Finance Act 1998

(a) the investor’s qualifying expenditure on any relevant shares is the amount subscribed by him for the shares; and

.

Chargeable events

30

• (1) In sub-paragraph (1) of paragraph 3—

• (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (b) for paragraphs (e) and (f) there shall be substituted the words

or (e) those shares cease (or are treated for the purposes of this Schedule as ceasing) to be eligible shares.

• (2) Sub-paragraph (2) of that paragraph shall cease to have effect.

• (3) After sub-paragraph (5) of that paragraph there shall be inserted the following sub-paragraph—

(6) Any reference in the following provisions of this Schedule to a chargeable event falling within a particular paragraph of sub-paragraph (1) above is a reference to a chargeable event arising for the purposes of this Schedule by virtue of that paragraph.

Gains accruing on chargeable event

31

• (1) For sub-paragraphs (2) to (4) of paragraph 4 there shall be substituted the following sub-paragraphs—

(2) Any question for the purposes of capital gains tax as to whether any shares to which a disposal (including a disposal within marriage) relates are shares to which deferral relief is attributable shall be determined in accordance with sub-paragraphs (3) and (4) below. (3) Where shares of any class in a company have been acquired by an individual on different days, any disposal by him of shares of that class shall be treated as relating to those acquired on an earlier day rather than to those acquired on a later day. (4) Where shares of any class in a company have been acquired by an individual on the same day, any of those shares disposed of by him shall be treated as disposed of in the following order, namely— (a) first any to which neither deferral relief nor relief under Chapter III of Part VII of the Taxes Act is attributable; (b) next any to which deferral relief, but not relief under that Chapter, is attributable; (c) next any to which relief under that Chapter, but not deferral relief, is attributable; and (d) finally any to which both deferral relief and relief under that Chapter are attributable. (4A) The following, namely— (a) any shares to which deferral relief, but not relief under Chapter III of Part VII of the Taxes Act, is attributable and which were disposed of to an individual by a disposal within marriage, and (b) any shares to which relief under that Chapter is attributable and which were transferred to an individual as mentioned in section 304 of that Act, shall be treated for the purposes of sub-paragraphs (3) and (4) above as acquired by him on the day on which they were issued. (4B) Chapter I of Part IV of this Act has effect subject to sub-paragraphs (2) to (4A) above. (4C) Sections 104, 105 and 106A shall not apply to shares to which deferral relief, but not relief under Chapter III of Part VII of the Taxes Act, is attributable.

• (2) In sub-paragraph (5)(b) of that paragraph, for the words “the assumptions for which sub-paragraph (3) above provides" there shall be substituted the words “ sub-paragraphs (3) to (4A) above ”.

• (3) This paragraph has effect in relation to disposals made on or after 6th April 1998.

Persons to whom gain accrues

32

In sub-paragraph (1) of paragraph 5, for paragraphs (c) and (d) there shall be substituted the words

or (c) to the person who holds the shares in question when they cease (or are treated for the purposes of this Schedule as ceasing) to be eligible shares.

Claims

33

For paragraph 6 there shall be substituted the following paragraph—

(6) (1) Subject to sub-paragraph (2) below, section 306 of the Taxes Act shall apply in relation to a claim under this Schedule in respect of relevant shares as it applies in relation to a claim for relief under Chapter III of Part VII of that Act in respect of eligible shares. (2) That section, as it so applies, shall have effect as if— (a) any reference to the conditions for the relief were a reference to the conditions for the application of this Schedule; (b) in subsection (1), the words “(or treated by section 289B(5) as so issued)" were omitted; and (c) subsections (7) to (9) were omitted.

Reorganisations and reconstructions

34

After paragraph 6 there shall be inserted the following paragraphs—

(7) (1) Where an individual holds shares which form part of the ordinary share capital of a company and include shares of more than one of the following kinds, namely— (a) shares to which deferral relief and relief under Chapter III of Part VII of the Taxes Act are attributable, (b) shares to which deferral relief but not relief under that Chapter is attributable, and (c) shares to which deferral relief is not attributable, then, if there is within the meaning of section 126 a reorganisation affecting those shares, section 127 shall apply (subject to the following provisions of this paragraph) separately to shares falling within paragraph (a), (b) or (c) above (so that shares of each kind are treated as a separate holding of original shares and identified with a separate new holding). (2) Where— (a) an individual holds shares (“the existing holding") which form part of the ordinary share capital of a company, (b) there is, by virtue of any such allotment for payment as is mentioned in section 126(2)(a), a reorganisation affecting the existing holding, and (c) immediately following the reorganisation, the existing holding or the allotted shares are shares to which deferral relief is attributable, sections 127 to 130 shall not apply in relation to the existing holding. (8) (1) This paragraph applies where— (a) a company (“the new company") in which the only issued shares are subscriber shares acquires all the shares (“old shares") in another company (“the old company"); (b) the consideration for the old shares consists wholly of the issue of shares (“new shares") in the new company; (c) the consideration for new shares of each description consists wholly of old shares of the corresponding description; (d) new shares of each description are issued to the holders of old shares of the corresponding description in respect of and in proportion to their holdings; (e) at some time before the issue of the new shares— (i) the old company issued eligible shares; and (ii) a certificate in relation to those eligible shares was issued by that company for the purposes of subsection (2) of section 306 of the Taxes Act (as applied by paragraph 6 above) and in accordance with that section (as so applied); and (f) by virtue of section 127 as applied by section 135(3), the exchange of shares is not treated as involving a disposal of the old shares or an acquisition of the new shares. (2) For the purposes of this Schedule, deferral relief attributable to any old shares shall be attributable instead to the new shares for which they are exchanged. (3) Where, in the case of any new shares held by an individual to which deferral relief becomes so attributable, the old shares for which they are exchanged were subscribed for by and issued to the individual, this Schedule shall have effect as if— (a) the new shares had been subscribed for by him at the time when, and for the amount for which, the old shares were subscribed for by him; (b) the new shares had been issued to him by the new company at the time when the old shares were issued to him by the old company; and (c) the claim under this Schedule made in respect of the old shares had been made in respect of the new shares. (4) Where, in the case of any new shares held by an individual to which deferral relief becomes so attributable, the old shares for which they are exchanged were acquired by the individual on a disposal within marriage, this Schedule shall have effect as if— (a) the new shares had been subscribed for at the time when, and for the amount for which, the old shares were subscribed for; (b) the new shares had been issued by the new company at the time when the old shares were issued by the old company; and (c) the claim under this Schedule made in respect of the old shares had been made in respect of the new shares. (5) Where deferral relief becomes so attributable to any new shares— (a) this Schedule shall have effect as if anything which, under paragraph 1A(5) above, paragraph 16 below or section 306(2) of the Taxes Act as applied by paragraph 6 above has been done, or is required to be done, by or in relation to the old company had been done, or were required to be done, by or in relation to the new company; and (b) any appeal brought by the old company against a notice under paragraph 1A(5)(b) may be prosecuted by the new company as if it had been brought by that company. (6) For the purposes of this paragraph old shares and new shares are of a corresponding description if, on the assumption that they were shares in the same company, they would be of the same class and carry the same rights; and in sub-paragraph (1) above references to shares, except in the expressions “eligible shares” and “subscriber shares”, include references to securities. (7) Nothing in section 293(8) of the Taxes Act, as applied by the definition of “qualifying company" in paragraph 19(1) below, shall apply in relation to such an exchange of shares, or shares and securities, as is mentioned in sub-paragraph (1) above or arrangements with a view to such an exchange. (9) (1) Subject to sub-paragraphs (2) and (3) below, sections 135 and 136 shall not apply in respect of shares to which deferral relief, but not relief under Chapter III of Part VII of the Taxes Act, is attributable. (2) Sub-paragraph (1) above shall not have effect to disapply section 135 or 136 where— (a) the new holding consists of new ordinary shares (“the new shares") carrying no present or future preferential right to dividends or to a company’s assets on its winding up and no present or future right to be redeemed, (b) the new shares are issued after the end of the relevant period, and (c) the condition in sub-paragraph (4) below is satisfied. (3) Sub-paragraph (1) above shall not have effect to disapply section 135 where shares to which deferral relief, but not relief under Chapter III of Part VII of the Taxes Act, is attributable are exchanged for other shares in such circumstances as are mentioned in paragraph 8(1) above. (4) The condition is that at some time before the issue of the new shares— (a) the company issuing them issued eligible shares, and (b) a certificate in relation to those eligible shares was issued by the company for the purposes of subsection (2) of section 306 of the Taxes Act (as applied by paragraph 6 above) and in accordance with that section (as so applied). (5) In sub-paragraph (2) above “new holding” shall be construed in accordance with sections 126, 127, 135 and 136.

Anti-avoidance provisions

35

After paragraph 9 there shall be inserted the following paragraphs—

(10) (1) An individual to whom any eligible shares in a qualifying company are issued shall not be regarded for the purposes of this Schedule as making a qualifying investment if, where the asset disposed of consisted of shares in or other securities of any company (“the initial holding"), the qualifying company— (a) is the company in which the initial holding subsisted; or (b) is a company that was, at the time of the disposal of the initial holding, or is, at the time of the issue of the eligible shares, a member of the same group of companies as the company in which the initial holding subsisted. (2) Where— (a) any eligible shares in a qualifying company (“the acquired holding") are issued to an individual, (b) an amount of qualifying expenditure on those shares has been set under this Schedule against the whole or part of any chargeable gain (the “postponed gain"), and (c) after the issue of those shares, eligible shares in a relevant company are issued to him, he shall not be regarded in relation to the issue to him of the shares in the relevant company as making a qualifying investment for the purposes of this Schedule. (3) For the purposes of sub-paragraph (2) above a company is a relevant company if— (a) where that individual has disposed of any of the acquired holding, it is the company in which the acquired holding has subsisted or a company which was a member of the same group of companies as that company at any time since the acquisition of the acquired holding; (b) it is a company in relation to the disposal of any shares in which there has been a claim under this Schedule such that, without that claim, there would have been no postponed gain in relation to the acquired holding; or (c) it is a company which, at the time of the disposal or acquisition to which the claim relates, was a member of the same group of companies as a company falling within paragraph (b) above. (11) (1) Where an individual subscribes for eligible shares (“the shares") in a company, the shares shall be treated as not being eligible shares for the purposes of this Schedule if the relevant arrangements include— (a) arrangements with a view to the subsequent repurchase, exchange or other disposal of the shares or of other shares in or securities of the same company; (b) arrangements for or with a view to the cessation of any trade which is being or is to be or may be carried on by the company or a person connected with the company; (c) arrangements for the disposal of, or of a substantial amount of, the assets of the company or of a person connected with the company; (d) arrangements the main purpose of which, or one of the main purposes of which, is (by means of any insurance, indemnity or guarantee or otherwise) to provide partial or complete protection for persons investing in shares in that company against what would otherwise be the risks attached to making the investment. (2) The arrangements referred to in sub-paragraph (1)(a) above do not include any arrangements with a view to such an exchange of shares, or shares and securities, as is mentioned in paragraph 8(1) above. (3) The arrangements referred to in sub-paragraph (1)(b) and (c) above do not include any arrangements applicable only on the winding up of a company except in a case where— (a) the relevant arrangements include arrangements for the company to be wound up; or (b) the company is wound up otherwise than for bona fide commercial reasons. (4) The arrangements referred to in sub-paragraph (1)(d) above do not include any arrangements which are confined to the provision— (a) for the company itself, or (b) in the case of a company which is a parent company of a trading group, for the company itself, for the company itself and one or more of its subsidiaries or for one or more of its subsidiaries, of any such protection against the risks arising in the course of carrying on its business as it might reasonably be expected so to provide in normal commercial circumstances. (5) The reference in sub-paragraph (4) above to the parent company of a trading group shall be construed in accordance with the provision contained for the purposes of section 293 of the Taxes Act in that section. (6) In this paragraph “the relevant arrangements” means— (a) the arrangements under which the shares are issued to the individual; and (b) any arrangements made before the issue of the shares to him in relation to or in connection with that issue. (12) (1) Sub-paragraph (2) below applies where an individual subscribes for eligible shares (“the shares") in a company and— (a) an option, the exercise of which would bind the grantor to purchase such shares, is granted to the individual during the relevant period; or (b) an option, the exercise of which would bind the individual to sell such shares, is granted by the individual during the relevant period. (2) The shares to which the option relates shall be treated for the purposes of this Schedule— (a) if the option is granted on or before the date of the issue of the shares, as never having been eligible shares; and (b) if the option is granted after that date, as ceasing to be eligible shares on the date when the option is granted. (3) The shares to which the option relates shall be taken to be those which, if— (a) the option were exercised immediately after the grant, and (b) any shares in the company acquired by the individual after the grant were disposed of immediately after being acquired, would be treated for the purposes of this Schedule as disposed of in pursuance of the option. (4) Nothing in this paragraph shall prejudice the operation of paragraph 11 above. (5) An individual who acquires any eligible shares on a disposal within marriage shall be treated for the purposes of this paragraph and paragraphs 13 to 15 below as if he subscribed for those shares. (13) (1) Where an individual who subscribes for eligible shares (“the shares") in a company receives any value from the company at any time in the seven year period, the shares shall be treated as follows for the purposes of this Schedule— (a) if the individual receives the value on or before the date of the issue of the shares, as never having been eligible shares; and (b) if the individual receives the value after that date, as ceasing to be eligible shares on the date when the value is received. (2) For the purposes of this paragraph an individual receives value from the company if the company— (a) repays, redeems or repurchases any of its share capital or securities which belong to the individual or makes any payment to him for giving up his right to any of the company’s share capital or any security on its cancellation or extinguishment; (b) repays, in pursuance of any arrangements for or in connection with the acquisition of the shares, any debt owed to the individual other than a debt which was incurred by the company— (i) on or after the date on which he subscribed for the shares; and (ii) otherwise than in consideration of the extinguishment of a debt incurred before that date; (c) makes to the individual any payment for giving up his right to any debt on its extinguishment; (d) releases or waives any liability of the individual to the company or discharges, or undertakes to discharge, any liability of his to a third person; (e) makes a loan or advance to the individual which has not been repaid in full before the issue of the shares; (f) provides a benefit or facility for the individual; (g) disposes of an asset to the individual for no consideration or for a consideration which is or the value of which is less than the market value of the asset; (h) acquires an asset from the individual for a consideration which is or the value of which is more than the market value of the asset; or (i) makes any payment to the individual other than a qualifying payment. (3) For the purposes of sub-paragraph (2)(e) above there shall be treated as if it were a loan made by the company to the individual— (a) the amount of any debt (other than an ordinary trade debt) incurred by the individual to the company; and (b) the amount of any debt due from the individual to a third person which has been assigned to the company. (4) For the purposes of this paragraph an individual also receives value from the company if he receives in respect of ordinary shares held by him any payment or asset in a winding up or in connection with a dissolution of the company, being a winding up or dissolution falling within section 293(6) of the Taxes Act. (5) For the purposes of this paragraph an individual also receives value from the company if any person who would, for the purposes of section 291 of the Taxes Act, be treated as connected with the company— (a) purchases any of its share capital or securities which belong to the individual; or (b) makes any payment to him for giving up any right in relation to any of the company’s share capital or securities. (6) Where an individual’s disposal of shares in a company gives rise to a chargeable event falling within paragraph 3(1)(a) or (b) above, the individual shall not be treated for the purposes of this paragraph as receiving value from the company in respect of the disposal. (7) In this paragraph “qualifying payment” means— (a) the payment by any company of such remuneration for service as an officer or employee of that company as may be reasonable in relation to the duties of that office or employment; (b) any payment or reimbursement by any company of travelling or other expenses wholly, exclusively and necessarily incurred by the individual to whom the payment is made in the performance of duties as an officer or emplyee of that company; (c) the payment by any company of any interest which represents no more than a reasonable commercial return on money lent to that company; (d) the payment by any company of any dividend or other distribution which does not exceed a normal return on any investment in shares in or other securities of that company; (e) any payment for the supply of goods which does not exceed their market value; (f) any payment for the acquisition of an asset which does not exceed its market value; (g) the payment by any company, as rent for any property occupied by the company, of an amount not exceeding a reasonable and commercial rent for the property; (h) any reasonable and necessary remuneration which— (i) is paid by any company for services rendered to that company in the course of a trade or profession; and (ii) is taken into account in computing the profits of the trade or profession under Case I or II of Schedule D or would be so taken into account if it fell in a period on the basis of which those profits are assessed under that Schedule; (i) a payment in discharge of an ordinary trade debt. (8) For the purposes of this paragraph a company shall be treated as having released or waived a liability if the liability is not discharged within 12 months of the time when it ought to have been discharged. (9) In this paragraph— (a) references to a debt or liability do not, in relation to a company, include references to any debt or liability which would be discharged by the making by that company of a qualifying payment; and (b) references to a benefit or facility do not include references to any benefit or facility provided in circumstances such that, if a payment had been made of an amount equal to its value, that payment would be a qualifying payment. (10) In this paragraph— (a) any reference to a payment or disposal to an individual includes a reference to a payment or disposal made to him indirectly or to his order or for his benefit; (b) any reference to an individual includes a reference to an associate of his; and (c) any reference to a company includes a reference to a person who at any time in the relevant period is connected with the company, whether or not he is so connected at the material time. (11) In this paragraph “ordinary trade debt” means any debt for goods or services supplied in the ordinary course of a trade or business where any credit given— (a) does not exceed six months; and (b) is not longer than that normally given to customers of the person carrying on the trade or business. (14) (1) Sub-paragraph (2) below applies where an individual subscribes for eligible shares (“the shares") in a company and at any time in the seven year period the company or any subsidiary— (a) repays, redeems or repurchases any of its share capital which belongs to any member other than the individual or an individual falling within sub-paragraph (3) below, or (b) makes any payment (directly or indirectly) to any such member, or to his order or for his benefit, for the giving up of his right to any of the share capital of the company or subsidiary on its cancellation or extinguishment. (2) The shares shall be treated for the purposes of this Schedule— (a) if the repayment, redemption, repurchase or payment in question is made or effected on or before the date of the issue of the shares, as never having been eligible shares; and (b) if it is made or effected after that date, as ceasing to be eligible shares on the date when it is made or effected. (3) An individual falls within this sub-paragraph if the repayment, redemption, repurchase or payment in question— (a) gives rise to a qualifying chargeable event in respect of him, or (b) causes any relief under Chapter III of Part VII of the Taxes Act attributable to his shares in the company to be withdrawn or reduced by virtue of section 299 or 300(2)(a) of that Act. (4) In sub-paragraph (3) above “qualifying chargeable event” means— (a) a chargeable event falling within paragraph 3(1)(a) or (b) above; or (b) a chargeable event falling within paragraph 3(1)(e) above by virtue of sub-paragraph (1)(b) of paragraph 13 above (as it applies by virtue of sub-paragraph (2)(a) of that paragraph). (5) Where— (a) a company issues share capital (“the original shares") of nominal value equal to the authorised minimum (within the meaning of the Companies Act 1985) for the purposes of complying with the requirements of section 117 of that Act (public company not to do business unless requirements as to share capital complied with), and (b) after the registrar of companies has issued the company with a certificate under section 117, it issues eligible shares, the preceding provisions of this paragraph shall not apply in relation to any redemption of any of the original shares within 12 months of the date on which those shares were issued. (6) In relation to companies incorporated under the law of Northern Ireland references in sub-paragraph (5) above to the Companies Act 1985 and to section 117 of that Act shall have effect as references to the Companies (Northern Ireland) Order 1986 and to Article 127 of that Order. (7) References in this paragraph to a subsidiary of a company are references to a company which at any time in the relevant period is a 51 per cent. subsidiary of the first mentioned company, whether or not it is such a subsidiary at the time of the repayment, redemption, repurchase or payment in question. (15) (1) Where at any time in the relevant period an investment-linked loan is made by any person to an individual who subscribes for eligible shares (“the shares") in a company, the shares shall be treated for the purposes of this Schedule— (a) if the loan is made on or before the date of the issue of the shares, as never having been eligible shares; and (b) if the loan is made after that date, as ceasing to be eligible shares on the date when the loan is made. (2) A loan made by any person to an individual is an investment-linked loan for the purposes of this paragraph if the loan is one which would not have been made, or would not have been made on the same terms, if the individual had not subscribed for the shares or had not been proposing to do so. (3) References in this paragraph to the making by any person of a loan to an individual include references— (a) to the giving by that person of any credit to that individual; and (b) to the assignment or assignation to that person of any debt due from that individual. (4) In this paragraph any reference to an individual includes a reference to an associate of his.

Supplementary provisions

36

After paragraph 15 there shall be inserted the following paragraphs—

(16) (1) Where, in relation to any relevant shares held by an individual— (a) a chargeable event falling within paragraph 3(1)(a) or (b) above occurs at any time in the five year period, (b) a chargeable event falling within paragraph 3(1)(c) or (d) above occurs, or (c) a chargeable event falling within paragraph 3(1)(e) above occurs by virtue of paragraph 12(2)(b), 13(1)(b) or 15(1)(b) above, the individual shall within 60 days of his coming to know of the event give a notice to the inspector containing particulars of the circumstances giving rise to the event. (2) Where, in relation to any relevant shares in a company, a chargeable event falling within paragraph 3(1)(e) above occurs by virtue of paragraph 1A(1) or (2), 13(1)(b) or 14(2)(b) above— (a) the company, and (b) any person connected with the company who has knowledge of that matter, shall within 60 days of the event or, in the case of a person within paragraph (b) above, of his coming to know of it, give a notice to the inspector containing particulars of the circumstances giving rise to the event. (3) A chargeable event falling within paragraph 3(1)(e) above which, but for paragraph 1A(5) above, would occur at any time by virtue of paragraph 1A(1) or (2) above shall be treated for the purposes of sub-paragraph (2) above as occurring at that time. (4) Where a company has issued a certificate under section 306(2) of the Taxes Act (as applied by paragraph 6 above) in respect of any eligible shares in the company, and the condition in paragraph 1(2)(g) above is not satisfied in relation to the shares— (a) the company, and (b) any person connected with the company who has knowledge of that matter, shall within 60 days of the time mentioned in section 289(3) of the Taxes Act or, in the case of a person within paragraph (b) above, of his coming to know that the condition is not satisfied, give notice to the inspector setting out the particulars of the case. (5) If the inspector has reason to believe that a person has not given a notice which he is required to give— (a) under sub-paragraph (1) or (2) above in respect of any chargeable event, or (b) under sub-paragraph (4) above in respect of any particular case, the inspector may by notice require that person to furnish him within such time (not being less than 60 days) as may be specified in the notice with such information relating to the event or case as the inspector may reasonably require for the purposes of this Schedule. (6) Where a claim is made under this Schedule in respect of shares in a company and the inspector has reason to believe that it may not be well founded by reason of any such arrangements as are mentioned in paragraphs 1(2)(d) or 11(1) above, or section 293(8) or 308(2)(e) of the Taxes Act, he may by notice require any person concerned to furnish him within such time (not being less than 60 days) as may be specified in the notice with— (a) a declaration in writing stating whether or not, according to the information which that person has or can reasonably obtain, any such arrangements exist or have existed; (b) such other information as the inspector may reasonably require for the purposes of the provision in question and as that person has or can reasonably obtain. (7) For the purposes of sub-paragraph (6) above, the persons who are persons concerned are— (a) in relation to paragraph 1(2)(d) above, the claimant, the company and any person controlling the company; (b) in relation to paragraph 11(1) above, the claimant, the company and any person connected with the company; and (c) in relation to section 293(8) or 308(2)(e) of the Taxes Act, the company and any person controlling the company; and for those purposes the references in paragraphs (a) and (b) above to the claimant include references to any person to whom the claimant appears to have made a disposal within marriage of any of the shares in question. (8) Where deferral relief is attributable to shares in a company— (a) any person who receives from the company any payment or asset which may constitute value received (by him or another) for the purposes of paragraph 13 above, and (b) any person on whose behalf such a payment or asset is received, shall, if so required by the inspector, state whether the payment or asset received by him or on his behalf is received on behalf of any person other than himself and, if so, the name and address of that person. (9) Where a claim has been made under this Schedule in relation to shares in a company, any person who holds or has held shares in the company and any person on whose behalf any such shares are or were held shall, if so required by the inspector, state— (a) whether the shares which are or were held by him or on his behalf are or were held on behalf of any person other than himself; and (b) if so, the name and address of that person. (10) No obligation as to secrecy imposed by statute or otherwise shall preclude the inspector from disclosing to a company that relief has been given or claimed in respect of a particular number or proportion of its shares. (17) (1) Subject to the following provisions of this paragraph, this Schedule shall apply as if— (a) any reference to an individual included a reference to the trustees of a settlement, and (b) in relation to any such trustees, the reference in paragraph 1(1) above to any asset were a reference to any asset comprised in any settled property to which this paragraph applies (a “trust asset"). (2) This paragraph applies— (a) to any settled property in which the interests of the beneficiaries are not interests in possession, if all the beneficiaries are individuals, and (b) to any settled property in which the interests of the beneficiaries are interests in possession, if any of the beneficiaries are individuals. (3) If, at the time of the disposal of the trust asset in a case where this Schedule applies by virtue of this paragraph— (a) the settled property comprising that asset is property to which this paragraph applies by virtue of sub-paragraph (2)(b) above, but (b) not all the beneficiaries are individuals, only the relevant proportion of the gain which would accrue to the trustees on the disposal shall be taken into account for the purposes of this Schedule as it so applies. (4) This Schedule shall not apply by virtue of this paragraph in a case where, at the time of the disposal of the trust asset, the settled property which comprises that asset is property to which this paragraph applies by virtue of sub-paragraph (2)(a) above unless, immediately after the acquisition of the relevant shares, the settled property comprising the shares is also property to which this paragraph applies by virtue of sub-paragraph (2)(a) above. (5) This Schedule shall not apply by virtue of this paragraph in a case where, at the time of the disposal of the trust asset, the settled property which comprises that asset is property to which this paragraph applies by virtue of sub-paragraph (2)(b) above unless, immediately after the acquisition of the relevant shares— (a) the settled property comprising the shares is also property to which this paragraph applies by virtue of sub-paragraph (2)(b) above, and (b) if not all the beneficiaries are individuals, the relevant proportion is not less than the proportion which was the relevant proportion at the time of the disposal of the trust asset. (6) If, at any time, in the case of settled property to which this paragraph applies by virtue of sub-paragraph (2)(b) above, both individuals and others have interests in possession, “the relevant proportion" at that time is the proportion which the amount specified in paragraph (a) below bears to the amount specified in paragraph (b) below, that is— (a) the total amount of the income of the settled property, being income the interests in which are held by beneficiaries who are individuals, and (b) the total amount of all the income of the settled property. (7) Where, in the case of any settled property in which any beneficiary holds an interest in possession, one or more beneficiaries (“the relevant beneficiaries") hold interests not in possession, this paragraph shall apply as if— (a) the interests of the relevant beneficiaries were a single interest in possession, and (b) that interest were held, where all the relevant beneficiaries are individuals, by an individual and, in any other case, by a person who is not an individual. (8) In this paragraph references to interests in possession do not include interests for a fixed term and, except in sub-paragraph (1), references to individuals include any charity. (18) (1) Paragraphs 13 and 15 above shall have effect in relation to the subscription for shares by the trustees of a settlement as if references to the individual subscribing for the shares were references to— (a) those trustees; (b) any individual or charity by virtue of whose interest, at a relevant time, paragraph 17 above applies to the settled property; or (c) any associate of such an individual, or any person connected with such a charity. (2) The relevant times for the purposes of sub-paragraph (1)(b) above are the time when the shares are issued and— (a) in a case where paragraph 13 above applies, the time when the value is received; (b) in a case where paragraph 15 above applies, the time when the loan is made. (19) (1) For the purposes of this Schedule— - “arrangements” includes any scheme, agreement or understanding, whether or not legally enforceable; - “associate” has the meaning that would be given by subsections (3) and (4) of section 417 of the Taxes Act if in those subsections “relative” did not include a brother or sister; - “eligible shares” has the meaning given by section 289(7) of that Act; - “the five year period”, in the case of any relevant shares, means the period of five years beginning with the issue of the shares; - “non-resident” means a person who is neither resident nor ordinarily resident in the United Kingdom; - “ordinary share capital” has the same meaning as in the Taxes Act; - “ordinary shares”, in relation to a company, means shares forming part of its ordinary share capital; - “qualifying business activity” has the meaning given by section 289(2) of the Taxes Act; - “qualifying company”, in relation to any eligible shares, means a company which, in relation to those shares, is a qualifying company for the purposes of Chapter III of Part VII of that Act; - “the relevant period”, in the case of any shares, means the period found by applying section 312(1A)(a) of that Act by reference to the company that issued the shares and by reference to the shares; - “relevant shares”, in relation to a case to which this Schedule applies, means any of the shares which are acquired by the investor in making the qualifying investment; - “the seven year period” has the meaning given by section 291(6) of the Taxes Act. (2) For the purposes of this Schedule, “deferral relief” is attributable to any shares if— (a) expenditure on the shares has been set under this Schedule against the whole or part of any gain; and (b) in relation to the shares there has been no chargeable event for the purposes of this Schedule. (3) In this Schedule— (a) references (however expressed) to an issue of eligible shares in any company are to any eligible shares in the company that are of the same class and are issued on the same day; (b) references to a disposal within marriage are references to any disposal to which section 58 applies; and (c) references to Chapter III of Part VII of the Taxes Act or any provision of that Chapter are to that Chapter or provision as it applies in relation to shares issued on or after 1st January 1994. (4) For the purposes of this Schedule shares in a company shall not be treated as being of the same class unless they would be so treated if dealt with on the Stock Exchange. (5) Notwithstanding anything in section 288(5), shares shall not for the purposes of this Schedule be treated as issued by reason only of being comprised in a letter of allotment or similar instrument.

Part IV — BES income tax relief and relief against chargeable gains

37

Any reference in this Part to a provision of Chapter III of Part VII of the Taxes Act 1988 is a reference to that provision as it has effect in relation to shares issued before 1st January 1994.

38

• (1) In subsection (8) of section 293 of the Taxes Act 1988 (qualifying companies), for the words “Subject to sections 308 and 309" there shall be substituted the words “ Subject to sections 304A, 308 and 309 ”.

• (2) This paragraph has effect in relation to new shares (within the meaning of section 304A of the Taxes Act 1988) issued on or after 6th April 1998.

39

• (1) At the beginning of subsection (1) of section 299 of the Taxes Act 1988 (disposals of shares) there shall be inserted the words “Subject to section 304(5),".

• (2) For subsection (4) of that section there shall be substituted the following subsections—

(4) Where shares of any class in a company have been acquired by an individual on different days, any disposal by him of shares of that class shall, subject to subsection (3) above, be treated for the purposes of this section as relating to those acquired on an earlier day rather than to those acquired on a later day. (4A) Where shares of any class in a company have been acquired by an individual on the same day, any disposal by him of shares of that class shall, subject to subsection (3) above, be treated for the purposes of this section as relating to those in respect of which relief has not been given, or has been withdrawn, rather than to those in respect of which relief has been given and has not been withdrawn. (4B) Any shares in respect of which relief has been given and has not been withdrawn and which were transferred to an individual as mentioned in section 304 shall be treated for the purposes of subsections (4) and (4A) above as acquired by him on the day on which they were issued. (4C) In a case to which section 127 of the 1992 Act applies (whether or not by virtue of section 135(3) of that Act), shares comprised in the new holding shall be treated for the purposes of subsections (4) and (4A) above as acquired when the original shares were acquired. In this subsection “new holding” and “original shares” shall be construed in accordance with sections 126, 127, 135 and 136 of the 1992 Act.

• (3) This paragraph has effect in relation to disposals made on or after 6th April 1998.

40

• (1) After subsection (6) of section 304 of the Taxes Act 1988 (husband and wife) there shall be inserted the following subsection—

(7) Subsections (3) to (4C) of section 299 shall apply for the purposes of this section as they apply for the purposes of that section.

• (2) This paragraph has effect in relation to disposals made on or after 6th April 1998.

41

• (1) After that section there shall be inserted the following section—

(304A) (1) This section applies where— (a) a company (“the new company") in which the only issued shares are subscriber shares acquires all the shares (“old shares") in another company (“the old company"); (b) the consideration for the old shares consists wholly of the issue of shares (“new shares") in the new company; (c) the consideration for new shares of each description consists wholly of old shares of the corresponding description; (d) new shares of each description are issued to the holders of old shares of the corresponding description in respect of and in proportion to their holdings; (e) at some time before the issue of the new shares— (i) the old company issued eligible shares; and (ii) a certificate in relation to those eligible shares was issued by that company for the purposes of subsection (2) of section 306 and in accordance with that section; and (f) before the issue of the new shares, the Board have, on the application of the new company or the old company, notified that company that the Board are satisfied that the exchange of shares— (i) will be effected for bona fide commercial reasons; and (ii) will not form part of any such scheme or arrangements as are mentioned in section 137(1) of the 1992 Act. (2) For the purposes of this Chapter— (a) the exchange of shares shall not be regarded as involving any disposal of the old shares or any acquisition of the new shares; and (b) any relief which has been given (and not withdrawn) in respect of any old shares shall be treated as given (and not withdrawn) in respect of the new shares for which they are exchanged. (3) Where, in the case of any new shares held by an individual in respect of which relief is treated as so given (and not withdrawn), the old shares for which they are exchanged were subscribed for by and issued to the individual, this Chapter shall have effect as if— (a) the new shares had been subscribed for by him at the time when, and for the amount for which, the old shares were subscribed for by him; (b) the new shares had been issued to him by the new company at the time when the old shares were issued to him by the old company; (c) the claim for relief made in respect of the old shares had been made in respect of the new shares; (d) relief had been given to him in respect of the new shares for the same year of assessment as that for which relief was given to him in respect of the old shares; and (e) any reduction made, or falling to be made, in the amount of relief given to him in respect of the old shares had been made, or fell to be made, in the amount of relief given to him in respect of the new shares. (4) Where, in the case of any new shares held by an individual in respect of which relief is treated as so given (and not withdrawn), the old shares for which they are exchanged were transferred to the individual as mentioned in section 304, this Chapter shall have effect in relation to any subsequent disposal or other event as if— (a) the new shares had been subscribed for by him at the time when, and for the amount for which, the old shares were subscribed for; (b) the new shares had been issued by the new company at the time when the old shares were issued by the old company; (c) the claim for relief made in respect of the old shares had been made in respect of the new shares; (d) relief had been given to him in respect of the new shares for the same year of assessment as that for which relief was given in respect of the old shares; and (e) any reduction made, or falling to be made, in the amount of relief given in respect of the old shares had been made, or fell to be made, in the amount of relief given to him in respect of the new shares. (5) Where relief is treated as so given (and not withdrawn) in respect of any new shares, this Chapter shall have effect as if anything which, under section 306(2) or 310, has been done, or is required to be done, by or in relation to the old company had been done, or were required to be done, by or in relation to the new company. (6) For the purposes of this section old shares and new shares are of a corresponding description if, on the assumption that they were shares in the same company, they would be of the same class and carry the same rights; and in subsection (1) above references to shares, except in the expressions “eligible shares” and “subscriber shares”, include references to securities. (7) Nothing in section 293(8) shall apply in relation to such an exchange of shares, or shares and securities, as is mentioned in subsection (1) above or arrangements with a view to such an exchange. (8) Subsection (2) of section 138 of the 1992 Act shall apply for the purposes of subsection (1)(f) above as it applies for the purposes of subsection (1) of that section.

• (2) This paragraph has effect in relation to new shares (within the meaning of section 304A of the Taxes Act 1988) issued on or after 6th April 1998.

42

• (1) In subsection (4)(a) of section 150 of the Taxation of Chargeable Gains Act 1992 (business expansion schemes)—

• (a) for the words “issued to a person" there shall be substituted the words “ acquired by an individual ”; and

• (b) after the word “relates" there shall be inserted the word “ to ”.

• (2) In subsection (5) of that section, for the words “Notwithstanding anything in section 107(1) and (2), section 107 does not apply" there shall be substituted the words “ Sections 104, 105 and 106A do not apply ”.

• (3) In subsection (7) of that section, for the words “eligible shares" there shall be substituted the words “ shares in respect of which relief has been given and not withdrawn ”.

• (4) In subsection (8) of that section, the word “eligible" shall cease to have effect.

• (5) In subsection (8A)(a) of that section, the word “preferential", in the second place where it occurs, shall cease to have effect.

• (6) After subsection (8C) of that section there shall be inserted the following subsection—

(8D) Where shares in respect of which relief has been given and not withdrawn are exchanged for other shares in circumstances such that section 304A of the Taxes Act (acquisition of share capital by new company) applies— (a) subsection (8) above shall not have effect to disapply section 135; and (b) subsections (2)(b), (3) and (4) of section 304A of the Taxes Act, and subsection (5) of that section so far as relating to section 306(2) of that Act, shall apply for the purposes of this section as they apply for the purposes of Chapter III of Part VII of that Act.

• (7) After subsection (11) of that section there shall be inserted the following subsection—

(12) In this section— - “ordinary share capital” has the same meaning as in the Taxes Act; - “ordinary shares”, in relation to a company, means shares forming part of its ordinary share capital.

• (8) In this paragraph—

• (a) sub-paragraphs (1) and (2) have effect in relation to disposals made on or after 6th April 1998;

• (b) sub-paragraph (3) has effect in relation to subsequent disposals made on or after that date;

• (c) sub-paragraph (4) has effect in relation to events occurring on or after that date;

• (d) sub-paragraph (5) has effect in relation to new shares (within the meaning of section 150(8A) of the Taxation of Chargeable Gains Act 1992) issued on or after that date;

• (e) sub-paragraph (6) has effect in relation to new shares (within the meaning of section 304A of the Taxes Act 1988) issued on or after that date; and

• (f) sub-paragraph (7) has effect in relation to events occurring on or after that date.

SCHEDULE 14

Section 547

1

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

Multiple interests

2

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

Right of company to recover tax from trustees

3

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

Foreign institution policies: no reduction under section 553

4

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

Consequential amendments

5

In section 7(9) of the Taxes Management Act 1970 (meaning of “relevant trustees” for the purposes of that Act)—

• (a) in paragraph (a), after “in relation to income" there shall be inserted “ (other than gains treated as arising under Chapter II of Part XIII of the principal Act) ”; and

• (b) after paragraph (a) there shall be inserted—

(aa) in relation to gains treated as arising under Chapter II of Part XIII of the principal Act, the persons who are trustees in the year of assessment in which the gains arise and any persons who subsequently become trustees; and

.

6

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

Commencement

7

• (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (5) ... This Schedule has effect in relation to chargeable events happening on or after 6th April 1998.

SCHEDULE 15

Amendment of section 591C of the Taxes Act 1988

1

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

Amendment of section 591D

2

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

Application for scheme approval

3

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

Information powers

4

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

Employers responsible for discharging administrator’s duties

5

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

Recourse to scheme members in respect of section 591C charge

6

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

Modification of certain existing approved schemes

7

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

SCHEDULE 16

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

SCHEDULE 17

Section 747

1

• (1) Section 747 of the Taxes Act 1988 (imputation of chargeable profits and creditable tax of controlled foreign companiesimputation of chargeable profits and creditable tax of controlled foreign companies) shall be amended as follows.

• (2) In subsection (1) (which provides that the provisions of the Chapter shall apply in relation to an accounting period of a company if the Board have reason to believe certain things and so direct)—

• (a) the words “the Board have reason to believe that", and

• (b) the words “and the Board so direct,",

shall cease to have effect.

• (3) In subsection (3) (apportionment of controlled foreign company’s chargeable profits and creditable tax among the persons with an interest in the company) for “Where, by virtue of a direction under subsection (1) above," there shall be substituted “ Subject to section 748, where ”.

• (4) In subsection (4)—

• (a) in paragraph (a) (which provides for a sum to be assessed on and recovered from a company resident in the United Kingdom as if it were corporation tax) for “assessed on and recoverable from" there shall be substituted “ chargeable on ”;

• (b) in the words following paragraph (b), for “to which the direction under subsection (1) above relates" there shall be substituted “ which is mentioned in subsection (1) above ”.

• (5) In subsection (5) (tax not to be assessed and recoverable from the resident company unless, among other things, at least 10 per cent. of the controlled foreign company’s chargeable profits are apportioned to the resident company or persons connected or associated with it)—

• (a) for “assessed and recoverable from" there shall be substituted “ chargeable on ”; and

• (b) for “10 per cent." there shall be substituted “ 25 per cent. ”

Section 747A

2

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

Section 748

3

• (1) Section 748 of the Taxes Act 1988 (limitations on direction-making power) shall be amended as follows.

• (2) In subsection (1) (no direction to be given if the conditions specified in any of the paragraphs of the subsection are satisfied) for the words preceding paragraph (a) there shall be substituted—

(1) No apportionment under section 747(3) falls to be made as regards an accounting period of a controlled foreign company if—

.

• (3) In paragraph (d) of that subsection (cases where chargeable profits do not exceed £20,000 etc) for “£20,000" there shall be substituted “ £50,000 ”.

• (4) After that paragraph there shall be inserted

or (e) as respects the accounting period, the company is, within the meaning of regulations made by the Board for the purposes of this paragraph, resident in a territory specified in the regulations and satisfies— (i) such conditions with respect to its income or gains as may be so specified; and (ii) such other conditions (if any) as may be so specified.

• (5) After subsection (1) there shall be inserted—

(1A) Regulations under paragraph (e) of subsection (1) above may— (a) make different provision for different cases or with respect to different territories; (b) make provision having effect in relation to accounting periods of controlled foreign companies ending not more than one year before the date on which the regulations are made; and (c) contain such supplementary, incidental, consequential and transitional provision as the Board may think fit.

• (6) Subsection (2) (which relates to directions under section 747) shall cease to have effect.

• (7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

• (8) Also in subsection (3), for “no direction may be given under section 747(1) with respect to that accounting period if it appears to the Board that" there shall be substituted “ no apportionment under section 747(3) falls to be made as regards that accounting period if it is the case that ”.

• (9) For the side-note to the section, there shall be substituted “ Cases where section 747(3) does not apply. ”

Section 749

4

For section 749 of the Taxes Act 1988 (residence and interest) there shall be substituted—

(749) (1) Subject to subsections (2) to (4) and (6) below, in any accounting period in which a company is resident outside the United Kingdom, it shall be regarded for the purposes of this Chapter as resident in that territory in which, throughout that period, it is liable to tax by reason of domicile, residence or place of management. (2) If, in the case of any company,— (a) there are in any accounting period two or more territories falling within subsection (1) above, and (b) no election or designation made under paragraph (d) or (e) of subsection (3) below in relation to an earlier accounting period of the company has effect by virtue of section 749A(1) in relation to that accounting period, subsection (3) below shall apply with respect to that company and that accounting period. (3) Where this subsection applies, the company shall in that accounting period be regarded for the purposes of this Chapter as resident in only one of those territories, namely— (a) if, throughout the accounting period, the company’s place of effective management is situated in one of those territories only, in that territory; (b) if, throughout the accounting period, the company’s place of effective management is situated in two or more of those territories, in that one of them in which, at the end of the accounting period, the greater amount of the company’s assets is situated; (c) if neither paragraph (a) nor paragraph (b) above applies, in that one of the territories falling within subsection (1) above in which, at the end of the accounting period, the greater amount of the company’s assets is situated; (d) if— (i) paragraph (a) above does not apply, and (ii) neither paragraph (b) nor paragraph (c) above produces one, and only one, of those territories, in that one of them (if any) which is specified in an election made in relation to that accounting period by any one or more persons who together have a majority assessable interest in the company in that accounting period; and (e) if, in a case falling within paragraph (d) above, the time by which any election under that paragraph in relation to that accounting period must be made in accordance with section 749A(3)(b) expires without such an election having been made, in that one of those territories which the Board justly and reasonably designates in relation to that accounting period. (4) If, in the case of any company,— (a) there are in any accounting period two or more territories falling within subsection (1) above, and (b) an election or designation made under paragraph (d) or (e) of subsection (3) above in relation to an earlier accounting period of the company has effect by virtue of section 749A(1) in relation to the accounting period mentioned in paragraph (a) above, the company shall in that accounting period be regarded for the purposes of this Chapter as resident in that one of those territories which is the subject of the election or designation. (5) If, in the case of any company, there is in any accounting period no territory falling within subsection (1) above, then, for the purposes of this Chapter, it shall be conclusively presumed that the company is in that accounting period resident in a territory in which it is subject to a lower level of taxation. (6) In any case where it becomes necessary for the purposes of subsection (3) above to determine in which of two or more territories the greater amount of a company’s assets is situated at the end of an accounting period— (a) account shall be taken only of those assets which, immediately before the end of that period, are situated in those territories; and (b) the amount of them shall be determined by reference to their market value at that time. (7) This section is without prejudice to the provision that may be made in regulations under section 748(1)(e). (8) For the purposes of this section, one or more persons together have a “majority assessable interest" in a controlled foreign company in an accounting period of the company if— (a) each of them has an assessable interest in the company in that accounting period; and (b) it is likely that, were an apportionment of the chargeable profits of the company for that accounting period made under section 747(3), the aggregate of the amounts which would be apportioned to them is greater than 50 per cent. of the aggregate of the amounts which would be apportioned to all the persons who have an assessable interest in the company in that accounting period. (9) For the purposes of subsection (8) above, a person has an “assessable interest" in a controlled foreign company in an accounting period of the company if he is one of the persons who it is likely would be chargeable to tax under section 747(4)(a) on an apportionment of the chargeable profits and creditable tax (if any) of the company for that accounting period under section 747(3). (749A) (1) An election under paragraph (d) or a designation under paragraph (e) of section 749(3) shall have effect in relation to— (a) the accounting period in relation to which it is made (“the original accounting period"), and (b) each successive accounting period of the controlled foreign company in question which precedes the next one in which the eligible territories are different, and shall so have effect notwithstanding any change in the persons who have interests in the company or any change in the interests which those persons have in the company. (2) For the purposes of subsection (1)(b) above, an accounting period of the controlled foreign company is one in which the eligible territories are different if in the case of that accounting period— (a) at least one of the two or more territories which fell within subsection (1) of section 749 in the original accounting period does not fall within that subsection; or (b) some other territory also falls within that subsection. (3) Any election under section 749(3)(d)— (a) must be made by notice given to an officer of the Board; (b) must be made no later than twelve months after the end of the controlled foreign company’s accounting period in relation to which it is made; (c) must state, as respects each of the persons making it, the percentage of the chargeable profits and creditable tax (if any) of the controlled foreign company for that accounting period which it is likely would be apportioned to him on an apportionment under section 747(3) if one were made; (d) must be signed by the persons making it; and (e) is irrevocable. (4) Nothing in— (a) paragraph 10 of Schedule 18 to the Finance Act 1998 (claims or elections in company tax returns), or (b) Schedule 1A to the Management Act (claims or elections not included in returns), shall apply, whether by virtue of section 754 or otherwise, to an election under section 749(3)(d). (5) A designation under section 749(3)(e) is irrevocable. (6) Where the Board make a designation under section 749(3)(e), notice of the making of the designation shall be given to every company resident in the United Kingdom which appears to the Board to have had an assessable interest in the controlled foreign company at any time during the accounting period of the controlled foreign company in relation to which the designation is made. (7) A notice under subsection (6) above shall specify— (a) the date on which the designation was made; (b) the controlled foreign company to which the designation relates; (c) the accounting period of the controlled foreign company in relation to which the designation is made; and (d) the territory designated. (8) Subsection (9) of section 749 has effect for the purposes of subsection (6) above as it has effect for the purposes of subsection (8) of that section. (749B) (1) For the purposes of this Chapter, the following persons have an interest in a company— (a) any person who possesses, or is entitled to acquire, share capital or voting rights in the company; (b) any person who possesses, or is entitled to acquire, a right to receive or participate in distributions of the company; (c) any person who is entitled to secure that income or assets (whether present or future) of the company will be applied directly or indirectly for his benefit; and (d) any other person who, either alone or together with other persons, has control of the company. (2) Rights which a person has as a loan creditor of a company do not constitute an interest in the company for the purposes of this Chapter. (3) For the purposes of subsection (1)(b) above, the definition of “distribution" in Part VI shall be construed without any limitation to companies resident in the United Kingdom. (4) References in subsection (1) above to being entitled to do anything apply where a person— (a) is presently entitled to do it at a future date, or (b) will at a future date be entitled to do it; but a person whose entitlement to secure that any income or assets of the company will be applied as mentioned in paragraph (c) of that subsection is contingent upon a default of the company or any other person under any agreement shall not be treated as falling within that paragraph unless the default has occurred. (5) Where a company has an interest in another company and a third person has, or two or more persons together have, an interest in the first company (as in a case where one company has a shareholding in a controlled foreign company and the first company is controlled by a third company or by two or more persons together) subsections (6) and (7) below apply. (6) Where this subsection applies, the person who has, or each of the persons who together have, the interest in the first company shall be regarded for the purposes of this Chapter as thereby having an interest in the second company. (7) In any case where this subsection applies, in construing references in this Chapter to one person having the same interest as another, the person or, as the case may be, each of the persons who together have, the interest in the first company shall be treated as having, to the extent of that person’s interest in that company, the same interest as the first company has in the second company. (8) Where two or more persons jointly have an interest in a company otherwise than in a fiduciary or representative capacity, they shall be treated for the purposes of this Chapter as having the interest in equal shares.

Section 750

5

• (1) Section 750 of the Taxes Act 1988 (territories with a lower level of taxation) shall be amended as follows.

• (2) In subsection (1) (which refers to certain provisions of section 749)—

• (a) for “subsection (3)" there shall be substituted “ subsection (5) ”; and

• (b) for “subsection (1) or subsection (2)" there shall be substituted “ any of subsections (1) to (4) ”.

• (3) In subsection (3), for paragraph (a) (which refers to a direction under section 747(1) and a declaration under paragraph 11(3) of Schedule 24) there shall be substituted—

(a) it shall be assumed for the purposes of Schedule 24 that an apportionment under section 747(3) falls to be made as regards that period; and

.

Section 751

6

• (1) Section 751 of the Taxes Act 1988 (accounting periods and creditable tax) shall be amended as follows.

• (2) In subsection (1) (occasions on which an accounting period begins) in paragraph (b) (company commencing to carry on business)—

• (a) the words “not being the subject of an earlier direction under section 747(1)" shall cease to have effect; and

• (b) after “commences to carry on business" there shall be inserted “ unless an accounting period of the company has previously begun as respects which an apportionment under section 747(3) falls or has fallen to be made ”.

• (3) In subsection (5) (direction may specify accounting period where beginning or end appears uncertain)—

• (a) for “a direction under section 747(1) may" there shall be substituted “ the Board may by notice ”; and

• (b) for “the direction" there shall be substituted “ the notice ”.

• (4) In subsection (5) (power to amend so as to specify true accounting period where further facts come to the knowledge of the Board after making a direction)—

• (a) for “making of a direction (including facts emerging on an appeal against notice of the making of the direction)" there shall be substituted “ giving of a notice under subsection (4) above ”; and

• (b) for “direction", in the third and fourth places where it occurs, there shall be substituted “ notice ”.

• (5) After subsection (5) there shall be inserted—

(5A) Any notice under subsection (4) above, and notice of any amendment of such a notice under subsection (5) above, shall be given to every person who has an assessable interest (as defined in section 749(9)) in the company in the accounting period in question.

• (6) In subsection (6) (meaning of “creditable tax") for “in respect of which a direction is given under section 747(1)" there shall be substituted “ as regards which an apportionment under section 747(3) falls to be made ”.

Section 752

7

For section 752 of the Taxes Act 1988 (apportionment of chargeable profits and creditable tax) there shall be substituted—

(752) (1) This section applies in any case where an apportionment under section 747(3) falls to be made as regards an accounting period of a controlled foreign company. (2) Where— (a) the persons who have relevant interests in the controlled foreign company at any time in the relevant accounting period have those interests by virtue only of directly or indirectly holding ordinary shares of the company, (b) each of those persons satisfies the condition that he is either— (i) resident in the United Kingdom throughout that accounting period, or (ii) resident in the United Kingdom at no time in that accounting period, and (c) no company which has an intermediate interest in the controlled foreign company at any time in the relevant accounting period has that interest otherwise than by virtue of directly or indirectly holding ordinary shares of the controlled foreign company, subsection (3) below shall apply. (3) Where this subsection applies, the apportionment of the controlled foreign company’s chargeable profits and creditable tax (if any) for the relevant accounting period shall be made among the persons who have relevant interests in the company at any time in that period in direct proportion to the percentage of the issued ordinary shares of the controlled foreign company which, in accordance with section 752B, each of those relevant interests represents. (4) Where subsection (3) above does not apply, the apportionment of the controlled foreign company’s chargeable profits and creditable tax (if any) for the relevant accounting period shall be made on a just and reasonable basis among the persons who have relevant interests in the company at any time in that period. (752A) (1) This section has effect for the purpose of determining for the purposes of this Chapter who has a relevant interest in a controlled foreign company at any time; and references in this Chapter to relevant interests shall be construed accordingly. (2) A UK resident company which has a direct or indirect interest in a controlled foreign company has a relevant interest in the company by virtue of that interest unless subsection (3) below otherwise provides. (3) A UK resident company which has an indirect interest in a controlled foreign company does not have a relevant interest in the company by virtue of that interest if it has the interest by virtue of having a direct or indirect interest in another UK resident company. (4) A related person who has a direct or indirect interest in a controlled foreign company has a relevant interest in the company by virtue of that interest unless subsection (5) or (6) below otherwise provides. (5) A related person who has an indirect interest in a controlled foreign company does not have a relevant interest in the company by virtue of that interest if he has the interest by virtue of having a direct or indirect interest in— (a) a UK resident company; or (b) another related person. (6) A related person who has a direct or indirect interest in a controlled foreign company does not have a relevant interest in the company by virtue of that interest to the extent that a UK resident company— (a) has the whole or any part of the same interest indirectly, by virtue of having a direct or indirect interest in the related person, and (b) by virtue of that indirect interest in the controlled foreign company, has a relevant interest in the company by virtue of subsection (2) above. (7) A person who— (a) has a direct interest in a controlled foreign company, but (b) does not by virtue of subsections (2) to (6) above have a relevant interest in the company by virtue of that interest, has a relevant interest in the company by virtue of that interest unless subsection (8) below otherwise provides. (8) A person does not by virtue of subsection (7) above have a relevant interest in a controlled foreign company by virtue of having a direct interest in the company to the extent that another person— (a) has the whole or any part of the same interest indirectly, and (b) by virtue of that indirect interest, has a relevant interest in the company by virtue of subsections (2) to (6) above. (9) No person has a relevant interest in a controlled foreign company otherwise than as provided by subsections (2) to (8) above. (10) In this section— - “related person” means a person who— 1. is not a UK resident company, but 2. is connected or associated with a UK resident company which has by virtue of subsection (2) above a relevant interest in the controlled foreign company in question; - “UK resident company” means a company resident in the United Kingdom. (752B) (1) For the purposes of section 752(3) above, where a person has a relevant interest in a controlled foreign company by virtue of indirectly holding issued ordinary shares of the company, the percentage of the issued ordinary shares of the company which the relevant interest represents is equal to— $$P×S$where—P is the product of the appropriate fractions of that person and each of the share-linked companies through which he indirectly holds the shares in question, other than the lowest share-linked company; andS is the percentage of issued ordinary shares of the controlled foreign company which is held directly by the lowest share-linked company.$ (2) In subsection (1) above and this subsection— - “the appropriate fraction", in the case of a person who directly holds ordinary shares of a share-linked company, means that fraction of the issued ordinary shares of that company which his holding represents; - “the lowest share-linked company”, in relation to a person who indirectly holds ordinary shares of a controlled foreign company, means the share-linked company which directly holds the shares in question; - “share-linked company” means a company which is share-linked to the controlled foreign company in question. (3) Where a person has different indirect holdings of shares of the controlled foreign company (as in a case where different shares are held through different companies which are share-linked to the controlled foreign company)— (a) subsection (1) above shall apply separately in relation to the different holdings with any necessary modifications; and (b) for the purposes of section 752(3) above the percentage of the issued ordinary shares of the company which the relevant interest represents is the aggregate of the percentages resulting from those separate applications. (4) Where, for the purposes of subsection (3) of section 752, the percentage of the issued ordinary shares of the controlled foreign company which a person directly or indirectly holds varies during the relevant accounting period, he shall be treated for the purposes of that subsection as holding throughout that period that percentage of the issued ordinary shares of the company which is equal to the sum of the relevant percentages for each holding period in the relevant accounting period. (5) For the purposes of subsection (4) above— - “holding period", in the case of any person, means a part of the relevant accounting period during which the percentage of the issued ordinary shares of the controlled foreign company which the person holds (whether directly or indirectly) remains the same; - “the relevant percentage", in the case of a holding period, means the percentage equal to—$P×HA$where—P is the percentage of the issued ordinary shares of the controlled foreign company which the person in question directly or indirectly holds in the holding period, as calculated in accordance with subsections (1) to (3) above so far as applicable;H is the number of days in the holding period; andA is the number of days in the relevant accounting period. (752C) (1) In this section “the relevant provisions” means sections 752 to 752B and this section. (2) For the purposes of the relevant provisions— (a) a person has a direct interest in a company if (and only if) he has an interest in the company otherwise than by virtue of having an interest in another company; (b) a person has an indirect interest in a company if (and only if) he has an interest in the company by virtue of having an interest in another company; (c) a person indirectly holds shares of a controlled foreign company if (and only if) he directly holds ordinary shares of a company which is share-linked to the controlled foreign company. (3) For the purposes of the relevant provisions, a company is “share-linked" to a controlled foreign company if it has an interest in the controlled foreign company only by virtue of directly holding ordinary shares— (a) of the controlled foreign company, or (b) of the controlled foreign company or of one or more companies which are share-linked to the controlled foreign company by virtue of paragraph (a) above, or (c) of the controlled foreign company or of one or more companies which are share-linked to the controlled foreign company by virtue of paragraph (a) or (b) above, and so on. (4) For the purposes of the relevant provisions, a company (“company A") has an intermediate interest in a controlled foreign company if (and only if)— (a) it has a direct or indirect interest in the controlled foreign company; and (b) one or more other persons have relevant interests in the controlled foreign company by virtue of having a direct or indirect interest in company A. (5) Any interest or shares held by a nominee or bare trustee shall be treated for the purposes of the relevant provisions as held by the person or persons for whom the nominee or bare trustee holds the interest or shares. (6) Where— (a) an interest in a controlled foreign company is held in a fiduciary or representative capacity, and (b) subsection (5) above does not apply, but (c) there are one or more identifiable beneficiaries, the interest shall be treated for the purposes of the relevant provisions as held by that beneficiary or, as the case may be, as apportioned on a just and reasonable basis among those beneficiaries. (7) In the relevant provisions— - “bare trustee” means a person acting as trustee— 1. for a person absolutely entitled as against the trustee; or 2. for any person who would be so entitled but for being a minor or otherwise under a disability; or 3. for two or more persons who are or would, but for all or any of them being a minor or otherwise under a disability, be jointly so entitled; - “ordinary shares", in the case of any company, means shares of a single class, however described, which is the only class of shares issued by the company; - “the relevant accounting period” means the accounting period mentioned in section 752(1); - “share” includes a reference to a fraction of a share.

Section 753

8

Section 753 of the Taxes Act 1988 (notices and appeals) shall cease to have effect.

Section 754

9

• (1) Section 754 of the Taxes Act 1988 (assessment, recovery and postponement of tax) shall be amended as follows.

• (2) In subsection (1) (provisions of section 747(4)(a) relating to assessment and recovery of a sum as if it were an amount of corporation tax to be taken as applying all enactments applying generally to corporation tax, including certain described enactments)—

• (a) for “assessment and recovery" there shall be substituted “ the charging ”; and

• (b) after “including" there shall be inserted “ those relating to company tax returns, ”.

• (3) After subsection (1) there shall be inserted—

(1A) Accordingly (but without prejudice to subsection (1) above) the Management Act shall have effect as if— (a) any reference to corporation tax included a reference to a sum chargeable under section 747(4)(a) as if it were an amount of corporation tax; and (b) any reference to profits of a company included a reference to an amount of chargeable profits of a controlled foreign company which falls to be apportioned to a company under section 747(3).

• (4) For subsection (2) (which provides for any sum assessable and recoverable under section 747(4)(a) to be regarded as corporation tax which falls to be assessed for the accounting period in which ends the accounting period of the controlled foreign company and which makes provision as to the contents of a notice of assessment) there shall be substituted—

(2) For the purposes of the Taxes Acts, any sum chargeable on a company under section 747(4)(a) is chargeable for the accounting period of the company in which ends that one of the controlled foreign company’s accounting periods the chargeable profits of which give rise to that sum.

• (5) After subsection (2) there shall be inserted—

(2A) Where— (a) an apportionment under section 747(3) falls to be made as regards an accounting period of a controlled foreign company, and (b) the apportionment falls to be made in accordance with section 752(4) on a just and reasonable basis, and (c) a company tax return is made or amended using for the apportionment a particular basis adopted by the company making the return, the Board may determine that another basis is to be used for the apportionment. (2B) For the purposes of subsection (2A) above, the Board may by notice require the company making the return— (a) to produce to them such documents in the company’s power or possession, and (b) to provide them with such information, in such form, as they may reasonably require for the purpose of determining the basis which is to be used for making the apportionment. (2C) The provisions of paragraphs 27 to 29 of Schedule 18 to the Finance Act 1998 (notice to produce documents etc for the purposes of enquiry: supplementary provisions and penalty) shall apply in relation to a notice under subsection (2B) above. (2D) Once the Board have determined under subsection (2A) above the basis to be used for the apportionment, matters shall proceed as if that were the only basis allowed by the Tax Acts. (2E) A determination under subsection (2A) above may be questioned on an appeal against an amendment, made under paragraph 30 or 34(2) of Schedule 18 to the Finance Act 1998, of the company’s company tax return, but only on the ground that the basis of apportionment determined by the Board is not just and reasonable.

• (6) For subsection (3) (appeals) there shall be substituted the following subsections—

(3) Where any appeal— (a) under paragraph 34(3) of Schedule 18 to the Finance Act 1998 against an amendment of a company tax return, or (b) under paragraph 48 of that Schedule against a discovery assessment or discovery determination under paragraph 41 of that Schedule (including an assessment by virtue of paragraph 52 of that Schedule), involves any question concerning the application of this Chapter in relation to any particular person, that appeal shall be to the Special Commissioners. (3A) Where— (a) any such question as is mentioned in subsection (3) above falls to be determined by the Special Commissioners for the purposes of any proceedings before them, and (b) the question is one whose resolution is likely to affect the liability of more than one person under this Chapter in respect of the controlled foreign company concerned, subsection (3B) below shall apply. (3B) Where this subsection applies— (a) each of the persons whose liability under this Chapter in respect of the controlled foreign company concerned is likely to be affected by the resolution of the question shall be entitled to appear and be heard by the Special Commissioners, or to make representations to them in writing; (b) the Special Commissioners shall determine that question separately from any other questions in those proceedings; and (c) their determination on that question shall have effect as if made in an appeal to which each of those persons was a party.

• (7) Subsection (4) shall cease to have effect.

• (8) In subsection (6) (power of Board to serve notice of liability to tax on another company with the same interest where tax assessed by virtue of section 752(6) remains unpaid by the assessable company)—

• (a) for “assessed" and “assessable", wherever occurring, there shall be substituted “ chargeable ”;

• (b) in paragraph (a), for “752(6)" there shall be substituted “ 747(4)(a) ”;

• (c) in paragraph (b), before “the same interest" there shall be inserted “ the whole or any part of ”; and

• (d) at the beginning of the words following paragraph (b) there shall be inserted “ the whole or, as the case may be, the corresponding part of ”.

• (9) In subsection (7) (liability for interest where notice of liability to tax is served)—

• (a) at the beginning of paragraph (a) there shall be inserted “ the whole, or (as the case may be) the corresponding part, of ”;

• (b) in paragraph (a), for “assessed" and “assessable" there shall be substituted “ chargeable ”; and

• (c) at the end of paragraph (b), there shall be added “(so far as referable to tax payable by the responsible company by virtue of the notice)".

• (10) In subsection (8) (recovery of tax and interest from the assessable company where the responsible company fails to pay within the time allowed) for “assessable" there shall be substituted “ chargeable ”.

Returns where it is not established whether acceptable distribution policy applies

10

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Determinations requiring the sanction of the Board

11

After section 754A of the Taxes Act 1988 there shall be inserted—

(754B) (1) This section has effect where a determination requiring the Board’s sanction is made for any of the following purposes, that is to say— (a) the giving of a closure notice; or (b) the making of a discovery assessment. (2) If the closure notice or, as the case may be, notice of the discovery assessment is given to any person without— (a) the determination, so far as it is taken into account in the closure notice or the discovery assessment, having been approved by the Board, or (b) notification of the Board’s approval having been served on that person at or before the time of the giving of the notice, the closure notice or, as the case may be, the discovery assessment shall be deemed to have been given or made (and in the case of an assessment notified) in the terms (if any) in which it would have been given or made had that determination not been taken into account. (3) A notification under subsection (2)(b) above— (a) must be in writing; (b) must state that the Board have given their approval on the basis that— (i) an amount of chargeable profits, and (ii) an amount of creditable tax (which may be nil), for the accounting period of the controlled foreign company in question fall to be apportioned under section 747(3) to the person in question; (c) must state the amounts mentioned in sub-paragraphs (i) and (ii) of paragraph (b) above; and (d) subject to paragraphs (a) to (c) above, may be in such form as the Board may determine. (4) For the purposes of this section, the Board’s approval of a determination requiring their sanction— (a) must be given specifically in relation to the case in question and must apply to the amount determined; but (b) subject to that, may be given by the Board (either before or after the making of the determination) in any such form or manner as they may determine. (5) In this section references to a determination requiring the Board’s sanction are references (subject to subsection (6) below) to any determination of the amount of chargeable profits or creditable tax for an accounting period of a controlled foreign company which falls to be apportioned to a particular person under section 747(3). (6) For the purposes of this section, a determination shall be taken, in relation to a closure notice or a discovery assessment, not to be a determination requiring the Board’s sanction if— (a) an agreement about the relevant amounts has been made between an officer of the Board and the person in whose case it is made; (b) that agreement is in force at the time of the giving of the closure notice or, as the case may be, notice of the assessment; and (c) the matters to which the agreement relates include the amount determined. (7) In paragraph (a) of subsection (6) above, “the relevant amounts” means— (a) the amount of chargeable profits, and (b) the amount of creditable tax (which may be nil), for the accounting period of the controlled foreign company in question which fall to be apportioned under section 747(3) to the person mentioned in that paragraph. (8) For the purposes of subsection (6) above an agreement made between an officer of the Board and any person (“the taxpayer") in relation to any matter shall be taken to be in force at any time if, and only if— (a) the agreement is one which has been made or confirmed in writing; (b) that time is after the end of the period of thirty days beginning— (i) in the case of an agreement made in writing, with the day of the making of the agreement, and (ii) in any other case, with the day of the agreement’s confirmation in writing; and (c) the taxpayer has not, before the end of that period of thirty days, served a notice on an officer of the Board stating that he is repudiating or resiling from the agreement. (9) The references in subsection (8) above to the confirmation in writing of an agreement are references to the service on the taxpayer by an officer of the Board of a notice— (a) stating that the agreement has been made; and (b) setting out the terms of the agreement. (10) The matters that may be questioned on so much of any appeal by virtue of any provision of the Management Act or Schedule 18 to the Finance Act 1998 (company tax returns, assessments and related matters) as relates to a determination the making of which has been approved by the Board for the purposes of this section shall not include the Board’s approval, except to the extent that the grounds for questioning the approval are the same as the grounds for questioning the determination itself. (11) In this section— - “closure notice” means a notice under paragraph 32 of Schedule 18 to the Finance Act 1998 (completion of enquiry and statement of conclusions); - “discovery assessment” means a discovery assessment or discovery determination under paragraph 41 of that Schedule (including an assessment by virtue of paragraph 52 of that Schedule).

Section 755

12

Section 755 of the Taxes Act 1988 (information relating to controlled foreign companies) shall cease to have effect.

Treatment of chargeable profits and creditable tax apportioned to company carrying on life assurance business

13

After section 755 of the Taxes Act 1988 there shall be inserted—