Taxation (International and Other Provisions) Act 2010

• (6) But arrangements are not “relevant avoidance arrangements” if the obtaining of the relevant tax advantage can reasonably be regarded as consistent with the principles on which the provisions of this Part, or the equivalent provisions under the law of a territory outside the United Kingdom, that are relevant to the arrangements are based (whether express or implied) and the policy objectives of those provisions.

• (7) For the purposes of determining the principles and policy objectives mentioned in subsection (6), regard may, where appropriate, be had to the Final Report on Neutralising the Effects of Hybrid Mismatch Arrangements published by the Organisation for Economic Cooperation and Development (“OECD”) on 5 October 2015 or any replacement or supplementary publication.

• (8) In subsection (7) “replacement or supplementary publication” means any document that is approved and published by the OECD in place of, or to update or supplement, the report mentioned in that subsection (or any replacement of, or supplement to, it).

CHAPTER 13A — Special provision concerning transparent funds

Meaning of “transparent fund”

259MA

• (1) In this Chapter “transparent fund” means a collective investment scheme, or an AIF (that is not a collective investment scheme), if—

• (a) were all of the profits or income of the fund to arise from sources inside the United Kingdom and

• (b) were all of its participants within the charge to income tax,

its profits or income would be profits or income of its participants for the purposes of that tax.

• (2) In this section—

• “AIF” has the meaning given by regulation 3 of the Alternative Investment Fund Managers Regulations 2013 (S.I. 2013/1773);

• “collective investment scheme” has the meaning given by section 235 of the Financial Services and Markets Act 2000;

• “participant”, in relation to a transparent fund, means a person who—takes part in the arrangements constituting the fund, whether by becoming the owner of, or of any part of, the property that is the subject of the arrangements or otherwise, anddoes not have day-to-day control over the management of the property, whether or not they have the right to be consulted or to give directions.

Application of Chapters 3, 4, 5 and 7

259MB

• (1) This section applies where—

• (a) Chapter 3, 4, 5 or 7 applies in respect of a payment or quasi-payment,

• (b) the relevant structured arrangement condition is not met, and

• (c) it is reasonable to suppose that a proportion of the payment or quasi-payment is attributable to a person as a result of that person's interest (direct or indirect) in a transparent fund that is the primary fund in relation to that person.

• (2) For the purposes of this section, a proportion of a payment or quasi-payment is attributable to a person if, as a result of that payment or quasi-payment—

• (a) ordinary income arises to that person, or

• (b) would arise if the person were resident for tax purposes in the United Kingdom.

• (3) The primary fund in relation to a person is—

• (a) where the income arises or would arise because of an indirect interest the person has in a transparent fund as a result of another transparent fund, or a series of transparent funds, having an interest in that first fund, that first fund, or

• (b) where the income arises or would arise because of a direct or indirect interest the person has in a single transparent fund, that fund.

• (4) The relevant structured arrangement condition is the condition—

• (a) where Chapter 3 applies, in section 259CA(6)(c),

• (b) where Chapter 4 applies, in section 259DA(6)(c),

• (c) where Chapter 5 applies, in section 259EA(7)(c), and

• (d) where Chapter 7 applies, in section 259GA(7)(c).

• (5) The Chapter in question applies subject to subsection (6).

• (6) If it is reasonable to suppose that the proportion of the payment or quasi-payment that is attributable to a person as a result of the person's interest in the primary fund is less than 10% of the relevant amount, that proportion is to be ignored for the purposes of determining the extent of a mismatch under the Chapter in question.

• (7) For the purposes of subsection (6) “the relevant amount” means the amount of ordinary income that it would, on the relevant assumption, have been reasonable to expect to arise to the primary fund as a result of—

• (a) in the case of a payment, the payment, or

• (b) in the case of a quasi payment, the circumstances giving rise to the relevant deduction (see section 259BB(2)).

• (8) The relevant assumption is that the primary fund were a person to whom ordinary income would arise as a result of that payment or those circumstances.

• (9) Where a person to whom a proportion of the payment or quasi-payment is attributable as a result of the person's interest in the primary fund is connected (within the meaning given by section 1122 of CTA 2010, ignoring subsections (4) and (7) of that section) to another person to whom a proportion is attributable as a result of that person's interest in that same fund, the rights and interests of those persons are to be aggregated (and accordingly if the proportion attributable between them is 10% or more of the relevant amount, that proportion is not to be ignored).

Application of Chapter 9

259MC

• (1) This section applies where—

• (a) Chapter 9 applies in relation to a hybrid entity double deduction amount (see section 259IA(4)) in respect of an investor in a hybrid entity,

• (b) the condition in section 259IA(6)(b) is not met, and

• (c) that investor in the hybrid entity is an investor in it as a result of an interest (direct or indirect) it has in a transparent fund (“the relevant fund”) that directly holds an interest in—

• (i) the hybrid entity, or

• (ii) another entity that is not a transparent fund and which holds a direct or indirect interest in the hybrid entity.

• (2) Chapter 9 applies subject to subsection (3).

• (3) If it is reasonable to suppose that—

• (a) some or all of the hybrid entity double deduction amount that relates to the investor arises as a result of the investor's interest in the relevant fund, and

• (b) the amount that arises as a result of that interest (“the relevant amount”) is less than 10% of the potential double deduction amount,

the relevant amount is to be ignored for the purposes of determining the extent of a mismatch under that Chapter.

• (4) In this section “potential double deduction amount” means the hybrid double deduction amount that would arise in relation to the relevant fund if it were an investor in the hybrid entity.

• (5) Where the investor is connected (within the meaning given by section 1122 of CTA 2010, ignoring subsections (4) and (7) of that section) to another investor with an interest in the relevant fund, the rights and interests of those investors are to be aggregated (and accordingly, if the sum of the relevant amounts in respect of each of them is 10% or more of the potential double deduction amount, that proportion is not to be ignored).

Application of Chapter 11

259MD

• (1) Subsection (2) applies where—

• (a) Chapter 11 applies as a result of sub-paragraph (i), (ii), (iii) or (iv) of section 259KA(6)(a) applying as a result of a payment or quasi-payment to which section 259MB would apply if the Chapter corresponding to that sub-paragraph applied in relation to that payment or quasi-payment, and

• (b) the condition in section 259KA(9)(c) is not met.

• (2) Where this subsection applies, section 259MB(6) applies for the purposes of determining the extent of a relevant mismatch under Chapter 11.

• (3) The Chapters corresponding to the sub-paragraphs of section 269KA(6)(a) mentioned in subsection (1) are as follows—

Sub-paragraph (i)	Chapter 3
Sub-paragraph (ii)	Chapter 4
Sub-paragraph (iii)	Chapter 5
Sub-paragraph (iv)	Chapter 7.

• (4) Subsection (5) applies where—

• (a) Chapter 11 applies as a result of section 259KA(6)(a)(vi) applying as a result of a hybrid double deduction amount to which section 259MC would apply if Chapter 9 applied in relation to that amount, and

• (b) the condition in section 259KA(9)(c) is not met.

• (5) Where this subsection applies, section 259MC(3) applies for the purposes of determining the extent of a relevant mismatch under Chapter 11.

CHAPTER 14 — Interpretation

Financial instruments

Meaning of “financial instrument”

259N

• (1) A “financial instrument” means—

• (a) an arrangement profits or deficits arising from which would, on the assumption that the person to whom they arise is within the charge to corporation tax, fall to be brought into account for corporation tax purposes in accordance with Part 5 or 6 of CTA 2009 (loan relationships and relationships treated as loan relationships),

• (b) a contract profits or losses arising from which would, on the assumption that the person to whom they arise is within the charge to corporation tax, fall to be brought into account for corporation tax purposes in accordance with Part 7 of CTA 2009 (derivative contracts),

• (c) a type 1, type 2 or type 3 finance arrangement for the purposes of Chapter 2 of Part 16 of CTA 2010 (factoring of income etc: finance arrangements),

• (d) a share forming part of a company's issued share capital or any arrangement that provides a person with economic rights corresponding to those provided by holding such a share, or

• (e) anything else that is a financial instrument.

• (2) In subsection (1)(e) “financial instrument” has the meaning that it has for the purposes of UK generally accepted accounting practice.

• (3) But “financial instrument” does not include—

• (a) a hybrid transfer arrangement (within the meaning given by section 259DB), or

• (b) anything of a description specified in regulations made by the Treasury.

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

Relevant investment funds

Meaning of “relevant investment fund”

259NA

• (1) “Relevant investment fund” means—

• (a) an open-ended investment company within the meaning of section 613 of CTA 2010,

• (b) an authorised unit trust within the meaning of section 616 of that Act, or

• (c) an offshore fund within the meaning of section 354 of this Act (see section 355),

which meets the genuine diversity of ownership condition (whether or not a clearance has been given to that effect).

• (2) “The genuine diversity of ownership condition” means—

• (a) in the case of an offshore fund, the genuine diversity of ownership condition in regulation 75 of the Offshore Funds (Tax) Regulations 2009 (S.I. 2009/3001), and

• (b) in the case of an open-ended investment company or an authorised unit trust, the genuine diversity of ownership condition in regulation 9A of the Authorised Investment Funds (Tax) Regulations 2006 (S.I. 2006/964).

Control groups and related persons

Control groups

259NB

• (1) A person (“A”) is in the same control group as another person (“B”)—

• (a) throughout any period for which they are consolidated for accounting purposes,

• (b) on any day on which the participation condition is met in relation to them, or

• (c) on any day on which the 50% investment condition is met in relation to them.

• (2) A and B are consolidated for accounting purposes for a period if—

• (a) their financial results for the period are required to be comprised in group accounts,

• (b) their financial results for the period would be required to be comprised in group accounts but for the application of an exemption, or

• (c) their financial results for the period are in fact comprised in group accounts.

• (3) In subsection (2), “group accounts” means accounts prepared under—

• (a) section 399 of the Companies Act 2006, or

• (b) any corresponding provision of the law of a territory outside the United Kingdom.

• (4) The participation condition is met in relation to A and B (“the relevant parties”) on a day if, within the period of 6 months beginning with the day—

• (a) one of the relevant parties directly or indirectly participates in the management, control or capital of the other, or

• (b) the same person or persons directly or indirectly participate in the management, control or capital of each of the relevant parties.

• (5) For the interpretation of subsection (4), see sections 157(1), 158(4), 159(1) and 160(1) (which have the effect that references in subsection (4) to direct or indirect participation are to be read in accordance with provisions of Chapter 2 of Part 4).

• (6) The 50% investment condition is met in relation to A and B if—

• (a) A has a 50% investment in B, or

• (b) a third person has a 50% investment in each of A and B.

• (7) Section 259ND applies for the purposes of determining whether a person has a “50% investment” in another person.

Related persons

259NC

• (1) Two persons are “related” on any day that—

• (a) they are in the same control group (see section 259NB), or

• (b) the 25% investment condition is met in relation to them.

• (2) The 25% investment condition is met in relation to a person (“A”) and another person (“B”) if—

• (a) A has a 25% investment in B, or

• (b) a third person has a 25% investment in each of A and B.

• (3) Section 259ND applies for the purposes of determining whether a person has a “25% investment” in another person.

Meaning of “50% investment” and “25% investment”

259ND

• (1) Where this section applies for the purposes of determining whether a person has a “50% investment” in another person for the purposes of section 259NB(6), references in this section to X% are to be read as references to 50%.

• (2) Where this section applies for the purposes of determining whether a person has a “25% investment” in another person for the purposes of section 259NC(2), references in this section to X% are to be read as references to 25%.

• (3) A person (“P”) has an X% investment in a company (“C”) if it is reasonable to suppose that—

• (a) P possesses or is entitled to acquire X% or more of the share capital or issued share capital of C,

• (b) P possesses or is entitled to acquire X% or more of the voting power in C, or

• (c) if the whole of C's share capital were disposed of, P would receive (directly or indirectly and whether at the time of disposal or later) X% or more of the proceeds of the disposal.

• (4) A person (“P”) has an X% investment in another person (“Q”) if it is reasonable to suppose that—

• (a) if the whole of Q's income were distributed, P would receive (directly or indirectly and whether at the time of the distribution or later) X% or more of the distributed amount, or

• (b) in the event of a winding-up of Q or in any other circumstances, P would receive (directly or indirectly and whether or not at the time of the winding-up or other circumstances or later) X% or more of Q's assets which would then be available for distribution.

• (5) In this section, references to a person receiving any proceeds, amount or assets include references to the proceeds, amount or assets being applied (directly or indirectly) for that person's benefit.

• (6) For the purposes of subsections (3) and (4), in determining what percentage investment a person (“P”) has in another person (“U”), where P acts together with a third person (“T”) in relation to U, P is to be taken to have all of T's rights and interests in relation to U.

• (7) P is to be taken to “act together” with T in relation to U if (and only if) subsection (7A) or (7B) applies.

• (7A) This subsection applies if—

• (a) P and T are party to a partnership agreement that—

• (i) it is reasonable to suppose is designed to affect the value of any of T's rights or interest in relation to U, or

• (ii) relates to the exercise of any of T's rights in relation to U, or

• (b) the same person manages—

• (i) some or all of P's rights or interests in relation to U, and

• (ii) some or all of T's rights or interests in relation to U.

• (7B) This subsection applies if P has a relevant investment in U and—

• (a) P and T are connected (within the meaning given by section 163),

• (b) for the purposes of influencing the conduct of U's affairs—

• (i) P is able to secure that T acts in accordance with P's wishes,

• (ii) T can reasonably be expected to act, or typically acts, in accordance with P's wishes,

• (iii) T is able to secure that P acts in accordance with T's wishes, or

• (iv) P can reasonably be expected to act, or typically acts, in accordance with T's wishes, or

• (c) P and T are party to any arrangement that—

• (i) it is reasonable to suppose is designed to affect the value of any of T's rights or interests in relation to U, or

• (ii) relates to the exercise of any of T's rights in relation to U.

• (7C) To determine whether P has a “relevant investment” in U at a particular time, subsections (3) and (4) apply but as if—

• (a) for “an X%”, in both places, there were substituted “ a relevant ”, and

• (b) for “X% or more”, in each place, there were substituted “ greater than 5% ”.

• (7D) For that purpose—

• (a) subsection (6) is to be ignored, and

• (b) P's rights and interests are to be aggregated with the rights and interests of persons connected to P (within the meaning given by section 1122 of CTA 2010, ignoring subsection (4) of that section).

• (8) ... P does not “act together” with T in relation to U under paragraph (b) of subsection (7A) where—

• (a) the person who manages the rights or interests of P mentioned in sub-paragraph (i) of that paragraph, does so as the operator of a collective investment scheme,

• (b) that person manages the rights or interests of T mentioned in sub-paragraph (ii) of that paragraph as the operator of a different collective investment scheme, and

• (c) the Commissioners are satisfied that the management of the schemes is not coordinated for the purpose of influencing the conduct of U 's affairs.

• (9) In subsection (8) “collective investment scheme” and “operator” have the same meaning as in Part 17 of the Financial Services and Markets Act 2000 (see sections 235 and 237 of that Act).

Qualifying institutional investors etc

Meaning of “qualifying institutional investor” etc

259NDA

• (1) This section has effect for the purposes of this Part.

• (2) References to “qualifying institutional investor” have the meaning given by paragraph 30A of Schedule 7AC to TCGA 1992.

• (3) A qualifying institutional investor is “based” in a territory—

• (a) if it is resident for tax purposes in the territory, or

• (b) where it is not resident anywhere for tax purposes, if it is established in the territory.

Partnerships

Treatment of a person who is a member of a partnership

259NE

• (1) This section applies where a person is a member of a partnership.

• (2) Any reference in this Part to income, profits or an amount of the person includes a reference to the person's share of (as the case may be) income, profits or an amount of the partnership.

• (3) For this purpose “the person's share” of income, profits or an amount is determined by apportioning the income, profits or amount between the partners on a just and reasonable basis.

• (4) In this section—

• (a) “partnership” includes an entity established under the law of a territory outside the United Kingdom of a similar character to a partnership, and

• (b) “member” of a partnership is to be read accordingly.

Securitisation companies

Securitisation companies

259NEZA

• (1) If the tax treatment of a securitisation company would (apart from this section) fall to be adjusted by virtue of provision in this Part, the provision is to be treated as of no effect as regards that company (and accordingly, no such adjustment may be made).

• (2) In this section—

• “securitisation company” means a company to which specified regulations apply;

• “specified regulations” has the meaning given by regulation 2 of the Taxation of Securitisation Companies Regulations 2006 (S.I. 2006/3296).

Priority

Priority

259NEA

For the purposes of this Part, the provisions of Part 10 (corporate interest restriction) are to be treated as of no effect.

Relevant debt relief circumstances

Relevant debt relief circumstances: introductory

259NEB

• (1) This section applies for the purposes of section 259CB(3).

• (2) Excess arises in “relevant debt relief circumstances” if (and only if)—

• (a) the payment or quasi-payment mentioned in section 259CB(2) comprises the release of a liability to pay an amount under a debtor relationship (within the meaning given by section 302(6) of CTA 2009), and

• (b) the circumstances in section 259NEC, 259NED, 259NEE, or 259NEF apply.

• (3) For the purposes of those sections references to—

• (a) “the relevant release” means the release of liability mentioned in subsection (2)(a),

• (b) “loan relationship” is to be construed in accordance with section 302 of CTA 2009,

• (c) “amortised cost basis of accounting” is to be construed in accordance with section 313(4) and (4A) of that Act,

• (d) “connected companies relationship” is to be construed in accordance with section 348 of that Act, and

• (e) “deemed release” and “relevant rights” are to be construed in accordance with section 358(3) to (4A) of that Act.

Release of debts

259NEC

• (1) This section is to be read with section 259NEB (relevant debt relief circumstances: introductory).

• (2) The circumstances in this section are—

• (a) the relevant release takes place in an accounting period for which an amortised cost basis of accounting is used in respect of the debtor relationship, and

• (b) condition A, B, C, D or E is met.

• (3) Condition A is that the release is part of a statutory insolvency arrangement (within the meaning of section 1319 of CTA 2009).

• (4) Condition B is that the release is not a release of relevant rights and is—

• (a) in consideration of shares forming part of the ordinary share capital of a payee, or

• (b) in consideration of any entitlement to such shares.

• (5) Condition C is that—

• (a) a payee meets one of the insolvency conditions (see subsection (8)), and

• (b) the debtor relationship is not a connected companies relationship.

• (6) Condition D is that the release is in consequence of the making of a mandatory reduction instrument or a third country instrument or the exercise of a stabilisation power under Part 1 of the Banking Act 2009 or the exercise of a third-country instrument or a stabilisation power under Schedule 11 to the Financial Services and Markets Act 2023.

• (7) Condition E is that—

• (a) the release is neither a deemed release nor a release of relevant rights, and

• (b) immediately before the release, it is reasonable to assume that, without the release and any arrangements of which the release forms part, there would be a material risk that at some time within the next 12 months a payee would be unable to pay its debts.

• (8) For the purposes of this section a company meets the insolvency conditions if—

• (a) it is in insolvent liquidation,

• (b) it is in insolvent administration,

• (c) it is in insolvent administrative receivership,

• (d) an appointment of a provisional liquidator is in force in relation to the company under section 135 of the Insolvency Act 1986 or Article 115 of the Insolvency (Northern Ireland) Order 1989 (S.I. 1989/2405 (N.I. 19)), or

• (e) under the law of a country or territory outside the United Kingdom circumstances corresponding to those mentioned in paragraph (a), (b), (c) or (d) exist.

• (9) Section 323(A1) of CTA 2009 applies for the interpretation of subsection (7)(b); and the rest of that section applies for the interpretation of subsection (8).

Release of connected companies debts

259NED

• (1) This section is to be read with section 259NEB (relevant debt relief circumstances: introductory).

• (2) The circumstances in this section are—

• (a) the relevant release takes place in an accounting period for which—

• (i) an amortised cost basis of accounting is used in respect of the debtor relationship, and

• (ii) the debtor relationship is a connected companies relationship, and

• (b) the release is neither—

• (i) a deemed release, nor

• (ii) a release of relevant rights.

Release of connected companies debts during creditor’s insolvency

259NEE

• (1) This section is to be read with section 259NEB (relevant debt relief circumstances: introductory).

• (2) The circumstances in this section are—

• (a) the relevant release takes place in an accounting period for which an amortised cost basis of accounting is used in respect of the debtor relationship,

• (b) condition A, B, C, D or E in section 357 of CTA 2009 is met in relation to the payer,

• (c) immediately before the time when any of those conditions was first met the debtor relationship was a connected companies relationship, and

• (d) immediately after that time it was not such a relationship.

Corporate rescue: debt released shortly after connection arises

259NEF

• (1) This section is to be read with section 259NEB (relevant debt relief circumstances: introductory).

• (2) The circumstances in this section are—

• (a) the relevant release takes place within 60 days of the payer and a payee becoming connected with one another (within the meaning of section 363 of CTA 2009), and

• (b) the corporate rescue conditions are met.

• (3) The corporate rescue conditions are—

• (a) that the payer and the payee became connected as a result of an arm’s length transaction, and

• (b) immediately before the payer and the payee became connected it was reasonable to assume that, without the connection and any arrangements of which the connection forms part, there would be a material risk that at some point within the next 12 months the payee would have been unable to pay its debts.

• (4) For the purposes of subsection (3)(b), a payee is unable to pay its debts if—

• (a) it is unable to pay its debts as they fall due, or

• (b) the value of its assets is less than the amount of its liabilities, taking into account its contingent and prospective liabilities.

Definitions

Definitions

259NF

In this Part—

• “arrangement” includes any agreement, understanding, scheme, transaction or series of transactions (whether or not legally enforceable);

• “CFC” and “CFC charge” have the meaning given by section 259B(4);

• “the Commissioners” means the Commissioners for Her Majesty's Revenue and Customs;

• “control group” has the meaning given by section 259NB;

• “financial instrument” has the meaning given by section 259N;

• “foreign CFC” and “foreign CFC charge” have the meaning given by section 259B(4);

• “hybrid entity” has the meaning given by section 259BE;

• “investor”, in relation to a hybrid entity, has the meaning given by section 259BE(4);

• “investor jurisdiction” has the meaning given by section 259BE(4);

• “ordinary income” is to be read in accordance with sections 259BC and 259BD;

• “payee”—in relation to a payment, has the meaning given by section 259BB(6)(a), andin relation to a quasi-payment, has the meaning given by section 259BB(6)(b);

• “payee jurisdiction” has the meaning given by 259BB(9);

• “payer”—in relation to a payment, has the meaning given by section 259BB(1)(a), andin relation to a quasi-payment, has the meaning given by section 259BB(2);

• “payment” has the meaning given by section 259BB(1);

• “payment period”—in relation to a payment, has the meaning given by section 259BB(1)(b), andin relation to a quasi-payment, has the meaning given by section 259BB(2);

• “permanent establishment” has the meaning given by section 259BF;

• “quasi-payment” has the meaning given by section 259BB(2) to (5);

• “related” has the meaning given by section 259NC;

• “relevant deduction”—in relation to a payment, has the meaning given by section 259BB(1)(b), andin relation to a quasi-payment, has the meaning given by section 259BB(2)(a);

• “relevant investment fund” has the meaning given by section 259NA;

• “tax” has the meaning given by section 259B;

• “taxable period” means—in relation to corporation tax, an accounting period,in relation to income tax, a tax year,in relation to the CFC charge, a relevant corporation tax accounting period (within the meaning given by section 371BC(3)),in relation to a foreign CFC charge, a period (by whatever name known) that corresponds to a relevant corporation tax accounting period, andin relation to any other tax, a period for which the tax is charged;

• “taxable profits” is to be read in accordance with sections 259BC(2) and 259BD(5).

Part 7 — Tax treatment of financing costs and income

CHAPTER 1 — Introduction

Introduction

260

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

CHAPTER 2 — Application of Part

Application of Part

261

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

UK net debt of worldwide group for period of account of worldwide group

262

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

Net debt of a company

263

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

Worldwide gross debt of worldwide group for period of account of the group

264

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

References to amounts disclosed in balance sheet of a company

265

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

Different accounting treatment used at company and group levels

265A

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

Qualifying financial services groups

266

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

Qualifying activities

267

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

Lending activities and activities ancillary to lending activities

268

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

Insurance activities and insurance-related activities

269

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

Relevant dealing in financial instruments

270

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

UK trading income of the worldwide group

271

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

Worldwide trading income of the worldwide group

272

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

Foreign currency accounting

273

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

Meaning of “group securitisation company”

273A

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

CHAPTER 3 — Disallowance of deductions

Application of Chapter and meaning of “total disallowed amount”

274

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

Meaning of “company to which this Chapter applies”

275

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

Meaning of “dual resident investing company”

275A

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

Appointment of authorised company for relevant period of account

276

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

Meaning of “the reporting body”

277

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

Statement of allocated disallowances: submission

278

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

Statement of allocated disallowances: submission of revised statement

279

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

Statement of allocated disallowances: requirements

280

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

Statement of allocated disallowances: dual resident investing companies

280A

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

Statement of allocated disallowances: effect

281

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

Company tax returns

282

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

Power to make regulations about statement of allocated disallowances

283

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

Failure of reporting body to submit statement of allocated disallowances

284

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

Section 284: supplementary

284A

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

Powers to make regulations in relation to reductions under section 284

285

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

CHAPTER 4 — Exemption of financing income

Application of Chapter and meaning of “total disallowed amount”

286

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

Meaning of “company to which this Chapter applies”

287

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

Appointment of authorised company for relevant period of account

288

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

Meaning of “the reporting body”

289

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

Statement of allocated exemptions: submission

290

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

Statement of allocated exemptions: submission of revised statement

291

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

Statement of allocated exemptions: requirements

292

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

Statement of allocated exemptions: effect

293

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

Company tax returns

294

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

Power to make regulations about statement of allocated exemptions

295

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

Failure of reporting body to submit statement of allocated exemptions

296

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

Power to make regulations in relation to reductions under section 296

297

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

Balancing payments between group companies: no tax charge or relief

298

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

Application of Chapter to financing income amounts determined under section 314A

298A

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

CHAPTER 5 — Intra-group financing income where payer denied deduction

Tax exemption for certain financing income received from EEA companies

299

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

Meaning of “relevant associate”

300

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

Meaning of “tax-resident” and “EEA territory”

301

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

Qualifying EEA tax relief for payment in current or previous period

302

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

Qualifying EEA tax relief for payment in future period

303

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

References to tax of a territory

304

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

Financing income amounts of a company

305

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

CHAPTER 6 — Tax avoidance

Schemes preventing this Part applying to a large group

305A

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

Schemes involving manipulation of rules in Chapter 2

306

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

Schemes involving manipulation of rules in Chapters 3 and 4

307

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

Meaning of “relevant net deduction”

308

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

Calculation of amounts

309

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

Meaning of “carried-back amount” and “carried-forward amount”

310

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

Schemes involving manipulation of rules in Chapter 5

311

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

Meaning of “scheme” and “excluded scheme”

312

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

CHAPTER 7 — “Financing expense amount” and “financing income amount”

The financing expense amounts of a company

313

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

The financing income amounts of a company

314

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

The financing income amounts of a chargeable company under Part 9A

314A

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

Interpretation of sections 313 and 314

315

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

Group treasury companies

316

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

Real estate investment trusts

317

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

Companies with permanent establishments profits election

317A

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

Companies engaged in oil extraction activities

318

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

Industrial and provident societies

318A

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

Intra-group short-term finance: financing expense

319

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

Intra-group short-term finance: financing income

320

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

Short-term loan relationships

321

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

Stranded deficits in non-trading loan relationships: financing expense

322

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

Stranded deficits in non-trading loan relationships: financing income

323

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

Stranded management expenses in non-trading loan relationships: financing expense

324

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

Stranded management expenses in non-trading loan relationships: financing income

325

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

Charities

326

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

Educational and public bodies

327

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

Interpretation of sections 316 to 327

328

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

CHAPTER 8 — “Tested expense amount” and “tested income amount”

The tested expense amount

329

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

The tested income amount

330

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

Companies with net financing deduction or net financing income that is small

331

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

Elections disapplying sections 329(5) and 330(5)

331ZA

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

Mismatches between tax treatment and accounting treatment

331A

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

CHAPTER 9 — “Available amount”

The available amount

332

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

Groups containing securitisation companies

332A

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

Change of accounting standards: investment entities

332AA

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

Partnerships: expenses of borrowing

332B

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

Partnerships: other expenses

332C

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

Group members with income from oil extraction subject to particular tax treatment in UK

333

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

Group members with income from shipping subject to particular tax treatment in UK

334

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

Group members with income from property rental subject to particular tax treatment in UK

335

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

Meaning of accounting expressions used in this Chapter

336

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

Mismatches between tax treatment and accounting treatment

336A

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

CHAPTER 10 — Other interpretative and supplementary provisions

The worldwide group

337

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

Meaning of “group”

338

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

Meaning of “ultimate parent”

339

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

Meaning of “corporate entity”

340

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

Meaning of “relevant non-corporate entity”

341

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

Treatment of entities stapled to corporate, or relevant non-corporate, entities

342

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

Treatment of business combinations

343

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

Meaning of “large” in relation to a group

344

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

Meaning of “UK group company” and “relevant group company”

345

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

Financial statements of the worldwide group

346

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

Non-compliant financial statements of the worldwide group

347

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

Non-existent financial statements of the worldwide group

348

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

Financial statements: business combinations to which the worldwide group is a party

348A

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

References to amounts disclosed in financial statements

349

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

Translation of amounts disclosed in financial statements

350

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

Expressions taking their meaning from international accounting standards

351

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

Meaning of “relevant accounting period”

352

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

Other expressions

353

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

Effect of Part on parties to capital market arrangements

353A

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

Power to make regulations where accounting standards change

353AA

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

Regulations and orders

353B

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

Part 8 — Offshore funds ETC

Tax treatment of participants in offshore funds

Power to make regulations about tax treatment of participants

354

• (1) The Treasury may by regulations make provision about the treatment of participants in an offshore fund for the purposes of enactments relating to income tax, corporation tax or capital gains tax.

• (2) Regulations under subsection (1) may, in particular, make special provision about the treatment of participants in an offshore fund comprising—

• (a) a part of umbrella arrangements (see section 360), or

• (b) arrangements relating to a class of interest in other arrangements (see section 361).

• (3) Regulations under subsection (1) may, in particular—

• (a) make provision for an offshore fund, or a trustee or officer of an offshore fund, to make elections relating to the treatment of participants in the offshore fund for the purposes of income tax, corporation tax or capital gains tax,

• (b) make provision about the supply of information by offshore funds, or trustees or officers of offshore funds—

• (i) to Her Majesty's Revenue and Customs, or

• (ii) to participants,

• (c) make provision about the preparation of accounts and the keeping of records by offshore funds or trustees or officers of offshore funds, and

• (d) make other provision about the administration of offshore funds.

• (4) Regulations under subsection (1) may, in particular, make provision consequential on the repeal by the Offshore Funds (Tax) Regulations 2009 (S.I. 2009/3001) of Chapter 5 of Part 17 of ICTA (offshore funds).

• (5) Regulations under subsection (1) may, in particular—

• (a) provide for Her Majesty's Revenue and Customs to exercise a discretion in dealing with any matter,

• (b) make provision by reference to standards or other documents issued by any person,

• (c) modify an enactment (whenever passed or made),

• (d) make different provision for different cases or different purposes, and

• (e) make incidental, consequential, supplementary and transitional provision and savings.

• (6) Regulations under subsection (1) may, in particular, provide for provisions to have effect in relation to the tax year, or accounting periods, current on the day on which the regulations are made.

• (7) In this section—

• “enactment” includes subordinate legislation (within the meaning of the Interpretation Act 1978), and

• “modify” includes amend, repeal or revoke.

Meaning of “offshore fund”

355

• (1) In section 354 “offshore fund” means—

• (a) a mutual fund constituted by a body corporate resident outside the United Kingdom,

• (b) a mutual fund under which property is held on trust for the participants where the trustees of the property are not resident in the United Kingdom, or

• (c) a mutual fund constituted by other arrangements that create rights in the nature of co-ownership where the arrangements take effect by virtue of the law of a territory outside the United Kingdom.

• (2) Subsection (1)(c) does not include a mutual fund constituted by two or more persons carrying on a trade or business in partnership.

• (3) In this section—

• “body corporate” does not include a limited liability partnership, and

• “co-ownership” is not restricted to the meaning of that term in the law of any part of the United Kingdom.

• (4) See also section 151W(b) of TCGA 1992, section 564U(b) of ITA 2007 and section 519(4)(b) of CTA 2009 (which have the effect that investment bond arrangements are not an offshore fund for the purposes of section 354).

Meaning of “mutual fund”

356

• (1) In section 355 “mutual fund” means arrangements with respect to property of any description (including money) that meet conditions A, B and C.

• (2) Subsection (1) is subject—

• (a) to the exceptions made by or under sections 357 and 359, and

• (b) to sections 360 and 361.

• (3) Condition A is that the purpose or effect of the arrangements is to enable the participants—

• (a) to participate in the acquisition, holding, management or disposal of the property, or

• (b) to receive profits or income arising from the acquisition, holding, management or disposal of the property or sums paid out of such profits or income.

• (4) Condition B is that the participants do not have day-to-day control of the management of the property.

• (5) For the purposes of condition B a participant does not have day-to-day control of the management of property by virtue of having a right to be consulted or to give directions.

• (6) Condition C is that, under the terms of the arrangements, a reasonable investor participating in the arrangements would expect to be able to realise all or part of an investment in the arrangements on a basis calculated entirely, or almost entirely, by reference to—

• (a) the net asset value of the property that is the subject of the arrangements, or

• (b) an index of any description.

• (7) The Treasury may by regulations amend condition C.

• (8) Regulations under subsection (7) may only be made if a draft of the statutory instrument containing the regulations has been laid before and approved by a resolution of the House of Commons.

Exceptions to definition of “mutual fund”

357

• (1) Arrangements are not a mutual fund for the purposes of section 355 if—

• (a) condition D is met, and

• (b) condition E or F is met.

• (2) Condition D is that, under the terms of the arrangements, a reasonable investor participating in the arrangements would expect to be able to realise all or part of an investment in the arrangements on a basis mentioned in section 356(6) only in the event of the winding up, dissolution or termination of the arrangements.

• (3) Condition E is that the arrangements are not designed to wind up, dissolve or terminate on a date stated in or determinable under the arrangements.

• (4) Condition F is that—

• (a) the arrangements are designed to wind up, dissolve or terminate on a date stated in or determinable under the arrangements,

• (b) subsection (5), (6) or (7) applies, and

• (c) the arrangements are not designed to produce a return for participants that equates, in substance, to the return on an investment of money at interest.

• (5) This subsection applies if none of the assets that are the subject of the arrangements is a relevant income-producing asset (see section 358).

• (6) This subsection applies if, under the terms of the arrangements, the participants in the arrangements are not entitled to the income from the assets that are the subject of the arrangements or any benefit arising from such income.

• (7) This subsection applies if—

• (a) under the terms of the arrangements, after deductions for reasonable expenses, any income produced by the assets that are the subject of the arrangements is required to be paid or credited to the participants, and

• (b) a participant who is an individual resident in the United Kingdom would be charged to income tax on the amounts paid or credited.

• (8) For the purposes of this section the fact that arrangements provide for a vote or other action that may lead to the winding up, dissolution or termination of the arrangements does not, by itself, mean that the arrangements are designed to wind up, dissolve or terminate on a date stated in or determinable under the arrangements.

Meaning of “relevant income-producing asset”

358

• (1) This section has effect for the purposes of section 357.

• (2) An asset is a relevant income-producing asset if it produces income on which, if it were held directly by an individual resident in the United Kingdom, the individual would be charged to income tax (but see subsections (3) and (4)).

• (3) An asset is not a relevant income-producing asset if the asset is hedged, provided that no income is expected to arise from—

• (a) the asset (taking account of the hedging), or

• (b) any product of the hedging arrangements.

• (4) Cash awaiting investment is not a relevant income-producing asset, provided that the cash, and any income that it produces while awaiting investment, is invested as soon as reasonably practicable in assets that are not relevant income-producing assets (as defined by this section).

Power to make regulations about exceptions to definition of “mutual fund”

359

• (1) The Treasury may by regulations amend or repeal any provision of section 357 or 358.

• (2) The Treasury may by regulations provide that arrangements are not a mutual fund for the purposes of section 355—

• (a) in specified circumstances, or

• (b) if they are of a specified description.

• (3) Regulations under this section may include provision having effect in relation to the tax year, or accounting periods, current on the day on which the regulations are made.

• (4) Regulations under subsection (1) may only be made if a draft of the statutory instrument containing the regulations has been laid before and approved by a resolution of the House of Commons.

Supplementary

Treatment of umbrella arrangements

360

• (1) This section has effect for the purposes of this Part.

• (2) In the case of umbrella arrangements (see section 363)—

• (a) each part of the umbrella arrangements is to be treated as separate arrangements, and

• (b) the umbrella arrangements are to be disregarded.

• (3) Subsection (2)(a) is subject to section 361.

Treatment of arrangements comprising more than one class of interest

361

• (1) This section has effect for the purposes of this Part.

• (2) Where there is more than one class of interest in arrangements (the “main arrangements”)—

• (a) the arrangements relating to each class of interest are to be treated as separate arrangements, and

• (b) the main arrangements are to be disregarded.

• (3) In relation to umbrella arrangements, “class of interest” does not include a part of the umbrella arrangements (but there may be more than one class of interest in a part of umbrella arrangements).

Meaning of “participant” and “participation”

362

• (1) In this Part references to “participant”, in relation to arrangements (or a fund), are to a person taking part in the arrangements (or the arrangements constituting the fund), whether by becoming the owner of, or of any part of, the property that is the subject of the arrangements or otherwise.

• (2) In this Part references (however expressed) to participation, in relation to arrangements (or a fund), are to be read in accordance with subsection (1).

Meaning of “umbrella arrangements” and “part of umbrella arrangements”

363

• (1) In this Part “umbrella arrangements” means arrangements which provide for separate pooling of the contributions of the participants and the profits or income out of which payments are made to them.

• (2) In this Part references to a part of umbrella arrangements are to the arrangements relating to a separate pool.

Residence of undertakings for collective investment in transferable securities and alternative investment funds

363A

• (1) This section applies to—

• (a) a UCITS which is authorised in a foreign country or territory pursuant to Article 5 of the UCITS Directive, and

• (b) an AIF which is authorised or registered in a foreign country or territory, or is not authorised or registered but has its registered office in a foreign country or territory,

unless the UCITS or AIF is an excluded entity.

• (2) If the UCITS or AIF is a body corporate which (apart from this section) would be treated as resident in the United Kingdom for the purposes of any enactment (within the meaning of section 354) relating to income tax, corporation tax or capital gains tax, the body corporate is instead to be treated as if it were not resident in the United Kingdom.

• (2A) A UCITS or AIF is “an excluded entity” if it—

• (a) is a unit trust scheme the trustees of which are UK resident,

• (b) is resident in the United Kingdom by virtue of section 14 of CTA 2009,

• (c) is, or has been, an investment trust with respect to an accounting period, or

• (d) is or has been—

• (i) a company UK REIT in relation to an accounting period, or

• (ii) a member of a group of companies at a time when the group is or was a group UK REIT in relation to an accounting period.

• (2B) The Treasury may, by regulations, modify this section so as to—

• (a) add a description of UCITS or AIF as an excluded entity,

• (b) provide that a description of UCITS or AIF is no longer an excluded entity, or

• (c) vary a description of an excluded entity.

• (3) If, by virtue of section 99 ... of TCGA 1992, that Act applies in relation to the UCITS or AIF as if it were a company, that Act applies as if the company were not resident in the United Kingdom (if it would not otherwise do so).

• (4) In this section—

"AIF” has the meaning given in regulation 3 of the Alternative Investment Fund Managers Regulations 2013,

“foreign country or territory” means a country or territory outside the United Kingdom,

“investment trust with respect to an accounting period” is to be construed in accordance with section 1158 of CTA 2010,

“UCITS” means an undertaking for collective investment in transferable securities,

“the UCITS Directive” means Directive 2009/65/EC of the European Parliament and of the Council,

“company UK REIT in relation to an accounting period” and “group UK REIT in relation to an accounting period” are to be construed in accordance with section 527 of CTA 2010.

Part 9 — Amendments to relocate provisions of tax legislation

Oil activities

364

Schedule 1, which inserts a new Chapter 16A (oil activities) in Part 2 (trading income) of ITTOIA 2005, has effect.

Alternative finance arrangements

365

Schedule 2, which—

• (a) inserts a new Part 10A in ITA 2007 (see Part 1 of the Schedule),

• (b) inserts a new Chapter 4 in Part 4 of TCGA 1992 (see Part 2 of the Schedule), and

• (c) makes other amendments (see Part 3 of the Schedule),

has effect.

Power to amend the alternative finance provisions

366

• (1) The Treasury may by order amend the alternative finance provisions.

• (2) The amendments which may be made by such an order include—

• (a) the variation of provision already included in the alternative finance provisions, and

• (b) the introduction into the alternative finance provisions of new provision relating to alternative finance arrangements.

• (3) In subsection (2)(b) “alternative finance arrangements” means arrangements which in the Treasury's opinion—

• (a) equate in substance to a loan, deposit or other transaction of a kind that generally involves the payment of interest, but

• (b) achieve a similar effect without including provision for the payment of interest.

• (4) An order under subsection (1) may, in particular—

• (a) make provision of a kind similar to provision already made by the alternative finance provisions,

• (b) make other provision about the treatment for the purposes of the Tax Acts of arrangements to which the order applies,

• (c) make provision generally or only in relation to specified cases or circumstances,

• (d) make different provision for different cases or circumstances, and

• (e) make incidental, supplemental, consequential and transitional provision and savings.

• (5) An order making consequential provision under subsection (4)(e) may, in particular, include provision amending a provision of the Tax Acts.

• (6) In this section “the alternative finance provisions” means—

• (a) section 367A of ICTA,

• (b) Chapter 4 of Part 4 of TCGA 1992,

• (c) sections 372A to 372D, Part 10A and section 1005(2A) of ITA 2007,

• (d) Chapter 6 of Part 6 of CTA 2009,

• (e) sections 110, 256 to 259 and 1019 of CTA 2010.

• (7) An order under this section that—

• (a) includes such amendments as are mentioned in subsection (2)(b), or

• (b) amends an enactment not contained in the alternative finance provisions but contained in an Act,

may only be made if a draft of the statutory instrument containing the order has been laid before and approved by a resolution of the House of Commons.

Leasing arrangements: finance leases and loans

367

Schedule 3, which inserts—

• (a) a new Part 11A in ITA 2007 (leasing arrangements: finance leases and loans), and

• (b) a new section 37A in TCGA 1992 (consideration on disposal of certain leases),

has effect.

Sale and lease-back etc

368

Schedule 4, which inserts a new Part 12A in ITA 2007 (sale and lease-back etc), has effect.

Factoring of income etc

369

Schedule 5, which inserts new Chapters 5B and 5C (finance arrangements, and loan or credit transactions) in Part 13 of ITA 2007 (anti-avoidance), has effect.

UK representatives of non-UK residents

370

Schedule 6, which inserts—

• (a) new Chapters 2B and 2C in Part 14 of ITA 2007 (income tax: UK representatives of non-UK residents), and

• (b) a new Part 7A in TCGA 1992 (capital gains tax: UK representatives of non-UK residents),

has effect.

Miscellaneous relocations

371

Schedule 7 (amendments to relocate some miscellaneous tax enactments) has effect.

PART 9A — Controlled foreign companies

Chapter 1 — Overview

Overview of Part

371AA

• (1) A charge (“the CFC charge”) is charged under this Part on UK resident companies which have certain interests in CFCs.

• (2) The CFC charge is charged by reference to the chargeable profits of CFCs.

• (3) A “CFC” is a non-UK resident company which is controlled by a UK resident person or persons (but see subsection (6)).

• (4) Chapter 2 sets out the basic details of the CFC charge, including—

• (a) the CFC charge gateway (through which profits of a CFC must pass in order to be chargeable profits), and

• (b) the steps to be taken for charging the CFC charge.

• (5) Chapter 2 is supplemented by Chapters 3 to 17; in particular—

• (a) Chapter 3 sets out how to determine which (if any) of Chapters 4 to 8 apply in relation to the profits of a CFC,

• (b) so far as applicable, Chapters 4 to 8 set out how to determine which profits (if any) of a CFC pass through the CFC charge gateway, with—

• (i) Chapter 4 dealing with profits attributable to UK activities,

• (ii) Chapter 5 dealing with non-trading finance profits,

• (iii) Chapter 6 dealing with trading finance profits,

• (iv) Chapter 7 dealing with profits derived from captive insurance business, and

• (v) Chapter 8 dealing with cases involving solo consolidation,

• (c) Chapter 9 sets out exemptions for profits from qualifying loan relationships,

• (d) Chapters 10 to 14 set out full exemptions from the CFC charge,

• (e) Chapter 15 sets out how to determine the persons whose interests in a CFC are relevant to the charging of the CFC charge,

• (f) Chapter 16 sets out how to determine the creditable tax of CFCs (for which credit is given against chargeable profits), and

• (g) Chapter 17 sets out how to apportion a CFC's chargeable profits and creditable tax among the persons who have relevant interests in the CFC.

• (6) Chapter 18 explains the concept of “control” and also sets out certain cases in which a non-UK resident company is to be taken to be a CFC even though it is not controlled by a UK resident person or persons.

• (7) Chapter 19 explains the concepts of “assumed taxable total profits”, “assumed total profits” and “the corporation tax assumptions” which are referred to in this Part.

• (8) Chapter 20 contains rules for determining the territory in which a CFC is resident for the purposes of this Part.

• (9) Chapter 21 contains provision about the management of the CFC charge, including the collection of sums charged.

• (10) Chapter 22 contains supplementary provision, including definitions of terms used in this Part.

• (11) Nothing in this Part affects—

• (a) the liability to corporation tax of a non-UK resident company in accordance with section 5(2) and (3) of CTA 2009 (non-UK resident companies within the charge to corporation tax), or

• (b) the determination of such a company's chargeable profits for corporation tax purposes in accordance with Chapter 4 of Part 2 of CTA 2009.

• (12) This Part is part of the Corporation Tax Acts.

Chapter 2 — The CFC charge

Introduction to the CFC charge

371BA

• (1) The CFC charge is charged in relation to accounting periods of CFCs in accordance with section 371BC.

• (2) Section 371BC applies in relation to a CFC's accounting period if (and only if)—

• (a) the CFC has chargeable profits for the accounting period, and

• (b) none of the exemptions set out in Chapters 10 to 14 applies for the accounting period.

• (3) A CFC's chargeable profits for an accounting period are its assumed taxable total profits for the accounting period determined on the basis—

• (a) that the CFC's assumed total profits for the accounting period are limited to only so much of those profits as pass through the CFC charge gateway, and

• (b) that amounts are to be relieved against the assumed total profits at step 2 in section 4(2) of CTA 2010 only so far as it is just and reasonable for them to be so relieved having regard to paragraph (a).

• (4) “The CFC charge gateway” is explained in section 371BB.

• (5) Subsection (3) is subject to section 371SB(7) and (8) (which relates to settlement income included in a CFC's chargeable profits).

The CFC charge gateway

371BB

• (1) Take the following steps to determine the extent to which a CFC's assumed total profits for an accounting period pass through the CFC charge gateway.

• Step 1 In accordance with Chapter 3, determine which (if any) of Chapters 4 to 8 apply for the accounting period. If none of those Chapters applies, none of the CFC's assumed total profits pass through the CFC charge gateway and step 2 is not to be taken.

• Step 2 Determine the extent to which the CFC's assumed total profits fall within any of the Chapters which applies for the accounting period. The CFC's assumed total profits pass through the CFC charge gateway so far as they fall within any of those Chapters.

• (2) Subsection (1) is subject to—

• (a) Chapter 9 (exemptions for profits from qualifying loan relationships), and

• (b) section 371JE (which provides for adjustments of profits which would otherwise pass through the CFC charge gateway linked to the exemption set out in Chapter 10).

Charging the CFC charge

371BC

• (1) Take the following steps if, as provided for by section 371BA(2), this section applies in relation to a CFC's accounting period.

• Step 1 In accordance with Chapter 15, determine the persons (“the relevant persons”) who have relevant interests in the CFC at any time during the accounting period. If none of the relevant persons is a company which meets the UK residence condition (see subsection (2)), the CFC charge is not charged in relation to the accounting period and no further steps are to be taken.

• Step 2 In accordance with Chapter 16, determine the CFC's creditable tax for the accounting period.

• Step 3 In accordance with Chapter 17, apportion the CFC's chargeable profits and creditable tax among the relevant persons.

• Step 4 Take each relevant person which is a company meeting the UK residence condition and, in accordance with section 371BD, determine if the company is a chargeable company. If there are no chargeable companies, the CFC charge is not charged in relation to the accounting period and step 5 is not to be taken.

• Step 5 The CFC charge is charged on each chargeable company as follows. A sum equal to—corporation tax at the appropriate rate on P% of the CFC's chargeable profits, lessQ% of the CFC's creditable tax,is charged on the chargeable company as if it were an amount of corporation tax charged on the company for the relevant corporation tax accounting period. This step is subject to sections 371BG to 371BI .

• (2) A company meets the UK residence condition if it is UK resident at a time during the accounting period when it has a relevant interest in the CFC.

• (3) For the purpose of taking step 5 in subsection (1) in relation to a chargeable company (“CC”)—

• “the appropriate rate”, subject to subsection (4) and section 371BH, means—the rate of corporation tax applicable to CC's profits of the relevant corporation tax accounting period on which corporation tax is chargeable (see section 4(1) and (2) of CTA 2010), orif there is more than one such rate, the average rate over the whole of the relevant corporation tax accounting period,

• “P%” means the percentage of the CFC's chargeable profits apportioned to CC,

• “Q%” means the percentage of the CFC's creditable tax apportioned to CC, and

• “the relevant corporation tax accounting period” means CC's accounting period for corporation tax purposes during which the CFC's accounting period ends.

• (4) In determining “the appropriate rate”, it must be assumed that all of CC's profits of the relevant corporation tax accounting period on which corporation tax is chargeable are chargeable at the main rate rather than the Northern Ireland rate.

Chargeable companies

371BD

• (1) A company (“C”) which meets the UK residence condition is a chargeable company for the purposes of step 4 in section 371BC(1) if the total of the following percentages is at least 25%—

• (a) the percentage of the CFC's chargeable profits apportioned to C at step 3 in section 371BC(1), and

• (b) the percentages (if any) of those profits which are apportioned at that step to relevant persons who, at any time during the accounting period, are connected or associated with C.

• (2) Subsection (1) is subject to sections 371BE and 371BF.

Companies which are managers of offshore funds etc

371BE

• (1) A company (“C”) is not a chargeable company for the purposes of step 4 in section 371BC(1) if—

• (a) the CFC is an offshore fund (as defined in section 355),

• (b) the genuine diversity of ownership condition set out in regulation 75 of the Offshore Funds (Tax) Regulations 2009 (S.I. 2009/3001) is met in relation to the fund,

• (c) C meets the fund management condition, and

• (d) apart from this section, a sum of no more than £500,000 would be charged on C as a chargeable company at step 5 in section 371BC(1).

• (2) In applying regulation 75 of the 2009 Regulations for the purposes of subsection (1)(b), the reference in paragraph (1) to the period of account is to be read as a reference to the accounting period.

• (3) C meets the fund management condition if at all times during the accounting period when C has relevant interests in the offshore fund—