)deducted at source for the tax year for the purposes of the provisions listed in subsection (7).

(6)The amount of the deemed tax is given by section 138.

(7)The provisions mentioned in subsection (5)(b) are—

  • section 7 of TMA 1970 (notice of liability to income tax and capital gains tax),

  • section 8 of TMA 1970 (personal return),

  • section 8A of TMA 1970 (trustee's return),

  • section 9 of TMA 1970 (returns to include self-assessment),

  • section 59A of TMA 1970 (payments on account of income tax),

  • section 59B of TMA 1970 (payments of income tax and capital gains tax), and

  • section 824(3) of ICTA (repayment supplements: determination of relevant time).

138Amount and application of the deemed tax under section 137U.K.

(1)For the purposes of section 137, the amount of the deemed tax is—

(a)the amount of the special withholding tax levied (see section 137(3)), less

(b)any amounts of that tax that are within subsection (2).

(2)An amount of special withholding tax levied is within this subsection if—

(a)the person has obtained relief from double taxation in respect of that special withholding tax under the law of a territory outside the United Kingdom, and

(b)the person was resident in that territory, or was under any double taxation arrangements treated as being resident in that territory, in the tax year mentioned in section 137(2).

(3)Subsection (4) applies if the amount of the deemed tax exceeds the amount (which may be nil) of income tax for which the person is liable for that tax year (before any set-off for the deemed tax).

(4)So far as it would not otherwise be the case—

(a)the excess is to be set against any capital gains tax for which the person is liable for that tax year, and

(b)the person is entitled to a repayment of income tax in respect of any remaining balance of the excess.

139Capital gains tax credit etc for special withholding taxU.K.

(1)Subsection (6) applies if each of conditions A to D is met.

(2)Condition A is that a person makes a disposal of assets in a tax year.

(3)Condition B is that if a chargeable gain were to accrue on the disposal—

(a)the gain would accrue to the person, and

(b)the person would be chargeable to capital gains tax in respect of the gain.

(4)Condition C is that—

(a)the consideration for the disposal consists of, or includes, an amount of savings income, and

(b)special withholding tax is levied in respect of the whole, or any part, of the consideration.

(5)Condition D is that the person is resident in the United Kingdom for the tax year.

(6)On the making of a claim, capital gains tax (“the deemed tax”) is to be—

(a)treated as having been paid by or on behalf of the person for the tax year, and

(b)treated for the purposes of section 283(2) of TCGA 1992 (repayment supplements: determination of relevant time) as having been paid on the 31 January following the tax year.

(7)The amount of the deemed tax is given by section 140.

(8)For the purposes of subsection (3)(b), disregard—

(a)any deductions that are to be made from the total amount referred to in section 2(2) of TCGA 1992 (deductions for allowable losses), and

(b)section 3 of TCGA 1992 (annual exempt amount).

140Provisions about the deemed tax under section 139U.K.

(1)For the purposes of section 139, the amount of the deemed tax is—

(a)the amount of the special withholding tax levied (see section 139(4)(b)), less

(b)any amounts of that tax that are within subsection (2) or (3).

(2)An amount of special withholding tax levied is within this subsection if—

(a)the person has obtained relief from double taxation in respect of that special withholding tax under the law of a territory outside the United Kingdom, and

(b)the person was resident in that territory, or was under any double taxation arrangements treated as being resident in that territory, in the tax year mentioned in section 139(2).

(3)An amount of special withholding tax levied is within this subsection if by reference to that amount of that tax—

(a)there is that amount of deemed tax under section 137(5), or

(b)there would be that amount of deemed tax under section 137(5) on the making of a claim.

(4)Subsection (5) applies if the amount of the deemed tax exceeds the amount (which may be nil) of capital gains tax for which the person is liable for that tax year (before any set-off for the deemed tax).

(5)So far as it would not otherwise be the case—

(a)the excess is to be set against any income tax for which the person is liable for that tax year, and

(b)the person is entitled to a repayment of capital gains tax in respect of any remaining balance of the excess.

(6)For the purposes of the provisions listed in subsection (7) in relation to the person for that tax year, references in those provisions to income tax deducted at source for that tax year include the deemed tax.

(7)Those provisions are—

  • section 7 of TMA 1970 (notice of liability to income tax and capital gains tax),

  • section 8 of TMA 1970 (personal return),

  • section 8A of TMA 1970 (trustee's return),

  • section 9 of TMA 1970 (returns to include self-assessment), and

  • section 59B of TMA 1970 (payments of income tax and capital gains tax).

141Credit under Chapter 2 of Part 2 to be allowed firstU.K.

(1)Any credit for foreign tax allowed under Chapter 2 of Part 2 against income tax or capital gains tax is to be allowed before effect is given to sections 137 to 140.

(2)In this section “foreign tax” has the same meaning as in that Chapter (see section 21).

Calculation of income or gain on remittance basis where special withholding tax leviedU.K.

142Conditions for purposes of section 143U.K.

(1)This section applies for the purposes of section 143.

(2)Condition A is that—

(a)a person is liable to income tax in respect of a payment of savings income, or

(b)a chargeable gain accrues to a person on a disposal by the person of assets in circumstances where the consideration for the disposal consists of, or includes, an amount of savings income.

(3)Condition B is that special withholding tax is levied in respect of—

(a)the payment of savings income, or

(b)the whole or any part of the consideration for the disposal.

(4)Condition C is that a claim under this Part has been made in respect of the special withholding tax.

(5)Condition D is that no credit for foreign tax in respect of the savings income or chargeable gain concerned is allowed under Chapter 2 of Part 2 (so that sections 31(2) and 32(2), which make provision similar to section 143, do not apply).

143Taking account of special withholding tax in calculating income or gainsU.K.

(1)Subsection (2) applies if—

(a)each of conditions A to D of section 142 is met, and

(b)income tax is payable by reference to the amount of the savings income received in the United Kingdom.

(2)For income tax purposes, the amount received is increased by the amount of special withholding tax—

(a)levied in respect of it, and

(b)in respect of which a claim under this Part has been made.

(3)Subsection (4) applies if—

(a)each of conditions A to D of section 142 is met, and

(b)capital gains tax is payable by reference to the amount of the chargeable gain received in the United Kingdom.

(4)For capital gains tax purposes, the amount received is increased by the amount given by—

where—

SWT is the amount of special withholding tax—

(a)

levied in respect of the whole or the part of the consideration for the disposal, and

(b)

in respect of which a claim has been made under this Part,

GUK is the amount of the chargeable gain received in the United Kingdom, and

G is the amount of the chargeable gain accruing to the person on the disposal.

(5)Subsection (6) applies if—

(a)each of conditions A to D of section 142 is met, and

(b)neither subsection (2) nor subsection (4) applies.

(6)In calculating—

(a)the amount of the income for income tax purposes, or

(b)the amount of any chargeable gain for capital gains tax purposes,

no deduction is to be made for special withholding tax in respect of which a claim has been made under this Part (whether special withholding tax in respect of the same, or any other, income or in respect of the same, or any other, chargeable gains).

Modifications etc. (not altering text)

C6S. 143 applied (with modifications) (coming into force in accordance with s. 218(2) of the amending Act) by Finance Act 2012 (c. 14), Sch. 36 para. 16(6)

Certificates to avoid levy of special withholding taxU.K.

144Issue of certificateU.K.

(1)This section enables officers of Revenue and Customs to issue certificates to be used under the law of a territory outside the United Kingdom implementing—

(a)in the case of a member State, Article 13(1)(b) of the Savings Directive (procedure to avoid levy of special withholding tax where beneficial owner presents to the paying agent a certificate drawn up by a competent authority in the beneficial owner's member State of residence for tax purposes), or

(b)in the case of a territory other than a member State, any corresponding provision of international arrangements (whatever the period for which the provision is to have effect).

(2)If, on the written application of a person, an officer is satisfied that the applicant has provided an officer with—

(a)the required information, and

(b)the documents (if any) required by an officer to verify that information,

an officer must issue a certificate to the applicant.

(3)In subsection (2) “the required information” means—

(a)the applicant's name and address,

(b)the applicant's National Insurance number or, if the applicant does not have one, the applicant's date, town and country of birth,

(c)the number of the account which is to, or may, give rise to payments of savings income to or for the applicant or, if there is no such number, a statement identifying the debt, instrument or arrangement which is to, or may, give rise to payments of savings income,

(d)the name and address of the paying agent who is to make the payments of savings income to, or to secure the payments of savings income for, the applicant, and

(e)the period, not exceeding 3 years, for which the applicant would like the certificate to be valid.

(4)A certificate under this section must be in writing and must state—

(a)the information mentioned in subsection (3)(a) to (d), and

(b)the period of validity of the certificate (which must not exceed 3 years).

(5)A certificate under this section must be issued no later than the end of the period of 2 months beginning with the date on which the applicant provides the information and documents required by or under subsection (2).

(6)If the requirements of—

(a)Article 13(2) of the Savings Directive (requirements in relation to issue of certificates for purposes of Article 13(1)(b) procedure), and

(b)any corresponding provision of any international arrangements,

differ to any extent, subsections (3) to (5) have effect, in their application in relation to the international arrangements, with such modifications as may be required because of those arrangements.

145Refusal to issue certificate and appeal against refusalU.K.

(1)This section applies if, on an application for a certificate under section 144, an officer of Revenue and Customs (“the decision officer”) is not satisfied that the applicant has provided an officer with the information and documents required by or under section 144(2).

(2)An officer must give written notice (“the refusal notice”) to the applicant of the decision officer's refusal to issue a certificate.

(3)The refusal notice must specify the reasons for the refusal.

(4)The applicant may by written notice (“the appeal notice”) appeal against the refusal.

(5)The appeal notice must be given to an officer within 30 days of the date of the refusal notice.

(6)Part 5 of TMA 1970 (appeals and other proceedings) is to apply in relation to an appeal under this section.

(7)On an appeal that is notified to the tribunal, the tribunal may—

(a)confirm the refusal notice, or

(b)quash it and require an officer to issue a certificate.

(8)In this section “the tribunal” means the First-tier Tribunal or, where determined by or under Tribunal Procedure Rules, the Upper Tribunal.

Part 4U.K.Transfer pricing

Modifications etc. (not altering text)

C7Pt. 4 excluded by 2010 c. 4, s. 938N (as inserted (19.7.2011) by Finance Act 2011 (c. 11), Sch. 5 para. 2)

C10Pt. 4 excluded (with effect in accordance with s. 148 of the amending Act) by Finance Act 2012 (c. 14), s. 129(11) (with s. 147, Sch. 17)

CHAPTER 1U.K.Basic transfer-pricing rule

146Application of this PartU.K.

This Part applies for—

(a)corporation tax purposes, and

(b)income tax purposes.

147Tax calculations to be based on arm's length, not actual, provisionU.K.

(1)For the purposes of this section “the basic pre-condition” is that—

(a)provision (“the actual provision”) has been made or imposed as between any two persons (“the affected persons”) by means of a transaction or series of transactions,

(b)the participation condition is met (see section 148),

(c)the actual provision is not within subsection (7) (oil transactions), and

(d)the actual provision differs from the provision (“the arm's length provision”) which would have been made as between independent enterprises.

(2)Subsection (3) applies if—

(a)the basic pre-condition is met, and

(b)the actual provision confers a potential advantage in relation to United Kingdom taxation on one of the affected persons.

(3)The profits and losses of the potentially advantaged person are to be calculated for tax purposes as if the arm's length provision had been made or imposed instead of the actual provision.

(4)Subsection (5) applies if—

(a)the basic pre-condition is met, and

(b)the actual provision confers a potential advantage in relation to United Kingdom taxation (whether or not the same advantage) on each of the affected persons.

(5)The profits and losses of each of the affected persons are to be calculated for tax purposes as if the arm's length provision had been made or imposed instead of the actual provision.

(6)Subsections (3) and (5) have effect subject to—

(a)section 165 (exemption for dormant companies),

(b)section 166 (exemption for small and medium-sized enterprises),

[F108(ba)section 206A (modification of basic rule where allowances restricted for certain oil-related expenditure),]

(c)section 213 (this Part generally does not affect calculation of capital allowances),

(d)section 214 (this Part generally does not affect calculation of chargeable gains),

(e)section 447(5) and (6) of CTA 2009 (this Part generally does not affect how exchange gains or losses from loan relationships are accounted for), F109...

(f)section 694(8) and (9) of CTA 2009 (this Part generally does not affect how exchange gains or losses from derivative contracts are accounted for) [F110, and

(g)section 938N of CTA 2010 (this Part treated as of no effect for the purposes of Part 21B of CTA 2010 (group mismatch schemes)).]

(7)The actual provision is within this subsection if it is made or imposed by means of any transaction or deemed transaction in the case of which the price or consideration is determined in accordance with any of sections 225F to 225J of ITTOIA 2005 or any of sections 281 to 285 of CTA 2010 (transactions and deemed transactions involving oil treated as made at market value).

Textual Amendments

F108S. 147(6)(ba) inserted (with effect in accordance with Sch. 32 para. 16 of the amending Act) by Finance Act 2013 (c. 29), Sch. 32 para. 13

F109Word in s. 147(6)(e) omitted (with effect in accordance with Sch. 5 para. 6 of the amending Act) by virtue of Finance Act 2011 (c. 11), Sch. 5 para. 5(1)

F110S. 147(6)(g) and word inserted (with effect in accordance with Sch. 5 para. 6 of the amending Act) by Finance Act 2011 (c. 11), Sch. 5 para. 5(1)

148The “participation condition”U.K.

(1)For the purposes of section 147(1)(b), the participation condition is met if—

(a)condition A is met in relation to the actual provision so far as the actual provision is provision relating to financing arrangements, and

(b)condition B is met in relation to the actual provision so far as the actual provision is not provision relating to financing arrangements.

(2)Condition A is that, at the time of the making or imposition of the actual provision or within the period of six months beginning with the day on which the actual provision was made or imposed—

(a)one of the affected persons was directly or indirectly participating in the management, control or capital of the other, or

(b)the same person or persons was or were directly or indirectly participating in the management, control or capital of each of the affected persons.

(3)Condition B is that, at the time of the making or imposition of the actual provision—

(a)one of the affected persons was directly or indirectly participating in the management, control or capital of the other, or

(b)the same person or persons was or were directly or indirectly participating in the management, control or capital of each of the affected persons.

(4)In this section “financing arrangements” means arrangements made for providing or guaranteeing, or otherwise in connection with, any debt, capital or other form of finance.

(5)For the interpretation of subsections (2) and (3) see sections 157 to 163.

Modifications etc. (not altering text)

C11S. 148 applied by 2009 c. 4, s. 161(3A) (as inserted (with effect in accordance with s. 381(1) of the amending Act) by Taxation (International and Other Provisions) Act 2010 (c. 8), s. 381(1), Sch. 8 para. 124(6) (with Sch. 9 paras. 1-9, 22))

C12S. 148 applied by 2005 c. 5, s. 172F(2B) (as inserted (with effect in accordance with s. 381(1) of the amending Act) by Taxation (International and Other Provisions) Act 2010 (c. 8), s. 381(1), Sch. 8 para. 121(6) (with Sch. 9 paras. 1-9, 22))

C13S. 148 applied by 2009 c. 4, s. 445(3A) (as inserted (with effect in accordance with s. 381(1) of the amending Act) by Taxation (International and Other Provisions) Act 2010 (c. 8), s. 381(1), Sch. 8 para. 133(8) (with Sch. 9 paras. 1-9, 22))

C14S. 148 applied by 2009 c. 4, s. 846(2A) (as inserted (with effect in accordance with s. 381(1) of the amending Act) by Taxation (International and Other Provisions) Act 2010 (c. 8), s. 381(1), Sch. 8 para. 147(6) (with Sch. 9 paras. 1-9, 22))

C15S. 148 applied (with modifications) by 2007 c. 3, s. 917A(6) (as inserted (with effect in accordance with s. 41(2) of the amending Act) by Finance Act 2016 (c. 24), s. 41(1))

C16S. 148 applied by 2010 c. 8, s. 882(5D) (as inserted (with effect in accordance with s. 52(5) of the amending Act) by Finance Act 2016 (c. 24), s. 52(2))

C17S. 148 applied by 2009 c. 4, s. 845(4C) (as inserted (with effect in accordance with s. 53(2) of the amending Act) by Finance Act 2016 (c. 24), s. 53(1))

C18S. 148 applied by 2009 c. 4, s. 849AB(9) (as inserted (with application in accordance with s. 21(3) of the amending Act) by Finance Act 2018 (c. 3), s. 21(2))

C19S. 148 applied by 2009 c. 4, s. 879E(7) (as inserted (with effect in accordance with Sch. 9 para. 7 of the amending Act) by Finance Act 2019 (c. 1), Sch. 9 para. 6)

C20S. 148 applied by 2009 c. 4, s. 90H(4) (as inserted (with effect in accordance with s. 31(14)(15) of the amending Act) by Finance Act 2020 (c. 14), s. 31(13))

CHAPTER 2U.K.Key interpretative provisions

Meaning of certain expressions that first appear in section 147U.K.

149“Actual provision” and “affected persons”U.K.

(1)In this Part—

  • “the actual provision”, and

  • “the affected persons”,

have the meaning given by section 147(1).

(2)Subsection (1) does not apply if Chapters 1 and 3 to 6 apply in accordance with section 205(2) to (4) (oil-related ring-fence trades) but, in that event, in this Part—

  • the actual provision” means the provision mentioned in section 205(1)(b), and

  • the affected persons” means the two persons mentioned in section 205(2).

(3)Subsections (1) and (2) are subject to subsection (4).

(4)If the participation condition (see section 148) would not be met but for section 161 or 162 (cases in which actual provision relates, to any extent, to financing arrangements), then in section 147(1)(d), (2)(b), (3), (4)(b) and (5) “the actual provision” is a reference to the actual provision so far as relating to the financing arrangements concerned.

150“Transaction” and “series of transactions”U.K.

(1)In this Part “transaction” includes arrangements, understandings and mutual practices (whether or not they are, or are intended to be, legally enforceable).

(2)References in this Part to a series of transactions include references to a number of transactions each entered into (whether or not one after the other) in pursuance of, or in relation to, the same arrangement.

(3)A series of transactions is not prevented by reason only of one or more of the matters mentioned in subsection (4) from being regarded for the purposes of this Part as a series of transactions by means of which provision has been made or imposed as between any two persons.

(4)Those matters are—

(a)that there is no transaction in the series to which both those persons are parties,

(b)that the parties to any arrangement in pursuance of which the transactions in the series are entered into do not include one or both of those persons, and

(c)that there is one or more transactions in the series to which neither of those persons is a party.

(5)In this section “arrangement” means any scheme or arrangement of any kind (whether or not it is, or is intended to be, legally enforceable).

151“Arm's length provision”U.K.

(1)In this Part “the arm's length provision” has the meaning given by section 147(1).

(2)For the purposes of this Part, the cases in which provision made or imposed as between any two persons is to be taken to differ from the provision that would have been made as between independent enterprises include the case in which provision is made or imposed as between two persons but no provision would have been made as between independent enterprises; and references in this Part to the arm's length provision are to be read accordingly.

152Arm's length provision where actual provision relates to securitiesU.K.

(1)This section applies where—

(a)both of the affected persons are companies, and

(b)the actual provision is provision in relation to a security issued by one of those companies (“the issuing company”).

(2)Section 147(1)(d) is to be read as requiring account to be taken of all factors, including—

(a)the question whether the loan would have been made at all in the absence of the special relationship,

(b)the amount which the loan would have been in the absence of the special relationship, and

(c)the rate of interest and other terms which would have been agreed in the absence of the special relationship.

(3)Subsection (2) has effect subject to subsections (4) and (5).

(4)If—

(a)a company (“L”) makes a loan to another company with which it has a special relationship, and

(b)it is not part of L's business to make loans generally,

the fact that it is not part of L's business to make loans generally is to be disregarded in applying subsection (2).

(5)Section 147(1)(d) is to be read as requiring that, in the determination of any of the matters mentioned in subsection (6), no account is to be taken of (or of any inference capable of being drawn from) any guarantee provided by a company with which the issuing company has a participatory relationship.

(6)The matters are—

(a)the appropriate level or extent of the issuing company's overall indebtedness,

(b)whether it might be expected that the issuing company and a particular person would have become parties to a transaction involving—

(i)the issue of a security by the issuing company, or

(ii)the making of a loan, or a loan of a particular amount, to the issuing company, and

(c)the rate of interest and other terms that might be expected to be applicable in any particular case to such a transaction.

153Arm's length provision where security issued and guarantee givenU.K.

(1)This section applies where the actual provision is made or imposed by means of a series of transactions which include—

(a)the issuing of a security by a company which is one of the affected persons (“the issuing company”), and

(b)the provision of a guarantee by a company which is the other affected person.

(2)Section 147(1)(d) is to be read as requiring account to be taken of all factors, including—

(a)the question whether the guarantee would have been provided at all in the absence of the special relationship,

(b)the amount that would have been guaranteed in the absence of the special relationship, and

(c)the consideration for the guarantee and other terms which would have been agreed in the absence of the special relationship.

(3)Subsection (2) has effect subject to subsections (4) and (5).

(4)If—

(a)a company (“G”) provides a guarantee in respect of another company with which it has a special relationship, and

(b)it is not part of G's business to provide guarantees generally,

the fact that it is not part of G's business to provide guarantees generally is to be disregarded in applying subsection (2).

(5)Section 147(1)(d) is to be read as requiring that, in the determination of any of the matters mentioned in subsection (6), no account is to be taken of (or of any inference capable of being drawn from) any guarantee provided by a company with which the issuing company has a participatory relationship.

(6)The matters are—

(a)the appropriate level or extent of the issuing company's overall indebtedness,

(b)whether it might be expected that the issuing company and a particular person would have become parties to a transaction involving—

(i)the issue of a security by the issuing company, or

(ii)the making of a loan, or a loan of a particular amount, to the issuing company, and

(c)the rate of interest and other terms that might be expected to be applicable in any particular case to such a transaction.

154Interpretation of sections 152 and 153U.K.

(1)Subsections (3) to (7) apply for the purposes of sections 152 and 153.

(2)Subsection (6) applies also for the purposes of subsection (7)(a).

(3)Special relationship” means any relationship by virtue of which the participation condition is met (see section 148) in the case of the affected persons concerned.

(4)Any reference to a guarantee includes—

(a)a reference to a surety, and

(b)a reference to any other relationship, arrangements, connection or understanding (whether formal or informal) such that the person making the loan to the issuing company has a reasonable expectation that in the event of a default by the issuing company the person will be paid by, or out of the assets of, one or more companies.

(5)One company (“A”) has a “participatory relationship” with another (“B”) if—

(a)one of A and B is directly or indirectly participating in the management, control or capital of the other, or

(b)the same person or persons is or are directly or indirectly participating in the management, control or capital of each of A and B.

(6)Security” includes securities not creating or evidencing a charge on assets.

(7)Any—

(a)interest payable by a company on money advanced without the issue of a security for the advance, or

(b)other consideration given by a company for the use of money so advanced,

is to be treated as if payable or given in respect of a security issued for the advance by the company, and references to a security are to be read accordingly.

155Potential advantage” in relation to United Kingdom taxationU.K.

(1)Subsection (2) applies for the purposes of this Part.

(2)The actual provision confers a potential advantage on a person in relation to United Kingdom taxation wherever, disregarding this Part, the effect of making or imposing the actual provision, instead of the arm's length provision, would be one or both of Effects A and B.

(3)Effect A is that a smaller amount (which may be nil) would be taken for tax purposes to be the amount of the person's profits for any chargeable period.

(4)Effect B is that a larger amount (or, if there would not otherwise have been losses, any amount of more than nil) would be taken for tax purposes to be the amount for any chargeable period of any losses of the person.

(5)In determining for the purposes of subsection (3) or (4) the amount that would be taken for tax purposes to be the amount of the profits or losses for a year of assessment in the case of a non-UK resident, there is to be left out of account any income of that person which is—

(a)disregarded income within the meaning given by section 813 of ITA 2007 (limits on liability to income tax of non-UK residents), or

(b)disregarded company income within the meaning given by section 816 of that Act.

(6)For the purposes of subsections (2) to (4)—

[F111(a)Part 10 (corporate interest restriction),]

(b)paragraph E of the list in section 1000(1) of CTA 2010 (excessive interest etc treated as a distribution),

are to be disregarded.

Textual Amendments

F111S. 155(6)(a) substituted (with effect in accordance with Sch. 5 para. 25(1)(2) of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 5 para. 14

156“Losses” and “profits”U.K.

(1)In this Part “losses” includes amounts which are not losses but in respect of which relief may be given in accordance with—

(a)section 57 of ITTOIA 2005 (pre-trading expenses),

(b)section 88 of ITA 2007 (carry forward of certain interest),

(c)section 61 of CTA 2009 (pre-trading expenses),

(d)sections 387 to 391 of CTA 2009 (insurance companies: non-trading deficits on loan relationships),

(e)Chapter 16 [F112or Chapter 16A] of Part 5 of CTA 2009 (non-trading deficits on loan relationships),

(f)section 1223 of CTA 2009 (excess of management expenses), F113...

(g)Part 5 of CTA 2010 (group relief) [F114, or

(h)Part 5A of CTA 2010 (group relief for carried-forward losses).]

(2)In this Part “profits” includes income.

Textual Amendments

F112Words in s. 156(1)(e) inserted (with effect in accordance with Sch. 4 para. 190 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 4 para. 178(a)

F113Word in s. 156(1)(f) omitted (with effect in accordance with Sch. 4 para. 190 of the amending Act) by virtue of Finance (No. 2) Act 2017 (c. 32), Sch. 4 para. 178(b)

F114S. 156(1)(h) and word inserted (with effect in accordance with Sch. 4 para. 190 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 4 para. 178(c)

“Direct participation” in management, control or capital of a personU.K.

157Direct participationU.K.

(1)Subsection (2) applies for the purposes of—

(a)this Part,

(b)in Part 2, section 132(7), F115...

(c)in Part 5, section 219(2) [F116, F117...

(d)in Part 6A, section 259NB(4)] [F118, F119...

(e)in Part 10, section 463(4)][F120, and

(f)section 608T of ITTOIA 2005.]

(2)A person is directly participating in the management, control or capital of another person at a particular time if (and only if) that other person is at that time—

(a)a body corporate or a firm, and

(b)controlled by the first person.

Textual Amendments

F115Word in s. 157(1)(b) omitted (15.9.2016) by virtue of Finance Act 2016 (c. 24), Sch. 10 para. 11(a)

F116S. 157(1)(d) and word inserted (15.9.2016) by Finance Act 2016 (c. 24), Sch. 10 para. 11(b)

F117Word in s. 157(1)(c) omitted (with effect in accordance with Sch. 5 para. 25(1)(2) of the amending Act) by virtue of Finance (No. 2) Act 2017 (c. 32), Sch. 5 para. 15(a)

F118S. 157(1)(e) and word inserted (with effect in accordance with Sch. 5 para. 25(1)(2) of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 5 para. 15(b)

F119Word in s. 157(1)(d) omitted (with effect in accordance with Sch. 3 para. 7 of the amending Act) by virtue of Finance Act 2019 (c. 1), Sch. 3 para. 6(2)(a)

F120S. 157(1)(f) and word inserted (with effect in accordance with Sch. 3 para. 7 of the amending Act) by Finance Act 2019 (c. 1), Sch. 3 para. 6(2)(b)

Modifications etc. (not altering text)

C21S. 157(2) applied (with effect in accordance with s. 116(1) of the amending Act) by Finance Act 2015 (c. 11), s. 106(7)(a)

C22S. 157(2) applied by 2010 c. 4, s. 356OT(7) (as inserted (with effect in accordance with s. 81 of the amending Act) by Finance Act 2016 (c. 24), s. 77(1) (and also with effect in accordance with Finance (No. 2) Act 2017 (c. 32), s. 39(1)(2)))

C23S. 157(2) applied by 2007 c. 3, s. 517U(7) (as inserted (with effect in accordance with s. 82 of the amending Act) by Finance Act 2016 (c. 24), s. 79(1) (and also with effect in accordance with Finance (No. 2) Act 2017 (c. 32), s. 39(1)(2)))

“Indirect participation” in management, control or capital of a personU.K.

158Indirect participation: defined by sections 159 to 162U.K.

(1)This section is about how to read the references, in this Part and in some other provisions of this Act, to indirect participation.

(2)For the purposes of sections 148(2)(a) and (3)(a) and 175(2)(a), a person is indirectly participating in the management, control or capital of another person only if section 159, 160 or 161 so provides.

(3)For the purposes of sections 148(2)(b) and (3)(b) and 175(2)(b), a person is indirectly participating in the management, control or capital of another person only if section 159, 160 or 162 so provides.

(4)For the purposes of—

(a)sections 154(5) and 204(4),

(b)in Part 2, section 132(7), F121...

(c)in Part 5, section 219(2)[F122, and

(d)in Part 6A, section 259NB(4),]

a person is indirectly participating in the management, control or capital of another person only if section 159 or 160 so provides.

Textual Amendments

F121Word in s. 158(4)(b) omitted (15.9.2016) by virtue of Finance Act 2016 (c. 24), Sch. 10 para. 12(a)

F122S. 158(4)(d) and word inserted (15.9.2016) by Finance Act 2016 (c. 24), Sch. 10 para. 12(b)

Modifications etc. (not altering text)

C24Ss. 158-163 applied (with modifications) (with effect in accordance with s. 116(1) of the amending Act) by Finance Act 2015 (c. 11), s. 106(7)(b)

C25S. 158(4) applied by 2007 c. 3, s. 517U(7) (as inserted (with effect in accordance with s. 82 of the amending Act) by Finance Act 2016 (c. 24), s. 79(1) (and also with effect in accordance with Finance (No. 2) Act 2017 (c. 32), s. 39(1)(2)))

C26S. 158(4) applied by 2010 c. 4, s. 356OT(7) (as inserted (with effect in accordance with s. 81 of the amending Act) by Finance Act 2016 (c. 24), s. 77(1) (and also with effect in accordance with Finance (No. 2) Act 2017 (c. 32), s. 39(1)(2)))

159Indirect participation: potential direct participantU.K.

(1)Subsection (2) applies for the purposes of—

(a)sections 148(2) and (3), 154(5), 175(2) and 204(4),

(b)in Part 2, section 132(7), F123...

(c)in Part 5, section 219(2) [F124, F125...

(d)in Part 6A, section 259NB(4)] [F126, F127...

(e)in Part 10, section 463(4)][F128, and

(f)section 608T of ITTOIA 2005.]

(2)A person (“P”) is indirectly participating in the management, control or capital of another person (“A”) at a particular time if P would be directly participating in the management, control or capital of A at that time if the rights and powers attributed to P included all the rights and powers mentioned in subsection (3) that are not already attributed to P for the purpose of deciding under section 157 whether P is directly participating in the management, control or capital of A.

(3)The rights and powers referred to in subsection (2) are—

(a)rights and powers which P is entitled to acquire at a future date,

(b)rights and powers which P will, at a future date, become entitled to acquire,

(c)rights and powers of persons other than P so far as they are rights or powers falling within subsection (4),

(d)rights and powers of any person with whom P is connected (see section 163), and

(e)rights and powers which would be attributed by subsection (2) to a person with whom P is connected were it being decided under that subsection whether that connected person is indirectly participating in the management, control or capital of A.

(4)Rights and powers fall within this subsection so far as they—

(a)are required, or may be required, to be exercised in any one or more of the following ways—

(i)on behalf of P,

(ii)under the direction of P, or

(iii)for the benefit of P, and

(b)are not confined, in a case where a loan has been made by one person to another, to rights and powers conferred in relation to property of the borrower by the terms of any security relating to the loan.

(5)In subsections (3)(c) to (e) and (4), the references to a person's rights and powers include references to any rights or powers which the person either—

(a)is entitled to acquire at a future date, or

(b)will, at a future date, become entitled to acquire.

(6)In paragraph (e) of subsection (3), the reference to rights and powers which would be attributed to a connected person includes a reference to rights and powers which, by applying that paragraph wherever one person is connected with another, would be so attributed to the connected person through a number of persons each of whom is connected with at least one of the others.

(7)References in this section—

(a)to rights and powers of a person, or

(b)to rights and powers which a person is or will become entitled to acquire,

include references to rights or powers which are exercisable by that person, or (when acquired by that person) will be exercisable, only jointly with one or more other persons.

Textual Amendments

F123Word in s. 159(1)(b) omitted (15.9.2016) by virtue of Finance Act 2016 (c. 24), Sch. 10 para. 13(a)

F124S. 159(1)(d) and word inserted (15.9.2016) by Finance Act 2016 (c. 24), Sch. 10 para. 13(b)

F125Word in s. 159(1)(c) omitted (with effect in accordance with Sch. 5 para. 25(1)(2) of the amending Act) by virtue of Finance (No. 2) Act 2017 (c. 32), Sch. 5 para. 16(a)

F126S. 159(1)(e) and word inserted (with effect in accordance with Sch. 5 para. 25(1)(2) of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 5 para. 16(b)

F127Word in s. 159(1)(d) omitted (with effect in accordance with Sch. 3 para. 7 of the amending Act) by virtue of Finance Act 2019 (c. 1), Sch. 3 para. 6(3)(a)

F128S. 159(1)(f) and word inserted (with effect in accordance with Sch. 3 para. 7 of the amending Act) by Finance Act 2019 (c. 1), Sch. 3 para. 6(3)(b)

Modifications etc. (not altering text)

C24Ss. 158-163 applied (with modifications) (with effect in accordance with s. 116(1) of the amending Act) by Finance Act 2015 (c. 11), s. 106(7)(b)

C27S. 159(2) applied by 2010 c. 4, s. 356OT(7) (as inserted (with effect in accordance with s. 81 of the amending Act) by Finance Act 2016 (c. 24), s. 77(1) (and also with effect in accordance with Finance (No. 2) Act 2017 (c. 32), s. 39(1)(2)))

C28S. 159(2) applied by 2007 c. 3, s. 517U(7) (as inserted (with effect in accordance with s. 82 of the amending Act) by Finance Act 2016 (c. 24), s. 79(1) (and also with effect in accordance with Finance (No. 2) Act 2017 (c. 32), s. 39(1)(2)))

160Indirect participation: one of several major participantsU.K.

(1)Subsection (2) applies for the purposes of—

(a)sections 148(2) and (3), 154(5), 175(2) and 204(4),

(b)in Part 2, section 132(7), F129...

(c)in Part 5, section 219(2) [F130, F131...

(d)in Part 6A, section 259NB(4)] [F132, F133...

(e)in Part 10, section 463(4)][F134, and

(f)section 608T of ITTOIA 2005.]

(2)A person is indirectly participating in the management, control or capital of another person at a particular time if the first person is, at that time, one of a number of major participants in that other person's enterprise.

(3)For the purposes of this section, a person (“A”) is a major participant in another person's enterprise at a particular time if at that time—

(a)that other person (“the subordinate”) is a body corporate or firm, and

(b)the 40% test is met in the case of each of two persons—

(i)who, taken together, control the subordinate, and

(ii)of whom one is A.

(4)For the purposes of this section, the 40% test is met in the case of each of two persons wherever each of them has interests, rights and powers representing at least 40% of the holdings, rights and powers in respect of which the pair of them fall to be taken as controlling the subordinate.

(5)For the purposes of this section—

(a)the question whether a person is controlled by any two or more persons taken together, and

(b)any question whether the 40% test is met in the case of a person who is one of two persons,

is to be determined after attributing to each of the persons all the rights and powers which would be attributed by section 159(2) to a person were it being decided under section 159(2) whether that person is indirectly participating in the management, control or capital of another person.

(6)References in this section—

(a)to rights and powers of a person, or

(b)to rights and powers which a person is or will become entitled to acquire,

include references to rights or powers which are exercisable by that person, or (when acquired by that person) will be exercisable, only jointly with one or more other persons.

Textual Amendments

F129Word in s. 160(1)(b) omitted (15.9.2016) by virtue of Finance Act 2016 (c. 24), Sch. 10 para. 14(a)

F130S. 160(1)(d) and word inserted (15.9.2016) by Finance Act 2016 (c. 24), Sch. 10 para. 14(b)

F131Word in s. 160(1)(c) omitted (with effect in accordance with Sch. 5 para. 25(1)(2) of the amending Act) by virtue of Finance (No. 2) Act 2017 (c. 32), Sch. 5 para. 17(a)

F132S. 160(1)(e) and word inserted (with effect in accordance with Sch. 5 para. 25(1)(2) of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 5 para. 17(b)

F133Word in s. 160(1)(d) omitted (with effect in accordance with Sch. 3 para. 7 of the amending Act) by virtue of Finance Act 2019 (c. 1), Sch. 3 para. 6(4)(a)

F134S. 160(1)(f) and word inserted (with effect in accordance with Sch. 3 para. 7 of the amending Act) by Finance Act 2019 (c. 1), Sch. 3 para. 6(4)(b)

Modifications etc. (not altering text)

C24Ss. 158-163 applied (with modifications) (with effect in accordance with s. 116(1) of the amending Act) by Finance Act 2015 (c. 11), s. 106(7)(b)

C29S. 160(2) applied by 2007 c. 3, s. 517U(7) (as inserted (with effect in accordance with s. 82 of the amending Act) by Finance Act 2016 (c. 24), s. 79(1) (and also with effect in accordance with Finance (No. 2) Act 2017 (c. 32), s. 39(1)(2)))

C30S. 160(2) applied by 2010 c. 4, s. 356OT(7) (as inserted (with effect in accordance with s. 81 of the amending Act) by Finance Act 2016 (c. 24), s. 77(1) (and also with effect in accordance with Finance (No. 2) Act 2017 (c. 32), s. 39(1)(2)))

161Indirect participation: sections 148 and 175: financing casesU.K.

(1)Subsection (2) applies for the purposes of sections 148(2)(a) and (3)(a) and 175(2)(a).

(2)A person (“P”) is indirectly participating in the management, control or capital of another (“A”) at the time of the making or imposition of the actual provision if—

(a)the actual provision relates, to any extent, to financing arrangements for A,

(b)A is a body corporate or firm,

(c)P and other persons acted together in relation to the financing arrangements, and

(d)P would be taken to have control of A if, at any relevant time, there were attributed to P the rights and powers of each of the other persons mentioned in paragraph (c).

(3)It is immaterial for the purposes of subsection (2)(c) whether P and the other persons acting together in relation to the financing arrangements did so at the time of the making or imposition of the actual provision or at some earlier time.

(4)In subsection (2)(d) “relevant time” means—

(a)a time when P and the other persons were acting together in relation to the financing arrangements, or

(b)a time in the period of six months beginning with the day on which they ceased so to act.

(5)In determining for the purposes of subsection (2)(d) whether P would be taken to have control of another person (“A”), the rights and powers of any person (and not just P) are to be taken to include those that would be attributed to that person by section 159(2) were it being decided under section 159(2) whether that person is indirectly participating in the management, control or capital of A.

(6)In this section “financing arrangements” means arrangements made for providing or guaranteeing, or otherwise in connection with, any debt, capital or other form of finance.

Modifications etc. (not altering text)

C24Ss. 158-163 applied (with modifications) (with effect in accordance with s. 116(1) of the amending Act) by Finance Act 2015 (c. 11), s. 106(7)(b)

162Indirect participation: sections 148 and 175: further financing casesU.K.

(1)Subsection (2) applies for the purposes of sections 148(2)(b) and (3)(b) and 175(2)(b).

(2)A person (“Q”) is indirectly participating in the management, control or capital of each of the affected persons at the time of the making or imposition of the actual provision if—

(a)the actual provision relates, to any extent, to financing arrangements for one of the affected persons (“B”),

(b)B is a body corporate or firm,

(c)Q and other persons acted together in relation to the financing arrangements, and

(d)Q would be taken to have control of both B and the other affected person if, at any relevant time, there were attributed to Q the rights and powers of each of the other persons mentioned in paragraph (c).

(3)It is immaterial for the purposes of subsection (2)(c) whether Q and the other persons acting together in relation to the financing arrangements did so at the time of the making or imposition of the actual provision or at some earlier time.

(4)In subsection (2)(d) “relevant time” means—

(a)a time when Q and the other persons were acting together in relation to the financing arrangements, or

(b)a time in the period of six months beginning with the day on which they ceased so to act.

(5)In determining for the purposes of subsection (2)(d) whether Q would be taken to have control of another person (“A”), the rights and powers of any person (and not just Q) are to be taken to include those that would be attributed to that person by section 159(2) were it being decided under section 159(2) whether that person is indirectly participating in the management, control or capital of A.

(6)In this section “financing arrangements” means arrangements made for providing or guaranteeing, or otherwise in connection with, any debt, capital or other form of finance.

Modifications etc. (not altering text)

C24Ss. 158-163 applied (with modifications) (with effect in accordance with s. 116(1) of the amending Act) by Finance Act 2015 (c. 11), s. 106(7)(b)

163Meaning of “connected” in section 159U.K.

(1)Subsections (2) and (3) apply for the purposes of section 159 and this section.

(2)Two persons are connected with each other if one of them is an individual and the other is—

(a)the individual's spouse or civil partner,

(b)a relative of the individual,

(c)a relative of the individual's spouse or civil partner, or

(d)the spouse, or civil partner, of a person within paragraph (b) or (c).

(3)Two persons are connected with each other if one of them is a trustee of a settlement and the other is—

(a)a person who in relation to that settlement is a settlor, or

(b)a person who is connected with a person within paragraph (a).

(4)In this section—

  • relative” means brother, sister, ancestor or lineal descendant, and

  • settlement” and “settlor” have the same meaning as in section 620 of ITTOIA 2005.

Modifications etc. (not altering text)

C24Ss. 158-163 applied (with modifications) (with effect in accordance with s. 116(1) of the amending Act) by Finance Act 2015 (c. 11), s. 106(7)(b)

Application of OECD principlesU.K.

164Part to be interpreted in accordance with OECD principlesU.K.

(1)This Part is to be read in such manner as best secures consistency between—

(a)the effect given to sections 147(1)(a), (b) and (d) and (2) to (6), 148 and 151(2), and

(b)the effect which, in accordance with the transfer pricing guidelines, is to be given, in cases where double taxation arrangements incorporate the whole or any part of the OECD model, to so much of the arrangements as does so.

(2)Subsection (1) has effect subject to—

  • section 147(1)(c) and (7) (oil-related provision to which Part does not apply),

  • sections 205 and 206 (rules for oil-related ring-fence trades),

  • section 217(3) to (7) (provision for sales of oil),

  • section 447(5) and (6) of CTA 2009 (this Part generally does not affect how exchange gains or losses from loan relationships are accounted for), and

  • section 694(8) and (9) of CTA 2009 (this Part generally does not affect how exchange gains or losses from derivative contracts are accounted for).

(3)In this section “the OECD model” means—

(a)the rules which, at the passing of ICTA (which occurred on 9 February 1988), were contained in Article 9 of the Model Tax Convention on Income and on Capital published by the Organisation for Economic Co-operation and Development, or

(b)any rules in the same or equivalent terms.

[F135(4)In this section “the transfer pricing guidelines” means—

(a)the version of the Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations approved by the Organisation for Economic Co-operation and Development (OECD) on 22 July 2010 [F136as revised by the report, Aligning Transfer Pricing Outcomes with Value Creation, Actions 8-10 - 2015 Final Reports, published by the OECD on 5 October 2015] , or

(b)such other document approved and published by the OECD in place of that (or a later) version or in place of those Guidelines as is designated for the time being by order made by the Treasury,

including, in either case, [F137material which is ] published by the OECD as part of (or by way of update or supplement to) the version or other document concerned [F138and which is designated for the time being by order made by the Treasury] .]

(5)In this section “double taxation arrangements” means arrangements that have effect under section 2(1) (double taxation relief by agreement with territories outside the United Kingdom).

Textual Amendments

F135S. 164(4) substituted (with effect in accordance with s. 58(2) of the amending Act) by Finance Act 2011 (c. 11), s. 58(1)

F136Words in s. 164(4)(a) inserted (with effect in accordance with s. 75(3) of the amending Act) by Finance Act 2016 (c. 24), s. 75(1)(a)

F137Words in s. 164(4) substituted (with effect in accordance with s. 75(3) of the amending Act) by Finance Act 2016 (c. 24), s. 75(1)(b)(i)

F138Words in s. 164(4) substituted (with effect in accordance with s. 75(3) of the amending Act) by Finance Act 2016 (c. 24), s. 75(1)(b)(ii)

CHAPTER 3U.K.Exemptions from basic rule

165Exemption for dormant companiesU.K.

(1)Section 147(3) and (5) do not apply in calculating for any chargeable period the profits and losses of a potentially advantaged person if that person is a company which meets the condition in subsection (2).

(2)The condition is that—

(a)the company was dormant throughout the pre-qualifying period, and

(b)apart from section 147, the company has continued to be dormant at all times since the end of the pre-qualifying period.

(3)In subsection (2) “the pre-qualifying period” means—

(a)if there is an accounting period of the company that ends on 31 March 2004, that accounting period, or

(b)if there is no such accounting period, the period of 3 months ending with that date.

(4)In this section “dormant” has the meaning given by section 1169 of the Companies Act 2006.

166Exemption for small and medium-sized enterprisesU.K.

(1)Section 147(3) and (5) do not apply in calculating for any chargeable period the profits and losses of a potentially advantaged person if that person is a small or medium-sized enterprise for that chargeable period (see section 172).

(2)Exceptions to subsection (1) are provided—

(a)in the case of a small enterprise, by [F139sections 167 and 167A], and

(b)in the case of a medium-sized enterprise, by sections 167 and 168.

Textual Amendments

F139Words in s. 166(2)(a) substituted (with effect in accordance with Sch. 2 paras. 7, 8 of the amending Act) by Finance Act 2012 (c. 14), Sch. 2 para. 3

Modifications etc. (not altering text)

C31Ss. 166-171 excluded (1.4.2010 with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), ss. 542(2), 1184(1) (with Sch. 2)

167Small and medium-sized enterprises: exceptions from exemptionU.K.

(1)Subsections (2) and (3) set out exceptions to section 166(1).

(2)The first exception is if the small or medium-sized enterprise elects for section 166(1) not to apply in relation to the chargeable period.

Any such election is irrevocable.

(3)The second exception is if—

(a)the other affected person, or

(b)a party to a relevant transaction,

is, at the time when the actual provision is or was made or imposed, a resident of a non-qualifying territory (whether or not that person is also a resident of a qualifying territory).

(4)For the purposes of subsection (3)—

(a)a “party to a relevant transaction” is a person who, if the actual provision is or was imposed by means of a series of transactions, is or was a party to one or more of those transactions, and

(b)qualifying territory” and “non-qualifying territory” are defined in section 173.

(5)In subsection (3) “resident”, in relation to a territory—

(a)means a person who, under the law of that territory, is liable to tax there by reason of the person's domicile, residence or place of management, but

(b)does not include a person who is liable to tax in that territory in respect only of income from sources in that territory or capital situated there.

Modifications etc. (not altering text)

C31Ss. 166-171 excluded (1.4.2010 with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), ss. 542(2), 1184(1) (with Sch. 2)

[F140167ASmall enterprises: exception from exemption: transfer pricing noticeU.K.

(1)Section 166(1) does not apply in relation to any provision made or imposed if—

(a)the potentially advantaged person is a small enterprise for the chargeable period,

(b)the person meets the condition in subsection (2), and

(c)the Commissioners for Her Majesty's Revenue and Customs give that person a notice requiring the person to calculate the profits and losses of that chargeable period in accordance with section 147(3) or (5) in the case of that provision.

(2)A person meets the condition referred to in subsection (1)(b) if—

(a)provision has been made or imposed as between the person and any other person by means of a transaction or series of transactions,

(b)the basic pre-condition in section 147 is met in respect of the provision, and

(c)the transaction, or one or more of the series of transactions, is taken into account in calculating, for the purposes of Part 8A of CTA 2010 (profits arising from the exploitation of patents etc), the relevant IP profits of a trade of a person who is or was a party to the transaction or transactions.

(3)A notice under subsection (1) is referred to in this Chapter as a transfer pricing notice.]

Textual Amendments

F140S. 167A inserted (with effect in accordance with Sch. 2 paras. 7, 8 of the amending Act) by Finance Act 2012 (c. 14), Sch. 2 para. 4

168Medium-sized enterprises: exception from exemption: transfer pricing noticeU.K.

(1)Section 166(1) does not apply in relation to any provision made or imposed if—

(a)the potentially advantaged person is a medium-sized enterprise for the chargeable period, and

(b)the Commissioners for Her Majesty's Revenue and Customs give that person a notice requiring the person to calculate the profits and losses of that chargeable period in accordance with section 147(3) or (5) in the case of that provision.

(2)A notice under subsection (1) is referred to in this Chapter as a transfer pricing notice.

Modifications etc. (not altering text)

C31Ss. 166-171 excluded (1.4.2010 with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), ss. 542(2), 1184(1) (with Sch. 2)

169Giving of transfer pricing noticesU.K.

(1)This section applies to a transfer pricing notice given to a person.

(2)The notice may be given in relation to—

(a)any provision specified, or of a description specified, in the notice, or

(b)every provision in relation to which one or other of the assumptions in section 147(3) and (5) would, apart from section 166(1), be required to be made when calculating the person's profits and losses for tax purposes.

(3)The notice may be given only after a notice of enquiry has been given to the person in relation to the person's tax return for the chargeable period concerned.

(4)The notice must identify the officer of Revenue and Customs to whom any notice of appeal under section 170 is to be given.

(5)In subsection (3) “notice of enquiry” means a notice under—

(a)section 9A or 12AC of TMA 1970, or

(b)paragraph 24 of Schedule 18 to FA 1998.

Modifications etc. (not altering text)

C31Ss. 166-171 excluded (1.4.2010 with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), ss. 542(2), 1184(1) (with Sch. 2)

170Appeals against transfer pricing noticesU.K.

(1)A person to whom a transfer pricing notice is given may appeal against the decision to give the notice, but only [F141on one of the following grounds—

(a)that the condition in section 167A(1)(b) is not met, or

(b)that the condition in section 168(1)(a) is not met.]

(2)Any such appeal must be brought by giving written notice of appeal to the officer of Revenue and Customs identified in the notice in accordance with section 169(4).

(3)The notice of appeal must be given before the end of the period of 30 days beginning with the day on which the transfer pricing notice is given.

Textual Amendments

F141Words in s. 170(1) substituted (with effect in accordance with Sch. 2 paras. 7, 8 of the amending Act) by Finance Act 2012 (c. 14), Sch. 2 para. 5

Modifications etc. (not altering text)

C31Ss. 166-171 excluded (1.4.2010 with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), ss. 542(2), 1184(1) (with Sch. 2)

171Tax returns where transfer pricing notice givenU.K.

(1)If a transfer pricing notice is given to a person (“T”), T may amend T's tax return for the purpose of complying with the notice at any time before the end of the period of 90 days beginning with—

(a)the day on which the notice is given, or

(b)if T appeals under section 170 against the decision to give the notice, the day on which the appeal is finally determined or abandoned.

(2)If a transfer pricing notice is given in the case of any tax return, no closure notice may be given in relation to that tax return until—

(a)the end of the period of 90 days specified in subsection (1), or

(b)the earlier amendment of the tax return for the purpose of complying with the notice.

[F142(2A)Subsection (2) does not apply to a partial closure notice which does not relate to any matter to which the transfer pricing notice relates.]

(3)So far as relating to any provision made or imposed by or in relation to a person—

(a)who is a [F143small or] medium-sized enterprise for a chargeable period,

(b)who does not make an election under section 167(2) for that period, and

(c)who is not excepted from section 166(1) in relation to that provision for that period because of section 167(3),

the tax return required to be made for that period is a return that disregards section 147(3) and (5).

(4)Subsection (3) does not prevent a tax return for a period becoming incorrect if in the case of any provision made or imposed—

(a)a transfer pricing notice is given which has effect in relation to that provision for that period,

(b)the return is not amended in accordance with subsection (1) for the purpose of complying with the notice, and

(c)the return ought to have been so amended.

(5)In this section—

  • closure notice” means a notice under—

    (a)

    section 28A or 28B of TMA 1970, or

    (b)

    paragraph 32 of Schedule 18 to FA 1998,

  • company tax return” means the return required to be delivered pursuant to a notice under paragraph 3 of Schedule 18 to FA 1998, as read with paragraph 4 of that Schedule, and

  • tax return” means—

    (a)

    a return under section 8, 8A or 12AA of TMA 1970, or

    (b)

    a company tax return.

Textual Amendments

F142S. 171(2A) inserted (with effect in accordance with Sch. 15 para. 44 of the amending Act) by Finance (No. 2) Act 2017 (c. 32), Sch. 15 para. 40

F143Words in s. 171(3)(a) inserted (with effect in accordance with Sch. 2 paras. 7, 8 of the amending Act) by Finance Act 2012 (c. 14), Sch. 2 para. 6

Modifications etc. (not altering text)

C31Ss. 166-171 excluded (1.4.2010 with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), ss. 542(2), 1184(1) (with Sch. 2)

172Meaning of “small enterprise” and “medium-sized enterprise”U.K.

(1)In this Chapter—

(a)small enterprise” means a small enterprise as defined in the Annex, and

(b)medium-sized enterprise” means an enterprise which—

(i)falls within the category of micro, small and medium-sized enterprises as defined in the Annex, and

(ii)is not a small enterprise as defined in the Annex.

(2)For the purposes of subsection (1), the Annex has effect with the modifications set out in subsections (4) to (7).

(3)In this section “the Annex” means the Annex to Commission Recommendation 2003/361/EC of 6 May 2003 (concerning the definition of micro, small and medium-sized businesses).

(4)Where any enterprise is in liquidation or administration, the rights of the liquidator or administrator (in that capacity) are to be left out of account when applying Article 3(3)(b) of the Annex in determining for the purposes of this Part whether—

(a)that enterprise, or

(b)any other enterprise (including that of the liquidator or administrator),

is a small or medium-sized enterprise.

(5)Article 3 of the Annex has effect with the omission of paragraph 5 (declaration in good faith where control cannot be determined etc).

(6)The first sentence of Article 4(1) of the Annex has effect as if the data to apply to—

(a)the headcount of staff, and

(b)the financial amounts,

were the data relating to the chargeable period referred to in section 166(1) (instead of the period described in that sentence) and calculated on an annual basis.

(7)Article 4 of the Annex has effect with the omission of the following provisions—

(a)the second sentence of paragraph 1 (data to be taken into account from date of closure of accounts),

(b)paragraph 2 (no change of status unless ceilings exceeded for two consecutive periods), and

(c)paragraph 3 (genuine estimate in case of newly established enterprise).

173Meaning of “qualifying territory” and “non-qualifying territory”U.K.

(1)In section 167(3)—

  • non-qualifying territory” means any territory which is not a qualifying territory, and

  • qualifying territory” means—

    (a)

    the United Kingdom, or

    (b)

    any territory in relation to which condition A or condition B is met.

(2)Condition A is that—

(a)double taxation arrangements have been made in relation to the territory,

(b)the arrangements include a non-discrimination provision, and

(c)the territory is not designated as a non-qualifying territory for the purposes of this subsection in regulations made by the Treasury.

(3)Condition B is that—

(a)double taxation arrangements have been made in relation to the territory, and

(b)the territory is designated as a qualifying territory for the purposes of this subsection in regulations made by the Treasury.

(4)For the purposes of subsection (2)(b) a “non-discrimination provision”, in relation to any double taxation arrangements, is a provision to the effect that nationals of a state which is a party to those arrangements (a “contracting state”) are not to be subject in any other contracting state to—

(a)any taxation, or

(b)any requirement connected with taxation,

which is other or more burdensome than the taxation and connected requirements to which nationals of that other state in the same circumstances (in particular with respect to residence) are or may be subjected.

(5)In subsection (4) “national”, in relation to a state, includes—

(a)any individual possessing the nationality or citizenship of the state, and

(b)any legal person, partnership or association deriving its status as such from the law in force in that state.

(6)In this section “double taxation arrangements” means arrangements that have effect under section 2(1) (double taxation relief by agreement with territories outside the United Kingdom).

(7)Regulations under this section may only be made if a draft of the statutory instrument containing the regulations has been laid before and approved by a resolution of the House of Commons.

CHAPTER 4U.K.Position, if only one affected person potentially advantaged, of other affected person

Claim by affected person who is not advantagedU.K.

174Claim by the affected person who is not potentially advantagedU.K.

(1)Subsection (2) applies if—

(a)only one of the affected persons (in this Chapter called “the advantaged person”) is a person on whom a potential advantage in relation to United Kingdom taxation is conferred by the actual provision, and

(b)the other affected person (in this Chapter called “the disadvantaged person”) is within the charge to income tax or corporation tax in respect of profits arising from the relevant activities (see section 216).

(2)On the making of a claim by the disadvantaged person—

(a)the profits and losses of the disadvantaged person are to be calculated for tax purposes as if the arm's length provision had been made or imposed instead of the actual provision, and

(b)despite any limit in the Tax Acts on the time within which any adjustment may be made, all such adjustments are to be made in the disadvantaged person's case as may be required to give effect to the assumption that the arm's length provision was made or imposed instead of the actual provision.

(3)Provision about claims under this section is made by—

  • [F144section 174A (claim not allowed in some cases where the disadvantaged person is within the charge to income tax), ]

  • section 175 (claim not allowed in some cases where actual provision relates to a security issued by one of the affected persons),

  • section 176 (claim cannot be made unless advantaged person has made return on the basis that the arm's length provision applies),

  • section 177 (when claim may be made or amended), and

  • sections 181 to 184 (option to make claims in accordance with section 182 in some cases where actual provision relates to a security issued by one of the affected persons).

(4)Subsection (2) has effect subject to—

  • section 180 (closing trading stock and closing work in progress in a trade),

  • sections 188 and 189 (effect of claims under this section on double taxation relief),

  • Chapter 5 (provision, where liabilities of an affected person under securities issued by that person are guaranteed, for attribution to guarantor of things done by that affected person),

  • section 447(5) and (6) of CTA 2009 (this Part generally does not affect how exchange gains or losses from loan relationships are accounted for), and

  • section 694(8) and (9) of CTA 2009 (this Part generally does not affect how exchange gains or losses from derivative contracts are accounted for).

Textual Amendments

F144Words in s. 174(3) inserted (with effect in accordance with s. 75(5)(6) of the amending Act) by Finance Act 2014 (c. 26), s. 75(2)

[F145174AClaims under section 174 where disadvantaged person within charge to income taxU.K.

A claim under section 174 may not be made if—

(a)the disadvantaged person is a person (other than a company) within the charge to income tax in respect of profits arising from the relevant activities, and

(b)the advantaged person is a company.]

Textual Amendments

F145S. 174A inserted (with effect in accordance with s. 75(5)(6) of the amending Act) by Finance Act 2014 (c. 26), s. 75(3)

175Claims under section 174 where actual provision relates to a securityU.K.

(1)A claim under section 174 may not be made if—

(a)the participation condition (see section 148) would not be satisfied but for section 161 or 162,

(b)the actual provision is provision in relation to a security issued by one of the affected persons (“the issuer”), and

(c)a guarantee is provided in relation to the security by a person with whom the issuer has a participatory relationship.

(2)For the purposes of subsection (1), one person (“A”) has a “participatory relationship” with another (“B”) if—

(a)one of A and B is directly or indirectly participating in the management, control or capital of the other, or

(b)the same person or persons is or are directly or indirectly participating in the management, control or capital of each of A and B.

(3)In subsections (1)(b) and (4)(a) “security” includes securities not creating or evidencing a charge on assets.

(4)For the purposes of subsection (1)(b), any—

(a)interest payable by a company on money advanced without the issue of a security for the advance, or

(b)other consideration given by a company for the use of money so advanced,

is to be treated as if payable or given in respect of a security issued for the advance by the company, and references to a security are to be read accordingly.

(5)The reference in subsection (1)(c) to a guarantee includes—

(a)a reference to a surety, and

(b)if the issuer is a company, a reference to any other relationship, arrangements, connection or understanding (whether formal or informal) such that the person making the loan to the issuer has a reasonable expectation that in the event of a default by the issuer the person will be paid by, or out of the assets of, one or more companies.

176Claims under section 174: advantaged person must have made returnU.K.

(1)A claim may not be made under section 174 unless a calculation has been made in the case of the advantaged person on the basis that the arm's length provision was made or imposed instead of the actual provision.

(2)A claim made under section 174 must be consistent with the calculation made on that basis in the case of the advantaged person.

(3)For the purposes of subsections (1) and (2), a calculation is to be taken to have been made in the case of the advantaged person on the basis that the arm's length provision was made or imposed instead of the actual provision if (and only if)—

(a)the calculations made for the purposes of any return by the advantaged person have been made on that basis because of this Part, or

(b)a relevant notice (see section 190) given to the advantaged person takes account of a determination in pursuance of this Part of an amount to be brought into account for tax purposes on that basis.

177Time for making, or amending, claim under section 174U.K.

(1)A claim under section 174 can be made only in the period mentioned in subsection (2) or (3).

(2)If a return has been made by the advantaged person on the basis mentioned in section 176(1), the period is the two years beginning with the day of the making of the return.

(3)If a relevant notice (see section 190) taking account of such a determination as is mentioned in section 176(3)(b) has been given to the advantaged person, the period is the two years beginning with the day on which that notice was given.

(4)Subsection (5) applies if—

(a)a claim under section 174 is made in relation to a return made on the basis mentioned in section 176(1), and

(b)a relevant notice taking account of such a determination as is mentioned in section 176(3)(b) is subsequently given to the advantaged person.

(5)The disadvantaged person is entitled, within the period mentioned in subsection (3), to make any such amendment of the claim as may be appropriate in consequence of the determination contained in the relevant notice.

(6)Subsections (1) and (5) have effect subject to section 186(3) (which provides for the extension of the period for making or amending a claim).

178Meaning of “return” in sections 176 and 177U.K.

(1)In sections 176 and 177 “return” means—

(a)any return required to be made under TMA 1970 or under Schedule 18 to FA 1998 for income tax or corporation tax purposes, or

(b)any voluntary amendment of a return within paragraph (a).

(2)In subsection (1)(b) “voluntary amendment” means—

(a)an amendment under section 9ZA or 12ABA of TMA 1970 (amendment of personal, trustee or partnership return by taxpayer), or

(b)an amendment under Schedule 18 to FA 1998 other than one made in response to the giving of a relevant notice (see section 190).

Claims: special casesU.K.

179Compensating payment if advantaged person is controlled foreign companyU.K.

[F146(1)Subsection (2) applies if—

(a)the actual provision is provision made or imposed in relation to a CFC,

(b)for the purpose of determining the CFC's assumed taxable total profits for an accounting period, the CFC's profits and losses are to be calculated in accordance with section 147(3) or (5) in the case of that provision,

(c)in relation to the accounting period, sums are charged on chargeable companies at step 5 in section 371BC(1), and

(d)in consequence of the application of section 147(3) or (5) as mentioned in paragraph (b), the total of those sums is more than it would otherwise be.]

(2)Sections 174 to 178 have effect as if the [F147CFC] were a person on whom a potential advantage in relation to United Kingdom taxation were conferred by the actual provision.

(3)In applying sections 174 to 178 in a case in which they apply because of subsection (2)—

(a)references to the advantaged person in sections 176(3)(a) and (b) and 177(2), (3) and (4)(b) include a reference to any of the [F148chargeable companies on which a sum is charged], and

(b)references to corporation tax include a reference to [F149the CFC charge].

[F150(4)In this section terms which are defined in Part 9A have the same meaning as they have in that Part.

(5)For the purposes of subsections (1)(c) and (d) and (3)(a) assume that any claims made under Chapter 9 of Part 9A for the accounting period were not made.]

Textual Amendments

F146S. 179(1) substituted (17.7.2012) by Finance Act 2012 (c. 14), Sch. 20 para. 42(2)

F147Words in s. 179(2) substituted (17.7.2012) by Finance Act 2012 (c. 14), Sch. 20 para. 42(3)

F148Words in s. 179(3)(a) substituted (17.7.2012) by Finance Act 2012 (c. 14), Sch. 20 para. 42(4)(a)

F149Words in s. 179(3)(b) substituted (17.7.2012) by Finance Act 2012 (c. 14), Sch. 20 para. 42(4)(b)

F150S. 179(4)(5) substituted for s. 179(4) (17.7.2012) by Finance Act 2012 (c. 14), Sch. 20 para. 42(5)

180Application of section 174(2)(a) in relation to transfers of trading stock etcU.K.

(1)Section 174(2)(a) does not affect the credits to be brought into account by the disadvantaged person in respect of—

(a)closing trading stock, or

(b)closing work in progress in a trade,

for accounting periods ending on or after the day given by subsection (2).

(2)That day is the last day of the accounting period of the advantaged person in which the actual provision was made or imposed.

(3)For the purposes of this section “trading stock”, in relation to any trade, has the meaning given by—

(a)section 174 of ITTOIA 2005, or

(b)section 163 of CTA 2009.

Alternative way of claiming if a security is involvedU.K.

181Section 182 applies to claims where actual provision relates to a securityU.K.

(1)Subsection (2) applies if—

(a)both of the affected persons are companies, and

(b)the actual provision is provision in relation to a security issued by one of those companies.

(2)A claim under section 174 may be made in accordance with section 182.

(3)For the purposes of this Part, a “section 182 claim” is a claim under section 174 made in accordance with section 182.

(4)In subsections (1)(b) and (5)(a) “security” includes securities not creating or evidencing a charge on assets.

(5)For the purposes of subsection (1)(b), any—

(a)interest payable by a company on money advanced without the issue of a security for the advance, or

(b)other consideration given by a company for the use of money so advanced,

is to be treated as if payable or given in respect of a security issued for the advance by the company, and references to a security are to be read accordingly.

182Making of section 182 claimsU.K.

(1)A section 182 claim may be made by—

(a)the disadvantaged person, or

(b)the advantaged person.

(2)A section 182 claim made by the advantaged person is to be taken to be made on behalf of the disadvantaged person.

(3)A section 182 claim may be made before or after a calculation within section 176(1) has been made.

(4)A section 182 claim must be made either—

(a)at any time before the end of the period mentioned in section 177(2), or

(b)within the period mentioned in section 177(3).

(5)Subsection (4) has effect subject to section 186(3) (which provides for the extension of the period for making a claim).

183Giving effect to section 182 claimsU.K.

(1)A section 182 claim is not a claim within paragraph 57 or 58 of Schedule 18 to FA 1998 (company tax returns, assessments and related matters).

(2)Accordingly, paragraph 59 of that Schedule (application of Schedule 1A to TMA 1970) has effect in relation to a section 182 claim.

(3)If—

(a)a section 182 claim is made before a calculation within section 176(1) has been made,

(b)such a calculation is subsequently made, and

(c)the claim is not consistent with the calculation,

the affected persons are to be treated as if (instead of the claim actually made) a claim had been made that was consistent with the calculation.

(4)All such adjustments are to be made (including by the making of assessments) as are required to give effect to subsection (3).

(5)Subsection (4) has effect despite any limit on the time within which any adjustment may be made.

184Amending a section 182 claim if it is followed by relevant noticeU.K.

(1)Subsection (2) applies if—

(a)a section 182 claim is made,

(b)a return is subsequently made by the advantaged person on the basis mentioned in section 176(1), and

(c)a relevant notice (see section 190) taking account of such a determination as is mentioned in section 176(3)(b) is subsequently given to the advantaged person.

(2)If any amendment of the claim is appropriate in consequence of the determination contained in the relevant notice, the amendment may be made by—

(a)the disadvantaged person, or

(b)the advantaged person.

(3)If an amendment under subsection (2) is made by the advantaged person it is to be taken to be made on behalf of the disadvantaged person.

(4)Any amendment under subsection (2) must be made within the period mentioned in section 177(3).

(5)Subsection (4) has effect subject to section 186(3) (which provides for the extension of the period for making an amendment).

Notification to persons who may be disadvantagedU.K.

185Notice to potential claimantsU.K.

(1)Subsection (2) applies if—

(a)a relevant notice (see section 190) is given to any person,

(b)the notice, or anything contained in it, takes account of a transfer-pricing determination, and

(c)it appears to an officer that there is a person (“DP”) who is or may be a disadvantaged person by reference to the subject-matter of the determination.

(2)The officer must give to DP a notice containing particulars of the determination.

(3)A contravention of subsection (2) does not affect the validity—

(a)of the relevant notice, or

(b)of any determination to which the notice relates.

(4)For the purposes of this section, a person is a disadvantaged person by reference to the subject-matter of a transfer-pricing determination if (and only if) the person—

(a)is entitled, in consequence of the making of the determination, to make or amend a claim under section 174, or

(b)will be entitled, because of section 212(3), to be a party to any proceedings on an appeal relating to the determination.

(5)In this section—

  • officer” means officer of Revenue and Customs, and

  • transfer-pricing determination” means a determination of an amount that is to be brought into account for tax purposes in respect of—

    (a)

    any assumption made under section 147(3) or (5), or

    (b)

    any advance-pricing-agreement assumptions (see section 222(6)).

186Extending claim period if notice under section 185 not given or given lateU.K.

(1)If there is a contravention of section 185(2), the Commissioners must consider whether, as a result of the contravention, any person has been prejudiced with respect to the making or amendment of a claim under section 174.

(2)Subsection (3) applies if—

(a)there is a contravention of section 185(2), or

(b)a notice required by section 185(2) is given after the relevant notice concerned.

(3)The Commissioners may, if they think fit, treat the period for the making or amendment of a claim under section 174 in the case concerned as extended by such further period as appears to them to be appropriate.

(4)In this section “the Commissioners” means the Commissioners for Her Majesty's Revenue and Customs.

Treatment of interest where claim madeU.K.

187Tax treatment if actual interest exceeds arm's length interestU.K.

(1)Subsection (6) applies if the following conditions are met.

(2)Condition A is that interest is paid by any person under the actual provision.

(3)Condition B is that section 147(3) or (5) applies in relation to the actual provision.

(4)Condition C is—

(a)that the amount (“ALINT”) of interest that would have been payable under the arm's length provision is less than the amount of interest paid under the actual provision, or

(b)that there would not have been any interest payable under the arm's length provision (so that ALINT is nil).

(5)Condition D is that the person receiving the interest paid under the actual provision makes—

(a)a claim under section 174, or

(b)a section 182 claim.

(6)The interest paid under the actual provision, so far as it exceeds ALINT—

(a)is not to be regarded as chargeable under Chapter 2 of Part 4 of ITTOIA 2005,

(b)is not subject to the provisions of Part 15 of ITA 2007 (deduction of income tax at source), and

(c)is not required to be brought into account under Part 5 of CTA 2009 (loan relationships) as a non-trading credit.

[F151Treatment of interest where claim prevented by section 174AU.K.

Textual Amendments

F151S. 187A and cross-heading inserted (with effect in accordance with s. 75(5)(6) of the amending Act) by Finance Act 2014 (c. 26), s. 75(4)

187AExcess interest treated as a F152... distributionU.K.

(1)Subsection (2) applies if Conditions A to C in section 187 are met in circumstances where section 174A prevents a claim under section 174.

(2)The interest paid under the actual provision, so far as it exceeds ALINT, is treated for the purposes of the Income Tax Acts as a dividend paid by the company which paid the interest (and, accordingly, as a F153...distribution).]

Textual Amendments

F152Word in s. 187A heading omitted (with effect in accordance with Sch. 1 para. 73 of the amending Act) by virtue of Finance Act 2016 (c. 24), Sch. 1 para. 68(3)

F153Word in s. 187A(2) omitted (with effect in accordance with Sch. 1 para. 73 of the amending Act) by virtue of Finance Act 2016 (c. 24), Sch. 1 para. 68(3)

Adjustment of double taxation relief where claim madeU.K.

188Double taxation relief by way of credit for foreign taxU.K.

(1)Subsection (2) applies if—

(a)a claim is made under section 174, and

(b)the disadvantaged person (“DP”) is entitled on that claim to make a calculation, or to have an adjustment made, on the basis that the arm's length provision was made or imposed instead of the actual provision.

(2)Assumptions A and B are to be made in DP's case in relation to any credit for foreign tax which DP has been, or may be, given—

(a)under any double taxation arrangements, or

(b)under section 18(1)(b) and (2) (relief under unilateral relief arrangements).

(3)Subsection (2) has effect subject to section 189(2).

(4)Assumption A is that the foreign tax paid or payable by DP does not include any amount of foreign tax which would not be or have become payable were it to be assumed for the purposes of that tax that the arm's length provision had been made or imposed instead of the actual provision.

(5)Assumption B is that the amount of DP's relevant profits in respect of which DP is given credit for foreign tax does not include the amount (if any) by which DP's relevant profits are treated as reduced in accordance with section 174.

(6)If any adjustment is required to be made for the purpose of giving effect to any of the preceding provisions of this section—

(a)it may be made by setting the amount of the adjustment against any relief or repayment to which DP is entitled in pursuance of DP's claim under section 174, and

(b)nothing in the Tax Acts limiting the time within which any assessment is to be or may be made or amended prevents that adjustment from being so made.

(7)In subsection (5) “DP's relevant profits” means the profits arising to DP from the carrying on of the relevant activities (see section 216).

(8)In this section—

  • double taxation arrangements” means arrangements that have effect under section 2(1) (double taxation relief by agreement with territories outside the United Kingdom), and

  • foreign tax” means—

    (a)

    any tax under the law of a territory outside the United Kingdom, or

    (b)

    any amount that, for the purposes of any double taxation arrangements, is to be treated as if it were tax under the law of a territory outside the United Kingdom.

(9)In determining for the purposes of this section whether a person is—

(a)under any double taxation arrangements, or

(b)under section 18(1)(b) and (2),

to be given credit for foreign tax, ignore any requirement that a claim is made before such a credit is given.

189Double taxation relief by way of deduction for foreign taxU.K.

(1)Subsection (2) applies if—

(a)a claim is made under section 174,

(b)the disadvantaged person (“DP”) is entitled on that claim to make a calculation, or to have an adjustment made, on the basis that the arm's length provision was made or imposed instead of the actual provision,

(c)the application of that basis in the calculation of DP's profits or losses for any chargeable period involves a reduction in the amount of any income, and

(d)that income is also income that is to be reduced in accordance with section 112(1) (deduction for foreign tax where no credit allowed).

(2)If this subsection applies—

(a)the reduction mentioned in subsection (1)(c) is to be treated as made before any reduction under section 112(1), and

(b)tax paid, in the place in which any income arises, on so much of that income as is represented by the amount of the reduction mentioned in subsection (1)(c) is to be disregarded for the purposes of section 112(1).

(3)If any adjustment is required to be made for the purpose of giving effect to any of the preceding provisions of this section—

(a)it may be made by setting the amount of the adjustment against any relief or repayment to which DP is entitled in pursuance of DP's claim under section 174, and

(b)nothing in the Tax Acts limiting the time within which any assessment is to be or may be made or amended prevents that adjustment from being so made.

Interpretation of ChapterU.K.

190Meaning of “relevant notice”U.K.

In this Chapter “relevant notice” means—

(a)a closure notice under section 28A(1) of TMA 1970 in relation to an enquiry into a return under section 8 or 8A of TMA 1970,

(b)a closure notice under section 28B(1) of TMA 1970 in relation to an enquiry into a partnership return,

(c)a closure notice under paragraph 32 of Schedule 18 to FA 1998 in relation to an enquiry into a company tax return,

(d)a notice under section 30B(1) of TMA 1970 amending a partnership return,

(e)a notice of an assessment under section 29 of TMA 1970,

(f)a notice of a discovery assessment under paragraph 41 of Schedule 18 to FA 1998 (which includes a discovery assessment under that paragraph as applied by paragraph 52 of that Schedule), or

(g)a notice of a discovery determination under paragraph 41 of Schedule 18 to FA 1998.

CHAPTER 5U.K.Position of guarantor of affected person's liabilities under a security issued by the person

191When sections 192 to 194 applyU.K.

(1)Sections 192 to 194 apply if—

(a)one of the affected persons (“the issuing company”) is a company that has liabilities under a security issued by it,

(b)those liabilities are to any extent the subject of a guarantee provided by a company (“the guarantor company”),

(c)in calculating the profits and losses of the issuing company for tax purposes, the amounts to be deducted in respect of interest or other amounts payable under the security are required to be reduced (whether or not to nil) under section 147(3) or (5), and

(d)that reduction is required because of section 153.

(2)In subsections (1)(a) and (3)(a) “security” includes securities not creating or evidencing a charge on assets.

(3)For the purposes of subsection (1)(a), any—

(a)interest payable by a company on money advanced without the issue of a security for the advance, or

(b)other consideration given by a company for the use of money so advanced,

is to be treated as if payable or given in respect of a security issued for the advance by the company, and the reference in subsection (1)(a) to a security is to be read accordingly.

(4)In subsection (1)(b) the reference to a guarantee includes—

(a)a reference to a surety, and

(b)a reference to any other relationship, arrangements, connection or understanding (whether formal or informal) such that the person making the loan to the issuing company has a reasonable expectation that in the event of a default by the issuing company the person will be paid by, or out of the assets of, one or more companies.

(5)In this Chapter—

  • the guarantor company” has the meaning given by subsection (1)(b),

  • the issuing company” has the meaning given by subsection (1)(a), and

  • the security” means the security mentioned in subsection (1)(a).

192Attribution to guarantor company of things done by issuing companyU.K.

(1)On the making of a claim, the guarantor company is, to the extent of the reduction mentioned in section 191(1)(c), to be treated for all purposes of the Taxes Acts as if it (and not the issuing company)—

(a)had issued the security,

(b)owed the liabilities under it, and

(c)had paid any interest or other amounts paid under it by the issuing company.

(2)Subsection (1) is subject to subsection (3).

(3)Where the issuing company's liabilities under the security are the subject of two or more guarantees (whether or not provided by the same person), TD must not exceed TR, where—

  • TD is the total of the amounts brought into account by the guarantor companies because of subsection (1), and

  • TR is the total amount of the reductions within section 191(1)(c).

(4)Provision about claims under subsection (1) is made by—

  • section 193 (interaction between claims under subsection (1) and claims under section 174), and

  • section 194 (general provision about claims under subsection (1)).

(5)In subsection (1) “the Taxes Acts” has the meaning given by section 118(1) of TMA 1970.

(6)In subsection (3) any reference to a guarantee includes—

(a)a reference to a surety, and

(b)a reference to any other relationship, arrangements, connection or understanding (whether formal or informal) such that the person making the loan to the issuing company has a reasonable expectation that in the event of a default by the issuing company the person will be paid by, or out of the assets of, one or more companies.

[F154192AProvision for cases within Part 6AU.K.

(1)Subsection (2) applies to the extent that—

(a)there is an amount to be deducted in respect of a payment by the issuing company under the security,

(b)that amount is required to be reduced (whether or not to nil) under section 147(3) or (5),

(c)the guarantor company makes a claim under section 192(1) in respect of that reduction, and

(d)as regards the payment, provision in Part 6A would, but for the reduction, apply in relation to the tax treatment of the issuing company (“the relevant tax treatment”).

(2)The relevant tax treatment is to apply in relation to the guarantor company.]

Textual Amendments

F154S. 192A inserted (with effect in accordance with Sch. 7 paras. 37-39 of the amending Act) by Finance Act 2021 (c. 26), Sch. 7 para. 31

193Interaction between claims under sections 174 and 192(1)U.K.

(1)In this section “the loan provision” means the actual provision made or imposed between—

(a)the issuing company, and

(b)another company (“the lending company”),

which is provision in relation to the security.

(2)Subsections (3) and (4) apply if—

(a)the guarantor company makes a claim under section 192(1), and

(b)the lending company makes a claim under section 174 in relation to the loan provision.

(3)In determining the arm's length provision for the purposes of section 174(2)(a) in relation to the lending company's claim, additional amounts are to be brought into account as credits corresponding to the debits that fall to be brought into account by the guarantor company because of section 192(1).

(4)If—

(a)the lending company makes its claim under section 174 before the guarantor company makes its claim under section 192(1), and

(b)the calculation on which the lending company's claim is based does not comply with subsection (3),

the guarantor company's claim is to be disallowed.

194Claims under section 192(1): general provisionsU.K.

(1)A claim under section 192(1) may be made—

(a)by the guarantor company,

(b)if there are two or more guarantor companies, by those companies acting together, or

(c)by the issuing company.

(2)A claim made under section 192(1) by the issuing company is to be taken to be made on behalf of the guarantor company or companies.

(3)Sections 175 to 177 apply in relation to a claim under section 192(1) made by or on behalf of any person or persons as they apply in relation to a claim under section 174 made by the disadvantaged person, but taking—

(a)references in sections 176 and 177 to the advantaged person as references to the issuing company, and

(b)the reference in section 177 to the disadvantaged person as a reference to the guarantor company or companies.

CHAPTER 6U.K.Balancing payments

195Qualifying conditions for purposes of section 196U.K.

(1)Conditions A to D are “the qualifying conditions” for the purposes of section 196.

(2)Condition A is that only one of the affected persons (“the advantaged person”) is a person on whom a potential advantage in relation to United Kingdom taxation is conferred by the actual provision.

(3)Condition B is that the other affected person (“the disadvantaged person”) is within the charge to income tax or corporation tax in respect of profits arising from the relevant activities (see section 216).

(4)Condition C is that—

(a)a payment (the “balancing payment”) is made, or

(b)two or more payments (the “balancing payments”) are made,

to the advantaged person by the disadvantaged person.

(5)Condition D is that the sole or main reason for making that payment or those payments is that section 147(3) or (5) applies.

196Balancing payments between affected persons: no charge to, or relief from, taxU.K.

(1)If each of the qualifying conditions (see section 195) is met, subsection (2) applies—

(a)to the balancing payment if, or so far as, its amount does not exceed the available compensating adjustment, or

(b)to the balancing payments if, or so far as, their total amount does not exceed the available compensating adjustment.

(2)Any payment to which this subsection applies—

(a)is not to be taken into account in calculating profits or losses of either of the affected persons for the purposes of income tax or corporation tax, and

(b)is not for any purpose of the Corporation Tax Acts to be regarded as a distribution.

(3)In subsection (1) “the available compensating adjustment” means the difference between PL1 and PL2 where—

  • PL1 is the profits and losses of the disadvantaged person calculated for tax purposes on the basis of the actual provision, and

  • PL2 is the profits and losses of the disadvantaged person as (or as they would be) calculated for tax purposes on a claim under section 174.

(4)For the purposes of subsection (3), take PL1 or PL2—

(a)as a positive amount if it is an amount of profits, and

(b)as a negative amount if it is an amount of losses.

(5)In this section, the following expressions have the meaning given by section 195—

  • “the balancing payment” and “the balancing payments”, and

  • “the disadvantaged person”.

197Qualifying conditions for purposes of section 198U.K.

(1)Conditions A to F are the qualifying conditions for the purposes of section 198.

(2)Condition A is that one of the affected persons (“the issuing company”) is a company that has liabilities under a security issued by it.

(3)Condition B is that those liabilities are to any extent the subject of a guarantee provided by a company (“the guarantor company”).

(4)Condition C is that, in calculating the profits and losses of the issuing company for tax purposes, the amounts to be deducted in respect of interest or other amounts payable under the security are required to be reduced (whether or not to nil) under section 147(3) or (5).

(5)Condition D is that that reduction is required because of section 153.

(6)Condition E is that—

(a)a payment (the “balancing payment”) is made, or

(b)two or more payments (the “balancing payments”) are made,

by the guarantor company to the issuing company.

(7)Condition F is that the sole or main reasons for making that payment or those payments are—

(a)that section 147(3) or (5) applies because of section 153, or

(b)that sections 192 to 194 apply.

(8)In subsections (2) and (9)(a) “security” includes securities not creating or evidencing a charge on assets.

(9)For the purposes of subsection (2), any—

(a)interest payable by a company on money advanced without the issue of a security for the advance, or

(b)other consideration given by a company for the use of money so advanced,

is to be treated as if payable or given in respect of a security issued for the advance by the company, and the reference in subsection (2) to a security is to be read accordingly.

(10)In subsection (3) the reference to a guarantee includes—

(a)a reference to a surety, and

(b)a reference to any other relationship, arrangements, connection or understanding (whether formal or informal) such that the person making the loan to the issuing company has a reasonable expectation that in the event of a default by the issuing company the person will be paid by, or out of the assets of, one or more companies.

198Balancing payments by guarantor to issuer: no charge to, or relief from, taxU.K.

(1)If each of the qualifying conditions (see section 197) is met, subsection (2) applies to the balancing payments made by all of the guarantor companies if, or so far as, the total amount of those payments does not exceed the total amount of the reductions within section 197(4).

(2)Payments to which this subsection applies—

(a)are not to be taken into account in calculating for the purposes of corporation tax the profits or losses of the guarantor company or companies or the issuing company, and

(b)are not for any purpose of the Corporation Tax Acts to be regarded as distributions.

(3)In this section, the following expressions have the meaning given by section 197—

  • “the balancing payments”,

  • “the guarantor company”, and

  • “the issuing company”.

199Pre-conditions for making election under section 200U.K.

(1)Conditions A to E are the pre-conditions for the purposes of section 200.

(2)Condition A is that both of the affected persons are companies.

(3)Condition B is that only one of the affected persons (“the advantaged person”) is a person on whom a potential advantage in relation to United Kingdom taxation is conferred by the actual provision.

(4)Condition C is that the other affected person (“the disadvantaged person”) is within the charge to income tax or corporation tax in respect of profits arising from the relevant activities (see section 216).

(5)Condition D is that the actual provision is provision in relation to a security (the “relevant security”).

(6)Condition E is that the capital market condition is met (see section 204).

(7)In subsections (5) and (8)(a) “security” includes securities not creating or evidencing a charge on assets.

(8)For the purposes of subsection (5), any—

(a)interest payable by a company on money advanced without the issue of a security for the advance, or

(b)other consideration given by a company for the use of money so advanced,

is to be treated as if payable or given in respect of a security issued for the advance by the company, and the reference in subsection (5) to a security is to be read accordingly.

200Election to pay tax rather than make balancing paymentsU.K.

(1)If each of the pre-conditions (see section 199) is met, the disadvantaged person may make an election—

(a)to make no balancing payment within section 196 to the advantaged person in connection with section 147(3) or (5) applying because of section 152 in relation to the relevant security in a chargeable period, but

(b)instead, to undertake sole responsibility for discharging the advantaged person's liability to tax for that period so far as resulting from section 147(3) or (5) applying because of section 152 in relation to the relevant security.

(2)Section 203 contains provision about the making and effect of elections under this section.

(3)In this section, the following expressions have the meaning given by section 199—

  • “the advantaged person”,

  • “the disadvantaged person”, and

  • “the relevant security”.

201Pre-conditions for making election under section 202U.K.

(1)Conditions A to E are the pre-conditions for the purposes of section 202.

(2)Condition A is that both of the affected persons are companies.

(3)Condition B is that only one of the affected persons (“the advantaged person”) is a person on whom a potential advantage in relation to United Kingdom taxation is conferred by the actual provision.

(4)Condition C is that the other affected person (“the disadvantaged person”) is within the charge to income tax or corporation tax in respect of profits arising from the relevant activities (see section 216).

(5)Condition D is that the actual provision is made or imposed by means of a series of transactions which include—

(a)the issuing of a security (“the relevant security”) by one of the affected persons (“the issuing company”), and

(b)the provision of a guarantee by the other affected person.

(6)Condition E is that the capital market condition is met (see section 204).

(7)In subsections (5) and (8)(a) “security” includes securities not creating or evidencing a charge on assets.

(8)For the purposes of subsection (5), any—

(a)interest payable by a company on money advanced without the issue of a security for the advance, or

(b)other consideration given by a company for the use of money so advanced,

is to be treated as if payable or given in respect of a security issued for the advance by the company, and the reference in subsection (5) to a security is to be read accordingly.

(9)In subsection (5) the reference to a guarantee includes—

(a)a reference to a surety, and

(b)a reference to any other relationship, arrangements, connection or understanding (whether formal or informal) such that the person making the loan to the issuing company has a reasonable expectation that in the event of a default by the issuing company the person will be paid by, or out of the assets of, one or more companies.

202Election, in guarantee case, to pay tax rather than make balancing paymentsU.K.

(1)If each of the pre-conditions (see section 201) is met, the disadvantaged person may make an election—

(a)to make no balancing payment within section 198 to the advantaged person in connection with section 147(3) or (5) applying because of section 153 in relation to the relevant security in a chargeable period, but

(b)instead, to undertake sole responsibility for discharging the advantaged person's liability to tax for that period so far as resulting from section 147(3) or (5) applying because of section 153 in relation to the relevant security.

(2)Section 203 contains provision about the making and effect of elections under this section.

(3)In this section, the following expressions have the meaning given by section 201—

  • “the advantaged person”,

  • “the disadvantaged person”, and

  • “the relevant security”.

203Elections under section 200 or 202U.K.

(1)In this section “election” means election under section 200 or 202.

(2)An election must be made by being included (whether by amendment or otherwise) in the disadvantaged person's company tax return for the chargeable period in which the relevant security is issued.

(3)An election is irrevocable.

(4)An election has effect in relation to each of the affected persons for the chargeable period in which the relevant security is issued and all subsequent chargeable periods.

(5)An election is of no effect if the Commissioners for Her Majesty's Revenue and Customs give the disadvantaged person a notice refusing to accept the election.

(6)A notice under subsection (5) may be given only after a notice of enquiry in respect of the company tax return containing the election has been given to the disadvantaged person.

(Paragraph 24 of Schedule 18 to FA 1998 makes provision about notices of enquiry in respect of company tax returns.)

(7)If an election has effect in relation to an accounting period of the advantaged person, the tax mentioned in subsection (1)(b) of the section under which the election is made—

(a)is recoverable from the disadvantaged person as if it were an amount of corporation tax due and owing from that person, and

(b)is not recoverable from the advantaged person.

(8)In this section—

  • “the advantaged person”, “the disadvantaged person” and “the relevant security”—

    (a)

    in relation to an election under section 200, have the meaning given by section 199, and

    (b)

    in relation to an election under section 202, have the meaning given by section 201, and

  • company tax return” means the return required to be delivered pursuant to a notice under paragraph 3 of Schedule 18 to FA 1998, as read with paragraph 4 of that Schedule.

(9)For the purposes of subsections (2) and (4), if the relevant security was issued in a chargeable period beginning before 1st April 2004 it is to be treated as if it had been issued in the chargeable period beginning on that date.

204Meaning of “capital market condition” in sections 199 and 201U.K.