Office of Public Sector Information
SCHEDULE 17 continued
15 After section 755B of the Taxes Act 1988 there shall be inserted—
(1) The Treasury may by regulations provide for the provisions of this Chapter to have effect with prescribed modifications in any case where a non-resident company—
(a) carries on general insurance business; and
(b) draws up accounts relating to that business using a method falling within subsection (2) of section 755B.
(2) Regulations under subsection (1) above may—
(a) make different provision for different cases;
(b) make provision having effect in relation to accounting periods of non-resident companies ending not more than one year before the date on which the regulations are made; and
(c) contain such supplementary, incidental, consequential and transitional provision as the Treasury may think fit.
(3) In this section—
“general insurance business” has the same meaning as in section 755B;
“non-resident company” means a company resident outside the United Kingdom;
“prescribed” means prescribed in regulations under this section.”
16 (1) Section 756 of the Taxes Act 1988 (interpretation and construction of Chapter IV) shall be amended as follows.
(2) In subsection (1), after “In this Chapter” there shall be inserted the following definition—
““company tax return” means a return required to be made under Schedule 18 to the Finance Act 1998;”.
17 (1) In Schedule 24 to the Taxes Act 1988 (assumptions for calculating chargeable profits, creditable tax and corresponding United Kingdom tax of foreign companies) paragraph 1 shall be amended as follows.
(2) Sub-paragraph (3A) (assumption for applying provisions of Schedule 24 which refer to the first accounting period for which a direction is given or which is an ADP exempt period in cases where, as respects the accounting period in question and any earlier ones, no direction has been given and it has not been established that there is an ADP exempt period) shall be amended in accordance with sub-paragraphs (3) to (5) below.
(3) In paragraph (a) (necessity to determine the chargeable profits) after “to determine” there shall be inserted “in the case of any person”.
(4) In paragraph (b) (conditions obtaining at the time in question)—
(a) for sub-paragraph (i) (no direction given) there shall be substituted—
“(i) it has not been established in the case of that person that that or any earlier accounting period of the company is an accounting period in respect of which an apportionment under section 747(3) falls to be made, and”; and
(b) in sub-paragraph (ii) (not established that there is an ADP exempt period) after “it has not been established” there shall be inserted “in the case of that person”.
(5) For the words following paragraph (b) (assumption for purpose of the provisions in question that the accounting period is the first for which a direction is given or which is an ADP exempt period) there shall be substituted— “in determining the chargeable profits of the company for the accounting period mentioned in paragraph (a) above, it shall be assumed, for the purposes of those provisions of paragraphs 2 and 10 below which refer to the first accounting period in respect of which an apportionment under section 747(3) falls to be made or which is an ADP exempt period, that that period (but not any earlier period) is an accounting period in respect of which such an apportionment falls to be made or which is an ADP exempt period.”
(6) Sub-paragraph (4) (assumption for applying provisions of Schedule 24 which refer to the first accounting period for which a direction is given in cases where, as respects the accounting period in question and any earlier ones, no direction has been given) shall be amended in accordance with sub-paragraphs (7) to (9) below.
(7) In paragraph (a) (necessity to determine chargeable profits) after “to determine” there shall be inserted “in the case of any person”.
(8) For paragraph (b) (no direction given) there shall be substituted—
“(b) at that time it has not been established in the case of that person that that or any earlier accounting period of the company is an accounting period in respect of which an apportionment under section 747(3) falls to be made,”.
(9) For the words following paragraph (b) (assumption for the purpose of the provisions in question that the accounting period is the first for which a direction is given) there shall be substituted— “in determining the chargeable profits of the company for the accounting period mentioned in paragraph (a) above, it shall be assumed, for the purposes of those provisions of paragraph 9 below which refer to the first accounting period in respect of which an apportionment under section 747(3) falls to be made, that such an apportionment falls to be made in respect of that period (but not in respect of any earlier period).”
18 In paragraph 2(1) of Schedule 24 to the Taxes Act 1988 (foreign company assumed to become resident in UK at beginning of first accounting period in respect of which a direction is given or which is an ADP exempt period)—
(a) in paragraph (a), for “a direction is given under section 747(1)” there shall be substituted “an apportionment under section 747(3) falls to be made”; and
(b) in the words following paragraph (b), for “a direction is given” there shall be substituted “an apportionment falls to be made”.
19 (1) Paragraph 4 of Schedule 24 to the Taxes Act 1988 (assumption that claims or elections giving maximum relief have been made, subject to notice to the contrary) shall be amended as follows.
(2) In sub-paragraph (1A)(a) (sub-paragraph (2) to apply to accounting period of foreign company in respect of which a direction is given) for “a direction is given under section 747(1)” there shall be substituted “an apportionment under section 747(3) falls to be made”.
(3) In sub-paragraph (2) (notice to be given to the Board at any time not later than the expiry of the appropriate period etc)—
(a) for “given to the Board” there shall be substituted “given to an officer of the Board”; and
(b) for “the appropriate period” there shall be substituted “the period of twenty months following the end of the accounting period”.
(4) In consequence of sub-paragraph (3)(b) above, sub-paragraph (2A) shall cease to have effect.
(5) In sub-paragraph (3) (majority interest in foreign company) in paragraph (b) for “an assessment” there shall be substituted “any liability”.
(6) In sub-paragraph (3A) (application of sub-paragraph (3) to ADP exempt periods)—
(a) in paragraph (a), for “a direction had been duly given under section 747(1)” there shall be substituted “an apportionment under section 747(3) had fallen to be made”;
(b) for paragraph (b) there shall be substituted—
“(b) such apportionments as are mentioned in sub-paragraph (3) above had been made and such liabilities as are mentioned in that sub-paragraph had arisen.”
20 (1) Paragraph 9 of Schedule 24 to the Taxes Act 1988 (losses in pre-direction accounting periods) shall be amended as follows.
(2) For “pre-direction”, wherever occurring, there shall be substituted “pre-apportionment”.
(3) In sub-paragraph (1) (which provides that, subject to sub-paragraph (2), the paragraph applies where the foreign company incurs a loss in an accounting period preceding the first in respect of which a direction is given etc)—
(a) the words “Subject to sub-paragraph (2) below,” shall cease to have effect; and
(b) in paragraph (a), for “a direction is given under section 747(1)” there shall be substituted “an apportionment under section 747(3) falls to be made”.
(4) Sub-paragraph (2) (which provides that the paragraph does not apply where a declaration is made under paragraph 11(3)) shall cease to have effect.
(5) In sub-paragraph (3) (assumption that pre-direction period was first accounting period in respect of which a direction was given) for “a direction was given under section 747(1)” there shall be substituted “an apportionment under section 747(3) fell to be made”.
(6) For sub-paragraph (4) (claim to be made by notice given to Board within 60 days of notice under section 753(1) or (3) relating to starting period etc) there shall be substituted—
“(4) A claim under sub-paragraph (3) above shall be made by notice given to an officer of the Board within the period of twenty months following the end of the starting period or within such longer period as the Board may in any particular case allow.”
(7) Sub-paragraph (5) (which provides for an assumption that Chapter IV was in force before the beginning of the first of the pre-direction periods, and which is of no further practical utility) shall cease to have effect.
(8) Sub-paragraph (6) (no account to be taken of declaration under paragraph 11(3)) shall cease to have effect.
(9) At the end of the paragraph there shall be added—
“(7) Nothing in—
(a) paragraph 10 of Schedule 18 to the Finance Act 1998 (claims or elections in company tax returns), or
(b) Schedule 1A to the Management Act (claims or elections not included in returns),
shall apply, whether by virtue of section 754 or otherwise, to a claim under sub-paragraph (3) above.”
21 In paragraph 10 of Schedule 24 to the Taxes Act 1988 (capital allowances) in sub-paragraph (1) (which, subject to paragraphs 11 and 12, provides an assumption where capital expenditure is incurred in an accounting period falling before the first accounting period in respect of which a direction is given or which is an ADP exempt period)—
(a) for “Subject to paragraphs 11 and 12 below,” there shall be substituted “Subject to paragraph 12 below,”; and
(b) in paragraph (a), for “a direction is given under section 747(1)” there shall be substituted “an apportionment under section 747(3) falls to be made”.Paragraph 11 of Schedule 24
22 Paragraph 11 of Schedule 24 to the Taxes Act 1988 (power of Board by notice to declare that a specified accounting period is to be treated as the first direction period where it appears that no direction was given as respects that period as a result of capital allowances being claimed) shall cease to have effect.Paragraph 11A of Schedule 24
23 In paragraph 11A of Schedule 24 to the Taxes Act 1988 (capital allowances) sub-paragraphs (3) and (6) (which relate to the application of paragraph 11(1)(c)) shall cease to have effect.Transfer pricing
24 After paragraph 19 of Schedule 24 to the Taxes Act 1988 there shall be inserted—
20 (1) Sub-paragraph (2) of paragraph 5 of Schedule 28AA (no potential UK tax advantage where both parties are within charge to income or corporation tax etc) shall be assumed not to apply in any case where, apart from that sub-paragraph (and on the assumption in paragraph 1(1) above),—
(a) paragraph 6 of that Schedule would apply; and
(b) the company would be the disadvantaged person for the purposes of that paragraph.
(2) Schedule 28AA (transfer pricing etc: provision not at arm’s length) shall be assumed not to apply in any case where, apart from this sub-paragraph,—
(a) the actual provision would (on the assumption in paragraph 1(1) above) confer a potential advantage in relation to United Kingdom taxation on the company;
(b) the other affected person would be a company resident outside the United Kingdom; and
(c) each accounting period of that company which falls wholly or partly within the accounting period in question is one as regards which—
(i) an apportionment under section 747(3) falls to be made; or
(ii) no such apportionment falls to be made by virtue of the period being an ADP exempt period.
(3) In any case where—
(a) by virtue of sub-paragraph (2) above, Schedule 28AA is assumed not to apply, and
(b) the actual provision mentioned in paragraph (a) of that sub-paragraph involves (on the assumption in paragraph 1(1) above) any such interest or other distribution out of assets as would constitute a distribution for the purposes of the Corporation Tax Acts by virtue of paragraph (da) of section 209(2),
that interest or distribution out of assets shall be assumed not to constitute such a distribution by virtue of that paragraph.”
25 For the heading to Schedule 25 to the Taxes Act 1988 (cases excluded from direction-making powers) there shall be substituted—
26 In paragraph 1 of Schedule 25 to the Taxes Act 1988 (which provides that Part I of the Schedule has effect for the purposes of section 748(1)(a)) there shall be added at the end “and the other provisions of Chapter IV of Part XVII which refer to a company pursuing an acceptable distribution policy”.Paragraph 2A of Schedule 25
27 (1) Paragraph 2A of Schedule 25 to the Taxes Act 1988 (acceptable distribution policy: modifications of paragraph 2) shall be amended as follows.
(2) In sub-paragraph (2) (dividend paid for earlier accounting period which is not an excluded period to be treated as falling within paragraph 2(1)(a)) in paragraph (a) and paragraph (b)—
(a) for “which immediately precedes” there shall be substituted “immediately preceding”; and
(b) for “is not an excluded period” there shall be substituted “which is not an excluded dividend”.
(3) In sub-paragraph (4) (position where no direction could be given under section 747(1) in respect of earlier accounting period because foreign company pursued acceptable distribution policy) for “no direction could be given in respect of the earlier period under section 747(1)” there shall be substituted “no apportionment under section 747(3) fell to be made in respect of the earlier period”.
(4) In sub-paragraph (8), before paragraph (a) (definition of “excluded period”) there shall be inserted—
“(aa) a dividend is an excluded dividend if it is paid, in whole or in part, out of the total profits from which (in accordance with section 747(6)(a)) the chargeable profits for an excluded period are derived,”.
(5) In sub-paragraph (8)(a) (which defines an excluded period as one for which a direction is given under section 747(1)) for “a direction is given under section 747(1)” there shall be substituted “an apportionment under section 747(3) falls to be made”.Paragraph 3 of Schedule 25
28 In paragraph 3(4A) of Schedule 25 to the Taxes Act 1988 (meaning of “net chargeable profits”) in paragraph (b), for “a direction were given under section 747(1)” there shall be substituted “an apportionment under section 747(3) fell to be made”.Paragraph 5 of Schedule 25
29 In paragraph 5(2)(a) of Schedule 25 to the Taxes Act 1988, for “749(3)” there shall be substituted “749(5)”.Paragraph 6 of Schedule 25
30 (1) Paragraph 6 of Schedule 25 to the Taxes Act 1988 (exemption for controlled foreign companies engaged in exempt activities) shall be amended as follows.
(2) In sub-paragraph (1)(c) (which provides that for a company to be engaged in exempt activities, any of sub-paragraphs (2) to (4) must apply) for “(4)” there shall be substituted “(4A)”.
(3) In sub-paragraph (2)(b) (which in certain cases requires less than 50 per cent. of gross trading receipts to be derived from connected or associated persons or persons who have an interest in the company at any time during the accounting period) for “an interest in the company at any time during” there shall be substituted “a 25 per cent. assessable interest in the company in the case of”.
(4) In sub-paragraph (3) (local holding companies) in paragraph (b) (controlled companies which are not themselves holding companies but which are otherwise engaged in exempt activities)—
(a) after “holding companies” there shall be inserted “or superior holding companies”; and
(b) after “exempt activities” there shall be inserted “or are, in terms of sub-paragraph (5A) below, exempt trading companies”.
(5) In sub-paragraph (4) (holding companies other than local holding companies) in paragraph (b) (controlled companies which are not holding companies but which are otherwise engaged in exempt activities)—
(a) after “holding companies (whether local or not)” there shall be inserted “or superior holding companies”; and
(b) after “exempt activities” there shall be inserted “or are, in terms of sub-paragraph (5A) below, exempt trading companies”.
(6) After sub-paragraph (4) there shall be inserted—
“(4A) This sub-paragraph applies to a company which is a superior holding company if at least 90 per cent. of its gross income during the accounting period in question—
(a) represents qualifying exempt activity income of its subsidiaries; and
(b) is derived directly from companies which it controls and which fall within sub-paragraph (4B) below.
(4B) For the purposes of paragraph (b) of sub-paragraph (4A) above, a company falls within this sub-paragraph if—
(a) throughout the accounting period mentioned in that sub-paragraph, it is not itself a superior holding company but otherwise is, in terms of this Schedule, engaged in exempt activities or is, in terms of sub-paragraph (5A) below, an exempt trading company; or
(b) it is itself a superior holding company throughout that period and at least 90 per cent of its gross income during that period—
(i) represents qualifying exempt activity income of its subsidiaries, and
(ii) is derived directly from companies which it controls and which themselves fall within this paragraph or paragraph (a) above.”
(7) After sub-paragraph (4B) there shall be inserted—
“(4C) For the purposes of sub-paragraph (2)(b) above, a person has a 25 per cent. assessable interest in a controlled foreign company in the case of an accounting period of the company if, on an apportionment of the chargeable profits and creditable tax (if any) of the company for that accounting period under section 747(3), at least 25 per cent. of the controlled foreign company’s chargeable profits for the accounting period would be apportioned to that person.”
(8) In sub-paragraph (5) (extended meaning of references in sub-paragraph (3) or (4) to companies which a holding company controls)—
(a) for “sub-paragraph (3) or (4)” there shall be substituted “sub-paragraphs (3) to (4B)”; and
(b) after “holding company”, in each place where it occurs, there shall be inserted “or superior holding company”.
(9) After sub-paragraph (5) there shall be inserted—
“(5A) For the purposes of sub-paragraphs (3) to (4B) above, a company is an exempt trading company throughout any period if—
(a) it is a trading company throughout each of its accounting periods which falls wholly or partly within that period; and
(b) each of those accounting periods is one as regards which—
(i) the condition in section 747(1)(c) is not satisfied; or
(ii) the conditions in section 748(1)(e) are satisfied; or
(iii) the conditions in section 748(3)(a) and (b) are satisfied.”
31 (1) Paragraph 8 of Schedule 25 to the Taxes Act 1988 (which relates to the condition in paragraph 6(1)(b) of that Schedule) shall be amended as follows.
(2) In sub-paragraph (3) (which applies sub-paragraph (2) with modifications in relation to a holding company) after “In the case of a holding company” there shall be inserted “or superior holding company”.
32 (1) Paragraph 12 of Schedule 25 to the Taxes Act 1988 (meaning of “holding company” in paragraphs 6 and 8(3)) shall be amended as follows.
(2) In sub-paragraph (1), after “in paragraphs 6 and 8(3) above and” there shall be inserted “paragraph 12A below and in”.
(3) In sub-paragraph (5) (exclusion of income derived from certain sources) in paragraph (a)—
(a) after “which is not a holding company” there shall be inserted “or superior holding company”; and
(b) after “engaged in exempt activities” there shall be inserted “or, in terms of sub-paragraph (5A) of that paragraph, is an exempt trading company”.
33 After paragraph 12 of Schedule 25 to the Taxes Act 1988 there shall be inserted—
“12A (1) In paragraphs 6, 8(3) and 12(5) above and this paragraph, “superior holding company” means—
(a) a company whose business consists wholly or mainly in the holding of shares or securities of companies which—
(i) are holding companies or local holding companies; or
(ii) are themselves superior holding companies; or
(b) a company which would fall within paragraph (a) above if there were disregarded so much of its business as consists in the holding of property or rights of any description for use wholly or mainly by companies which it controls and which are resident in the territory in which it is resident.
(2) For the purposes of sub-paragraphs (4A) and (4B) of paragraph 6 above, the income of a company during any period which “represents qualifying exempt activity income of its subsidiaries” is any income of the company during that period which is directly or indirectly derived from companies—
(a) which it controls, and
(b) which, throughout that period, fall within sub-paragraph (4B)(a) of that paragraph, but
(c) which are not holding companies other than local holding companies.
(3) In determining for the purposes of sub-paragraph (4A) or (4B) of paragraph 6 above the companies from which, and the proportions in which, different descriptions of income of a company are derived (whether directly or indirectly), any dividend shall be taken to be paid out of the appropriate profits.
(4) Subsections (3) and (4) of section 799 (which provide rules for determining the profits out of which a dividend is to be regarded as paid for the purpose of subsection (1) of that section) shall apply for determining the appropriate profits for the purposes of subsection (3) above as they apply for determining the relevant profits for the purposes of subsection (1) of that section.
(5) Sub-paragraphs (4) to (6) of paragraph 12 above shall apply in relation to sub-paragraph (4A) or (4B) of paragraph 6 above and a superior holding company as they apply in relation to sub-paragraph (3) or (4) of paragraph 6 above and a holding company, but taking the reference in sub-paragraph (4) of paragraph 12 above to paragraph (a) or (b) of sub-paragraph (1) of that paragraph as a reference to paragraph (a) or (b) of sub-paragraph (1) above.”
34 (1) In Schedule 26 to the Taxes Act 1988 (reliefs against liability for tax in respect of chargeable profits apportioned to UK resident company) paragraph 1 (trading losses and group relief etc) shall be amended as follows.
(2) In sub-paragraph (1) (set-off against liability to tax under section 747(4)(a) where UK resident company entitled to deduction in respect of relevant allowance) the following provisions shall cease to have effect—
(a) paragraph (c) (set-off only available if company has no profits or relevant allowance exceeds profits) and the word “and” immediately preceding that paragraph; and
(b) in the words following paragraph (c), the words “or, as the case may be, of the excess of it referred to in paragraph (c) above”.
(3) In sub-paragraph (2)(a) (which defines the appropriate accounting period as that for which by virtue of section 754(2) the company is regarded as assessed to corporation tax in respect of the chargeable profits concerned) for “regarded as assessed to corporation tax” there shall be substituted “chargeable to tax by virtue of this Chapter”.
(4) Sub-paragraph (4) (time limit for making claims for group relief) shall cease to have effect.
(5) Sub-paragraph (6) (which modifies section 43 of the [1970 c. 9.] Taxes Management Act 1970 in its application for the purposes of the paragraph) shall cease to have effect.
35 (1) Paragraph 3 of Schedule 26 to the Taxes Act 1988 (gains on disposal of shares in controlled foreign companies) shall be amended as follows.
(2) In sub-paragraph (1), for paragraph (a) (which refers to a direction having been given in respect of an accounting period of a controlled foreign company) there shall be substituted—
“(a) an accounting period of a controlled foreign company (“the apportionment period”) is one in respect of which an apportionment under section 747(3) falls to be made; and”.
(3) Accordingly, in paragraphs (b) and (c) of sub-paragraph (1), for the words “the direction period”, in each place where they occur, there shall be substituted “the apportionment period”.
(4) In paragraph (d) of sub-paragraph (1) (which refers to a sum being, under section 747(1)(a), assessed and recoverable from a company) for “assessed on and recoverable from” there shall be substituted “chargeable on”.
(5) In sub-paragraph (3), for “the direction period” there shall be substituted “the apportionment period”.
(6) In sub-paragraph (4), in the words following paragraph (c), for “assessed and recoverable” there shall be substituted “chargeable under section 747(4)(a)”.
(7) After subsection (6) there shall be inserted—
“(6A) Nothing in—
(a) paragraph 10 of Schedule 18 to the Finance Act 1998 (claims or elections in company tax returns), or
(b) Schedule 1A to the Management Act (claims or elections not included in returns),
shall apply, whether by virtue of section 754 or otherwise, to a claim under sub-paragraph (6) above.”
36 (1) Paragraph 4 of Schedule 26 to the Taxes Act 1988 (dividends from the controlled foreign company) shall be amended as follows.
(2) In sub-paragraph (1), for paragraph (a) (which refers to a direction having been given in respect of an accounting period of a controlled foreign company) there shall be substituted—
“(a) an accounting period of a controlled foreign company is one in respect of which an apportionment under subsection (3) of section 747 falls to be made; and”.
(3) Accordingly, in paragraph (b) of that sub-paragraph for “subsection (3) of that section” there shall be substituted “that subsection”.
(4) In sub-paragraph (2) (which refers to sums assessed on and recoverable from companies in accordance with s.747(4)(a)) for “assessed on and recoverable from” there shall be substituted “chargeable on”.
(5) In sub-paragraph (5)(a) (which refers to the amount of tax assessed on and recoverable from the company in accordance with s.747(4)(a)) for “assessed on and recoverable from” there shall be substituted “chargeable on”.
37 (1) The preceding provisions of this Schedule have effect as respects accounting periods of companies resident in the United Kingdom which end on or after the corporation tax self-assessment appointed day.
(2) Where by virtue of sub-paragraph (1) above any question as to liability (if any) to tax by virtue of Chapter IV of Part XVII of the Taxes Act 1988 as respects any particular accounting period of a non-resident company which ends before the corporation tax self-assessment appointed day falls to be determined—
(a) in the case of at least one company resident in the United Kingdom, for an accounting period of its which ends on or after that day, and
(b) in the case of at least one other such company, for an accounting period of its which ends before that day,
such separate determinations and computations shall be made as are necessary for determining the liability of the companies which fall within paragraph (a) above and the liability of the companies which fall within paragraph (b) above.
(3) For the purposes of sub-paragraph (2) above—
(a) any question as to the liability (if any) of a company falling within paragraph (a) shall be determined as if, in the case of every company resident in the United Kingdom, the accounting period of the non-resident company ended in an accounting period of the company ending on or after the corporation tax self-assessment appointed day; and
(b) any question as to the liability (if any) of a company falling within paragraph (b) shall be determined as if, in the case of every company resident in the United Kingdom, the accounting period of the non-resident company ended in an accounting period of the company ending before the corporation tax self-assessment appointed day.
(4) In this paragraph—
“accounting period”, in relation to a non-resident company, has the same meaning as it has in Chapter IV of Part XVII of the Taxes Act 1988;
“the corporation tax self-assessment appointed day” means the day which is the appointed day for the purposes of section 199 of the [1994 c. 9.] Finance Act 1994 (corporation tax self-assessment);
“non-resident company” means a company resident outside the United Kingdom.
Finance Act 1998 (C. 36)