Finance Act 2010

(4) (1) This paragraph sets out the penalty payable under paragraph 1. (2) If the inaccuracy is in category 1, the penalty is— (a) for careless action, 30% of the potential lost revenue, (b) for deliberate but not concealed action, 70% of the potential lost revenue, and (c) for deliberate and concealed action, 100% of the potential lost revenue. (3) If the inaccuracy is in category 2, the penalty is— (a) for careless action, 45% of the potential lost revenue, (b) for deliberate but not concealed action, 105% of the potential lost revenue, and (c) for deliberate and concealed action, 150% of the potential lost revenue. (4) If the inaccuracy is in category 3, the penalty is— (a) for careless action, 60% of the potential lost revenue, (b) for deliberate but not concealed action, 140% of the potential lost revenue, and (c) for deliberate and concealed action, 200% of the potential lost revenue. (5) Paragraph 4A explains the 3 categories of inaccuracy. (4A) (1) An inaccuracy is in category 1 if— (a) it involves a domestic matter, or (b) it involves an offshore matter and— (i) the territory in question is a category 1 territory, or (ii) the tax at stake is a tax other than income tax or capital gains tax. (2) An inaccuracy is in category 2 if— (a) it involves an offshore matter, (b) the territory in question is a category 2 territory, and (c) the tax at stake is income tax or capital gains tax. (3) An inaccuracy is in category 3 if— (a) it involves an offshore matter, (b) the territory in question is a category 3 territory, and (c) the tax at stake is income tax or capital gains tax. (4) An inaccuracy “involves an offshore matter” if it results in a potential loss of revenue that is charged on or by reference to— (a) income arising from a source in a territory outside the UK, (b) assets situated or held in a territory outside the UK, (c) activities carried on wholly or mainly in a territory outside the UK, or (d) anything having effect as if it were income, assets or activities of a kind described above. (5) An inaccuracy “involves a domestic matter” if it results in a potential loss of revenue that is charged on or by reference to anything not mentioned in sub-paragraph (4)(a) to (d). (6) If a single inaccuracy is in more than one category (each referred to as a “relevant category”)— (a) it is to be treated for the purposes of this Schedule as if it were separate inaccuracies, one in each relevant category according to the matters that it involves, and (b) the potential lost revenue is to be calculated separately in respect of each separate inaccuracy. (7) “Category 1 territory”, “category 2 territory” and “category 3 territory” are defined in paragraph 21A. (8) “Assets” has the meaning given in section 21(1) of TCGA 1992, but also includes sterling. (4B) The penalty payable under paragraph 1A is 100% of the potential lost revenue. (4C) The penalty payable under paragraph 2 is 30% of the potential lost revenue. (4D) Paragraphs 5 to 8 define “potential lost revenue”.

3

For paragraph 10 substitute—

(10) (1) If a person who would otherwise be liable to a penalty of a percentage shown in column 1 of the Table (a “standard percentage”) has made a disclosure, HMRC must reduce the standard percentage to one that reflects the quality of the disclosure. (2) But the standard percentage may not be reduced to a percentage that is below the minimum shown for it— (a) in the case of a prompted disclosure, in column 2 of the Table, and (b) in the case of an unprompted disclosure, in column 3 of the Table.

Standard %	Minimum % for prompted disclosure	Minimum % for unprompted disclosure
30%	15%	0%
45%	22.5%	0%
60%	30%	0%
70%	35%	20%
105%	52.5%	30%
140%	70%	40%
100%	50%	30%
150%	75%	45%
200%	100%	60%

.

4

In paragraph 12 (interaction with other penalties), for sub-paragraph (4) substitute—

(4) Where penalties are imposed under paragraphs 1 and 1A in respect of the same inaccuracy, the aggregate of the amounts of the penalties must not exceed the relevant percentage of the potential lost revenue. (5) The relevant percentage is— (a) if the penalty imposed under paragraph 1 is for an inaccuracy in category 1, 100%, (b) if the penalty imposed under paragraph 1 is for an inaccuracy in category 2, 150%, and (c) if the penalty imposed under paragraph 1 is for an inaccuracy in category 3, 200%.

5

In Part 5 (general), before the heading “Interpretation” insert—

(21A) (1) A category 1 territory is a territory designated as a category 1 territory by order made by the Treasury. (2) A category 2 territory is a territory that is neither— (a) a category 1 territory, nor (b) a category 3 territory. (3) A category 3 territory is a territory designated as a category 3 territory by order made by the Treasury. (4) In considering how to classify a territory for the purposes of this paragraph, the Treasury must have regard to— (a) the existence of any arrangements between the UK and that territory for the exchange of information for tax enforcement purposes, (b) the quality of any such arrangements (in particular, whether they provide for information to be exchanged automatically or on request), and (c) the benefit that the UK would be likely to obtain from receiving information from that territory, were such arrangements to exist with it. (5) An order under this paragraph is to be made by statutory instrument. (6) Subject to sub-paragraph (7), an instrument containing an order under this paragraph is subject to annulment in pursuance of a resolution of the House of Commons. (7) If the order is— (a) the first order to be made under sub-paragraph (1), or (b) the first order to be made under sub-paragraph (3), it may not be made unless a draft of the instrument containing it has been laid before, and approved by a resolution of, the House of Commons. (8) An order under this paragraph does not apply to inaccuracies in a document given to HMRC (or, in a case within paragraph 3(2), inaccuracies discovered by P) before the date on which the order comes into force. (21B) (1) The Treasury may by regulations make provision for determining for the purposes of paragraph 4A where— (a) a source of income is located, (b) an asset is situated or held, or (c) activities are wholly or mainly carried on. (2) Different provision may be made for different cases and for income tax and capital gains tax. (3) Regulations under this paragraph are to be made by statutory instrument. (4) An instrument containing regulations under this paragraph is subject to annulment in pursuance of a resolution of the House of Commons.

6

After paragraph 23A insert—

(23B) UK” means the United Kingdom, including the territorial sea of the United Kingdom.

Schedule 41 to FA 2008

7

Schedule 41 to FA 2008 (penalties: failure to notify and certain VAT and excise wrongdoing) is amended as follows.

8

For paragraph 6 substitute—

(6) (1) This paragraph sets out the penalty payable under paragraph 1. (2) If the failure is in category 1, the penalty is— (a) for a deliberate and concealed failure, 100% of the potential lost revenue, (b) for a deliberate but not concealed failure, 70% of the potential lost revenue, and (c) for any other case, 30% of the potential lost revenue. (3) If the failure is in category 2, the penalty is— (a) for a deliberate and concealed failure, 150% of the potential lost revenue, (b) for a deliberate but not concealed failure, 105% of the potential lost revenue, and (c) for any other case, 45% of the potential lost revenue. (4) If the failure is in category 3, the penalty is— (a) for a deliberate and concealed failure, 200% of the potential lost revenue, (b) for a deliberate but not concealed failure, 140% of the potential lost revenue, and (c) for any other case, 60% of the potential lost revenue. (5) Paragraph 6A explains the 3 categories of failure. (6A) (1) A failure is in category 1 if— (a) it involves a domestic matter, or (b) it involves an offshore matter and— (i) the territory in question is a category 1 territory, or (ii) the tax at stake is a tax other than income tax or capital gains tax. (2) A failure is in category 2 if— (a) it involves an offshore matter, (b) the territory in question is a category 2 territory, and (c) the tax at stake is income tax or capital gains tax. (3) A failure is in category 3 if— (a) it involves an offshore matter, (b) the territory in question is a category 3 territory, and (c) the tax at stake is income tax or capital gains tax. (4) A failure “involves an offshore matter” if it results in a potential loss of revenue that is charged on or by reference to— (a) income arising from a source in a territory outside the UK, (b) assets situated or held in a territory outside the UK, (c) activities carried on wholly or mainly in a territory outside the UK, or (d) anything having effect as if it were income, assets or activities of a kind described above. (5) A failure “involves a domestic matter” if it results in a potential loss of revenue that is charged on or by reference to anything not mentioned in sub-paragraph (4)(a) to (d). (6) If a single failure is in more than one category (each referred to as a “relevant category”)— (a) it is to be treated for the purposes of this Schedule as if it were separate failures, one in each relevant category according to the matters that it involves, and (b) the potential lost revenue in respect of each separate failure is taken to be such share of the potential lost revenue in respect of the single failure (see paragraphs 7 and 11) as is just and reasonable. (7) For the purposes of this Schedule— (a) paragraph 21A of Schedule 24 to FA 2007 (classification of territories) has effect, but (b) an order under that paragraph does not apply to relevant obligations that are to be complied with by a date before the date on which the order comes into force. (8) Regulations under paragraph 21B of Schedule 24 to FA 2007 (location of assets etc) apply for the purposes of paragraph 6A of this Schedule as they apply for the purposes of paragraph 4A of that Schedule. (9) In this paragraph— - “assets” has the meaning given in section 21(1) of TCGA 1992, but also includes sterling; - “UK” means the United Kingdom, including the territorial sea of the United Kingdom. (6B) The penalty payable under any of paragraphs 2, 3(1) and 4 is— (a) for a deliberate and concealed act or failure, 100% of the potential lost revenue, (b) for a deliberate but not concealed act or failure, 70% of the potential lost revenue, and (c) for any other case, 30% of the potential lost revenue. (6C) The penalty payable under paragraph 3(2) is 100% of the potential lost revenue. (6D) Paragraphs 7 to 11 define “potential lost revenue”.

9

For paragraph 13 substitute—

(13) (1) If a person who would otherwise be liable to a penalty of a percentage shown in column 1 of the Table (a “standard percentage”) has made a disclosure, HMRC must reduce the standard percentage to one that reflects the quality of the disclosure. (2) But the standard percentage may not be reduced to a percentage that is below the minimum shown for it— (a) for a prompted disclosure, in column 2 of the Table, and (b) for an unprompted disclosure, in column 3 of the Table. (3) Where the Table shows a different minimum for case A and case B— (a) the case A minimum applies if— (i) the penalty is one under paragraph 1, and (ii) HMRC become aware of the failure less than 12 months after the time when the tax first becomes unpaid by reason of the failure, and (b) otherwise, the case B minimum applies.

Standard %	Minimum % for prompted disclosure	Minimum % for unprompted disclosure
30%	case A: 10%case B: 20%	case A: 0%case B: 10%
45%	case A: 15%case B: 30%	case A: 0%case B: 15%
60%	case A: 20%case B: 40%	case A: 0%case B: 20%
70%	35%	20%
105%	52.5%	30%
140%	70%	40%
100%	50%	30%
150%	75%	45%
200%	100%	60%

.

Schedule 55 to FA 2009

10

Schedule 55 to FA 2009 (penalties for failure to make returns etc) is amended as follows.

11

• (1) Paragraph 6 (amount of penalty if failure continues more than 12 months) is amended as follows.

• (2) In sub-paragraph (3)(a), for “100%” substitute “ the relevant percentage ”.

• (3) After sub-paragraph (3) insert—

(3A) For the purposes of sub-paragraph (3)(a), the relevant percentage is— (a) for the withholding of category 1 information, 100%, (b) for the withholding of category 2 information, 150%, and (c) for the withholding of category 3 information, 200%.

• (4) In sub-paragraph (4)(a), for “70%” substitute “ the relevant percentage ”.

• (5) After sub-paragraph (4) insert—

(4A) For the purposes of sub-paragraph (4)(a), the relevant percentage is— (a) for the withholding of category 1 information, 70%, (b) for the withholding of category 2 information, 105%, and (c) for the withholding of category 3 information, 140%.

• (6) After sub-paragraph (5) insert—

(6) Paragraph 6A explains the 3 categories of information.

12

After paragraph 6 insert—

(6A) (1) Information is category 1 information if— (a) it involves a domestic matter, or (b) it involves an offshore matter and— (i) the territory in question is a category 1 territory, or (ii) it is information which would enable or assist HMRC to assess P's liability to a tax other than income tax or capital gains tax. (2) Information is category 2 information if— (a) it involves an offshore matter, (b) the territory in question is a category 2 territory, and (c) it is information which would enable or assist HMRC to assess P's liability to income tax or capital gains tax. (3) Information is category 3 information if— (a) it involves an offshore matter, (b) the territory in question is a category 3 territory, and (c) it is information which would enable or assist HMRC to assess P's liability to income tax or capital gains tax. (4) Information “involves an offshore matter” if the liability to tax which would have been shown in the return includes a liability to tax charged on or by reference to— (a) income arising from a source in a territory outside the UK, (b) assets situated or held in a territory outside the UK, (c) activities carried on wholly or mainly in a territory outside the UK, or (d) anything having effect as if it were income, assets or activities of a kind described above. (5) Information “involves a domestic matter” if the liability to tax which would have been shown in the return includes a liability to tax charged on or by reference to anything not mentioned in sub-paragraph (4)(a) to (d). (6) If the information which P withholds falls into more than one category— (a) P's failure to make the return is to be treated for the purposes of this Schedule as if it were separate failures, one for each category of information according to the matters which the information involves, and (b) for each separate failure, the liability to tax which would have been shown in the return in question is taken to be such share of the liability to tax which would have been shown in the return mentioned in paragraph (a) as is just and reasonable. (7) For the purposes of this Schedule— (a) paragraph 21A of Schedule 24 to FA 2007 (classification of territories) has effect, but (b) an order under that paragraph does not apply to a failure if the filing date is before the date on which the order comes into force. (8) Regulations under paragraph 21B of Schedule 24 to FA 2007 (location of assets etc) apply for the purposes of paragraph 6A of this Schedule as they apply for the purposes of paragraph 4A of that Schedule. (9) In this paragraph— - “assets” has the meaning given in section 21(1) of TCGA 1992, but also includes sterling; - “UK” means the United Kingdom, including the territorial sea of the United Kingdom.

13

• (1) Paragraph 15 (reductions for disclosure) is amended as follows.

• (2) For sub-paragraphs (1) and (2) substitute—

(1) If a person who would otherwise be liable to a penalty of a percentage shown in column 1 of the Table (a “standard percentage”) has made a disclosure, HMRC must reduce the standard percentage to one that reflects the quality of the disclosure. (2) But the standard percentage may not be reduced to a percentage that is below the minimum shown for it— (a) in the case of a prompted disclosure, in column 2 of the Table, and (b) in the case of an unprompted disclosure, in column 3 of the Table.

Standard %	Minimum % for prompted disclosure	Minimum % for unprompted disclosure
70%	35%	20%
105%	52.5%	30%
140%	70%	40%
100%	50%	30%
150%	75%	45%
200%	100%	60%

.

• (3) Omit sub-paragraphs (3) and (4).

14

In paragraph 17 (interaction with other penalties)—

• (a) in sub-paragraph (3), for “100%” substitute “ the relevant percentage ”, and

• (b) after that sub-paragraph insert—

(4) The relevant percentage is— (a) if one of the penalties is a penalty under paragraph 6(3) or (4) and the information withheld is category 3 information, 200%, (b) if one of the penalties is a penalty under paragraph 6(3) or (4) and the information withheld is category 2 information, 150%, and (c) in all other cases, 100%.

SCHEDULE 11

Effect of foreign tax becoming payable

1

• (1) Paragraph 3 of Schedule 28AB to ICTA (schemes about effect of paying foreign tax) is amended as follows.

• (2) In sub-paragraph (2)—

• (a) in paragraph (a), after “paid” insert “ or payable ”, and

• (b) in paragraph (b), for “of the payment of that amount of foreign tax on the foreign tax total” substitute “ on the foreign tax total of that amount being so paid or payable ”.

• (3) In sub-paragraph (3)(b), for “the payment by the claimant of that amount of foreign tax” substitute “ that amount of foreign tax being paid or payable by the claimant ”.

2

• (1) Section 85 of TIOPA 2010 (schemes about effect of paying foreign tax) is amended as follows.

• (2) In subsection (2)—

• (a) for paragraph (a) substitute—

(a) an amount of foreign tax (“the FT amount”) is paid or payable by C, and

, and

• (b) in paragraph (b), for “of the payment of the FT amount on the foreign-tax total” substitute “ on the foreign-tax total of the FT amount being so paid or payable ”.

• (3) In subsection (3), in paragraph (b) of the definition of “the foreign-tax total”, for “the payment by C of the FT amount” substitute “ the FT amount being paid or payable by C ”.

3

• (1) The amendments made by paragraphs 1 and 2 have effect in relation to amounts of foreign tax payable on or after 21 October 2009.

• (2) But see paragraph 5 for amounts of foreign tax payable on or after 1 April 2010 (as regards corporation tax) or 6 April 2010 (as regards income tax or capital gains tax).

Schemes about deemed foreign tax

4

• (1) In TIOPA 2010, after section 85 insert—

(85A) (1) This section applies to a scheme or arrangement if in relation to a claimant— (a) an amount (“amount X”) is treated by virtue of a provision of the Tax Acts as if it were an amount of foreign tax paid or payable by the claimant in respect of a source of income, and (b) condition A or B is met. (2) Condition A is met if, when the claimant entered into the scheme or arrangement, it could reasonably be expected that, under the scheme or arrangement, no real foreign tax would be paid or payable by a participant. (3) Condition B is met if, when the claimant entered into the scheme or arrangement, it could reasonably be expected that, under the scheme or arrangement— (a) an amount of real foreign tax (“the RFT amount”) would be paid or payable by a participant, but (b) the effect on the foreign-tax total of the RFT amount being so paid or payable would be to increase the foreign-tax total by less than the amount allowable to the claimant as a credit in respect of amount X. (4) In this section— - “claimant” means a person who for a chargeable period has claimed, or is in a position to claim, for any credit that under the arrangements is to be allowed for foreign tax; - “the foreign-tax total” has the meaning given by section 85(3), except that the reference to “the FT amount being paid or payable by C” must be read as a reference to “the RFT amount being paid or payable by any of them”; - “income” includes a chargeable gain; - “participant” means a person who is party to, or concerned in, the scheme or arrangement; - “real foreign tax” means— 1. in a case involving section 10 (accrued income profits), the foreign tax chargeable in respect of the interest on the securities, as mentioned in subsection (1)(c) of that section, 2. in a case involving section 792 or 794 of CTA 2010 (manufactured overseas dividends), the foreign tax chargeable in respect of the overseas dividend of which the manufactured overseas dividend is representative, as mentioned in section 790 of that Act, and 3. in any other case, the foreign tax chargeable in respect of the source of income of which the source mentioned in subsection (1)(a) is representative.

• (2) The amendment made by this paragraph has effect in relation to amounts treated as if they were amounts of foreign tax paid or payable on or after 21 October 2009.

• (3) A corresponding amendment, having effect in relation to such amounts, is to be treated as having been made in Schedule 28AB to ICTA.

Foreign tax payable by other participants

5

• (1) In section 85 of TIOPA 2010 (schemes about effect of paying foreign tax) as amended by paragraph 2—

• (a) in subsection (1), for “for foreign tax” substitute “ in respect of the payment of an amount of foreign tax (“the FT amount”) ”,

• (b) for subsection (2) substitute—

(2) The condition is that, when C entered into the scheme or arrangement, it could reasonably be expected that the effect on the foreign-tax total of the FT amount being paid or payable would be to increase that total by less than amount X.

, and

• (c) in subsection (3)—

• (i) for “subsection (2)(b)” substitute “ subsection (2) ”, and

• (ii) in paragraph (b) of the definition of “the foreign-tax total”, omit “by C”.

• (2) In section 85A of TIOPA 2010 (schemes involving deemed foreign tax) as inserted by paragraph 4—

• (a) in subsection (1)(a), omit “by the claimant”, and

• (b) in subsection (4), in the definition of “the foreign-tax total”, omit “by C”.

• (3) The amendments made by this paragraph have effect in relation to amounts of foreign tax, or amounts treated as if they were amounts of foreign tax, payable—

• (a) as regards corporation tax, on or after 1 April 2010, and

• (b) as regards income tax or capital gains tax, on or after 6 April 2010.

Claims etc made before scheme or arrangement made

6

• (1) In section 86 of TIOPA 2010 (schemes about claims or elections etc)—

• (a) in subsection (1), omit “under the scheme or arrangement”, and

• (b) after subsection (3) insert—

(3A) Reference in subsection (1) to a step that is taken or not taken by a participant includes one that was taken or not taken by a participant before the scheme or arrangement was made. (3B) The reason for taking or not taking a step does not matter so long as it has the effect mentioned in subsection (1).

• (2) The amendments made by this paragraph have effect in relation to amounts of foreign tax payable—

• (a) as regards corporation tax, on or after 1 April 2010, and

• (b) as regards income tax or capital gains tax, on or after 6 April 2010.

Limit on reduction for foreign tax

7

• (1) In section 112 of TIOPA 2010 (deduction from income for foreign tax), after subsection (2) insert—

(2A) But if X is less than Y, an amount equal to the difference between X and Y must be subtracted from the amount by which any income of a person (“the relevant income”) is reduced under subsection (1)(a). (2B) In subsection (2A)— - X is the amount of the relevant income that the person would (disregarding this section) be required to bring into account for income tax or corporation tax purposes, less any deduction that the person would be allowed to make for the amount paid in respect of non-UK tax, and - Y is the amount of the relevant income (that is to say, the amount on which the amount in respect of non-UK tax is paid).

• (2) The amendment made by this paragraph has effect in relation to amounts in respect of non-UK tax that are paid—

• (a) as regards corporation tax, on or after 1 April 2010, and

• (b) as regards income tax, on or after 6 April 2010.

SCHEDULE 12

Income tax

1

Chapter 1 of Part 13 of ITA 2007 (transactions in securities: income tax advantages) is amended as follows.

2

For sections 682 to 694 substitute—

(682) This Chapter makes provision for counteracting income tax advantages from transactions in securities. (683) (1) Sections 684 to 687 specify when a person is liable to counteraction of income tax advantages from transactions in securities. (2) Sections 695 to 700 make provision about the procedure for counteraction of such income tax advantages. (3) Sections 701 and 702 make provision for a clearance procedure. (4) Section 705 makes provision for appeals against counteraction notices. (5) Sections 712 deals with cases in which a person liable to counteraction dies. (6) Section 713 contains interpretative provisions. (684) (1) This section applies to a person where— (a) the person is a party to a transaction in securities or two or more transactions in securities (see subsection (2)), (b) the circumstances are covered by section 685 and not excluded by section 686, (c) the main purpose, or one of the main purposes, of the person in being a party to the transaction in securities, or any of the transactions in securities, is to obtain an income tax advantage, and (d) the person obtains an income tax advantage in consequence of the transaction or the combined effect of the transactions. (2) In this Chapter “transaction in securities” means a transaction, of whatever description, relating to securities, and includes in particular— (a) the purchase, sale or exchange of securities, (b) issuing or securing the issue of new securities, (c) applying or subscribing for new securities, and (d) altering or securing the alteration of the rights attached to securities. (3) Section 687 defines “income tax advantage”. (4) This section is subject to— - section 696(3) (disapplication of this section where person receiving preliminary notification that section 684 may apply makes statutory declaration and relevant officer of Revenue and Customs sees no reason to take further action), and - section 697(5) (determination by tribunal that there is no prima facie case that section 684 applies). (685) (1) The circumstances covered by this section are circumstances where condition A or condition B is met. (2) Condition A is that, as a result of the transaction in securities or any one or more of the transactions in securities, the person receives relevant consideration in connection with— (a) the distribution, transfer or realisation of assets of a close company, (b) the application of assets of a close company in discharge of liabilities, or (c) the direct or indirect transfer of assets of one close company to another close company, and does not pay or bear income tax on the consideration (apart from this Chapter). (3) Condition B is that— (a) the person receives relevant consideration in connection with the transaction in securities or any one or more of the transactions in securities, (b) two or more close companies are concerned in the transaction or transactions in securities concerned, and (c) the person does not pay or bear income tax on the consideration (apart from this Chapter). (4) In a case within subsection (2)(a) or (b) “relevant consideration” means consideration which— (a) is or represents the value of— (i) assets which are available for distribution by way of dividend by the company, or (ii) assets which would have been so available apart from anything done by the company, (b) is received in respect of future receipts of the company, or (c) is or represents the value of trading stock of the company. (5) In a case within subsection (2)(c) or (3) “relevant consideration” means consideration which consists of any share capital or any security issued by a close company and which is or represents the value of assets which— (a) are available for distribution by way of dividend by the company, (b) would have been so available apart from anything done by the company, or (c) are trading stock of the company. (6) The references in subsection (2)(a) and (b) to assets do not include assets which are shown to represent a return of sums paid by subscribers on the issue of securities, despite the fact that under the law of the country in which the company is incorporated assets of that description are available for distribution by way of dividend. (7) So far as subsection (2)(c) or (3) relates to share capital other than redeemable share capital, it applies only so far as the share capital is repaid (on a winding up or otherwise); and for this purpose any distribution made in respect of any shares on a winding up or dissolution of the company is to be treated as a repayment of share capital. (8) References in this section to the receipt of consideration include references to the receipt of any money or money's worth. (9) In this section— - “security” includes securities not creating or evidencing a charge on assets; - “share” includes stock and any other interest of a member in a company. (686) (1) Circumstances are excluded by this section if— (a) immediately before the transaction in securities (or the first of the transactions in securities) the person (referred to in this section as “the party”) holds shares or an interest in shares in the close company, and (b) there is a fundamental change of ownership of the close company. (2) There is a fundamental change of ownership of the close company if— (a) as a result of the transaction or transactions in securities, conditions A, B and C are met, and (b) those conditions continue to be met for a period of 2 years. (3) Condition A is that at least 75% of the ordinary share capital of the close company is held beneficially by— (a) a person who is not connected with the party and has not been so connected within the period of 2 years ending with the day on which the transaction in securities (or the first of the transactions in securities) takes place, or (b) persons none of whom is so connected or has been so connected within that period. (4) Condition B is that shares in the close company held by that person or those persons carry an entitlement to at least 75% of the distributions which may be made by the company. (5) Condition C is that shares so held carry at least 75% of the total voting rights in the close company. (687) (1) For the purposes of this Chapter the person obtains an income tax advantage if— (a) the amount of any income tax which would be payable by the person in respect of the relevant consideration if it constituted a qualifying distribution exceeds the amount of any capital gains tax payable in respect of it, or (b) income tax would be payable by the person in respect of the relevant consideration if it constituted a qualifying distribution and no capital gains tax is payable in respect of it. (2) So much of the relevant consideration as exceeds the maximum amount that could in any circumstances have been paid to the person by way of a qualifying distribution at the time when the relevant consideration is received is to be left out of account for the purposes of subsection (1). (3) The amount of the income tax advantage is the amount of the excess or (if no capital gains tax is payable) the amount of the income tax which would be payable. (4) In this section “relevant consideration” has the same meaning as in section 685.

3

In section 698(6) (counteraction notices), omit—

• (a) the entry relating to section 699, and

• (b) in the entry relating to section 700, “in section 690 cases”.

4

Omit section 699 (limit on amount assessed in section 689 and 690 cases).

5

In section 700 (timing of assessments in section 690 cases)—

• (a) in subsection (1), for “690 (receipt of relevant company assets (circumstance E))” substitute “ 685(2)(c) or (3) ”, and

• (b) in the heading, omit “in section 690 cases”.

6

In the heading before section 701, omit “and information powers”.

7

• (1) Section 713 (interpretation) is amended as follows.

• (2) Before the definition of “company” insert—

“close company” includes a company that would be a close company if it were resident in the United Kingdom,

.

• (3) Omit the definition of “transaction in securities”.

Corporation tax

8

Part 15 of CTA 2010 (transactions in securities: corporation tax advantages) is amended as follows.

9

In section 733(2) (company liable to counteraction of corporation tax advantage), omit the entry relating to section 735.

10

Omit section 735 (abnormal dividends used for exemptions or reliefs).

Consequential amendments

11

In section 809S of ITA 2007 (remittance basis: anti-avoidance provisions relating to transfers of mixed funds), for subsection (4) substitute—

(4) Income tax advantage” means— (a) a relief from income tax or increased relief from income tax, (b) a repayment of income tax or increased repayment of income tax, (c) the avoidance or reduction of a charge to income tax or an assessment to income tax, or (d) the avoidance of a possible assessment to income tax; and for this purpose “relief from income tax” includes a tax credit. (4A) For the purposes of subsection (4)(c) and (d) it does not matter whether the avoidance or reduction is effected— (a) by receipts accruing in such a way that the recipient does not pay or bear income tax on them, or (b) by a deduction in calculating profits or gains.

12

• (1) Schedule 4 to that Act (index of defined expressions) is amended as follows.

• (2) After the definition of “close company” insert—

“close company (in Chapter 1 of Part 13)	section 713”.

• (3) In the entry relating to “income tax advantage (in Chapter 1 of Part 13)”, for “683(1)” substitute “ 687 ”.

• (4) In the entry relating to “transaction in securities (in Chapter 1 of Part 13)”, for “713” substitute “ 684(2) ”.

13

In FA 2007, in Schedule 26, omit paragraph 12(11).

14

In CTA 2010, in Schedule 1, omit paragraphs 545 and 546.

Commencement

15

• (1) The amendments made by paragraphs 2 to 5, 7 and 11 to 13 (and paragraph 1 so far as relating to them) have effect in relation to income tax advantages obtained on or after 24 March 2010.

• (2) The amendment made by paragraph 6 (and paragraph 1 so far as relating to it) are treated as having come into force on 1 April 2009.

• (3) The amendments made by paragraphs 8 to 10 have effect in relation to corporation tax advantages obtained on or after 1 April 2010.

• (4) The repeals made by paragraph 14 are treated as having come into force on 1 April 2010.

SCHEDULE 13

Amendments of Chapter 13 of Part 15 of ITA 2007

1

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

Consequential amendments

2

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

Commencement

3

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

Transitional provision: opening value of trustees’ double tax relief pool

4

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

SCHEDULE 14

Amendments of Chapter 12 of Part 5 of CTA 2009

1

Chapter 12 of Part 5 of CTA 2009 (loan relationships: special rules for particular kinds of securities) is amended as follows.

2

In section 398(2) (overview of Chapter), for paragraph (a) substitute—

(a) sections 399 to 400C (index-linked gilt-edged securities), (aa) sections 401 to 405 (other gilt-edged securities),

.

3

For the heading before section 399 substitute— “ Index-linked gilt-edged securities ”.

4

• (1) Section 399 (index-linked gilt-edged securities: basic rules) is amended as follows.

• (2) For the heading substitute “ Basic rules ”.

• (3) For subsection (3) substitute—

(3) For provision requiring adjustments to be made to amounts determined under subsection (2), see sections 400 to 400C (adjustments for changes in index).

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

5

• (1) Section 400 (index-linked gilt-edged securities: adjustments for changes in index) is amended as follows.

• (2) For the heading substitute “ Adjustments for changes in index ”.

• (3) In subsection (1)(a)—

• (a) for “the amounts” substitute “ an amount ”, and

• (b) for “fall” substitute “ falls ”.

• (4) After subsection (2) insert—

(2A) Subsection (2) is subject to sections 400A to 400C (relevant hedging schemes).

6

After section 400 insert—

(400A) (1) This section applies where— (a) section 400 applies in relation to an amount to be brought into account for an accounting period of a company (“company A”) in respect of a security, and (b) conditions 1 to 3 are met. (2) Condition 1 is that company A is a party to a relevant hedging scheme at any time in the accounting period. (3) Condition 2 is that there is an increase in the retail prices index between the times mentioned in subsection (1) of section 400. (4) Condition 3 is that the index-linked capital return on the security in the accounting period, or a proportion of it, is hedged. (5) Where this section applies, any increase in the carrying value of the security at the earlier of the times mentioned in subsection (1) of section 400 that would, apart from this section, be made under subsection (2) of that section is reduced— (a) in a case in which the index-linked capital return on the security in the accounting period is wholly hedged, to nil, and (b) in a case in which only a proportion of that return is hedged, by the same proportion. (6) For the purposes of this section “a relevant hedging scheme” means a scheme the purpose, or one of the main purposes, of any party to which, on entering into the scheme, is to secure that the index-linked capital return on the security, or a proportion of it, is hedged. (7) For the purposes of this section the “index-linked capital return” of the security is so much of the return on the security as— (a) would, disregarding section 400, result in an increase in the carrying value of the security between the times mentioned in subsection (1) of that section, and (b) is attributable to an increase in the retail prices index. (8) For the purposes of this section the index-linked capital return on the security, or any proportion of that return, is “hedged” if (whether because of the operation of a swap or otherwise) the pre-tax economic profit or loss made by the relevant group or company in the accounting period is unaffected by it. (9) In subsection (8) “the relevant group or company” means— (a) company A and every other company that is at any time in the accounting period— (i) associated with company A, and (ii) a party to the relevant hedging scheme, or (b) if there is no such other company, company A. (10) In this section “scheme” includes any scheme, arrangements or understanding of any kind whatever, whether or not legally enforceable, involving a single transaction or two or more transactions. (400B) (1) A reference in section 400A to an “economic” profit or loss made by any person in a period is to a profit or loss made by that person in that period, computed taking into account unrealised (as well as realised) profits and losses. (2) For the purposes of section 400A an economic profit or loss is made by a group of companies if it is made by the members of the group considered together. (3) In determining for the purposes of section 400A the amount of an economic profit or loss made by a group of companies in any period, the economic profits and losses of each member of the group are to be computed over that period (whether or not that period is an accounting period of the member). (4) A reference in section 400A to a “pre-tax” economic profit or loss is a reference to an economic profit or loss determined disregarding any gain or loss made as a result of the operation of any provision of the Corporation Tax Acts. (400C) (1) For the purposes of section 400A, a company (“company B”) is associated with company A at a time (“the relevant time”) during an accounting period of company A (“the accounting period”) if any of the following five conditions is met. (2) The first condition is that the financial results of company A and company B, for a period that includes the relevant time, meet the consolidation condition. (3) The second condition is that there is a connection between company A and company B for the accounting period. (4) The third condition is that, at the relevant time, company A has a major interest in company B or company B has a major interest in company A. (5) The fourth condition is that— (a) the financial results of company A and a third company, for a period that includes the relevant time, meet the consolidation condition, and (b) at the relevant time the third company has a major interest in company B. (6) The fifth condition is that— (a) there is a connection between company A and a third company for the accounting period, and (b) at the relevant time the third company has a major interest in company B. (7) In this paragraph the financial results of any two companies for any period meet “the consolidation condition” if— (a) they are required to be comprised in group accounts prepared under section 399 of the Companies Act 2006 (duty of certain parent companies to prepare group accounts), or (b) they would be required to be comprised in such accounts but for the application of an exemption mentioned in subsection (3) of that section. (8) Section 466 (companies connected for an accounting period) applies for the purposes of this section. (9) In this section “scheme” includes any scheme, arrangements or understanding of any kind whatever, whether or not legally enforceable, involving a single transaction or two or more transactions. Other gilt-edged securities

.

Consequential amendment

7

In section 317(5)(g) of CTA 2009 (carrying value), for “and 400” substitute “ to 400C ”.

Commencement

8

The amendments made by this Schedule have effect in relation to adjustments made under section 400(2) of CTA 2009 in respect of increases in the retail prices index over periods beginning on or after 9 December 2009.

Transitional provision

9

• (1) This paragraph applies in relation to an accounting period of a company beginning before 9 December 2009 if, apart from this paragraph—

• (a) an amount to be brought into account for the purposes of Part 5 of CTA 2009 in respect of an index-linked gilt-edged security falls to be determined by reference to its value at two different times, and

• (b) the earlier time is before 9 December 2009 and the later time is on or after that date.

• (2) Instead of bringing into account the amount determined as mentioned in sub-paragraph (1)(a), the company is to bring into account the amounts that it would have brought into account for—

• (a) that part of the accounting period that falls before 9 December 2009, and

• (b) that part of the accounting period that falls on or after that date,

had those parts been separate periods of account (and so separate accounting periods).

SCHEDULE 15

Amendments of section 322 of CTA 2009

1

• (1) Section 322 of CTA 2009 (release of debts: cases where credits not required to be brought into account) is amended as follows.

• (2) In subsection (4), after “release is” insert “ not a release of relevant rights and is ”.

• (3) After that subsection insert—

(4A) Relevant rights” has the same meaning for the purposes of this section as it has for the purposes of section 358.

Amendments of Chapter 6 of Part 5 of CTA 2009

2

• (1) Chapter 6 of Part 5 of CTA 2009 (connected companies relationships: release of debts etc) is amended as follows.

• (2) In section 353(2)(b) (introduction to Chapter), for “except where the release is a deemed release under section 361 or 362” substitute “ subject to some exceptions ”.

• (3) In section 358 (exclusion of credits on release of connected companies debts: general)—

• (a) in subsection (1)(a), for “a company's debtor relationship is released,” substitute “ a debtor relationship of a company (“D”) is released, and ”,

• (b) in subsection (2), for “The company” substitute “ D ” and for “it is a deemed release” substitute

(a) it is a deemed release, or (b) it is a release of relevant rights.

, and

• (c) at the end insert—

(4) For the purposes of this section “relevant rights” means rights of a company (“C”) that— (a) were acquired by C in circumstances that, but for the application of the corporate rescue exception or the debt-for-debt exception, would have resulted in a deemed release under section 361(3), or (b) were acquired by another company in such circumstances and transferred to C by way of an assignment or assignments. (5) The amount of the credit that D is required to bring into account in respect of a release of relevant rights is— (a) the amount of the discount received on the acquisition, less (b) the sum of any credits brought into account in respect of that amount (whether in the accounting period in which the release takes place or in a previous accounting period) by C or, in a case within subsection (4)(b), by the company that acquired the rights or any company to which the rights were subsequently assigned. (6) A reference in subsection (5) to the amount of the discount received on the acquisition is to the amount that would have been treated as released under section 361(4) on the acquisition, but for the application of the corporate rescue exception or the debt-for-debt exception.

• (4) In section 361 (acquisition of creditor rights by connected company at undervalue)—

• (a) in subsection (1), for paragraph (f) substitute—

(f) no relevant exception applies.

, and

• (b) for subsection (2) substitute—

(2) In subsection (1) “relevant exception” means— (a) the corporate rescue exception (see section 361A), (b) the debt-for-debt exception (see section 361B), or (c) the equity-for-debt exception (see section 361C).

• (5) After section 361 insert—

(361A) (1) For the purposes of section 361, the “corporate rescue exception” applies if— (a) the acquisition is an arm's length transaction, (b) there has been a change in the ownership of D at any time in the period beginning one year before, and ending 60 days after, the date of the acquisition, (c) it is reasonable to assume that, but for the change in ownership, D would, within one year of the date of the change of ownership, have met one of the insolvency conditions, and (d) it is reasonable to assume that, but for the change in ownership, the acquisition would not have been made. (2) Subject to subsection (3), section 769 of ICTA (rules for ascertaining change in ownership of company) applies for the purpose of construing a reference in this section to a change in the ownership of a company. (3) A reference in this section to a change in the ownership of a company, in the case of a company that is a building society, is a reference to— (a) an amalgamation of two or more building societies under section 93 of the Building Societies Act 1986, (b) a transfer of all the engagements of one building society to another under section 94 of that Act, or (c) a transfer of the whole of the business of a building society to a company under section 97 of that Act. (4) Sections 322(6) and 323 (insolvency conditions) apply for the purposes of this section. (361B) (1) For the purposes of section 361, the “debt-for-debt exception” applies if condition 1 or 2 is met. (2) Condition 1 is that— (a) the acquisition is an arm's length transaction, (b) the rights that are acquired are rights under a loan relationship that is represented by a security (“the old security”), (c) the consideration given by C for the acquisition consists only of a security (“the new security”) representing a loan relationship to which C is a party as debtor, and (d) the new security— (i) has the same nominal value as the old security, and (ii) at the time of the acquisition, has substantially the same market value as the old security. (3) Condition 2 is that— (a) the acquisition is an arm's length transaction, (b) the rights that are acquired are rights under a loan relationship that is represented by an asset other than a security (“the old unsecured loan”), (c) the consideration given by C for the acquisition consists only of an asset other than a security (“the new unsecured loan”) representing a loan relationship to which C is a party as debtor, and (d) the amount of the new unsecured loan, and its terms, are substantially the same as those of the old unsecured loan. (4) In this section “market value” has the same meaning as in TCGA 1992 (see sections 272 and 273 of that Act). (5) In determining for the purposes of this section the market value of a security in a case in which the security represents a loan relationship to which section 415 (loan relationships with embedded derivatives) applies, rights or liabilities within subsection (1)(b) of that section are to be treated as comprised in the loan relationship. (361C) (1) For the purposes of section 361 the “equity-for-debt exception” applies if the following two conditions are met. (2) The first condition is that the acquisition is an arm's length transaction. (3) The second condition is that the consideration given by C for the acquisition consists only of— (a) shares forming part of the ordinary share capital of C, (b) shares forming part of the ordinary share capital of a company connected with C, or (c) an entitlement to shares within paragraph (a) or (b).

• (6) In section 363—

• (a) in the heading, for “and” substitute “ to ”, and

• (b) in subsections (1) and (4), for “and” substitute “ to ”.

Commencement

3

• (1) The amendments made by paragraph 1 have effect in relation to a release of rights that takes place on or after 9 November 2009.

• (2) The amendments made by paragraph 2(2) and (4) to (6) have effect in relation to a relevant acquisition that is made on or after 14 October 2009.

• (3) The amendments made by paragraph 2(3) have effect in relation to a release of rights that takes place on or after 14 October 2009.

• (4) Sub-paragraphs (1) to (3) are subject to paragraph 4.

• (5) In this paragraph and paragraph 4 “relevant acquisition” means an acquisition of rights within subsection (1)(a) to (e) of section 361 of CTA 2009 (acquisition of creditor rights by connected company at an undervalue).

Transitional provision

4

• (1) The amendments made by this Schedule do not have effect in relation to a relevant acquisition that is made on or after 14 October 2009, or to a release of rights acquired by way of such an acquisition, if—

• (a) the acquisition is made pursuant to an agreement entered into before 14 October 2009, or

• (b) the acquisition is made during the transitional period and condition A, B or C is met.

• (2) Condition A is that, before 14 October 2009—

• (a) the original creditor received a proposal from the new creditor that the acquisition should be made, or

• (b) the new creditor received a proposal from the original creditor that the acquisition should be made.

• (3) Condition B is that—

• (a) the acquisition is of rights under a loan relationship that is represented by a security,

• (b) during the transitional period the new creditor acquires rights under other loan relationships represented by securities, and

• (c) before 14 October 2009, either—

• (i) persons together holding more than 50% by value of the securities referred to in paragraphs (a) and (b) (“the bought-back securities”) received proposals from the new creditor that the acquisitions should be made, or

• (ii) the new creditor received proposals from persons together holding more than 50% by value of the bought-back securities that the acquisitions should be made.

• (4) In sub-paragraphs (2) and (3)—

• (a) a reference to the original creditor includes any person acting on behalf of, or who controls, the original creditor,

• (b) a reference to the new creditor includes any person acting on behalf of, or who controls, the new creditor, and

• (c) a reference to a person holding a security includes any person acting on behalf of, or who controls, the person holding the security.

• (5) Condition C is that—

• (a) before 14 October 2009, the Financial Services Authority gave its agreement (“the FSA agreement”) to the acquisition being made (and had not withdrawn that agreement),

• (b) if the FSA agreement was given subject to the agreement of any other person, the agreement of that other person was also given (and not withdrawn) before that date, and

• (c) condition A or B would have been met but for the compliance by the original creditor or the new creditor with any other term on which the FSA agreement was given.

• (6) In this paragraph—

• (a) “the original creditor”, in relation to a relevant acquisition, means the person from whom the rights are acquired, and

• (b) “the new creditor”, in relation to a relevant acquisition, means the person who acquires the rights.

• (7) In this paragraph “the transitional period” means the period—

• (a) beginning with 14 October 2009, and

• (b) ending with 31 January 2010.

• (8) Section 472 of CTA 2009 (meaning of “control”) applies for the purposes of this paragraph.

SCHEDULE 16

Amendments

1

CTA 2010 is amended as follows.

2

In section 1(4) (overview of Act) omit the “and” at the end of paragraph (g), insert “ , and ” at the end of paragraph (h) and after that paragraph insert—

(i) risk transfer schemes (see Part 21A).

3

After Part 21 insert—