Legalize / United Kingdom / Public General Act

Finance Act 1984

Type Public General Act

Publication 1984-07-26

Last updated 2024-02-22

State In force

Department Statute Law Database

Source legislation.gov.uk

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(7) In determining, in relation to a controlled foreign company to which sub-paragraph (6) above applies, the gross trading receipts referred to in paragraph (a) of that sub-paragraph, there shall be left out of account any receipts under a local reinsurance contract which are attributable to liabilities which—

(a) are undertaken under an insurance contract made in the territory in which the company is resident; and

(b) are not reinsured under any contract other than a local reinsurance contract; and

(c) relate either to persons who are resident in that territory and are neither connected nor associated with the company or to property which is situated there and belongs to persons who are not so connected or associated ;

and in paragraph (a) above " insurance contract" does not include a reinsurance contract.

(8) In sub-paragraph (7) above " local reinsurance contract" means a reinsurance contract—

(a) which is made in the territory in which the controlled foreign company is resident; and

(b) the parties to which are companies which are resident in that territory.

(9) For the purposes of sub-paragraphs (7) and (8) above, any question as to the territory in which a company is resident shall be determined in accordance with section 84 of this Act and, where appropriate, paragraph 5(2) above ; and, for the purpose of the application of those provisions in accordance with this sub-paragraph, the company shall be assumed to be a controlled foreign company.

12

(1) Subject to sub-paragraph (2) below, in paragraphs 6 and 8(3) above and sub-paragraphs (4) and (5) below " holding company " means—

(a) a company the business of which consists wholly or mainly in the holding of shares or securities of companies which are either local holding companies and its 90 per cent. subsidiaries or trading companies and either its 51 per cent. subsidiaries or companies falling within paragraph 6(5) above ; or

(b) a company which would fall within paragraph (a) above if there were disregarded so much of its business as consists in the holding of property or rights of any description for use wholly or mainly by companies which it controls and which are resident in the territory in which it is resident.

(2) In determining whether a company is a holding company for the purposes of paragraph 6(3) above (and, accordingly, whether the company is or may be a local holding company), sub-paragraph (1) above shall have effect with the omission from paragraph (a) thereof of the words " either local holding companies and its 90 per cent. subsidiaries or ".

(3) In its application for the purposes of this paragraph, section 532 of the Taxes Act shall have effect with the omission—

(a) from subsection (1)(a) of the words " or indirectly "; and

(b) of subsection (2).

(4) For the purposes of sub-paragraph (3) or, as the case may be sub-paragraph (4) of paragraph 6 above, as it applies in relation to a holding company part of whose business consists of activities other than the holding of shares or securities or the holding of property or rights as mentioned in paragraph (a) or paragraph (b) of sub-paragraph (1) above, the company's gross income during any accounting period shall be determined as follows—

(a) there shall be left out of account so much of what would otherwise be the company's gross income as is derived from any activity which, if it were the business in which the company is mainly engaged, would be such that paragraph 6(2) above would apply to the company ; and

(b) to the extent that the receipts of the company from any other activity include receipts from the proceeds of sale of any description of property or rights, the cost to the company of the purchase of that property or those rights shall (to the extent that the cost does not exceed the receipts) be a deduction in calculating the company's gross income, and no other deduction shall be made in respect of that activity.

(5) For the purposes of sub-paragraphs (3) and (4) of paragraph 6 above, so much of the income of a holding company as—

(a) is derived directly from another company which it controls and which is not a holding company but otherwise is, in terms of this Schedule, engaged in exempt activities, and

(b) was or could have been paid out of any non-trading income of that other company which is derived directly or indirectly from a third company connected or associated with it,

shall be treated, in relation to the holding company, as if it were not derived directly from companies which it controls.

(6) The reference in sub-paragraph (5) above to the non-trading income of a company is a reference to so much of its income as, if the company were carrying on its trade in the United Kingdom, would not be within the charge to corporation tax under Case I of Schedule D.

PART III — The Public Quotation Condition

13

(1) The provisions of this Part of this Schedule have effect for the purposes of paragraph (c) of subsection (1) of section 83 of this Act.

(2) Subject to paragraph 14 below, a controlled foreign company fulfils the public quotation condition with respect to a particular accounting period if—

(a) shares in the company carrying not less than 35 per cent. of the voting power in the company (and not being shares entitled to a fixed rate of dividend, whether with or without a further right to participate in profits) have been allotted unconditionally to, or acquired unconditionally by, the public and, throughout that accounting period, are beneficially held by the public ; and

(b) within the period of twelve months ending at the end of the accounting period, any such shares have been the subject of dealings on a recognised stock exchange situated in the territory in which the company is resident; and

(c) within that period of twelve months the shares have been quoted in the official list of such a recognised stock exchange.

14

(1) The condition in paragraph 13(2) above is not fulfilled with respect to an accounting period of a controlled foreign company if at any time in that period the total percentage of the voting power in the company possessed by all of the company's principal members exceeds 85 per cent.

(2) For the purposes of paragraph 13(2) above, shares in a controlled foreign company shall be deemed to be beneficially held by the public if they are held by any person other than—

(a) a person connected or associated with the company ; or

(b) a principal member of the company ;

and a corresponding construction shall be given to the reference to shares which have been allotted unconditionally to, or acquired unconditionally by, the public.

15

(1) References in this Part of this Schedule to shares held by any person include references to any shares the rights or powers attached to which could, for the purposes of section 302 of the Taxes Act (meaning of " control") be attributed to that person under subsection (5) of that section (nominees).

(2) For the purposes of this Part of this Schedule—

(a) a person is a principal member of a controlled foreign company if he possesses a percentage of the voting power in the company of more than 5 per cent. and,—

(i) where there are more than five such persons, if he is one of the five persons who possess the greatest percentages, or

(ii) if, because two or more persons possess equal percentages of the voting power in the company, there are no such five persons, he is one of the six or more persons (so as to include those two or more who possess equal percentages) who possess the greatest percentages ; and

(b) a principal member's holding consists of the shares which carry the voting power possessed by him.

(3) In arriving at the voting power which a person possesses, there shall be attributed to him any voting power which, for the purposes of section 302 of the Taxes Act, would be attributed to him under subsection (5) or subsection (6) of that section (nominees, controlled companies and associates).

(4) In this Part of this Schedule " share " includes stock.

PART IV — Reductions in United Kingdom Tax and Diversion of Profits

16

(1) The provisions of this Part of this Schedule have effect for the purposes of subsection (3) of section 83 of this Act.

(2) Any reference in paragraphs 17 and 18 below to a transaction—

(a) is a reference to a transaction reflected in the profits arising in an accounting period of a controlled foreign company; and

(b) includes a reference to two or more such transactions taken together.

17

(1) A transaction achieves a reduction in United Kingdom tax if, had the transaction not been effected, any person—

(a) would have been liable for any such tax or for a greater amount of any such tax ; or

(b) would not have been entitled to a relief from or repayment of any such tax or would have been entitled to a smaller relief from or repayment of any such tax.

(2) In this Part of this Schedule and section 83(3) of this Act " United Kingdom tax " means income tax, corporation tax or capital gains tax.

18

It is the main purpose or one of the main purposes of a transaction to achieve a reduction in United Kingdom tax if this is the purpose or one of the main purposes—

(a) of the controlled foreign company concerned ; or

(b) of a person who has an interest in that company at any time during the accounting period concerned.

19

(1) The existence of a controlled foreign company achieves a reduction in United Kingdom tax by a diversion of profits from the United Kingdom in an accounting period if it is reasonable to suppose that, had neither the company nor any company related to it been in existence,—

(a) the whole or a substantial part of the receipts which are reflected in the controlled foreign company's profits in that accounting period would have been received by a company or individual resident in the United Kingdom; and

(b) that company or individual or any other person resident in the United Kingdom either—

(i) would have been liable for any United Kingdom tax or for a greater amount of any such tax ; or

(ii) would not have been entitled to a relief from or repayment of any such tax or would have been entitled to a smaller relief from or repayment of any such tax.

(2) For the purposes of sub-paragraph (1) above, a company is related to a controlled foreign company if—

(a) it is resident outside the United Kingdom; and

(b) it is connected or associated with the controlled foreign company; and

(c) in relation to any company or companies resident in the United Kingdom, it fulfils or could fulfil, directly or indirectly, substantially the same functions as the controlled foreign company.

(3) Any reference in sub-paragraph (1) above to a company resident in the United Kingdom includes a reference to such a company which, if the controlled foreign company in question were not in existence, it is reasonable to suppose would have been established.

SCHEDULE 18

Trading losses and group relief etc.

1

(1) In any case where—

(a) an amount of chargeable profits is apportioned to a company resident in the United Kingdom, and

(b) the company is entitled, or would on the making of a claim be entitled, in computing its profits for the appropriate accounting period, to a deduction in respect of any relevant allowance, and

(c) for the appropriate accounting period the company has no profits against which a deduction could be made in respect of that allowance or, as the case may be, the amount of that allowance exceeds the profits against which a deduction falls to be made in respect of it,

then, on the making of a claim, a sum equal to corporation tax at the appropriate rate on so much of the relevant allowance or, as the case may be, of the excess of it referred to in paragraph (c) above as is specified in the claim shall be set off against the company's liability to tax under section 82(4)(a) of this Act in respect of the chargeable profits apportioned to it.

(2) In this paragraph—

(a) " the appropriate accounting period " means the accounting period for which, by virtue of section 89(2) of this Act, the company is regarded as assessed to corporation tax in respect of the chargeable profits concerned ; and

(b) "the appropriate rate" means the rate of corporation tax applicable to profits of the appropriate accounting period or, if there is more than one such rate, the average rate over the whole accounting period.

(3) In this paragraph " relevant allowance " means—

(a) any loss to which section 177(2) of the Taxes Act applies ;

(b) any charge on income to which section 248(1) of that Act applies;

(d) so much of any allowance to which section 74 of the Capital Allowances Act 1968 applies as falls within subsection (3) of that section ; and

(e) any amount available to the company by way of group relief.

(4) In any case where, for the appropriate accounting period, an amount would have been available to the company by way of group relief if a claim had been made under section 264 of the Taxes Act, such a claim may be made for the purposes of this paragraph at any time before the end of the accounting period following that in which the assessment under section 82(4)(a) of this Act is made, notwithstanding that the period of two years referred to in section 264(1)(c) of the Taxes Act has expired.

(5) Where, by virtue of sub-paragraph (1) above, a sum is set off against a liability to tax, so much of the relevant allowance as gives rise to the amount set off shall be regarded for the purposes of the Tax Acts as having been allowed as a deduction against the company's profits in accordance with the appropriate provisions of those Acts.

(6) In its application to a claim under this paragraph, section 43 of the Taxes Management Act 1970 (time limit for making claims) shall have effect as if, in subsection (2),—

(a) any reference to an assessment to income tax were a reference to an assessment under section 82(4)(a) of this Act; and

(b) any reference to a year of assessment were a reference to an accounting period.

Advance corporation tax

2

(1) In any case where—

(a) an amount of chargeable profits is apportioned to a company resident in the United Kingdom, and

(b) the company has an amount of advance corporation tax which, apart from this paragraph, would, in relation to the appropriate accounting period, be surplus advance corporation tax for the purposes of subsection (3) of section 85 of the Finance Act 1972,

then, on the making of a claim, so much of that advance corporation tax as is specified in the claim and does not exceed the relevant maximum shall be set against the company's liability to tax under section 82(4)(a) of this Act in respect of the chargeable profits apportioned to it, to the extent that that liability has not or could not have been relieved by virtue of paragraph 1 above.

(2) So much of any advance corporation tax as, by virtue of this paragraph, is set against the company's liability to tax under section 82(4)(a) of this Act in respect of chargeable profits shall be regarded for the purposes of the Tax Acts as not being surplus advance corporation tax within the meaning of section 85 of the Finance Act 1972.

(3) In this paragraph " the appropriate accounting period " has the same meaning as in paragraph 1 above and " the relevant maximum ", in relation to the liability to tax referred to in sub-paragraph (1) above, is the amount of advance corporation tax that would have been payable (apart from section 89 of the Finance Act 1972) in respect of a distribution made at the end of the appropriate accounting period of an amount which, together with the advance corporation tax in respect of it, is equal to—

(a) that amount of the chargeable profits apportioned to the company on which it is chargeable to corporation tax for that accounting period, less

(b) any amount which, for that accounting period, is to be regarded, by virtue of paragraph 1(5) above, as having been allowed as a deduction against the company's profits.

Gains on disposal of shares in controlled foreign company etc.

3

(1) This paragraph applies in any case where—

(a) a direction has been given under section 82(1) of this Act in respect of an accounting period of a controlled foreign company (in this paragraph referred to as "the direction period "); and

(b) the company's chargeable profits for the direction period have been apportioned among the persons referred to in section 82(3) of this Act; and

(i) shares in the controlled foreign company, or

(ii) shares in another company which, in whole or in part, give rise to the claimant company's interest in the controlled foreign company,

being, in either case, shares acquired before the end of the direction period ; and

(d) by virtue of the apportionment referred to in paragraph (b) above, under section 82(4)(a) of this Act a sum is assessed on and recoverable from the claimant company as if it were an amount of corporation tax ; and

(e) the claimant company makes a claim for relief under this paragraph ;

and in this paragraph the disposal mentioned in paragraph (c) above is referred to as " the relevant disposal".

(2) Subject to the following provisions of this section, in the computation under Chapter II of Part II of the Capital Gains Tax Act 1979 of the gain accruing on the relevant disposal, the appropriate fraction of the sum referred to in sub-paragraph (1)(d) above shall be allowable as a deduction; but to the extent that any sum has been allowed as a deduction under this sub-paragraph it shall not again be allowed as a deduction on any claim under this paragraph (whether made by the claimant company or another company).

(3) In relation to the relevant disposal, the appropriate fraction means that of which the numerator is the average market value in the direction period of the shares disposed of and the denominator is the average market value in that period of the interest in the controlled foreign company which, in the case of the claimant company, was taken into account in the apportionment referred to in sub-paragraph (1)(b) above.

(4) Where, before the relevant disposal,—

(a) a dividend is paid by the controlled foreign company, and

(b) the profits out of which the dividend is paid are those from which the chargeable profits referred to in sub-paragraph (1)(b) above are derived, and

this paragraph does not apply in relation to a sum assessed and recoverable in respect of so much of the chargeable profits as corresponds to the profits which the dividend represents.

(5) The conditions referred to in sub-paragraph (4)(c) above are—

(a) that the effect of the payment of the dividend is such that the value of the shares disposed of by the relevant disposal is less after the payment than it was before it; and

(b) that, in respect of a dividend paid or payable on the shares disposed of by the relevant disposal, the claimant company is, by virtue of paragraph 4(2) below, entitled under Part XVIII of the Taxes Act to relief (by way of underlying tax) by reference to sums which include the sum referred to in sub-paragraph (1)(d) above.

(6) A claim for relief under this paragraph shall be made before the expiry of the period of three months beginning—

(a) at the end of the accounting period in which the relevant disposal occurs ; or

(b) if it is later, on the date on which the assessment to tax for which the claimant company is liable by virtue of section 82(4)(a) of this Act becomes final and conclusive.

(7) In identifying for the purposes of this paragraph shares in a company with shares of the same class which are disposed of by the relevant disposal, shares acquired at an earlier time shall be deemed to be disposed of before shares acquired at a later time.

Dividends from the controlled foreign company

4

(1) This paragraph applies in any case where—

(a) a direction has been given under section 82(1) of this Act in respect of an accounting period of a controlled foreign company, and

(b) the company's chargeable profits for that period have been apportioned among the persons referred to in section 82(3) of this Act, and

(c) the controlled foreign company pays a dividend in whole or in part out of the total profits from which (in accordance with section 82(6)(a) of this Act) those chargeable profits are derived.

(2) Subject to paragraphs 5 and 6 below, where this paragraph applies, the aggregate of the sums assessed on and recoverable from companies resident in the United Kingdom in accordance with section 82(4)(a) of this Act in respect of the chargeable profits referred to in sub-paragraph (1)(b) above shall be treated for the purposes of Part XVIII of the Taxes Act (double taxation relief) as if it were an amount of tax paid in respect of the profits concerned under the law of the territory in which the controlled foreign company was resident and, accordingly, as underlying tax for the purposes of Chapter II of that Part.

(3) In the following provisions of this paragraph and in paragraphs 5 and 6 below the aggregate of the sums which, under sub-paragraph (2) above, fall to be treated as underlying tax is referred to as the " gross attributed tax ".

(4) If, in the case of a person who receives the dividend, section 504 or section 505 of the Taxes Act (1imit on credit) has the effect of reducing the amount which (apart from that section) would have been the amount of the credit for foreign tax which is to be allowed to that person, then, for the purposes of sub-paragraph (5) below, the amount of that reduction shall be determined and so much of it as does not exceed the amount of the foreign tax, exclusive of underlying tax, for which credit is to be allowed in respect of the dividend is in that sub-paragraph referred to as " the wasted relief ".

(5) Except for the purpose of determining the amount of the wasted relief, the gross attributed tax shall be treated as reduced by the aggregate of the wasted relief arising in the case of all the persons falling within sub-paragraph (4) above and, on the making of a claim by any of the companies referred to in sub-paragraph (2) above,—

(a) the sum assessed on and recoverable from the company in accordance with section 82(4)(a) of this Act in respect of the chargeable profits referred to in sub-paragraph (1)(b) above shall, where appropriate, be reduced ; and

(b) all such adjustments (whether by repayment of tax or otherwise) shall be made as are appropriate to give effect to any reduction under paragraph (a) above.

5

(1) In so far as any provision of—

(a) arrangements having effect by virtue of section 497 of the Taxes Act (relief by agreement with other countries), or

(b) section 498 of that Act (unilateral relief),

makes relief which is related to foreign dividends received by a company resident in the United Kingdom conditional upon that company either having a particular degree of control of the company paying the dividend or being a subsidiary of another company which has that degree of control, that condition shall be treated as fulfilled in considering whether any such company is by virtue of paragraph 4(2) above entitled to relief under Part XVIII of that Act in respect of any of the gross attributed tax.

(2) Notwithstanding anything in paragraph 4(2) above, in section 503(2)(b) of the Taxes Act (income from dividends treated as increased by underlying tax) the expression "underlying tax" does not include gross attributed tax.

(3) In a case where the controlled foreign company pays a dividend otherwise than out of specified profits and, on the apportionment referred to in paragraph 4(1) above, less than the whole of the chargeable profits of the controlled foreign company concerned is apportioned to companies which are resident in the United Kingdom and liable for tax thereon as mentioned in section 82(4)(a) of this Act,—

(a) the gross attributed tax shall be regarded as attributable to a corresponding proportion of the profits in question, and in this sub-paragraph the profits making up that proportion are referred to as " taxed profits " ;

(b) so much of the dividend as is received by, or by a successor in title of, any such company shall be regarded as paid primarily out of taxed profits ; and

(c) so much of the dividend as is received by any other person shall be regarded as paid primarily out of profits which are not taxed profits.

(4) The reference in sub-paragraph (3)(b) above to a successor in title of a company resident in the United Kingdom is a reference to a person who is such a successor in respect of the whole or any part of that interest in the controlled foreign company by virtue of which an amount of its chargeable profits was apportioned to that company.

6

(1) In any case where—

(a) on a claim for relief under paragraph 3 above, the whole or any part of any sum has been allowed as a deduction on a disposal of shares in any company, and

(b) that sum forms part of the gross attributed tax in relation to a dividend paid by that company, and

(c) a person receiving the dividend in respect of the shares referred to in paragraph (a) above (in this paragraph referred to as " the primary dividend ") or any other relevant dividend is, by virtue of paragraph 4(2) above, entitled under Part XVIII of the Taxes Act to relief (by way of underlying tax) by reference to the whole or any part of the gross attributed tax,

the amount which, apart from this paragraph, would be available by way of such relief to the person referred to in paragraph (c) above shall be reduced or, as the case may be, extinguished by deducting therefrom the amount allowed by way of relief as mentioned in paragraph (a) above.

(2) For the purposes of sub-paragraph (1)(c) above, in relation to the primary dividend, another dividend is a relevant dividend if—

(a) it is a dividend in respect of shares in a company which is resident outside the United Kingdom; and

(b) it represents profits which, directly or indirectly, consist of or include the primary dividend.

SCHEDULE 19

PART I — The Distribution Test

Requirements as to distributions

1

(1) For the purposes of this Chapter, an offshore fund pursues a full distribution policy with respect to an account period if—

(a) a distribution is made for that account period or for some other period which, in whole or in part, falls within that account period; and.

(b) subject to Part II of this Schedule, the amount of the distribution which is paid to the holders of material and other interests in the fund—

(i) represents at least 85 per cent. of the income of the fund for that period, and

(ii) is not less than 85 per cent. of the fund's United Kingdom equivalent profits for that period ; and

(d) the form of the distribution is such that, if any sum forming part of it were received in the United Kingdom by a person resident there and did not form part of the profits of a trade, profession or vocation, that sum would fall to be chargeable to tax under Case IV or Case V of Schedule D ;

and any reference in this sub-paragraph to a distribution made for an account period includes a reference to any two or more distributions so made or, in the case of paragraph (b), the aggregate of them.

(2) Subject to sub-paragraph (3) below, with respect to any account period for which—

(a) there is no income of the fund, and

(b) there are no United Kingdom equivalent profits of the fund,

the fund shall be treated as pursuing a full distribution policy notwithstanding that no distribution is made as mentioned in sub-paragraph (1) above.

(3) For the purposes of this Chapter, an offshore fund shall be regarded as not pursuing a full distribution policy with respect to an account period for which the fund does not make up accounts.

(4) For the purposes of this paragraph—

(a) where a period for which an offshore fund makes up accounts includes the whole or part of two or more account periods of the fund, then, subject to paragraph (c) below, income shown in those accounts shall be apportioned between those account periods on a time basis according to the number of days in each period which are comprised in the period for which the accounts are made up ;

(b) where a distribution is made for a period which includes the whole or part of two or more account periods of the fund, then, subject to sub-paragraph (5) below, the distribution shall be apportioned between those account periods on a time basis according to the number of days in each period which are comprised in the period for which the distribution is made;

(c) where a distribution is made out of specified income but is not made for a specified period, that income shall be attributed to the account period of the fund in which it in fact arose and the distribution shall be treated as made for that account period ; and

(d) where a distribution is made neither for a specified period nor out of specified income, then, subject to sub-paragraph (5) below, it shall be treated as made for the last account period of the fund which ended before the distribution was made.

(5) If, apart from this sub-paragraph, the amount of a distribution made, or treated by virtue of sub-paragraph (4) above as made, for an account period would exceed the income of that period, then, for the purposes of this paragraph,—

(a) if the amount of the distribution was determined by apportionment under sub-paragraph (4)(b) above, the excess shall be re-apportioned, as may be just and reasonable, to any other account period which, in whole or in part, falls within the period for which the distribution was made or, if there is more than one such period, between those periods ; and

(b) subject to paragraph (a) above, the excess shall be treated as an additional distribution or series of additional distributions made for preceding account periods in respect of which the distribution or, as the case may be, the aggregate distributions would otherwise be less than the income of the period, applying the excess to later account periods before earlier ones, until it is exhausted.

(6) In any case where—

(a) for a period which is or includes an account period, an offshore fund is subject to any restriction as regards the making of distributions, being a restriction imposed by the law of any territory outside the United Kingdom, and

(b) the fund is subject to that restriction by reason of an excess of losses over profits (applying the concepts of " profits " and " losses " in the sense in which and to the extent to which they are relevant for the purposes of the law in question),

then, in determining, for the purposes of the preceding provisions of this paragraph, the amount of the fund's income for that account period, there shall be allowed as a deduction any amount which, apart from this sub-paragraph, would form part of the income of the fund for that account period and which cannot be distributed by virtue of the restriction.

Funds operating equalisation arrangements

2

(1) In the case of an offshore fund which throughout any account period operates equalisation arrangements, on any occasion in that period when there is a disposal to which this sub-paragraph applies, the fund shall be treated for the purposes of this Part of this Schedule as making a distribution of an amount equal to so much of the consideration for the disposal as, in accordance with this paragraph, represents income accrued to the date of the disposal.

(2) Sub-paragraph (1) above applies to a disposal—

(a) which is a disposal of a material interest in the offshore fund concerned; and

(b) which is a disposal to which this Chapter applies (whether by virtue of subsection (3) of section 93 of this Act or otherwise) or is one to which this Chapter would apply if subsections (5) and (6) of that section applied generally and not only for the purpose of determining whether, by virtue of subsection (3) of that section, there is a disposal to which this Chapter applies; and

(d) which is a disposal to the fund itself or to the persons concerned with the management of the fund (in this paragraph referred to as " the managers ") in their capacity as such.

(3) On a disposal to which sub-paragraph (1) above applies, the part of the consideration which represents income accrued to the date of the disposal is, subject to sub-paragraph (4) and paragraph 4(4) below, the amount which would be credited to the equalisation account of the offshore fund concerned in respect of accrued income if, on the date of the disposal, the material interest which is disposed of were acquired by another person by way of initial purchase.

(4) If, after the beginning of the period by reference to which the accrued income referred to in sub-paragraph (3) above is calculated, the material interest disposed of by a disposal to which sub-paragraph (1) above applies was acquired by way of initial purchase (whether or not by the person making the disposal), there shall be deducted from the amount which, in accordance with sub-paragraph (3) above, would represent income accrued to the date of the disposal, the amount which on that acquisition was credited to the equalisation account of the fund in respect of accrued income ; and if in that period there has been more than one such acquisition of that material interest by way of initial purchase, the deduction to be made under this sub-paragraph shall be the amount so credited to the equalisation account on the latest such acquisition prior to the disposal in question.

(5) Where, by virtue of this paragraph, an offshore fund is treated for the purposes of this Part of this Schedule as making a distribution on the occasion of a disposal, the distribution shall be treated for those purposes—

(a) as complying with paragraph 1(1)(d) above ; and

(b) as made out of the income of the fund for the account period in which the disposal occurs ; and

(6) In any case where—

(a) a distribution in respect of an interest in an offshore fund is made to the managers of the fund, and

(b) their holding of that interest is in their capacity as such, and

the distribution shall not be taken into account for the purposes of paragraph 1(1) above except to the extent that the distribution is properly referable to that part of the period for which the distribution is made during which that interest has been held by the managers of the fund in their capacity as such.

(7) Subsection (2) of section 93 applies for the purposes of this paragraph as it applies for the purposes of that section.

Income taxable under Case IV or Case V of Schedule D

3

(1) Sub-paragraph (2) below applies if any sums which form part of the income of an offshore fund falling within paragraph (b) or paragraph (c) of subsection (1) of section 94 of this Act are of such a nature that—

(a) the holders of interests in the fund who are either companies resident in the United Kingdom or individuals domiciled and resident there—

(i) are chargeable to tax under Case IV or Case V of Schedule D in respect of such of those sums as are referable to their interests ; or

(ii) if any of that income is derived from assets within the United Kingdom, would be so chargeable had the assets been outside the United Kingdom ; and

(b) the holders of interests who are not such companies or individuals would be chargeable as mentioned in sub-paragraph (i) or sub-paragraph (ii) above if they were resident in the United Kingdom or, in the case of individuals, if they were domiciled and both resident and ordinarily resident there.

(2) To the extent that sums falling within sub-paragraph (1) above do not actually form part of a distribution complying with paragraphs 1(1)(c) and 1(1)(d) above, they shall be treated for the purposes of this Part of this Schedule—

(a) as a distribution complying with those paragraphs and made out of the income of which they form part; and

(b) as paid to the holders of the interests to which they are referable.

Commodity income

4

(1) To the extent that the income of an offshore fund for any account period includes profits from dealing in commodities, one half of those profits shall be left out of account in determining for the purposes of paragraphs 1(1)(b) above and 5 below—

(a) the income of the fund for that period ; and

(b) the fund's United Kingdom equivalent profits for that period;

but in any account period in which an offshore fund incurs a loss in dealing in commodities the amount of that loss shall not be varied by virtue of this paragraph.

(2) In this paragraph, " dealing in commodities" shall be construed as follows—

(a) " commodities " does not include currency, securities, debts or other assets of a financial nature but, subject to that, means tangible assets which are dealt with on a commodity exchange in any part of the world ; and

(b) " dealing" includes dealing by way of futures contracts and traded options.

(3) Where the income of an offshore fund for any account period consists of profits from dealing in commodities and other income then,—

(a) in determining whether the condition in paragraph 1(1)(b) above is fulfilled with respect to that account period, the expenditure of the fund shall be apportioned in such manner as is just and reasonable between the profits from dealing in commodities and the other income ; and

(b) in determining whether, and to what extent, any expenditure is deductible under section 304 of the Taxes Act (management expenses of investment companies) in computing the fund's United Kingdom equivalent profits for that period, so much of the business of the fund as does not consist of dealing in commodities shall be treated as a business carried on by a separate company.

(4) Where there is a disposal to which sub-paragraph (1) of paragraph 2 above applies, then, to the extent that any amount which was or would be credited to the equalisation account in respect of accrued income, as mentioned in sub-paragraph (3) or sub-paragraph (4) of that paragraph, represents profits from dealing in commodities, one half of that accrued income shall be left out of account in determining under those sub-paragraphs the part of the consideration for the disposal which represents income accrued to the date of the disposal.

United Kingdom equivalent profits

5

(1) Any reference in this Schedule to the United Kingdom equivalent profits of an offshore fund for an account period is a reference to the amount which, on the assumptions in sub-paragraph (3) below, would be the total profits of the fund for that period on which, after allowing for any deductions available against those profits, corporation tax would be chargeable.

(2) In this paragraph the expression " profits " does not include chargeable gains.

(3) The assumptions referred to in sub-paragraph (1) above are—

(a) that the offshore fund is a company which, in the account period in question, but not in any other account period, is resident in the United Kingdom ; and

(b) that the account period is an accounting period of that company ; and

(c) that any dividends or distributions which, by virtue of section 239 of the Taxes Act (dividends and distributions of companies resident in the United Kingdom), should be left out of account in computing income for corporation tax purposes are nevertheless to be brought into account in that computation in like manner as if they were dividends or distributions of a company resident outside the United Kingdom.

(4) Without prejudice to any deductions available apart from this sub-paragraph, the deductions referred to in sub-paragraph (1) above include—

(a) a deduction equal to any amount which, by virtue of paragraph 1(6) above, is allowed as a deduction in determining the income of the fund for the account period in question; and

(b) a deduction equal to any amount of tax (paid under the law of a territory outside the United Kingdom) which was taken into account as a deduction in determining the income of the fund for the account period in question but which, because it is referable to capital rather than income, does not fall to be taken into account by virtue of section 516 of the Taxes Act.

(5) For the avoidance of doubt it is hereby declared that, if any sums forming part of the offshore fund's income for any period have been received by the fund without any deduction of or charge to tax by virtue of section 99 or section 100 of the Taxes Act (securities held by non-residents), the effect of the assumption in sub-paragraph (3)(a) above is that those sums are to be brought into account in determining the total profits referred to in sub-paragraph (1) above.

PART II — Modifications of Conditions For Certification in Certain Cases

Exclusion of investments in distributing offshore funds

6

(1) In any case where—

(a) in an account period of an offshore fund (in this Part of this Schedule referred to as the " primary fund"), the assets of the fund consist of or include interests in another offshore fund, and

(b) those interests (together with other interests which the primary fund may have) are such that, by virtue of paragraph (a) of subsection (3) of section 95 of this Act or, if the other fund concerned is a company, by virtue of paragraph (b) or paragraph (c) of that subsection, the primary fund could not, apart from this paragraph, be certified as a distributing fund in respect of that account period, and

(c) without regard to the provisions of this paragraph, that other fund could be certified as a distributing fund in respect of its account period or, as the case may be, each of its account periods which comprises the whole or any part of the account period of the primary fund,

then, in determining whether anything in paragraphs (a) to (c) of the said subsection (3) prevents the primary fund being certified as mentioned in paragraph (b) above, the interests of the primary fund in that other fund shall be left out of account except for the purpose of determining the total value of the assets of the primary fund.

(2) In this Part of this Schedule an offshore fund falling within sub-paragraph (1)(c) above is referred to as a " qualifying fund".

(3) In a ease falling within sub-paragraph (1) above—

(a) paragraphs (a) to (c) of subsection (3) of section 95 of this Act shall have effect in relation to the primary fund with the modification in paragraph 7 below (in addition to that provided for by sub-paragraph (1) above); and

(b) Part I of this Schedule shall have effect in relation to the primary fund with the modification in paragraph 8 below.

7

The modification referred to in paragraph 6(3)(a) above is that, in any case where—

(a) at any time in the account period referred to in paragraph 6(1) above, the assets of the primary fund include an interest in an offshore fund or in any company (whether an offshore fund or not), and

(b) that interest falls to be taken into account in determining whether anything in paragraphs (a) to (c) of subsection (3) of section 95 of this Act prevents the primary fund being certified as a distributing fund in respect of that account period, and

(c) at any time in that account period the assets of the qualifying fund include an interest in the offshore fund or company referred to in paragraph (a) above,

for the purpose of the application in relation to the primary fund of the provisions referred to in paragraph (b) above, at any time when the assets of the qualifying fund include the interest referred to in paragraph (c) above, the primary fund's share of that interest shall be treated as an additional asset of the primary fund.

8

(1) The modification referred to in paragraph 6(3)(b) above is that, in determining whether the condition in paragraph 1(1)(b)(ii) above is fulfilled with respect to the account period of the primary fund referred to in paragraph 6(1) above, the United Kingdom equivalent profits of the primary fund for that period shall be treated as increased by the primary fund's share of the excess income (if any) of the qualifying fund which is attributable to that period.

(2) For the purposes of this paragraph, the excess income of the qualifying fund for any account period of that fund is the amount (if any) by which its United Kingdom equivalent profits for that account period exceed the amount of the distributions made for that period, as determined for the purposes of the application of paragraph 1(1) above to the qualifying fund.

(3) If an account period of the qualifying fund coincides with an account period of the primary fund, then the excess income (if any) of the qualifying fund for that period is the excess income which is attributable to that period of the primary fund.

(4) In a case where sub-paragraph (3) above does not apply, the excess income of the qualifying fund which is attributable to an account period of the primary fund is the appropriate fraction of the excess income (if any) of the qualifying fund for any of its account periods which comprises the whole or any part of the account period Of the primary fund and, if there is more than one such account period of the qualifying fund, the aggregate of the excess income (if any) of each of them.

(5) For the purposes of sub-paragraph (4) above, the appropriate fraction is that of which—

(a) the numerator is the number of days in the account period of the primary fund which are also days in an account period of the qualifying fund ; and

(b) the denominator is the number of days in that account period of the qualifying fund or, as the case may be, in each of those account periods of that fund which comprises the whole or any part of the account period of the primary fund.

9

(1) The references in paragraphs 7 and 8(1) above to the primary fund's share of—

(a) an interest forming part of the assets of the qualifying fund, or

(b) the excess income (as defined in paragraph 8 above) of the qualifying fund,

shall be construed as references to the fraction specified in sub-paragraph (2) below of that interest or excess income.

(2) In relation to any account period of the primary fund, the fraction referred to in sub-paragraph (1) above is that of which—

(a) the numerator is the average value of the primary fund's holding of interests in the qualifying fund during that period; and

(b) the denominator is the average value of all the interests in the qualifying fund held by any persons during that period.

Offshore funds investing in trading companies

10

(1) In any case where the assets of an offshore fund for the time being include an interest in a trading company, as defined in sub-paragraph (2) below, the provisions of subsection (3) of section 95 of this Act nave effect subject to the modifications in sub-paragraphs (3) and (4) below.

(2) In this paragraph " trading company " means a company whose business consists wholly of the carrying on of a trade or trades and does not to any extent consist of—

(a) dealing in commodities, as defined in paragraph 4(2) above, or dealing, as so defined, in currency, securities, debts or other assets of a financial nature ; or

(b) banking or money-lending.

(3) In the application of section 95(3)(b) of this Act to so much of the assets of an offshore fund as for the time being consists of interests in a single trading company, for the words " 10 per cent. " there shall be substituted the words " 20 per cent. "

(4) In the application of section 95(3)(c) of this Act to an offshore fund the assets of which for the time being include any issued share capital of a trading company or any class of that share capital, for the words " more than 10 per cent." there shall be substituted the words " 50 per cent. or more ".

Offshore funds with wholly-owned subsidiaries dealing in commodities

11

(1) In relation to an offshore fund which has a wholly-owned subsidiary—

(a) which is a company, and

(b) the business of which consists wholly or mainly of dealing in commodities, as defined in paragraph 4(2) above,

the provisions of subsection (3) of section 95 of this Act and Part I of this Schedule have effect subject to the modifications in sub-paragraph (3) below.

(2) For the purposes of this paragraph, a company is a wholly-owned subsidiary of an offshore fund if and so long as the whole of the issued share capital of the company is,—

(a) in the case of an offshore fund falling within section 94(1)(a) of this Act, directly and beneficially owned by the fund ; and

(b) in the case of an offshore fund falling within section 94(1)(b) of this Act, directly owned by the trustees of the fund for the benefit of the fund ; and

(c) in the case of an offshore fund falling within section 94(1)(c) of this Act, owned in a manner which, as near as may be, corresponds either to paragraph (a) or paragraph (b) above.

(3) The modifications referred to in sub-paragraph (1) above are that, for the purposes of the provisions referred to in that sub-paragraph,—

(a) the receipts, expenditure, assets and liabilities of the subsidiary shall be regarded as the receipts, expenditure, assets and liabilities of the fund ; and

(b) there shall be left out of account the interest of the fund in the subsidiary and any distributions or other payments made by the subsidiary to the fund or by the fund to the subsidiary.

Offshore funds with interests in dealing and management companies

12

(1) Section 95(3)(c) of this Act shall not apply to so much of the assets of an offshore fund as consists of issued share capital of a company which is either—

(a) a wholly-owned subsidiary of the fund which falls within sub-paragraph (2) below, or

(b) a subsidiary management company of the fund, as defined in sub-paragraph (3) below.

(2) A company which is a wholly-owned subsidiary of an offshore fund is one to which sub-paragraph (1)(a) above applies if—

(a) the business of the company consists wholly of dealing in material interests in the offshore fund for the purposes of and in connection with the management and administration of the business of the fund ; and

(b) the company is not entitled to any distribution in respect of any material interest for the time being held by it;

and paragraph 11(2) above shall apply to determine whether a company is, for the purposes of this paragraph, a wholly-owned subsidiary of an offshore fund.

(3) A company in which an offshore fund has an interest is for the purposes of sub-paragraph (1)(b) above a subsidiary management company of the fund if—

(a) the company carries on no business other than providing services falling within sub-paragraph (4) below either for the fund alone or for the fund and for any other offshore fund which has an interest in the company ; and

(b) the company's remuneration for the services which it provides to the fund is not greater than it would be if it were determined at arm's length between the fund and a company in which the fund has no interest.

(4) The services referred to in sub-paragraph (3) above are—

(a) holding property (of any description) which is occupied or used in connection with the management or administration of the fund ; and

(b) providing administrative, management and advisory services to the fund.

(5) In determining, in accordance with sub-paragraph (3) above, whether a company in which an offshore fund has an interest is a subsidiary management company of that fund,—

(a) every business carried on by a wholly-owned subsidiary of the company shall be treated as carried on by the Company ; and

(b) no account shall be taken of so much of the company's business as Consists of holding its interests in a wholly-owned Subsidiary; and

(c) any reference in sub-paragraph (3)(b) above to the company shall be taken to include a reference to a wholly-owned subsidiary of the company.

(6) Any reference in sub-paragraph (5) above to a wholly-owned subsidiary of a company is a reference to another company the whole of the issued share capital of which is for the time being directly and beneficially owned by the first company.

PART III — Certification Procedure

Application for Certification

13

(1) The Board shall, in such manner as they think appropriate, certify an offshore fund as a distributing fund in respect of an account period if—

(a) an application in respect of that period is made under this paragraph; and

(b) the application is accompanied by the accounts of the fund for, or for a period which includes, the account period to which the application relates ; and

(c) there is furnished to the Board such information as they may reasonably require for the purpose of determining whether the fund should be so certified ; and

(d) they are satisfied that nothing in subsection (2) or subsection (3) of section 95 of this Act prevents the fund being so certified.

(2) An application under this paragraph shall be made to the Board by the fund or by a trustee or officer thereof on behalf of the fund and may be so made—

(a) before the expiry of the period of six months beginning at the end of the account period to which the application relates; or

(b) if it is later, before 1st January 1985 ; or

(3) In any case where, on an application under this paragraph, the Board determine that the offshore fund concerned should not be certified as a dittoing fund in respect of the account period to which the application relates, they shall give notice in writing of that fact to the fund.

(4) If at any time it appears to the Board that the accounts accompanying an application under this paragraph in respect of any account period of an offshore fund or any information furnished to the Board in connection with such an application is or are not such as to make full and accurate disclosure of all facts and considerations relevant to the application, they shall give notice to the fund accordingly, specifying the period concerned.

(5) Where a notice is given by the Board under sub-paragraph (4) above, any certification by them in respect of the account period in question shall be void.

Appeals

14

(1) An appeal to the Special Commissioners—

(a) against such a determination as is referred to in paragraph 13(3) above, or

(b) against a notification under paragraph 13(4) above,

may be made by the offshore fund or by a trustee or officer thereof on behalf of the fund, and shall be so made by notice in writing specifying the grounds of appeal and given to the Board within 90 days of the date of the notice under paragraph 13(3) or, as the ease may be, paragraph 13(4) above.

(2) The jurisdiction of the Special Commissioners on an appeal under this paragraph shall include jurisdiction to review any decision of the Board which is relevant to a ground of the appeal.

PART IV — Supplementary

Assessment: effect of non-certification

15

No appeal may be brought against an assessment to tax on the ground that an offshore fund should have been certified as a distributing fund in respect of an account period of the fund.

16

(1) Without prejudice to paragraph 15 above, in any case where no application has been made under paragraph 13 above in respect of an account period of an offshore fund, any person who is assessed to tax for which he would not be liable if the offshore fund were certified as a distributing fund in respect of that period may by notice in writing require the Board to take action under this paragraph with a view to determining whether the fund should be so certified.

(2) Subject to sub-paragraphs (3) and (5) below, if the Board receive a notice under sub-paragraph (1) above, they shall, by notice in writing, invite the offshore fund concerned to make an application under paragraph 13 above in respect of the period in question.

(3) Where sub-paragraph (2) above applies, the Board shall not be required to give notice under that sub-paragraph before the expiry of the account period to which the notice is to relate nor if an application under paragraph 13 above has already been made; but where notice is given under that sub-paragraph, an application under paragraph 13 above shall not be out of time under paragraph 13(2)(a) or paragraph 13(2)(b) above if it is made within 90 days of the date of that notice.

(4) If an offshore fund to which notice in writing is given under sub-paragraph (2) above does not, within the time allowed by sub-paragraph (3) above or, as the case may be, paragraph 13(2)(a) or paragraph 13(2)(b) above, make an application under paragraph 13 above in respect of the account period in question, the Board shall proceed to determine the question of certification in respect of that period as if such an application had been made.

(5) Where the Board receive more than one notice under sub-paragraph (1) above with respect to the same account period of the same offshore fund, their obligations under sub-paragraphs (2) and (4) above shall be taken to be fulfilled with respect to each of those notices if they are fulfilled with respect to any one of them.

(6) Notwithstanding anything in sub-paragraph (5) above, for the purpose of a determination under sub-paragraph (4) above with respect to an account period of an offshore fund, the Board shall have regard to accounts and other information furnished by all persons who have given notice under sub-paragraph (1) above with respect to that account period ; and paragraph 13 above shall apply as if accounts and information so furnished had been furnished in compliance with sub-paragraph (1) of that paragraph.

(7) Without prejudice to sub-paragraph (5) above, in any case where—

(a) at a time after the Board have made a determination under sub-paragraph (4) above that an offshore fund should not be certified as a distributing fund in respect of an account period, notice is given under sub-paragraph (1) above with respect to that period, and

(b) the person giving that notice furnishes the Board with accounts or information which had not been furnished to the Board at the time of the earlier determination,

the Board shall reconsider their previous determination in the light of the new accounts or information and, if they consider it appropriate, may determine to certify the fund accordingly.

(8) Where any person has given notice to the Board under sub-paragraph (1) above with respect to an account period of an offshore fund and no application has been made under paragraph 13 above with respect to that period,—

(a) the Board shall notify that person of their determination with respect to certification under sub-paragraph (4) above ; and

(b) paragraph 14 above shall not apply in relation to that determination.

Postponement of tax pending determination of question as to certification

17

(1) In any case where—

(a) an application has been made under paragraph 13 above with respect to an account period of an offshore fund and that application has not been finally determined, or

(b) paragraph (a) above does not apply but notice has been given under paragraph 16(1) above in respect of an account period of an offshore fund and the Board have not yet given notice of their decision as to certification under paragraph 16(4) above,

any person who has been assessed to tax and considers that, if the offshore fund were to be certified as a distributing fund in respect of the account period in question, he would be overcharged to tax by the assessment may, by notice in writing given to the inspector within 30 days after the date of the issue of the notice of assessment, apply to the General Commissioners for a determination of the amount of tax the payment of which should be postponed pending the determination of the question whether the fund should be so certified.

(2) A notice of application under sub-paragraph (1) above shall state the amount in which the applicant believes that he is overcharged to tax and his grounds for that belief.

(3) Subsections (3A) onwards of section 55 of the Taxes Management Act 1970 (recovery of tax not postponed) shall apply with any necessary modifications in relation to an application under sub-paragraph (1) above as if it were an application under subsection (3) of that section and as if the determination of the question as to certification (whether by the Board or on appeal) were the determination of an appeal.

Information as to decisions on certification etc.

18

No obligation as to the secrecy imposed by statute or otherwise shall preclude the Board or an inspector from disclosing to any person appearing to have an interest in the matter—

(a) any determination of the Board or (on appeal) the Special Commissioners whether an offshore fund should or should not be certified as a distributing fund in respect of any account period; or

(b) the content and effect of any notice given by the Board under paragraph 13(4) above.

SCHEDULE 20

PART I — Disposals of Interests in Non-Qualifying Funds

Interpretation

1

In this Part of this Schedule—

" the principal Act" means the Capital Gains Tax Act 1979 ;

" the principal section " means section 96 of this Act; and

"material disposal" means a disposal to which Chapter VII of Part II of this Act applies, otherwise than by virtue of section 93(3) of this Act.

Calculation of unindexed gain

2

(1) Where there is a material disposal, there Shall first be determined for the purposes of this Part of this Schedule the amount (if any) which, in accordance with the provisions of this paragraph, is the unindexed gain accruing to the person making the disposal.

(2) Subject to subsections (3) to (6) of section 92 of this Act and paragraph 3 below, the unindexed gain accruing on a material disposal is the amount which would be the gain on that disposal for the purposes of the principal Act if it were computed—

(a) without regard to any charge to income tax or corporation tax by virtue of the principal section; and

(b) without regard to any indexation allowance on the disposal under Chapter III of Part III of the Finance Act 1982.

3

(1) if the amount of any chargeable gain or allowable loss which (apart from section 98 of this Act) would accrue on the material disposal would fall to be determined in a way which, in whole or in part, would take account of the indexation allowance on an earlier disposal to which paragraph 2 of Schedule 13 to the Finance Act 1982 applies (disposals on a no-gain/no-loss basis), the unindexed gain on the material disposal shall be computed as if—

(a) no indexation allowance had been available on any such earlier disposal; and

(b) subject to that, neither a gain nor a loss had accrued to the person making such an earlier disposal.

(2) If the material disposal forms part of a transfer to which Section 123 of the principal Act applies (roll-over relief on transfer of business), the unindexed gain accruing on the disposal Shall be computed without regard to any deduction which falls to be made under that section in computing a chargeable gain.

(3) If the material disposal is made otherwise than under a bar-gam at arm's length and a claim for relief is made in respect of that disposal under section 79 of the Finance Act 1980 (relief for gifts), that section shall not affect the computation of the unindexed gain accruing on the disposal.

(4) Where, in the case of an insurance company carrying on life assurance business, a profit arising from general annuity business and attributable to a material disposal falls (or would but for section 99(2) of this Act fall) to be taken into account in the computation under section 312 of the Taxes Act (general annuity business and pension business: separate charge on profits), the unindexed gain, if any, accruing to the company on the disposal shall be computed as if section 31(1) of the principal Act (computation of chargeable gains: exclusion of sums taken into account in computing income) did not apply.

(5) Notwithstanding section 29 of the principal Act (losses to be determined in like manner as gains) if, apart from this sub-paragraph, the effect of any computation under the preceding provisions of this Part of this Schedule would be to produce a loss, the unindexed gain on the material disposal shall be treated as nil; and, accordingly, for the purposes of this Part of this Schedule no loss shall be treated as accruing on a material disposal.

(6) Section 323 of the Taxes Act (interpretation of Chapter II of Part XII of that Act) has effect in relation to sub-paragraph (4) above as if it were included in that Chapter.

Gains since 1st January 1984

4

(1) This paragraph applies where—

(a) the interest in the offshore fund which is disposed of by the person making a material disposal was acquired by him before 1st January 1984 ; or

(b) he is treated by virtue of any provisions of sub-paragraphs (3) and (4) below as having acquired the interest before that date.

(2) Where this paragraph applies, there shall be determined for the purposes of this Part of this Schedule the amount which would have been the gain on the material disposals—

(a) on the assumption that, on 1st January 1984, the interest was disposed of and immediately reacquired for a consideration equal to its market value at that time ; and

(b) subject to that, on the basis that the gain is computed In like manner as, under paragraphs 2 and 3 above, the unindexed gain on the material disposal is determined ;

and that amount is in paragraph 5 below referred to as the " post'. 1983 gain " on the material disposal.

(3) Where the person making the material disposal acquired the interest disposed of on or after 1st January 1984 and in such circumstances that, by virtue of any enactment other than section 86(5) of or Schedule 13 to the Finance Act 1982 (indexation provisions), he and the person from whom he acquired it (in this sub-paragraph and sub-paragraph (4) below referred to as " the previous owner ") fell to be treated for the purposes of the principal Act as if his acquisition were for a consideration of such an amount as would secure that, on the disposal under which he acquired it, neither a gain nor a loss accrued to the previous owner, the previous owner's acquisition of the interest shall be treated as his acquisition of it.

(4) If the previous owner acquired the interest disposed of on or after 1st January 1984 and in circumstances similar to those referred to in sub-paragraph (3) above, his predecessor's acquisition of the interest shall be treated for the purposes of this paragraph as the previous owner's acquisition, and so on back through previous acquisitions in similar circumstances until the first such acquisition before 1st January 1984 or, as the case may be, until an acquisition on a material disposal on or after that date.

The offshore income gain

5

(1) Subject to sub-paragraph (2) below, a material disposal gives rise to an offshore income gain of an amount equal to the unindexed gain on that disposal.

(2) In any case where—

(a) paragraph 4 above applies, and

(b) the post-1983 gain on the material disposal is less than the unindexed gain on the disposal,

the offshore income gain to which the disposal gives rise is an amount equal to the post-1983 gain.

PART II — Disposals Involving an Equalisation Element

6

(1) Subject to paragraph 7 below, a disposal to which Chapter VII of Part II of this Act applies by virtue of section 93(3) of this Act gives rise to an offshore income gain of an amount equal to the equalisation element relevant to the asset disposed of.

(2) Subject to sub-paragraphs (4) to (6) below, the equalisation element relevant to the asset disposed of by a disposal falling within sub-paragraph (1) above is the amount which would be credited to the equalisation account of the offshore fund concerned in respect of accrued income if, on the date of the disposal, the asset which is disposed of were acquired by another person by way of initial purchase.

(3) In the following provisions of this Part of this Schedule, a disposal falling within sub-paragraph (1) above is referred to as a " disposal involving an equalisation element".

(4) Where the asset disposed of by a disposal involving an equalisation element was acquired by the person making the disposal after the beginning of the period by reference to which the accrued income referred to in sub-paragraph (2) above is calculated, the amount which, apart from this sub-paragraph, would be the equalisation element relevant to that asset shall be reduced by the following amount, that is to say,—

(a) if that acquisition took place on or after 1st January 1984, the amount which, on that acquisition, was credited to the equalisation account of the offshore fund concerned in respect of accrued income or, as the case may be, would have been so credited if that acquisition had been by way of initial purchase ; and

(b) in any other case, the amount which would have been credited to that account in respect of accrued income if that acquisition had been an acquisition by way of initial purchase taking place on 1st January 1984.

(5) In any case where—

(a) the asset disposed of by a disposal involving an equalisation element was acquired by the person making the disposal at or before the beginning of the period by reference to which the accrued income referred to in sub-paragraph (2) above is calculated, and

(b) that period began before 1st January 1984 and ends after that date,

the amount which, apart from this sub-paragraph, would be the equalisation element relevant to that asset shall be reduced by the amount which would have been credited to the equalisation account of the offshore fund concerned in respect of accrued income if the acquisition referred to in paragraph (a) above had been an acquisition by way of inital purchase taking place on 1st January 1984.

(6) Where there is a disposal involving an equalisation element, then, to the extent that any amount which was or would be credited to the equalisation account of the offshore fund in respect of accrued income, as mentioned in any of sub-paragraphs (2) to (5) above, represents profits from dealing in commodities, within the meaning of paragraph 4 of Schedule 19 to this Act, one half of that accrued income shall be left out of account in determining under those sub-paragraphs the equalisation element relevant to the asset disposed of by that disposal.

7

(1) For the purposes of this Part of this Schedule, there shall be determined, in accordance with paragraph 8 below, the Part I gain (if any) on any disposal involving an equalisation element.

(2) Notwithstanding anything in paragraph 6 above,—

(a) if there is no Part I gain on a disposal involving an equalisation element, that disposal shall not give rise to an offshore income gain ; and

(b) if, apart from this paragraph, the offshore income gain on a disposal involving an equalisation element would exceed the Part I gain on that disposal, the offshore income gain to which that disposal gives rise shall be reduced to an amount equal to that Part I gain.

8

(1) On a disposal involving an equalisation element, the Part I gain is the amount (if any) which, by virtue of Part I of this Schedule (as modified by the following provisions of this paragraph), would be the offshore income gain on that disposal if it were a material disposal within the meaning of that Part.

(2) For the purposes only of the application of Part I of this Schedule to determine the Part I gain (if any) on a disposal involving an equalisation element, subsections (5) and (6) of section 93 of this Act shall have effect as if, in subsection (5), the words " by virtue of subsection (3) above " were omitted,

(3) If a disposal involving an equalisation element is one which, by virtue of any enactment other than section 86(5)(b) of or Schedule 13 to the Finance Act 1982 (indexation), is treated tor the purposes of the Capital Gains Tax Act 1979 as one on which neither a gain nor a loss accrues to the person making the disposal, then, for the purpose only of determining the Part I gain (if any) on the disposal, that enactment shall be deemed not to apply to it (but without prejudice to the application of that enactment to any earlier disposal).

(4) In any case where a disposal involving an equalisation element is made by a company which has made an election under Schedule 6 to the Finance Act 1983 (indexation: election for pooling) and the asset disposed of consists of or includes securities which, by virtue of paragraph 3(3) of that Schedule, are to be regarded for the purposes of the principal Act as a single asset or part of a single asset, then, for the purpose only of determining the Part I gain (if any) on the disposal,—

(a) the reference in paragraph 2(2)(b) above to an indexation allowance under Chapter III of Part III of the Finance Act 1982 shall be construed as including a reference to an indexation allowance under Schedule 6 to the Finance Act 1983; and

(b) if some of the securities comprised in the asset disposed of were acquired by the company making the disposal before 1st January 1984 and some were not, paragraph 4(2) above shall not apply and paragraph 5 above shall have effect with the omission of sub-paragraph (2) (and the reference to that sub-paragraph in sub-paragraph (1)).

(5) The reference in sub-paragraph (4)(b) above to securities acquired before 1st January 1984 includes a reference to securities which, by virtue of any provisions of paragraph 4 above, are treated as so acquired.

SCHEDULE 21

The Finance Act 1975

1

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2

In section 25(10) of the 1975 Act, after the word " section" there shall be inserted the words " (except subsection (8)) ".

3

In section 26(2) of the 1975 Act—

(a) the words from the beginning to " respectively, and " shall cease to have effect; and

(b) at the end, there shall be added the words " or by virtue of paragraph 24(2) of Schedule 5 to this Act ".

4

In section 45(1) of the 1975 Act, after the words " as domiciled in the United Kingdom " there shall be inserted the words " (and not elsewhere) " ; and section 51(3) of that Act shall cease to have effect.

5

In section 51(1) of the 1975 Act—

(a) the definition of " enactment" shall cease to have effect; and

(b) after the definition of " Inland Revenue charge " there shall be inserted—

' land ' includes buildings and Other structures, land covered with water, and any estate, interest, easement, servitude or right in or over land; but does not include any estate, interest or right by way of mortgage or other security ;

6

In paragraph 6(6) of Schedule 4 to the 1975 Act, for the words following " including references " there shall be substituted the words "to—

(a) disposals on which tax is chargeable under paragraph 2 of Schedule 9 to this Act,

(b) chargeable events by reference to which tax is chargeable under section 78 of the Finance Act 1976,

(c) Occasions on which tax is chargeable under section 82 of the Finance Act 1976 or under Chapter II of Part IV of the Finance Act 1982,

or to the amounts on which tax is then chargeable."

7

In paragraph 14(2) of Schedule 4 to the 1975 Act, for the words "value Of an interest" there shall be substituted the words " net value of an interest ".

8

In paragraph 19(4) of Schedule 4 to the 1975 Act, the words " to any person " and the words " Of that person " shall cease to have effect.

9

Paragraph 44 of Schedule 4 to the 1975 Act shall cease to have effect.

10

In paragraph 1(8) of Schedule 5 to the 1975 Act, for the words "and section 25(3)(d) of this Act" there shall be substituted the words " , sections 22(2) and (3), 24(3) and 25(3)(d) of this Act and sections 93 and 94 ".

11

In paragraph 4(7) of Schedule 5 to the 1975 Act, after the words " surviving spouse " there shall be inserted the words " (or surviving former spouse) ".

12

In paragraph 17(3)(b) of Schedule 5 to the 1975 Act, for the words " this Schedule and of Chapter II of Part IV of the Finance Act 1982" there shall be substituted the words " this Part of this Act (except subsection (3) of section 23 and section 20(4) so far as relating to that subsection) ".

13

In paragraph 22(1) of Schedule 5 to the 1975 Act, for the words " this Schedule " there shall be substituted the words " this Part of this Act ".

14

(1) Paragraph 24 of Schedule 5 to the 1975 Act shall be amended as follows.

(2) In sub-paragraph (1), for paragraph (a) there shall be substituted the following paragraphs—

(a) the reference in subsection (2) of that section to subsection (1) shall have effect as including a reference to sub-paragraph (2) below; (aa) subsection (3) of that section shall apply in relation to tax chargeable by virtue of sub-paragraph (2) below as it applies in relation to tax chargeable under subsection (1) of that section ;

(3) In sub-paragraph (5), for the words "this Schedule and of Chapter II of Part IV of the Finance Act 1982" there shall be substituted the words " this Part of this Act (except subsection (3) of section 23 and section 20(4) so far as relating to that subsection) ".

15

In paragraph 4(2)(b) of Schedule 7 to the 1975 Act, for the words " which is, or forms part of, a colony, protectorate, protected state or United Kingdom trust territory " there shall be substituted the words " which, at the time when the fund was established, was, or formed part of, a colony (within the meaning of Schedule 1 to the Interpretation Act 1978), protectorate, protected state or United Kingdom trust territory ".

16

In paragraph 1(1) of Schedule 10 to the 1975 Act, for the words "a transferor's estate" there shall be substituted the words " a person's estate ".

17

In paragraph 5(1)(b) of Schedule 10 to the 1975 Act, for the word " by " there shall be substituted the word " for ".

The Development Land Tax Act 1976

18

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

19

In paragraph 18(2) of Schedule 6 to the Development Land Tax Act 1976—

(a) for the words from " as property " to " death) " there shall be substituted the words " under section 34 of that Act or under section 77 of the Finance Act 1976 (conditional exemption) "; and

(b) in paragraph (a) after the words " Act 1975 " there shall be inserted the words " or under section 78 of the Finance Act 1976 ".

The Finance Act 1976

20

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

21

In section 105 of the Finance Act 1976, subsections (3) and (4) shall cease to have effect.

22

In section 123(2) of the Finance Act 1976, after the words " shall carry interest" there shall be inserted the words " (which shall not constitute income for any tax purposes) ".

The Finance Act 1980

23

In Schedule 15 to the Finance Act 1980—

(a) in paragraphs 2A, 5 and 6, for the word " previous " there shall be substituted the word " other "; and

(b) in paragraphs 5 and 6, after the words " by that reduction " there shall be inserted the words " (or by the most recent of those reductions) ".

The Finance Act 1982

24

In section 94(6) of the Finance Act 1982, the Words from " and, in " to the end shall cease to have effect.

25

In sections 120(1), 121(1) and (2) and 123 of the Finance Act 1982, after the words " for the purposes of this Chapter " there shall be inserted the words " , of sections 93 and 94 above and of sections 81, 82 and 82A of the Finance Act 1976 ".

26

In sections 122(1) and 124 of the Finance Act 1982, after the Words " for the purposes of this Chapter " there shall be inserted the words " and of sections 93 and 94 above ".

SCHEDULE 22

Appointment of Special Commissioners

1

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Special Commissioners: quorum

2

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Elections to bring appeals before Special Commissioners

3

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Procedural rules

4

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Transfer of appeals from General to Special Commissioners

5

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Fee for statement of case

6

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Statement of case from Special Commissioners to Court of Appeal

7

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Saving

8

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

SCHEDULE 23

Part I — Made-Wine

Part II — Gaming Machine Licence Duty

Part III — Value Added Tax

Part IV — Customs and Excise: Miscellaneous

PART V — INCOME TAX AND CORPORATION TAX: GENERAL

PART VI — INCOME TAX: THE ADDITIONAL RATE

PART VII — FOREIGN EARNINGS AND EMOLUMENTS

PART VIII — CAPITAL GAINS

Part IX — Capital Transfer Tax

Part X — Stamp Duty

Part XI — National Insurance Surcharge

Part XII — Development Land Tax

PART XIII — SPECIAL AND GENERAL COMMISSIONERS

Part XIV — Miscellaneous

Chapter I — Customs and Excise

Duties on spirits, beer, wine, made-wine and cider.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Extension to certain Community reliefs of power to make supplementary provision.

Chapter II — Value Added Tax

Chapter III — Miscellaneous

Extension to certain Community reliefs of power to make supplementary provision.

Unpaid car tax and value added tax: distress and poinding.

CHAPTER I — GENERAL

Insurance business of registered friendly societies.

CHAPTER II — CAPITAL ALLOWANCES

Tax exemptions in relation to designated international organisations.

CHAPTER III — CAPITAL GAINS

CHAPTER IV — INSURANCE

CHAPTER V — OIL AND GAS INDUSTRY

CHAPTER VI — CONTROLLED FOREIGN COMPANIES

Tax exemptions in relation to designated international organisations.

Amendment of Customs and Excise Management Act 1979

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

12

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Schedules 15—20

These repeals do not affect licences granted for periods beginning before 1st October 1984.

1

The repeals in section 310 of the Income and Corporation Taxes Act 1970 and Schedule 18 to the Finance Act 1972 do not have effect with respect to any financial year ending before 1st April 1986.

2

The repeals in section 343 of the Income and Corporation Taxes Act 1970 and section 58 of the Finance Act 1980 have effect from 6th April 1985.

3

The repeals in section 96 of the Finance Act 1972 and section 10(3) of the Finance Act 1974 do not have effect with respect to any financial year ending before 1st April 1985.

4

The repeals in Schedule 1 to the Finance Act 1974 shall have effect in relation to payments of interest made after the passing of this Act.

5

The repeal of section 17(3) of the Oil Taxation Act 1975 has effect with respect to any advance corporation tax which is, within the meaning of section 77 of this Act, advance corporation tax paid by the company in respect of distributions in an accounting period of the company ending on or after 1st April 1984.

6

The repeal in paragraph 13 of Schedule 10 to the Finance Act 1980 has effect from the day appointed under section 39(9) of this Act.

7

The repeal in section 40 of the Finance Act 1982 has effect in relation to any right to acquire shares which is obtained after 5th April 1984.

8

The repeal in section 20(4) of the Finance Act 1983 has effect in relation to payments made on or after 6th April 1984.

1

The repeals in subsection (2) of section 188 of, and in Schedule 8 to, the Taxes Act have effect where the relevant date (within the meaning of that section) falls after 13th March 1984 but subject to subsection (8) of section 30 of this Act.

2

The repeal of section 23(3) of the Finance Act 1974 and the repeal in Schedule 12 of the Taxes Act have effect in relation to the year 1985-86 and subsequent years of assessment but subject to subsection (4) of section 30 of this Act.

3

The repeal in Schedule 2 of the Finance Act 1974 has effect in relation to the year 1989-90 and subsequent years of assessment.

4

The repeals in the Acts of 1975, section 31(2) of, and Schedule 7 to, the Finance Act 1977 and the Finance Act 1978 have effect for the year 1985-86 and subsequent years of assessment.

1

The repeal of sections 6, 8, 9 and 148 of the Capital Gains Tax Act 1979 and of section 82 of the Finance Act 1980 and section 85 of the Finance Act 1982 has effect with respect to disposals on or after 6th April 1984.

2

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