Finance Act 2018

• (2) Section 274B(2) of FA 2004 (as inserted by paragraph 1(5)) is treated as always having had effect in relation to the pension scheme.

• (3) In this paragraph, “Master Trust scheme” and “occupational pension scheme” have the same meaning as in Part 4 of FA 2004.

SCHEDULE 4

Amount of EIS relief

1

• (1) Section 158 of ITA 2007 (form and amount of EIS relief) is amended as follows.

• (2) In subsection (2)(a), after “EIS relief” insert “ (qualifying shares) ”.

• (3) In subsection (2)(b), for “£1 million” substitute “ the allowable amount ”.

• (4) After subsection (2) insert—

(2ZA) The allowable amount is— (a) if the qualifying shares do not include any KIC shares: £1 million; (b) if the amount, or the sum of the amounts, subscribed for qualifying shares that are KIC shares is £1 million or more: £2 million; (c) if neither paragraph (a) nor paragraph (b) applies: £1 million plus the amount, or the sum of the amounts, subscribed for qualifying shares that are KIC shares. (2ZB) In subsection (2ZA) “KIC shares” means shares in a company which, or in companies each of which, is a knowledge-intensive company at the time the shares are issued (see section 252A and subsection (6)).

• (5) In subsection (4), for “subsections (1) and (2)” substitute “ subsections (1) to (2ZB) ”.

• (6) At the end insert—

(6) If the issuing company began to carry on a trade less than three years before the date the relevant shares are issued, section 252A as it applies for the purposes of this section has effect with the substitution of the following subsections for subsections (2) to (4A)— (2) The first operating costs condition is that in at least one of the relevant three succeeding years at least 15% of the relevant operating costs constitute expenditure on research and development or innovation. (3) The second operating costs condition is that in each of the relevant three succeeding years at least 10% of the relevant operating costs constitute such expenditure. (4) In subsections (2) and (3)— - “relevant operating costs” means— 1. if the issuing company is a single company at the time the relevant shares are issued, the operating costs of that company, and 2. if the issuing company is a parent company at the time the relevant shares are issued, the sum of— 1. the operating costs of the issuing company, and 2. the operating costs of each company which is a qualifying subsidiary of the issuing company at that time, excluding a company's operating costs for any of the relevant three succeeding years during any part of which the company is not a qualifying subsidiary of the issuing company; - “the relevant three succeeding years” means the three consecutive years the first of which begins with the date the relevant shares are issued. (7) In subsection (6) “trade” includes— (a) any business or profession, (b) so far as not within paragraph (a), the carrying on of research and development activities from which it is intended a trade will be derived or will benefit, (c) preparing to carry on a trade.

Maximum amount raised annually by knowledge-intensive company

2

• (1) Section 173A of ITA 2007 (the maximum amount raised annually through risk finance investments requirement for EIS relief) is amended as follows.

• (2) In subsection (1), for “must not exceed £5 million” substitute

must not exceed— (a) if the company is a knowledge-intensive company at that date (see section 252A and subsection (5A)), £10 million, and (b) in any other case, £5 million.

• (3) After subsection (5) insert—

(5A) If the issuing company began to carry on a trade less than three years before the date the relevant shares are issued, section 252A as it applies for the purposes of this section has effect with the substitution of the following subsections for subsections (2) to (4A)— (2) The first operating costs condition is that in at least one of the relevant three succeeding years at least 15% of the relevant operating costs constitute expenditure on research and development or innovation. (3) The second operating costs condition is that in each of the relevant three succeeding years at least 10% of the relevant operating costs constitute such expenditure. (4) In subsections (2) and (3)— - “relevant operating costs” means— 1. if the issuing company is a single company at the time the relevant shares are issued, the operating costs of that company, and 2. if the issuing company is a parent company at the time the relevant shares are issued, the sum of— 1. the operating costs of the issuing company, and 2. the operating costs of each company which is a qualifying subsidiary of the issuing company at that time, excluding a company's operating costs for any of the relevant three succeeding years during any part of which the company is not a qualifying subsidiary of the issuing company; - “the relevant three succeeding years” means the three consecutive years the first of which begins with the date the relevant shares are issued.

3

• (1) Section 292A of ITA 2007 (the maximum amount raised annually through risk finance investments requirement for VCT relief) is amended as follows.

• (2) In subsection (1), for “must not exceed £5 million” substitute

must not exceed— (a) if the company is a knowledge-intensive company at that date (see section 331A and subsection (6A)), £10 million, and (b) in any other case, £5 million.

• (3) After subsection (6) insert—

(6A) If the relevant company began to carry on a trade less than three years before the date the relevant holding is issued, section 331A as it applies for the purposes of this section has effect with the substitution of the following subsections for subsections (3) to (5A)— (3) The first operating costs condition is that in at least one of the relevant three succeeding years at least 15% of the relevant operating costs constitute expenditure on research and development or innovation. (4) The second operating costs condition is that in each of the relevant three succeeding years at least 10% of the relevant operating costs constitute such expenditure. (5) In subsections (3) and (4)— - “relevant operating costs” means— 1. if the relevant company is a single company at the applicable time, the operating costs of that company, and 2. if the relevant company is a parent company at the applicable time, the sum of— 1. the operating costs of the relevant company, and 2. the operating costs of each company which is a qualifying subsidiary of the relevant company at that time, excluding a company's operating costs for any of the relevant three succeeding years during any part of which the company is not a qualifying subsidiary of the relevant company; - “the relevant three succeeding years” means the three consecutive years the first of which begins with the date the relevant holding is issued.

4

In section 297B of ITA 2007 (the proportion of skilled employees requirement for VCT relief), in subsection (2)(a), after “sections” insert “ 292A, ”.

Initial investing period: permitted age of knowledge-intensive company

5

In section 175A of ITA 2007 (the permitted maximum age condition for EIS relief), in paragraph (a) of subsection (2), for “beginning with the relevant first commercial sale,” substitute

beginning with— (i) the relevant first commercial sale, or (ii) if the issuing company so elects, the date by reference to which that company is treated as reaching an annual turnover of £200,000 (see section 252B),

.

6

After section 252A of ITA 2007 insert—

(252B) (1) This section has effect for the purposes of section 175A(2)(a)(ii) (alternative initial investing period in case of knowledge-intensive company). (2) Where— (a) the annual turnover of the issuing company in relation to an accounting period (see subsection (3)) is £200,000 or more, and (b) the annual turnover for the company in relation to each previous accounting period is less than £200,000, the company is treated as reaching an annual turnover of £200,000 or more by reference to the specified date (see subsection (4)). (3) The annual turnover in relation to an accounting period is— (a) the turnover for that accounting period (if the accounting period is for 12 months), or (b) the turnover for the period of 12 months ending when that accounting period ends (if not). (4) The specified date is— (a) in the case of an accounting period of 12 months or less, the last day of that accounting period; (b) in the case of an accounting period of more than 12 months, the last day of the period of 12 months beginning when that accounting period begins. (5) The turnover of the issuing company for a period (“the period”) is treated for the purposes of this section as including the relevant turnover of any company that is a member of the same group as the issuing company during the whole or any part of the period (a “group company”). (6) The relevant turnover of a group company is— (a) its turnover for the period, if the group company is a member of the same group as the issuing company for the whole of the period; (b) if the group company is a member of the same group as the issuing company for part of the period, its turnover for that part of the period. (7) Any necessary apportionments of turnover are to be made, on a time basis according to the respective lengths of the periods in question, for the purposes of subsections (3)(b) and (6). (8) In this section “turnover” has the meaning given by section 474(1) of the Companies Act 2006 and is to be determined by reference to— (a) the accounts of the company, and (b) amounts recognised for accounting purposes.

7

In section 280C of ITA 2007 (the permitted maximum age condition for VCT relief), in paragraph (a) of subsection (3), for “beginning with the relevant first commercial sale,” substitute

beginning with— (i) the relevant first commercial sale, or (ii) if the relevant company so elects, the date by reference to which that company is treated as reaching an annual turnover of £200,000 (see section 331B),

.

8

In section 294A of ITA 2007 (the permitted company age requirement for VCT relief), in paragraph (a) of subsection (2), for “beginning with the relevant first commercial sale,” substitute

beginning with— (i) the relevant first commercial sale, or (ii) if the relevant company so elects, the date by reference to which that company is treated as reaching an annual turnover of £200,000 (see section 331B),

.

9

After section 331A of ITA 2007 insert—

(331B) (1) This section has effect for the purposes of sections 280C(3)(a)(ii) and 294A(2)(a)(ii) (alternative initial investing period in case of knowledge-intensive company). (2) Where— (a) the annual turnover of the relevant company in relation to an accounting period (see subsection (3)) is £200,000 or more, and (b) the annual turnover for the company in relation to each previous accounting period is less than £200,000, the company is treated as reaching an annual turnover of £200,000 or more by reference to the specified date (see subsection (4)). (3) The annual turnover in relation to an accounting period is— (a) the turnover for that accounting period (if the accounting period is for 12 months), or (b) the turnover for the period of 12 months ending when that accounting period ends (if not). (4) The specified date is— (a) in the case of an accounting period of 12 months or less, the last day of that accounting period; (b) in the case of an accounting period of more than 12 months, the last day of the period of 12 months beginning when that accounting period begins. (5) The turnover of the relevant company for a period (“the period”) is treated for the purposes of this section as including the relevant turnover of any company that is a member of the same group as the relevant company during the whole or any part of the period (a “group company”). (6) The relevant turnover of a group company is— (a) its turnover for the period, if the group company is a member of the same group as the relevant company for the whole of the period; (b) if the group company is a member of the same group as the relevant company for part of the period, its turnover for that part of the period. (7) Any necessary apportionments of turnover are to be made, on a time basis according to the respective lengths of the periods in question, for the purposes of subsections (3)(b) and (6). (8) In this section “turnover” has the meaning given by section 474(1) of the Companies Act 2006 and is to be determined by reference to— (a) the accounts of the company, and (b) amounts recognised for accounting purposes.

Commencement

10

• (1) The amendments made by this Schedule come into force in accordance with provision made by the Treasury by regulations.

• (2) Regulations under sub-paragraph (1)—

• (a) may make different provision for different purposes;

• (b) may provide for any of those amendments to have effect in relation to shares issued, or investments made, on or after a day that is—

• (i) earlier than the day on which the regulations are made, but

• (ii) not earlier than 6 April 2018.

SCHEDULE 5

Relaxation of restriction where there is a linked sale

1

• (1) Section 264A of ITA 2007 (restricting VCT relief where there is a linked sale) is amended as follows.

• (2) In subsection (5), at the beginning of paragraph (b) insert “ if subsection (7A) applies, ”.

• (3) After subsection (7) insert—

(7A) This subsection applies if— (a) the date of the merger or restructuring referred to in subsection (7) (“D2”) is before, or the same as, the date when the individual subscribes for the relevant shares (“D1”), or (b) D2 is after D1 but no more than two years after, and either— (i) the individual could reasonably be expected to know at the time of subscribing for the relevant shares that the merger or restructuring referred to in subsection (7) was likely to take place, or (ii) the main purpose of the merger or restructuring, or one of its main purposes, is to enable individuals to obtain a tax advantage in connection with VCT relief. (7B) For the purposes of subsection (7A)— (a) the date of the merger or restructuring is the date of the issue of shares referred to in section 323(1)(a) or (2)(a) or section 326(2)(a) (or, if there is more than one such issue, the date of the first of them); (b) a “tax advantage” includes— (i) relief or increased relief from tax, (ii) repayment or increased repayment of tax, (iii) avoidance or reduction of a charge to tax or an assessment to tax, and (iv) avoidance of a possible assessment to tax.

The 70% qualifying holdings condition

2

In section 274 of ITA 2007 (requirements for the giving of approval), in the fifth entry of the table in subsection (2) (the 70% qualifying holdings condition), for “70%” in the first and second columns substitute “ 80% ”.

3

In consequence of the amendment made by paragraph 2, in each of the following provisions of ITA 2007, for “70%”, where it appears before “qualifying”, substitute “80%”—

• (a) in section 274, subsection (3)(c), (d) and (e);

• (b) in section 275 (alternative requirements for the giving of approval), subsection (3)(b);

• (c) in section 278 (conditions relating to value of investments: general), subsection (1);

• (d) in section 280 (conditions relating to qualifying holdings and eligible shares), subsection (2);

• (e) in section 280A (the 70% qualifying holdings condition: disposal of holding), in the heading and in subsection (2);

• (f) in Schedule 4 (index of defined expressions), the entry for the qualifying holdings condition.

4

In section 280A of ITA 2007, in subsection (2)(a), for “6” substitute “ 12 ”.

The minimum investment on further issue condition

5

• (1) Section 274 of ITA 2007 is amended as follows.

• (2) In the table in subsection (2), after the entry for “the investment limits condition” insert—

The minimum investment on further issue condition	The company has not breached and will not breach, in the relevant period, the minimum investment on further issue condition

• (3) In subsection (3), after paragraph (f) insert—

(fa) the minimum investment on further issue condition by section 280BA,

6

After section 280B of ITA 2007 insert—

(280BA) (1) A company breaches the minimum investment on further issue condition where— (a) there has been an issue of ordinary share capital of the company (“the first issue”), (b) a VCT approval of the company has taken effect on or before the day of the making of the first issue, (c) a further issue (“the further issue”) of ordinary share capital of the company has been made since the making of the first issue, and (d) the company does not, on or before the relevant deadline, invest at least 30% of the money raised by the further issue in shares or securities which when held by the company are comprised in the company's qualifying holdings. (2) The relevant deadline is the last day of the period of 12 months immediately following the end of the accounting period in which the further issue is made.

Non-qualifying loans

7

• (1) Section 285 of ITA 2007 (interpretation of Chapter 3 etc of Part 6) is amended as follows.

• (2) In subsection (2)—

• (a) omit “(whether secured or not)”;

• (b) at the end of paragraph (b) insert

, or (c) any liability of the company in respect of a loan to which subsection (2A) applies that has been made to the company.

• (3) After that subsection insert—

(2A) This subsection applies to a loan if— (a) the return on the loan represents more than a commercial rate of return, or (b) the loan is made on terms which grant to a person or allow a person to acquire— (i) any security or preferential rights in relation to assets of the company, or (ii) the ability to control the company. In sub-paragraph (ii) “control” has the meaning given by sections 450 and 451 of CTA 2010. (2B) The return on a loan is not to be treated as representing more than a commercial rate for the purposes of subsection (2A)(a) if— (a) the return on the loan during the period of 5 years from the making of the loan does not exceed 50% of the amount lent, and (b) the total return on the loan does not exceed— $$N ÿ A ÿ 10 %$where—N is the number of years (including any fraction) in the term of the loan;A is the amount lent or, in a case where some of the loan is repaid during the term of the loan, the average amount outstanding during that term.$ (2C) The Treasury may by regulations substitute a different figure for a figure that is at any time specified in subsection (2B)(a) or (b). (2D) In subsections (2A)(a) and (2B) “return” means interest, fees, charges and other amounts payable in respect of the loan. (2E) Where it is to any extent not known, before the end of the term of a loan, what amounts will be payable in respect of the loan— (a) subsections (2A)(a) and (2B) apply, until the relevant matters are ascertained, on the basis of what amounts can reasonably be expected to be payable; (b) when those matters are ascertained, any necessary adjustments must be made by making or amending assessments or by repayment or discharge of tax (regardless of any limitation on the time within which assessments or amendments may be made).

Qualifying holdings: exclusions

8

• (1) Part 8 of Schedule 2 to ITA 2007 (transitional provision: venture capital trusts) is amended as follows.

• (2) In paragraph 69 (the no guaranteed loan requirement), after “acquired” insert “ before 6 April 2018 ”.

• (3) In paragraph 70 (the proportion of eligible shares requirement), in sub-paragraph (2), after “acquired” insert “ before 6 April 2018 ”.

• (4) In paragraph 81 (meaning of “excluded activities”), after “acquired” insert “ before 6 April 2018 ”.

9

In Part 1 of Schedule 16 to FA 2007 (venture capital trusts: limit on number of employees in company in which investment made), in paragraph 3(6)(b), after “(“the investing company”)” insert “ before 6 April 2018 ”.

10

In Schedule 11 to FA 2008 (venture capital trusts), in paragraph 12(b), after “(“the investing company”)” insert “ before 6 April 2018 ”.

11

• (1) In Schedule 2 to F(No.3)A 2010 (venture capital trusts), in paragraph 6(2)(b), after “the investing company” insert “ before 6 April 2018 ”.

• (2) The 30% eligible shares condition does not apply in relation to an accounting period ending on or after 6 April 2018.

• (3) In sub-paragraph (2) “the 30% eligible shares condition” means the condition referred to as such in section 274(2) of ITA 2007 as originally enacted.

Commencement

12

The amendments made by paragraph 1 have effect in relation to claims for relief by reference to shares issued on or after 6 April 2014.

13

The other amendments made by this Schedule come into force in accordance with provision made by the Treasury by regulations.

14

Regulations under paragraph 13—

• (a) may make different provision for different purposes;

• (b) may provide for any of those amendments to come into force on or by reference to a day that is—

• (i) earlier than the day on which the regulations are made, but

• (ii) not earlier than the day on which this Act is passed.

SCHEDULE 6

PART 1 — Bare trusts

1

In ITTOIA 2005, after section 848 insert—

(848A) (1) This section applies if— (a) a partner in a firm is partner as trustee for a beneficiary who is absolutely entitled to the partner's share of the profits of the firm, and (b) the beneficiary is chargeable to tax on those profits. (2) References in this Part to a partner or member of the firm include references to the beneficiary.

2

In CTA 2009, after section 1258 insert—

(1258A) (1) This section applies if— (a) a partner in a firm is partner as trustee for a beneficiary who is absolutely entitled to the partner's share of the profits of the firm, and (b) the beneficiary is chargeable to tax on those profits. (2) References in this Part to a partner or member of the firm include references to the beneficiary.

3

• (1) TMA 1970 is amended as follows.

• (2) In section 12AA (partnership returns), after subsection (10A) insert—

(10B) If— (a) a partner in a partnership is partner as trustee for a beneficiary who is absolutely entitled to the partner's share of the profits of the partnership, and (b) the beneficiary is chargeable to tax on those profits, references in this Act to the partner include references to the beneficiary.

• (3) In section 118(1) (interpretation), at the appropriate place insert—

“partner” is to be construed in accordance with section 12AA(10B) of this Act;

.

4

• (1) The amendment made by paragraph 1 has effect in relation to the tax year 2018-19 and subsequent tax years.

• (2) The amendment made by paragraph 2 has effect in relation to accounting periods beginning on or after 1 April 2018.

• (3) The amendments made by paragraph 3 have effect in relation to partnership returns relating to the tax year 2018-19 or any subsequent tax year.

PART 2 — Notional trade and business of indirect partner

5

• (1) ITTOIA 2005 is amended as follows.

• (2) In section 847 (general provisions), after subsection (3) insert—

(4) For the purposes of this Part, a person is an indirect partner in a partnership (“the underlying partnership”) if the person is a partner in— (a) a partnership which is a partner in the underlying partnership, or (b) any partnership which is an indirect partner in the underlying partnership by virtue of the preceding application of this subsection.

• (3) After section 852 insert—

(852A) (1) This section applies in relation to the notional trade of a partner in a firm if— (a) the firm consists of a partnership which is a partner or indirect partner in another partnership (“the underlying partnership”), (b) the members of the underlying partnership carry on a trade (the “underlying trade”), (c) the firm's trading profits or losses referred to in section 852(1) arise by virtue of profits or losses (“the underlying profits or losses”) arising in the carrying on of the underlying trade, and (d) the underlying profits or losses do not themselves arise by virtue of the underlying partnership's membership of a partnership. (2) Section 852 (carrying on by partner of notional trade) has effect as if for subsections (2) to (5) there were substituted— (2) The partner starts to carry on the notional trade at the later of— (a) when the partner becomes an indirect partner in the underlying partnership, and (b) when the underlying partnership starts to carry on the underlying trade. This is subject to subsection (3). (3) If the partner carries on the actual trade (whether alone or in partnership) before the underlying partnership starts to carry on the underlying trade, the partner starts to carry on the notional trade when the partner starts to carry on the actual trade. (4) The partner permanently ceases to carry on the notional trade at the earlier of— (a) when the partner ceases to be an indirect partner in the underlying partnership, and (b) when the underlying partnership permanently ceases to carry on the underlying trade. This is subject to subsection (5). (5) If the partner carries on the actual trade (whether alone or in partnership) after the underlying partnership permanently ceases to carry on the underlying trade, the partner permanently ceases to carry on the notional trade when the partner permanently ceases to carry on the actual trade.

• (4) After section 855 insert—

(855A) (1) This section applies in relation to the notional business of a partner in a firm if— (a) the firm consists of a partnership which is a partner or indirect partner in another partnership (“the underlying partnership”), (b) the members of the underlying partnership carry on a trade (“the underlying trade”), (c) the firm's untaxed income or relievable losses referred to in section 854(1)(b) arise by virtue of untaxed income or relievable losses (“the underlying profits or losses”) arising to members of the underlying partnership— (i) from sources other than the carrying on of a trade, and (ii) otherwise than by virtue of the underlying partnership's membership of a partnership. (2) Section 854 (carrying on by partner of notional business) has effect as if— (a) for subsection (2) there were substituted— (2) The partner starts to carry on the notional business at the later of— (a) when the partner becomes an indirect partner in the underlying partnership, and (b) when the underlying partnership starts to carry on the underlying trade. (b) for subsection (4) there were substituted— (4) The partner permanently ceases to carry on the notional business at the earlier of— (a) when the partner ceases to be an indirect partner in the underlying partnership, and (b) when the underlying partnership permanently ceases to carry on the underlying trade. (3) Section 855 has effect as if for subsections (2) and (3) there were substituted— (2) If the partner carries on the actual trade (whether alone or in partnership) before the firm starts to carry it on, the partner starts to carry on the notional business when the firm starts to carry on the actual trade. (3) If the partner carries on the actual trade (whether alone or in partnership) after the firm permanently ceases to carry it on, the partner permanently ceases to carry on the notional business when the firm permanently ceases to carry on the actual trade. (4) In this section “untaxed income” has the same meaning as in section 854.

• (5) The amendments made by this paragraph have effect in relation to the tax year 2018-19 and subsequent tax years.

PART 3 — Returns: information to be included

6

• (1) TMA 1970 is amended as follows.

• (2) In section 12AA (partnership returns) after subsection (1A) insert—

(1B) Where a partnership to which subsection (1) applies (“the reporting partnership”) includes a partner which is itself a partnership, references in subsections (1) and (1A) to a partner include an indirect partner in the reporting partnership. (1C) For the purposes of this section, a person is an indirect partner in the reporting partnership if the person is a partner in— (a) a partnership which is a partner in the reporting partnership, or (b) any partnership which is an indirect partner in the reporting partnership by virtue of the preceding application of this subsection.

• (3) In section 12AB (partnership statements), after subsection (1) insert—

(1A) Where at any time in a period mentioned in subsection (1)(a) the reporting partnership is a partner in another partnership which carries on a trade, profession or business— (a) income or loss that the reporting partnership accrues or sustains thereby is to be treated for the purposes of subsection (1)(a)(i) as from a source that is separate from any of its other sources of income or loss, (b) consideration in respect of the disposal of partnership property that the reporting partnership accrues thereby is to be treated for the purposes of subsection (1)(a)(ia) as from a source that is separate from any of its other sources of consideration, (c) income tax which has been deducted or treated as deducted from, or paid on, any income that the reporting partnership accrues thereby is to be treated for the purposes of subsection (1)(a)(ii) as being deducted or treated as deducted from, or paid on, a source of income that is separate from any of its other sources of income, and (d) amounts specified in the partnership statement under subsection (1)(a) must include— (i) each amount which is stated to be equal to the reporting partnership's share of income, loss, consideration or tax in any partnership statement made under this section in relation to the other partnership for the period for which the return is made or a period which includes that period or any part of it, and (ii) a statement as to which of the assumptions in subsection (1B) was applied in calculating that amount. (1B) If at any time in a period mentioned in subsection (1)(a) the reporting partnership includes a partner which is itself a partnership (“the participating partnership”), the amounts referred to in subsection (1)(b) must be calculated and included in the partnership statement applying each of the following assumptions to the participating partnership— (a) that it is a UK resident individual; (b) that it is a non-UK resident individual; (c) that it is a UK resident company; (d) that it is a non-UK resident company. (1C) But subsection (1D) applies if the partnership return includes— (a) the name of every person who was an indirect partner in the reporting partnership at any time in a period mentioned in subsection (1)(a), and (b) at least some of the following information— (i) whether a person named under paragraph (a) is an individual, company or partnership (or something else), (ii) in the case of such a person who is an individual, whether the individual was or was not resident in the United Kingdom in the year of assessment for which the partnership return is made, and (iii) in the case of such a person who is a company, whether the company was or was not resident in the United Kingdom for each accounting period of the company which includes all, or any part of, a period mentioned in subsection (1)(a). (1D) In subsection (1B)— (a) ignore either or both of paragraph (a) and (b) if it is apparent from information provided under subsection (1C) that none of the indirect partners of the reporting partnership is a person of a description specified in that paragraph at any time in the year of assessment for which the return is made, and (b) ignore either or both of paragraph (c) and (d) if it is apparent from that information that none of the indirect partners is a company of a description specified in that paragraph at any time in any of its accounting periods which include all, or any part of, a period mentioned in subsection (1)(a).

• (4) In that section, in subsection (5), at the appropriate places insert—

“indirect partner”, in relation to the reporting partnership, is to be construed in accordance with section 12AA(1C);

;

“reporting partnership” means the partnership to which the partnership statement referred to in subsection (1) relates;

.

• (5) The amendments made by this paragraph have effect in relation to partnership returns relating to the tax year 2018-19 or any subsequent tax year.

7

• (1) F(No.2)A 2017 is amended as follows.

• (2) In section 60, in paragraph 17 of Schedule A1 to be inserted into TMA 1970—

• (a) the existing provision becomes sub-paragraph (1);

• (b) after that sub-paragraph insert—

(2) Where a partnership (“the reporting partnership”) includes a partner which is itself a partnership, references in this Schedule to a partner include an indirect partner in the reporting partnership. Section 12AA(1C) (meaning of “indirect partner”) applies for the purposes of this sub-paragraph.

• (3) In Schedule 14 (amendments relating to digital reporting etc), after paragraph 10 insert—

(10A) In section 12AB(1C) (further information to be included in partnership return in certain cases), before “partnership return” insert “ section 12AA ”.

PART 4 — Returns: overseas partners in investment partnerships etc

8

• (1) TMA 1970 is amended as follows.

• (2) In section 12AA(6) (partnership return to include information about partners), at the end (and on a new line) insert—

But see section 12ABZA.

• (3) After section 12AB (partnership return to include partnership statement) insert—

(12ABZA) (1) There is no requirement for a partnership return to include a declaration of the tax reference of a person (see section 12AA(6)(a)) if— (a) the person is not chargeable to income tax or corporation tax for the period, or for a period which includes any part of the period, in respect of which the partnership return is made, (b) the partnership does not carry on a trade or profession or a UK property business at any time during the period in respect of which the partnership return is made, (c) the whole of that period is a period in respect of which the partnership is required to set out information about the person in one or more relevant returns, and (d) the partnership return includes a statement that the condition in paragraph (c) is met. (2) In subsection (1)(c) “relevant return” means a return under the International Tax Compliance Regulations 2015 (S.I. 2015/878). (3) If, in reliance on this section, the partnership return does not include a declaration of the tax reference of a person but the partnership does not comply with the requirement mentioned in subsection (1)(c), the partner required to make and deliver the partnership return, or that partner's successor, must give notice to HMRC specifying the tax reference. (4) The notice must be given within the period of 12 months beginning with the filing date for the partnership return. (5) The Commissioners for Her Majesty's Revenue and Customs may by regulations made by statutory instrument amend the definition of “relevant return” in subsection (2). (6) A statutory instrument containing regulations under subsection (5) is subject to annulment in pursuance of a resolution of the House of Commons. (7) In this section “filing date” has the same meaning as in section 12ABA.

• (4) In section 98 (special returns, etc), in column 2 of the Table, at the appropriate place insert “ section 12ABZA(3) of this Act ”.

• (5) The amendments made by this paragraph have effect in relation to returns—

• (a) made after the passing of this Act, and

• (b) whether relating to periods before or after the passing of this Act.

9

In Schedule 14 to F(No.2)A 2017 (amendments relating to digital reporting etc), after paragraph 10A (as inserted by this Schedule) insert—

(10B) In section 12ABZA (partnership returns: overseas partners in investment partnerships etc)— (a) in the heading, before “Partnership returns” insert “ Section 12AA ”; (b) in subsections (1), (3), and (4), before every “partnership return” insert “ section 12AA ”.

PART 5 — Returns conclusive as to shares of profits and losses

10

• (1) TMA 1970 is amended as follows.

• (2) After section 12ABZA (as inserted by this Act) insert—

(12ABZB) (1) A partnership return is conclusive for tax purposes as to— (a) whether a person does or does not have a share in the profits or losses of the partnership for any period, and (b) what the share of any person in those profits or losses is. (2) That applies even where the person would not otherwise be chargeable to tax on profits of the partnership. (3) If there is a dispute between the person mentioned in subsection (1)(a) or (b) and any one or more partners in the partnership about whether what is given in a partnership return is correct as to the matters mentioned in that subsection, a party to the dispute may refer it to the tribunal for determination. (4) That does not include a dispute to the extent that it is in substance about the amount (before sharing) of the partnership's profits or losses for a period. (5) A referral under subsection (3) must be made before the end of the period of 12 months beginning with the day after— (a) the day on which the partnership return was delivered, or (b) if the dispute relates to an amendment to the return made under section 12ABA (amendment of partnership return by taxpayer), the day on which the amendment was made. (6) Where a dispute is referred to the tribunal under subsection (3)— (a) the party referring it must at the same time give notice of the referral to— (i) HMRC, and (ii) the reporting partner, and (b) the reporting partner must give notice of the referral to— (i) every other partner in the partnership, and (ii) any other person appearing to the reporting partner to be a party to the dispute. But notice need not be given under this subsection to anyone who referred the dispute. (7) Where the tribunal determines that what is given in the partnership return as to the matters referred to in subsection (1)(a) or (b) is not correct— (a) the tribunal must determine what the return should have given, and (b) HMRC must amend the return accordingly. (8) Where a partnership return is amended under subsection (7)(b), HMRC must by notice to any party to the proceedings or any partner in the partnership amend— (a) their return under section 8 or 8A of this Act, or (b) their company tax return, if the amendments are necessary to give effect to the consequences of the amendment of the partnership return. (9) Where at any time after a referral is made under subsection (3) but before the tribunal determines the dispute the reporting partner gives notice to HMRC that all the partners in the partnership (whether or not party to the proceedings) have agreed in writing that the partnership return— (a) is correct without variation, or (b) requires correcting in a particular manner, the like consequences shall ensue for all purposes as would have ensued if, at the time the agreement was made, the tribunal had determined the dispute in accordance with the terms of the agreement. (10) Subsection (9) does not apply if— (a) within the period of 30 days beginning with the date of the agreement, a party to the agreement gives notice to the other parties to the agreement that the party wishes to repudiate or resile from the agreement, or (b) within the period of 30 days beginning with the date on which it receives notice of the agreement, HMRC gives notice to the reporting partner of its objection to the agreement. (11) A partnership return which has been the subject of a referral under subsection (3) may not be the subject of another referral under that subsection, unless that other referral— (a) relates to a dispute arising in consequence of an amendment of the partnership return under section 12ABA (amendment of partnership return by taxpayer), and (b) is the first referral following the amendment. (12) In this section— - “reporting partner” means the partner who made and delivered the partnership return or that partner's successor; - references to a partner in a partnership are to a person who was a partner in it at any time during the period in respect of which the partnership return was made.

• (3) In section 12ABA(1) (amendment of partnership return by taxpayer), after “partnership return” insert “ (including anything included in the return by virtue of section 12ABZB(7)(b) (amendment of partnership return following referral to tribunal)) ”.

• (4) In section 12AC (enquiry into partnership return)—

• (a) in subsection (2), after paragraph (c) insert—

(d) if a dispute in relation to the return is referred to a tribunal under section 12ABZB(3) of this Act, up to and including the quarter day next following the first anniversary of the day on which HMRC received notification of the referral.

;

• (b) in subsection (3), at the end insert “ or in consequence of the referral of a dispute about the return under section 12ABZB(3) of this Act ”;

• (c) in subsection (4), for “, subject to the following limitation” substitute “ and including anything included in the return by virtue of section 12ABZB(7)(b), subject to the following limitations ”;

• (d) after subsection (5) insert—

(5A) If the notice of enquiry is given as a result of the referral of a dispute under section 12ABZB(3) of this Act— (a) at a time when it is no longer possible to give notice of enquiry under subsection (2)(a) or (b) above, (b) after a final closure notice has been issued in relation to an enquiry into the return, or (c) after a partial closure notice has been issued in such an enquiry in relation to the matters to which the dispute relates or which are affected by it, the enquiry into the return is limited to the matters to which the dispute relates or which are affected by it.

• (5) In section 12AD (amendment of partnership return by taxpayer during enquiry)—

• (a) in the heading, after “taxpayer” insert “ , or referral of dispute, ”;

• (b) in subsection (1)—

• (i) after “taxpayer)” insert “ , or a dispute about the return is referred to the tribunal under section 12ABZB(3) of this Act, ”;

• (ii) after “the amendment”, in both places it occurs, insert “ or dispute ”;

• (c) in subsection (2), after “amendment” insert “ or dispute ”.

• (6) In section 28B(2)(b) (completion of enquiry into partnership return), after “return” insert “ (including anything included in the return by virtue of section 12ABZB(7)(b) (amendment of partnership return following reference to tribunal)) ”.

• (7) In section 30B(1) (amendment of partnership return where loss of tax discovered), in the words after paragraph (c), after “return” insert “ (including anything included in the return by virtue of section 12ABZB(7)(b) (amendment of partnership return following reference to tribunal)) ”.

• (8) In section 55 (recovery of tax not postponed)—

• (a) in subsection (8B), for “and (8D)” substitute “ to (8E) ”;

• (b) in subsection (8C)—

• (i) in paragraph (c), omit the final “or”;

• (ii) after paragraph (c) insert—

(ca) any amount of tax specified in the notice by virtue of an amendment made under section 227(7A) of that Act, or

;

• (c) after subsection (8D) insert—

(8E) If the payment of an amount of tax within subsection (8C)(ca) is postponed by virtue of this section immediately before notice of the amendment is given, it ceases to be so postponed with effect from the time that the notice of the amendment is given, and the tax is due and payable on or before— (a) the last day of the period of 30 days beginning with the day on which the notice is given, or (b) if later, the last day on which it would have been payable under subsection (8D) if it had been included in the amount specified in the accelerated payment notice or partner payment notice when that notice was given.

• (9) In section 59B(5)(b) (payment of tax following amendment of self-assessment), after “section” insert “ 12ABZB(8), ”.

• (10) In Schedule 3ZA (date by which payment to be made after amendment or correction of self-assessment), in paragraph 7 (amendment consequential on correction of partnership return by Revenue)—

• (a) in the heading, at the end insert “ or tribunal determination of partnership dispute ”;

• (b) in sub-paragraph (1), after “under” insert “ section 12ABZB(8)(a) of this Act (consequential amendment of partner's personal or trustee return where partnership return corrected following reference to tribunal) or ”;

• (c) in sub-paragraph (2), after “section” insert “ 12ABZB(8)(a) or ”.

11

In section 850 of ITTOIA 2005 (allocation of firm's profits or losses between partners), in subsection (1), after “850D” insert “ and section 12ABZB of TMA 1970 (partnership return is conclusive) ”.

12

In section 1262 of CTA 2009 (allocation of firm's profits or losses between partners), in subsection (1), after “1264A” insert “ and section 12ABZB of TMA 1970 (partnership return is conclusive) ”.

13

• (1) FA 2014 is amended as follows.

• (2) In each of sections 220 and 221 (content of accelerated payment notice), at the end of subsection (3) insert “ (and disregarding any dispute which has been referred to a tribunal under section 12ABZB(3) of TMA 1970 but not yet determined) ”.

• (3) In section 226 (penalty for failure to pay accelerated payment), after subsection (7) insert—

(8) Where an amendment to an accelerated payment notice made under section 227(7A) (amendment following tribunal determination about partnership return) increases the amount of the accelerated payment, the amount of the increase is to be ignored for the purposes of— (a) this section, and (b) any other enactment imposing a penalty or surcharge for non-payment or late payment of tax.

• (4) In section 227 (withdrawal, modification or suspension of accelerated payment notice)—

• (a) after subsection (7) insert—

(7A) Where— (a) an accelerated payment notice is given, and (b) a partnership return (as defined in Schedule 32) to which the notice relates is amended under section 12ABZB(7)(b) of TMA 1970 (amendment following tribunal determination), HMRC may by notice given to P make consequential amendments to the accelerated payment notice.

;

• (b) in subsection (13), after “subsection (2)(c)” insert “ or an amendment made under subsection (7A) ”;

• (c) after subsection (13) insert—

(13A) If, as a result of an amendment made under subsection (7A), an amount payable to HMRC under section 223(2) is increased, the amount of that increase must be paid before— (a) the end of the period of 30 days beginning with the day on which notice of the amendment is given, or (b) if later, the end the payment period (within the meaning given by section 223(5)).

• (5) In Schedule 32 (accelerated payments and partnerships)—

• (a) in paragraph 4(2), at the end insert “ (and disregarding any dispute which has been referred to a tribunal under section 12ABZB(3) of TMA 1970 but not yet determined) ”;

• (b) in paragraph 7—

• (i) in paragraph (b), omit the final “and”;

• (ii) after paragraph (b) insert—

(ba) the reference in section 226(8) to an amendment to an accelerated payment notice made under section 227(7A) were to an amendment to a partner payment notice made under that section as applied by paragraph 8 of this Schedule, and

;

• (c) in paragraph 8(2)—

• (i) after paragraph (a) insert—

(aa) section 227(7A) has effect as if the reference to a partnership return to which the accelerated payment notice relates were a reference to the partnership return in relation to which the partner payment notice is given;

;

• (ii) in paragraph (b), omit the final “and”;

• (iii) after paragraph (c) insert

and (d) section 227(13A) has effect as if the reference to section 223(2) were to paragraph 6(2) of this Schedule and the reference to section 223(5) were to paragraph 6(5) of this Schedule.

14

The amendments made by paragraphs 10 to 13 have effect in relation to returns relating to the tax year 2018-19 or any subsequent tax year.

15

• (1) Schedule 14 to F(No.2)A 2017 (amendments relating to digital reporting etc) is amended as follows.

• (2) After paragraph 10B (as inserted by this Schedule) insert—

(10C) In section 12ABZB (partnership return conclusive as to partnership shares)— (a) in the heading, before “Partnership return” insert “ Section 12AA ”; (b) in subsections (1), (3), (5), (7), (8), (9), (11) and (12), before every “partnership return” insert “ section 12AA ”.

• (3) After paragraph 43 insert—

(43A) In section 227(7A)(b) (withdrawal etc of accelerated payment notice), before “partnership return” insert “ section 12AA ”.

• (4) In paragraph 46, at the end insert—

(5) In paragraph 8(2)(aa) (withdrawal etc of partner payment notices), before “partnership return”, in both places, insert “ section 12AA ”.

SCHEDULE 7

Introductory

1

Part 6A of TIOPA 2010 (hybrid and other mismatches) is amended as follows.

Meaning of “tax” etc and treatment of cases where tax charged at a nil rate

2

In section 259B (“tax” means certain taxes on income and includes foreign tax etc)—

• (a) after subsection (3) insert—

(3A) The payment of any withholding tax in respect of any amount is to be ignored for the purposes of this Part.

, and

• (b) at the end insert—

(5) In any case where— (a) a person is resident in a territory outside the United Kingdom generally for the purposes of the law of the territory or for particular purposes under that law, and (b) the law of the territory has no provision for a person to be resident for tax purposes under its law, any reference in Chapter 8 or 11 to a person's residence for tax purposes in the territory is to be read as a reference to the person's residence as mentioned in paragraph (a).

3

In section 259BC (meaning of “ordinary income”), in subsection (3), for the words from “it is excluded” to the end substitute

— (a) it is charged to the relevant tax at a nil rate, or (b) it is excluded, reduced or offset by any exemption, exclusion, relief, or credit— (i) that applies specifically to all or part of the amount of income (as opposed to ordinary income generally), or (ii) that arises as a result of, or otherwise in connection with, a payment or quasi-payment that gives rise to the amount of income.

4

In section 259FA (circumstances in which Chapter 6 applies), after subsection (7) insert—

(7A) For the purposes of subsections (6) and (7) any increase in taxable profits or reduction of losses is to be ignored in any case where tax is charged at a nil rate under the law of the parent jurisdiction.

5

In section 259GB (hybrid payee deduction/non-inclusion mismatches and their extent), in subsection (3)(b)(i), after “charged” insert “ at a higher rate than nil ”.

6

In section 259KB (meaning of “excessive PE deduction”), after subsection (4) insert—

(4A) For the purposes of subsection (4) any increase in taxable profits or reduction of losses is to be ignored in any case where tax is charged at a nil rate under the law of the parent jurisdiction.

CFCs and foreign CFCs: qualifying CFC amounts

7

• (1) Section 259BD (chargeable companies in respect of CFCs and foreign CFCs) is amended as follows.

• (2) After subsection (12) insert—

(12A) For the purposes of subsection (2)— (a) a qualifying CFC amount arising to C is treated as an amount of relevant income, (b) a qualifying CFC amount arising to C, for a permitted taxable period, is “under taxed” if the highest rate at which tax is charged on the amount, taking into account on a just and reasonable basis the effect of any credit for underlying tax, is less than C's full marginal rate for that period, (c) in determining C's “full marginal rate”, the reference to the taxable profits mentioned in subsection (9) includes any qualifying CFC amount, and (d) in determining a “credit for underlying tax”, the reference to profits includes any qualifying CFC amount. (12B) For the purposes of subsection (12A) a “qualifying CFC amount” means an amount arising to C which is brought into account in calculating chargeable profits for the purposes of a foreign CFC charge. (12C) But an amount is not regarded for this purpose as brought into account so far as— (a) the amount is excluded, reduced or offset for the purposes of the foreign CFC charge by any exemption, exclusion, relief or credit that— (i) applies specifically to all or part of the amount (as opposed to amounts brought into account for those purposes generally), or (ii) arises as a result of, or otherwise in connection with, a payment or quasi-payment that gives rise to the amount, or (b) the sum charged for the purposes of the foreign CFC charge is, or falls to be, refunded (and section 259BC(6) and (7) apply for the purposes of this paragraph with the necessary modifications).

• (3) In subsection (13), in paragraph (b) of the definition of “chargeable profits”, after “Part” insert “ (including any qualifying CFC amount within the meaning given by subsection (12B)) ”.

Hybrid and other mismatches from financial instruments: qualifying capital amounts

8

In section 259CC (interpretation of section 259CB), at the end insert—

(7) A qualifying capital amount arising to a payee is treated as an amount of ordinary income of a payee and references to tax include any qualifying capital tax. (8) For the purposes of case 2— (a) a qualifying capital amount arising to a payee, for a permitted taxable period, is “under taxed” if the highest rate at which tax is charged on the amount, taking into account on a just and reasonable basis the effect of any credit for underlying tax, is less than the payee's full marginal rate for that period, (b) in determining the payee's “full marginal rate”, the reference to the taxable profits mentioned in subsection (4) includes any qualifying capital amount, and (c) in determining a “credit for underlying tax”, the reference to profits includes any qualifying capital amount. (9) If the rate at which a qualifying capital tax is charged on a qualifying capital amount of a payee exceeds the rate at which tax would be charged on an amount of income of the payee, the excess is to be ignored. (10) For the purposes of subsections (7) to (9) a “qualifying capital amount” means an amount of a capital nature on which a qualifying capital tax is charged. (11) A qualifying capital tax is not regarded for this purpose as charged on an amount so far as— (a) the amount is excluded, reduced or offset for the purposes of the tax by any exemption, exclusion, relief or credit that— (i) applies specifically to all or part of the amount (as opposed to amounts of a capital nature generally), or (ii) arises as a result of, or otherwise in connection with, a payment or quasi-payment that gives rise to the amount, or (b) the tax is, or falls to be, refunded (and section 259BC(6) and (7) apply for the purposes of this paragraph with the necessary modifications). (12) For the purposes of subsections (7) to (11) a “qualifying capital tax” means— (a) capital gains tax or the charge to corporation tax in respect of chargeable gains, or (b) any tax chargeable under the law of a territory outside the United Kingdom that corresponds to a United Kingdom tax mentioned in paragraph (a), but does not include any tax chargeable at a nil rate.

Hybrid transfer deduction/non-inclusion mismatches: qualifying capital amounts

9

In section 259DB (meaning of “hybrid transfer arrangement”, “underlying instrument” etc), at the end insert—

(7) For the purposes of subsection (4) references to tax include any qualifying capital tax within the meaning given by section 259DD(11).

10

In section 259DD (hybrid transfer deduction/non-inclusion mismatches: interpretation of section 259DC), at the end insert—

(6) A qualifying capital amount arising to a payee is treated as an amount of ordinary income of a payee and references to tax include any qualifying capital tax. (7) For the purposes of case 2— (a) a qualifying capital amount arising to a payee, for a permitted taxable period, is “under taxed” if the highest rate at which tax is charged on the amount, taking into account on a just and reasonable basis the effect of any credit for underlying tax, is less than the payee's full marginal rate for that period, (b) in determining the payee's “full marginal rate”, the reference to the taxable profits mentioned in subsection (4) includes any qualifying capital amount, and (c) in determining a “credit for underlying tax”, the reference to profits includes any qualifying capital amount. (8) If the rate at which a qualifying capital tax is charged on a qualifying capital amount of a payee exceeds the rate at which tax would be charged on an amount of income of the payee, the excess is to be ignored. (9) For the purposes of subsections (6) to (8) a “qualifying capital amount” means an amount of a capital nature on which a qualifying capital tax is charged. (10) A qualifying capital tax is not regarded for this purpose as charged on an amount so far as— (a) the amount is excluded, reduced or offset for the purposes of the tax by any exemption, exclusion, relief or credit that— (i) applies specifically to all or part of the amount (as opposed to amounts of a capital nature generally), or (ii) arises as a result of, or otherwise in connection with, a payment or quasi-payment that gives rise to the amount, or (b) the tax is, or falls to be, refunded (and section 259BC(6) and (7) apply for the purposes of this paragraph with the necessary modifications). (11) For the purposes of subsections (6) to (10) a “qualifying capital tax” means— (a) capital gains tax or the charge to corporation tax in respect of chargeable gains, or (b) any tax chargeable under the law of a territory outside the United Kingdom that corresponds to a United Kingdom tax mentioned in paragraph (a), but does not include any tax chargeable at a nil rate.

Hybrid payee deduction/non-inclusion mismatches

11

In section 259GB (hybrid payee deduction/non-inclusion mismatches and their extent), after subsection (4) insert—

(4A) In applying subsection (4)(b) in a case where the payee is a partnership, it is to be assumed that no amount of ordinary income arises to the payee, by reason of the payment or quasi-payment, if— (a) a partner in the partnership is entitled to the amount, and (b) having regard only to— (i) the law of the territory where the partnership is established, and (ii) the law of the territory where the partner is resident for tax purposes or, if the partner is not resident anywhere for tax purposes, where the partner is established, the payee would not be regarded as a hybrid entity. (4B) In subsection (4A) “partnership” has the meaning given by section 259NE(4).

Multinational payee deduction/non-inclusion mismatches

12

In section 259HB (multinational payee deduction/non-inclusion mismatches and their extent), after subsection (2) insert—

(2A) The excess is to be taken (so far as would not otherwise be the case) to arise for the purposes of subsection (1)(b) by reason of a payee being a multinational company so far as it would not arise if it is assumed— (a) that the company is not regarded, under the law of the parent jurisdiction, the PE jurisdiction or any other territory, as carrying on a business in the PE jurisdiction through a permanent establishment in that jurisdiction, and (b) that, for tax purposes under the law of the parent jurisdiction, all amounts of ordinary income arising, by reason of the payment or quasi-payment, to the company are regarded as arising to it in that jurisdiction and nowhere else.

Hybrid entity double deduction mismatches: use of restricted deduction

13

In section 259IC(4) (counteraction where the hybrid entity is within the charge to corporation tax), for the words from “unless” to the end substitute

unless it is deducted from— (c) dual inclusion income for that period, or (d) section 259ID income for that period.

14

After section 259IC insert—

(259ID) (1) This section applies where— (a) section 259IC applies, (b) the restricted deduction exceeds the dual inclusion income of the hybrid entity (if any) for the hybrid entity deduction period, and (c) conditions A to D are met. (2) Condition A is that— (a) the investor in the hybrid entity makes a payment to the hybrid entity, and (b) no amount is deductible, under the law of the investor jurisdiction, from the income of the investor in respect of the payment. (3) Condition B is that, as a result of the payment, an amount of ordinary income arises to the hybrid entity for the hybrid entity deduction period. (4) Condition C is that the payment is made in direct consequence of a payment made to the investor by a person (“the unrelated party”) who is not related (see section 259NC) to the investor or the hybrid entity. (5) Condition D is that, as a result of the payment made by the unrelated party, an amount of ordinary income arises to the investor. (6) For the purposes of section 259IC “section 259ID income” is an amount of income of the hybrid entity equal to the lesser of— (a) the amount of the payment made by the investor to the hybrid entity, and (b) the amount of the payment made by the unrelated party to the investor.

Imported mismatches: dual inclusion income

15

In section 259K (overview of Chapter 11), after subsection (4) insert—

(4A) Section 259KD provides for relief where an amount is deducted from dual inclusion income.

16

• (1) Section 259KC (denial of the relevant deduction in relation to imported mismatch payments) is amended as follows.

• (2) After subsection (2) insert—

(2A) But any reduction under this section has effect subject to section 259KD (deductions from dual inclusion income).

• (3) In subsections (4)(a) and (7)(a), for “subsection (6)(a)” substitute “ section 259KA(6)(a) ”.

17

After section 259KC insert—

(259KD) (1) If— (a) section 259KA(6)(a) applies as a result of any of sub-paragraphs (iii) to (vii), or (b) section 259KA(6)(b) applies, a reduction under section 259KC is not to exceed the relevant net amount. (2) For the purposes of this section “the relevant net amount” means— (a) if section 259KA(6)(a)(iii), (iv), (v) or (vi) applies, the amount which, if Chapter 5, 7, 8 or 9 applied to the tax treatment of any person in respect of the mismatch payment, could not be deducted from that person's income under that Chapter (ignoring the effect of any of the carry-forward provisions), (b) if section 259KA(6)(a)(vii) applies, the amount by which the dual territory double deduction of the company mentioned in section 259KB(2) for a deduction period exceeds its dual inclusion income for that period, or (c) if section 259KA(6)(b) applies, the amount by which the excessive PE deduction of the company mentioned in section 259KB(4) for the permitted taxable period mentioned there exceeds its dual inclusion income for that period. (3) In subsection (2)(a) “the carry-forward provisions” means— (a) section 259EC(3) (hybrid payer deduction/non-inclusion mismatches), (b) section 259IB(3) to (5) (hybrid entity double deduction mismatches: investor within charge to corporation tax), and (c) section 259IC(5) to (7) (hybrid entity double deduction mismatches: hybrid entity within charge to corporation tax). (4) In subsection (2)(b) “dual inclusion income” of a company for a deduction period (that is to say, a period for which the dual territory double deduction is deducted as mentioned in section 259KB(2)(a)) means an amount that is both— (a) ordinary income of the company for that period for the purposes of a tax charged as mentioned in section 259KB(2)(a), and (b) ordinary income of the company for a permitted taxable period for the purposes of a tax charged as mentioned in section 259KB(2)(b). (5) A taxable period of the company is “permitted” for the purposes of subsection (4)(b) if— (a) the period begins before the end of 12 months after the end of the deduction period, or (b) where that period begins after that— (i) a claim has been made for the period to be a permitted period in relation to the amount of ordinary income, and (ii) it is just and reasonable for the amount of ordinary income to arise for that taxable period rather than an earlier period. (6) In subsection (2)(c) “dual inclusion income” of a company for a period means an amount that is both— (a) ordinary income of the company for that period for the purposes of a tax charged under the law of the PE jurisdiction, and (b) ordinary income of the company for a permitted taxable period for the purposes of a tax charged under the law of the parent jurisdiction. (7) A taxable period of the company is “permitted” for the purposes of paragraph (b) of subsection (6) if— (a) the period begins before the end of 12 months after the end of the period mentioned in paragraph (a) of that subsection, or (b) where the period begins after that— (i) a claim has been made for the period to be a permitted period in relation to the amount of ordinary income, and (ii) it is just and reasonable for the amount of ordinary income to arise for that taxable period rather than an earlier period.

Adjustments in light of subsequent events: accounting treatment

18

After section 259LA insert—

(259LB) (1) This section applies where— (a) a payment or quasi-payment gives rise to a debit of a company that is recognised for accounting purposes, (b) a relevant deduction of the company in respect of some or all of the debit is reduced by any provision of this Part, (c) there is a reversal of some or all of the debit by a credit of the company that is recognised for accounting purposes after the end of the payment period, and (d) the credit is brought into account for corporation tax purposes. (2) Such consequential adjustments as are just and reasonable may be made in respect of so much of the debit as gives rises to the relevant deduction and as is reversed by the credit. (3) The adjustments may be made (whether or not by an officer of Revenue and Customs) by way of an assessment, the modification of an assessment, amendment or disallowance of a claim, or otherwise. (4) The power to make adjustments by virtue of this section may be exercised despite any time limit imposed by or under any enactment.

Commencement

19

• (1) The amendments made by paragraphs 2(b), 3 to 6 and 12—

• (a) have effect, in the case of their application to Chapter 6 of Part 6A of TIOPA 2010, in relation to excessive PE deductions in relation to which the relevant PE period begins on or after 1 January 2018,

• (b) have effect, in the case of their application to Chapter 9 or 10 of that Part, in relation to accounting periods beginning on or after that date, and

• (c) have effect, in the case of their application to any other Chapter of that Part, in relation to—

• (i) payments made on or after date, or

• (ii) quasi-payments in relation to which the payment period begins on or after that date.

• (2) For the purposes of sub-paragraph (1)(a), (b) and (c)(ii), where there is a straddling period—

• (a) so much of the straddling period as falls before 1 January 2018, and so much of it as falls on or after that date, are to be treated as separate accounting periods or separate taxable periods (as the case may be), and

• (b) if it is necessary to apportion an amount for the straddling period to the two separate periods, it is to be apportioned—

• (i) on a time basis according to the respective length of the separate periods, or

• (ii) if that would produce a result that is unjust or unreasonable, on a just and reasonable basis.

• (3) A “straddling period” means an accounting period or payment period (as the case may be) beginning before 1 January 2018 and ending on or after that date.

• (4) Part 6A of TIOPA 2010 has effect, and is to be deemed always to have had effect, with the amendments set out in paragraphs 2(a), 7 to 11 and 13 to 18.

SCHEDULE 8

PART 1 — Amendments of Part 10 of TIOPA 2010

Introductory

1

Part 10 of TIOPA 2010 (corporate interest restriction) is amended as follows.

Hedging of tax-interest expense amounts or tax-interest income amounts etc

2

• (1) Section 384 (relevant derivative contract debits) is amended as follows.

• (2) In subsection (3), for paragraph (c) substitute—