Legalize / United Kingdom / Public General Act

Income and Corporation Taxes Act 1988

Type Public General Act

Publication 1988-02-09

Last updated 2022-07-14

State In force

Department Statute Law Database

Source legislation.gov.uk

articles Not indexed

Reform history JSON API

(b) is received by a person other than the dividend manufacturer, and would have been so referable by virtue of section 432A if it had it been received by the dividend manufacturer.

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

(2A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

(3A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(3B) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4) Where a manufactured overseas dividend is paid after deduction of the amount required by section 922(2) of ITA 2007 (amount of income tax to be deducted at source), or where the amount of tax required under section 923 of that Act (income tax to be accounted for and paid) in respect of such a dividend has been accounted for and paid, then for all purposes of the Corporation Tax Acts. . . —

(a) the manufactured overseas dividend shall be treated in relation to the recipient, and all companies claiming title through or under the recipient, as if it were an overseas dividend of an amount equal to the gross amount of the manufactured overseas dividend, but paid after the withholding therefrom, on account of overseas tax, of the relevant amount in relation to the amount deducted under section 922(2) of ITA 2007 or the whole of the amountaccounted for and paid under section 923 of that Act; and

(b) the relevant amount in relation to the amount so deducted or the whole of the amountso accounted for and paid shall accordingly be treated in relation to the recipient, and all companies claiming title through or under the recipient, as an amount so withheld instead of as an amount on account of income tax.

For the meaning of references in this paragraph to the relevant amount in relation to an amount deducted under section 922(2) of ITA 2007, see paragraph 4A.

(4A) In its application in relation to a manufactured overseas dividend by virtue of sub-paragraph (4), Part 9A of CTA 2009 (company distributions) has effect—

(a) as if the manufactured overseas dividend were an overseas dividend on the overseas securities in question, and

(b) subject to the following modification.

(4B) The modification is that—

(a) the definition of “the payer” in section 931T is to be treated as omitted, and

(b) references in that Part to the payer are to be treated as references to the company that pays the dividend of which the manufactured overseas dividend is representative.

(5) For the purposes of this paragraph—

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

(b) the gross amount of a manufactured overseas dividend is an amount equal to the gross amount of that overseas dividend of which the manufactured overseas dividend is representative, as mentioned in sub-paragraph (1) above; and

(i) so much of the overseas dividend as remains after the deduction of the overseas tax (if any) chargeable on it;

(ii) the amount of the overseas tax (if any) so deducted; and

(iii) the amount of the overseas tax credit (if any) in respect of the overseas dividend.

(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

(7AA) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(7A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(9) Without prejudice to Chapter 9 of Part 6 of CTA 2009 (manufactured interest), the references in this paragraph to all the purposes of the Corporation Tax Acts do not include the purposes of Part 5 of that Act (loan relationships).

4A

(1) A reference in paragraph 4(4)(a) or (b) to the relevant amount in relation to an amount deducted under section 922(2) of ITA 2007 is—

(a) where the deduction is made in respect of a manufactured overseas dividend that is treated as paid under paragraph 13(1) of Schedule 13 to FA 2007 (sale and repurchase of securities), to amount A, and

(b) otherwise, to the amount deducted under section 922(2) of ITA 2007.

(2) Amount A is—

(a) in a case to which sub-paragraph (3) applies, the amount deducted under section 922(2) of ITA 2007,

(b) in a case to which sub-paragraph (4) applies—

(i) the amount deducted under section 922(2) of ITA 2007, less

(ii) the excess mentioned in that sub-paragraph, and

(3) This sub-paragraph applies to a case in which—

(a) an amount is actually paid by way of manufactured overseas dividend,

(b) the amount so paid equals the relevant net amount, and

(c) it is reasonable to assume that, in deciding the repurchase price of the securities, no account was taken of the fact that the amount would be so paid.

(4) This sub-paragraph applies to a case in which—

(a) an amount is actually paid by way of manufactured overseas dividend,

(b) the amount so paid exceeds the relevant net amount, and

(c) it is reasonable to assume that, in deciding the repurchase price of the securities, no account was taken of the fact that the amount would be so paid.

(5) In this paragraph “the repurchase price” of the securities means the price at which the payer of the manufactured overseas dividend is entitled or obliged to sell the securities, or similar securities, to the recipient of the manufactured overseas dividend.

(6) In this paragraph “the securities” means the securities in respect of which the overseas dividend of which the manufactured overseas dividend is representative is paid.

(7) In this paragraph “the relevant net amount” means—

(a) the gross amount of the overseas dividend of which the manufactured overseas dividend is representative, less

(b) the amount deducted under section 922(2) of ITA 2007.

Dividends and interest passing through the market

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Unapproved manufactured payments

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Irregular manufactured payments

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(1) . . . In any case where (apart from this paragraph)—

(a) an amount paid by way of manufactured dividend would exceed the amount of the dividend of which it is representative, or

(b) the aggregate of—

(i) an amount paid by way of . . . manufactured overseas dividend, and

(ii) the tax required to be accounted for in connection with the making of that payment,

would exceed the gross amount (as determined in accordance with paragraph . . . 4 above) of the . . . overseas dividend of which it is representative . . . ,

the payment shall, to the extent of an amount equal to the excess, not be regarded for the purposes of this Schedule as made in discharge of the requirement referred to in paragraph 2(1). . . or 4(1) above, as the case may be, but shall instead to that extent be taken for all purposes of the Corporation Tax Acts to constitute a separate fee for entering into the contract or other arrangements under which it was made, notwithstanding anything in paragraph 2 above or anything in paragraph 4 other than in sub-paragraph (1A).

(1A) Sub-paragraph (1) above does not apply in the case of the amount of any . . . manufactured overseas dividend which falls in accordance with section 540 of CTA 2009 to be treated for the purposes of Part 5 of that Act as interest under a loan relationship.

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

(3) For the purpose of giving relief under any provision of the Corporation Tax Acts in a case falling within paragraph . . . 4(1) above where (apart from this paragraph) the aggregate referred to in sub-paragraph (1)(b) above would be less than the gross amount there mentioned—

(a) the gross amount of the . . . manufactured overseas dividend shall be taken to be an amount equal to the aggregate referred to in sub-paragraph (1)(b) above, . . .

(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

notwithstanding anything in paragraph . . . 4 above.

(4) In this paragraph “relief” means relief by way of—

(a) deduction in computing profits or gains; or

(b) deduction . . . against . . . total profits.

Manufactured payments under arrangements having an unallowable purpose

7A

(1) This paragraph applies in any case where—

(a) a manufactured payment falls to be made by a company in an accounting period in pursuance of any arrangements (see sub-paragraphs (9) and (10) for definitions), and

(b) the arrangements have an unallowable purpose at any time (see sub-paragraphs (3) to (5)).

But this is subject to sub-paragraph (8) below (cases where tax relief is denied apart from this paragraph).

(2) The company is not entitled, by virtue of anything in this Schedule or any provision of regulations under it, or otherwise, to any relevant tax relief (see sub-paragraph (10)), to the extent that the relief is in respect of, or referable to, the whole or any part of so much of the manufactured payment as, on a just and reasonable apportionment, is attributable to the unallowable purpose.

(3) Arrangements have an unallowable purpose at any time if at that time the purposes for which the company is a party to—

(a) the arrangements,

(b) any related transaction (see sub-paragraphs (6) and (7)), or

include a purpose (“the unallowable purpose”) which is not among the business or other commercial purposes of the company.

(4) The business and other commercial purposes of a company do not include the purposes of any part of its activities in respect of which it is not within the charge to corporation tax.

(5) Where one of the purposes for which a company is at any time a party to—

(a) any arrangements,

(b) any related transaction in the case of any arrangements, or

is a tax avoidance purpose, that purpose shall be taken to be a business or other commercial purpose of the company only where it is not the main purpose, or one of the main purposes, for which the company is party to the arrangements or transaction at that time.

(6) One or more transactions are to be regarded as related transactions, in the case of any arrangements, if it would be reasonable to assume, from either or both of—

(a) the likely effect of the transactions, and

(b) the circumstances in which the transactions are entered into or effected,

that none of the transactions would have been entered into or effected independently of the arrangements.

(7) Transactions are not prevented from being related transactions, in the case of any arrangements, just because the transactions—

(a) are not between the same parties, or

(b) are not between the parties to the arrangements.

(8) This paragraph does not apply if, as a result of any of the following provisions—

(a) section 1219(2)(b) of CTA 2009 (expenses of management of companies with investment business: unallowable purposes),

(b) section 76(4)(d) (expenses of insurance companies: unallowable purposes),

the company in question is not entitled to a relevant tax relief in respect of, or referable to, the whole or any part of the manufactured payment.

The reference to section 76 is a reference to that section as it has effect in relation to accounting periods beginning on or after 1st April 2004.

(9) Any reference in this paragraph to a manufactured payment falling to be made by a company includes a reference to a manufactured payment which is deemed by or under any provision of the Tax Acts to be made by a company (and references to a transaction, or to a company being party to a transaction, are to be construed accordingly).

(10) In this paragraph—

“arrangements” includes schemes, arrangements and understandings of any kind, whether or not legally enforceable, and shall be taken to include any related transactions;

“manufactured payment” means any of the following—any manufactured dividend;any manufactured interest;any manufactured overseas dividend;any payment which by virtue of paragraph 7(1) constitutes a fee;

“related transaction” shall be construed in accordance with sub-paragraphs (6) and (7) above;

“relevant tax relief” means any of the following—any deduction in computing profits or gains for the purposes of corporation tax;any deduction against total profits;the bringing into account of any debit for the purposes of Part 5 of CTA 2009 (loan relationships);the surrender of an amount by way of group relief;

“tax advantage” has the meaning given by section 840ZA;

“tax avoidance purpose” means any purpose that consists in securing a tax advantage (whether for the company in question or any other person);

and sub-paragraphs (3) to (7) above have effect for the purposes of this paragraph.

Dividend manufacturing regulations: general

8

(1) Dividend manufacturing regulations may make provision for—

(a) such manufactured dividends . . . or manufactured overseas dividends as may be prescribed,

(aa) such persons who receive, or become entitled to receive, manufactured dividends . . . or manufactured overseas dividends as may be prescribed, or

(b) such dividend manufacturers . . . or overseas dividend manufacturers as may be prescribed,

to be treated in prescribed circumstances otherwise than as mentioned in paragraphs 2 and 4 above for the purposes of such provisions of the Corporation Tax Acts as may be prescribed.

(1A) Dividend manufacturing regulations may provide, in relation to prescribed cases where a person makes or receives the payment of any amount representative of an overseas dividend, or is treated for any purposes of this Schedule or such regulations as a person making or receiving such a payment—

(a) for any entitlement of that person to claim relief under Part XVIII to be extinguished or reduced to such extent as may be found under the regulations; and

(b) for the adjustment, by reference to any provision having effect under the law of a territory outside the United Kingdom, of any amount falling to be taken, for any prescribed purposes of the Corporation Tax Acts . . . , to be the amount paid or payable by or to any person in respect of any sale, repurchase or other transfer of the overseas securities to which the payment relates.

(2) Dividend manufacturing regulations may make provision with respect to—

(a) the accounts and other records which are to be kept,

(b) the vouchers which are to be issued or produced,

(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

by persons by . . . whom manufactured dividends . . . are paid.

(2A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(3) Dividend manufacturing regulations may—

(a) make provision for prescribed provisions of the Management Act to apply for corporation tax purposes in relation to manufactured dividends, manufactured interest or manufactured overseas dividends with such modifications, specified in the regulations, as the Treasury think fit;

(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4) Dividend manufacturing regulations may make different provision for different cases.

4A

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11A

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Exchange gains and losses

13

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14

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15

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19

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Transfer pricing

20

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2A

(1) Paragraph 2 above shall have effect in accordance with this paragraph to determine whether a controlled foreign company . . . pursues an acceptable distribution policy in respect of a particular accounting period (“the relevant accounting period”).

(2) Subject to sub-paragraphs (4) and (4A) below, where the distribution condition is satisfied in relation to the relevant accounting period, then, in addition to any dividend which falls within paragraph 2(1)(a) above apart from this paragraph—

(a) any dividend which is paid for the accounting period (“the preceding period”) immediately preceding the relevant accounting period and which is not an excluded dividend shall be treated as falling within that paragraph, and

(b) if the distribution condition is satisfied in relation to the preceding period, any dividend which is paid for the accounting period immediately preceding the preceding period and which is not an excluded dividend shall be treated as falling within that paragraph,

and so on; and in this sub-paragraph “dividend” means a dividend not paid out of specified profits.

(3) For the purposes of this paragraph, the distribution condition is satisfied in relation to any accounting period if—

(a) a dividend or dividends are paid for the period to persons resident in the United Kingdom,

(b) the amount or, as the case may be, aggregate amount of any dividends falling within paragraph (a) above is not less than—

(i) the relevant profits for that period, or

(ii) where paragraph 2(4) or (5) above applies (with the modifications of paragraph 2 made by sub-paragraph (5) below), the appropriate portion of those profits, and

(c) any dividends falling within that paragraph are paid not later than the time by which any dividend paid for the relevant accounting period is required by paragraph 2(1)(b) above to be paid;

or if there are no relevant profits for the period.

(4) Where, by reason only of the fact that a company pursued an acceptable distribution policy in respect of any accounting period (“the earlier period”) earlier than the relevant accounting period, no apportionment under section 747(3) fell to be made in respect of the earlier period, sub-paragraph (2) above shall apply to any dividend required to be taken into account for the purpose of showing that the company pursued an acceptable distribution policy in respect of the earlier period only to the extent (if any) to which that dividend was not required to be taken into account for that purpose.

(4A) Sub-paragraph (2) does not apply where the distribution condition is satisfied in relation to the relevant accounting period, but—

(a) the relevant profits for that period do not include income within sub-paragraph (4B), and

(b) if that income were included, the distribution condition would not be satisfied in relation to that period.

(4B) The income within this sub-paragraph is—

(a) any income which accrues during the relevant accounting period to the trustees of a settlement in relation to which the company is a settlor or a beneficiary, and

(b) any income which accrues during that period to a partnership of which the company is a partner, apportioned between the company and the other partners on a just and reasonable basis.

(4C) Where there is more than one settlor or beneficiary in relation to the settlement mentioned in sub-paragraph (4B)(a), the income is to be apportioned between the company and the other settlors or beneficiaries on a just and reasonable basis.

(4D) In sub-paragraph (4B)(b) “partnership” includes an entity established under the law of a country or territory outside the United Kingdom of a similar character to a partnership; and “partner” is to be read accordingly.

(5) The modifications of paragraph 2 above referred to in sub-paragraph (3)(b) above are that—

(a) the references in sub-paragraphs (4) and (5) to the accounting period in question are to be read as references to the accounting period for which the dividend or dividends are paid,

(b) the references in those sub-paragraphs to sub-paragraph (1)(d) are to be read as references to sub-paragraph (3)(b) above, and

(c) the reference in the definition of “X” in sub-paragraph (6) to net chargeable profits is to be read as a reference to relevant profits.

(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

(8) For the purposes of this paragraph—

(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,

(a) a period is an excluded period if it is an accounting period in respect of which an apportionment under section 747(3) falls to be made, and

(b) relevant profits for any accounting period are the profits which would be the relevant profits of that period for the purposes of section 799 if a dividend were actually paid for that period.

2B

(1) This paragraph has effect for the purposes of paragraph 2(1A)(b) above.

(2) No payment of dividend by a controlled foreign company for an accounting period shall be regarded as involved in a UK tax avoidance scheme by reason only that there is no charge to tax under section 747(4)(a) if the controlled foreign company pursues an acceptable distribution policy for that accounting period.

(3) “UK tax avoidance scheme” means a scheme or arrangement the purpose, or one of the main purposes, of which is to achieve a reduction in United Kingdom tax.

(4) A scheme or arrangement achieves a reduction in United Kingdom tax if, apart from the scheme or arrangement, any company—

(a) would have been liable for any such tax or for a greater amount of any such tax; or

(b) would not have been entitled to a relief from or repayment of any such tax or would have been entitled to a smaller relief from or repayment of any such tax.

(5) In this paragraph—

“arrangement” means an arrangement of any kind, whether in writing or not;

“United Kingdom tax” means corporation tax or any tax chargeable as if it were corporation tax.

4A

(1) This paragraph has effect for the purposes of paragraph 4(1A)(b) above.

(2) No payment to a company resident in the United Kingdom which represents the whole or part of a dividend paid by a controlled foreign company for an accounting period shall be regarded as involved in a UK tax avoidance scheme by reason only that—

(a) there is no charge to tax under section 747(4)(a) if the controlled foreign company pursues an acceptable distribution policy for that accounting period, and

(b) so much of the dividend as is represented by that payment will (if paragraph 4(1) above has effect) fall to be brought into account in determining whether the controlled foreign company has done so.

(3) “UK tax avoidance scheme” means a scheme or arrangement the purpose, or one of the main purposes, of which is to achieve a reduction in United Kingdom tax.

(4) A scheme or arrangement achieves a reduction in United Kingdom tax if, apart from the scheme or arrangement, any company—

(a) would have been liable for any such tax or for a greater amount of any such tax; or

(b) would not have been entitled to a relief from or repayment of any such tax or would have been entitled to a smaller relief from or repayment of any such tax.

(5) In this paragraph—

“arrangement” means an arrangement of any kind, whether in writing or not;

“United Kingdom tax” means corporation tax or any tax chargeable as if it were corporation tax.

11A

(1) This paragraph has effect for the interpretation of paragraph 6(2B) above.

(2) “Contract of long-term insurance” means any contract falling within Part II of Schedule 1 to the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001.

(3) “Protection business” means contracts of long-term insurance where—

(a) either—

(i) the contract has no surrender value; or

(ii) the consideration consists of a single premium and the surrender value does not exceed the amount of that premium; and

(b) the contract makes no provision for its conversion or extension in a manner which would result in its ceasing to fall within paragraph (a) above;

and references to protection business include a reference to reinsurance of protection business.

(4) “Insurance group” shall be construed in accordance with section 1165(5) of the Companies Act 2006, but does not include such an insurance group if it falls within sub-paragraph (5) below.

(5) Such an insurance group falls within this sub-paragraph if . . . the parent company is a subsidiary undertaking of a parent company which is neither—

(a) the parent company of an insurance group; nor

(b) a subsidiary undertaking of the parent company of an insurance group.

(6) A controlled foreign company is, in accordance with sub-paragraphs (4) and (5) above, a “member of an insurance group” if (within the meaning of that Part as so read) it is the parent company, or a subsidiary undertaking of the parent company, of an insurance group which is by virtue of sub-paragraph (4) above an insurance group for the purposes of paragraph 6(2B) above.

(7) A company’s main business is “insuring or reinsuring large risks” if (and only if)—

(a) the company’s main business is the effecting or carrying out of contracts of insurance; and

(b) 50% or more of its gross trading receipts from that business are derived from insuring or reinsuring large risks.

“Large risks” is defined in paragraph 11B below.

(8) In this paragraph—

“contract of insurance” has the meaning given by article 3(1) of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001;

“contract of long-term insurance” has the meaning given by sub-paragraph (2) above.

11B

(1) In paragraph 11A above “large risks” means—

(a) risks falling within classes 4, 5, 6, 7, 11 and 12 of Part I of Schedule 1 to the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001;

(b) risks falling within classes 14 and 15 of that Part which relate to a business carried on by the policy holder;

(c) risks falling within classes 3, 8, 9, 10, 13 and 16 of that Part where the policy holder carries on a business in respect of which the condition specified in sub-paragraph (2) below is satisfied.

(2) The condition referred to in sub-paragraph (1)(c) above is that, in the case of that business of the policy holder, at least two of the three following criteria were exceeded in the most recent financial year beginning on or after 1st January 1999 for which the information is available—

(a) balance sheet total: 6.2 million euros;

(b) net turnover: 12.8 million euros;

(3) For the purposes of sub-paragraph (2) above as it applies where the policy holder is a company, within the meaning of section 1 of the Companies Act 2006. . . ,—

(a) “balance sheet total” has the meaning given by sections 382(5) and 465(5) of the Companies Act 2006;

(b) “net turnover” has the meaning given to “turnover” by section 474(1) of that Act; and

and for a financial year which is a company’s financial year but not in fact a year, the net turnover of the company shall be proportionately reduced.

(4) Where the policy holder is a member of a group for which consolidated accounts (within the meaning of Directive 83/349/EEC) are drawn up, the question whether the condition in sub-paragraph (2) above is met shall be determined by reference to those accounts.

(5) For the purposes of sub-paragraph (1)(c) above as it applies where the policy holder is a professional association, joint venture or temporary grouping, the question whether the condition in sub-paragraph (2) above is met shall be determined by reference to the aggregate of the figures of the description in question for all the members of the professional association, joint venture or temporary grouping.

(6) In sub-paragraphs (1) to (5) above “business” includes a trade or profession and, for the purposes of sub-paragraph (1)(c) above, any activity of a professional association, joint venture or temporary grouping.

(7) For the purposes of this paragraph, where an amount is denominated in any accounts in a currency other than the euro, it shall be converted into its equivalent in euros using the London closing exchange rate for that currency and the euro for the last day of the period to which the accounts relate.

(8) In this paragraph—

“euro” means the single currency adopted or proposed to be adopted as its currency by a member State in accordance with the Treaty establishing the European Community;

“financial year”, in relation to any person, means the period (not exceeding 12 months) for which that person makes up accounts.

12A

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Part 2A — Trading Companies with Limited UK Connection

Introductory

12B

(1) For the purposes of section 748(1)(ba), a controlled foreign company (“C”) is exempt for an accounting period if the requirements of this Part of this Schedule are satisfied.

(2) The requirements are those imposed as to C's—

(a) business establishment (see paragraph 12C),

(b) business activities (see paragraph 12D),

(d) finance income and relevant IP income (see paragraph 12F).

Business establishment

12C

(1) The requirement of this paragraph is that throughout the accounting period C has a business establishment in the territory in which it is resident.

(2) For the purposes of sub-paragraph (1)—

(a) paragraph 5(2) to (5) (special rules about residence of the company) applies as it applies for the purposes of Part 2 of this Schedule, and

(b) paragraph 7 (meaning of “business establishment”) applies as it applies for the purposes of paragraph 6(1)(a).

Business activities

12D

(1) The requirement of this paragraph is that—

(a) C's business does not, at any time during the accounting period, include to a substantial extent non-exempt activities, or

(b) if C is wholly engaged in business falling within paragraph 11(1)(c) (banking etc), C's business does not, at any time during the accounting period, include to a substantial extent non-exempt activities which do not constitute investment business.

(2) For this purpose—

“non-exempt activities” means—the holding or managing of shares or securities,the holding of intellectual property,dealing in securities, other than in the capacity of a broker,the leasing of any description of property or rights,the investment in any manner of funds which would otherwise be available, directly or indirectly, for investment by or on behalf of any person (whether resident in the United Kingdom or not) who has, or is connected or associated with a person who has, control, either alone or together with other persons, of C, andif C is not a member of an insurance group throughout the accounting period, the effecting or carrying out of contracts of insurance between C and persons related to C;

“investment business” means activities within paragraphs (a) to (d) of paragraph 9(1).

(3) For the purposes of sub-paragraph (2)(f), a person is “related” to C if—

(a) the person is connected or associated with C,

(b) the person has a 25 per cent assessable interest in C in the case of the accounting period in question (within the meaning of paragraph 6(4C)), or

(c) if C is a controlled foreign company in that accounting period by virtue of subsection (1A) of section 747, the person is connected or associated with either or both of the two persons mentioned in that subsection.

(4) In sub-paragraph (2)—

“broker” includes any person offering to sell securities to, or purchase securities from, members of the public generally;

“contract of insurance” has the meaning given by Article 3(1) of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001;

“insurance group” has the meaning given by paragraph 11A(4);

“intellectual property” is to be construed in accordance with paragraph 9(1A);

“member of an insurance group” has the meaning given by paragraph 11A(6).

UK connection

12E

(1) The requirement of this paragraph is that C does not have a significant connection with the United Kingdom during the accounting period.

(2) C has a significant connection with the United Kingdom during the accounting period if Condition A or B is met.

(3) Condition A is that—

(a) the UK-connected gross income of C's business for that period exceeds 10% of the gross income of that business for that period, and

(b) sub-paragraph (4) does not apply.

(4) This sub-paragraph applies if—

(a) at all times in the accounting period there are sufficient individuals working for C in the territory in which it is resident, or in any other territory outside of the United Kingdom, who have the competence and authority to undertake all, or substantially all, of C's business,

(b) C's relevant profits for the accounting period do not exceed 10% of C's relevant operating expenses for that period, and

(c) the UK-connected gross income of C's business for that period does not exceed 50% of the gross income of that business for that period.

(5) Condition B is that—

(a) the UK-connected related-party business expenditure of C's business for that period exceeds 50% of the total related-party business expenditure of C's business for that period, and

(b) during the accounting period C has been involved in a scheme where the main purpose, or one of the main purposes, of any party to the scheme in entering into the scheme is to achieve a reduction in corporation tax or any tax chargeable as if it were corporation tax.

(6) For the purposes of sub-paragraph (4)(a), individuals are not to be regarded as working for C in any territory unless—

(a) they are employed by C in the territory, or

(b) they are otherwise directed by C to perform duties on its behalf in the territory.

(7) In this paragraph—

“related-party business expenditure” means any expenditure, other than capital expenditure, which gives rise, directly or indirectly, to income of a person related to C;

“relevant profits”, for an accounting period, means the total profits of C for that period calculated in accordance with generally accepted accounting practice (disregarding any capital gains or losses), but before any deduction for interest or tax;

“relevant operating expenses” of C means operating expenses of C other than—the cost of goods sold, andrelated-party business expenditure;

“scheme” means any scheme, arrangements or understanding of any kind whatever, whether or not legally enforceable, involving one or more transactions;

“UK-connected gross income” means the gross income derived, directly or indirectly, from persons who are within the charge to United Kingdom tax for all or part of the accounting period;

“UK-connected related-party business expenditure” means related-party business expenditure which gives rise, directly or indirectly, to income of a person within the charge to United Kingdom tax in respect of that income;

“United Kingdom tax” means income tax or corporation tax;

and paragraph 12D(3) (persons “related” to C) applies for the purposes of this paragraph as it applies for the purposes of paragraph 12D(2)(f).

(8) In the case of a company which is within the charge to United Kingdom tax only because it carries on a trade in the United Kingdom through a permanent establishment there, for the purposes of sub-paragraph (7)—

(a) the gross income derived from that company is so much of the gross income as is attributable to that establishment, and

(b) the income received by that company is such of its income as is attributable to that establishment.

Finance income and relevant IP income

12F

(1) The requirement of this paragraph is that not more than 5% of C's gross income for the accounting period falls within sub-paragraph (2).

(2) Gross income falls within this sub-paragraph to the extent that it is—

(a) finance income, or

(b) relevant IP income.

(3) “Finance income” means—

(a) any amount which in accordance with UK generally accepted accounting practice falls to be recognised as arising from a financial asset, and

(b) any return, in relation to an amount, which—

(i) is produced for C by an arrangement to which C is party, and

(ii) is economically equivalent to interest,

except to the extent that the return is taken into account in determining an amount within paragraph (a).

(4) “Relevant IP income” means royalties and receipts of a similar nature arising from intellectual property.

(5) For the purposes of sub-paragraph (3)(b), the amount of a return is the amount which by virtue of the return would, in calculating C's chargeable profits, be treated under section 486B of CTA 2009 (disguised interest to be regarded as profit from loan relationship) as a profit arising to C from a loan relationship.

(6) But, in calculating that profit for the purposes of sub-paragraph (5), sections 486B(7) and 486C to 486E of CTA 2009 are to be ignored.

(7) In this paragraph—

“economically equivalent to interest” is to be construed in accordance with section 486B(2) and (3) of CTA 2009;

“financial asset” means a financial asset as defined for the purposes of UK generally accepted accounting practice or international accounting standards;

“intellectual property” is to be construed in accordance with paragraph 9(1A).

Gross income

12G

(1) References in this Part of this Schedule to C's gross income are to be construed in accordance with this paragraph.

(2) C's gross income for an accounting period does not include—

(a) any distribution that would not be included in C's chargeable profits by reason of it being exempt for the purposes of Part 9A of CTA 2009 (see section 931A of that Act), or

(b) any amount that would be taken into account in computing chargeable gains if C were within the charge to corporation tax.

(3) C's gross income for an accounting period includes—

(a) any income which accrues during that period to the trustees of a settlement in relation to which C is a settlor or a beneficiary, and

(b) any income which accrues during that period to a partnership of which C is a partner, apportioned between C and the other partners on a just and reasonable basis.

(4) Where there is more than one settlor or beneficiary in relation to the settlement mentioned in sub-paragraph (3)(a), the income is to be apportioned between C and the other settlors or beneficiaries on a just and reasonable basis.

(5) In this paragraph—

“distribution” has the same meaning as in the Corporation Tax Acts (see Part 23 of CTA 2010);

“partnership” includes an entity established under the law of a country or territory outside the United Kingdom of a similar character to a partnership; and “partner” is to be read accordingly.

Part 2B — Companies Exploiting Intellectual Property with Limited UK Connection

Introductory

12H

(1) For the purposes of section 748(1)(bb), a company (“C”) is exempt for an accounting period if the requirements of this Part of this Schedule are satisfied.

(2) The requirements are those imposed as to C's—

(a) business establishment (see paragraph 12I),

(b) intellectual property business (see paragraph 12J),

(d) UK connection (see paragraph 12L), and

(e) finance income (see paragraph 12M).

Business establishment

12I

(1) The requirement of this paragraph is that throughout the accounting period C has a business establishment in the territory in which it is resident.

(2) For the purposes of sub-paragraph (1)—

(a) paragraph 5(2) to (5) (special rules about residence of the company) applies as it applies for the purposes of Part 2 of this Schedule, and

(b) paragraph 7 (meaning of “business establishment”) applies as it applies for the purposes of paragraph 6(1)(a).

Intellectual property business

12J

(1) The requirement of this paragraph is that C's main business, throughout the accounting period, consists of the exploitation of intellectual property which does not have a relevant UK connection.

(2) For the purposes of sub-paragraph (1), if any part of C's main business consists of the exploitation of intellectual property which has a relevant UK connection, that part is to be ignored if it is an insignificant part of C's main business.

(3) Intellectual property has a relevant UK connection if—

(a) at any time during the accounting period or the 6 years immediately preceding that period, it has been held by a person resident in the United Kingdom, or

(b) activities relating to the creation, maintenance or enhancement of the intellectual property (other than activities of an incidental or insignificant nature) have been carried on by a person who for some or all of the period—

(i) beginning when the activities were first carried on by the person, and

(ii) ending at the end of the accounting period,

was related to C and within the charge to United Kingdom tax.

Other business activities

12K

(1) The requirement of this paragraph is that—

(a) C does not, at any time during the accounting period, carry on any activities otherwise than in the course of its main business, or

(b) if it carries on any such activities (“secondary activities”), the secondary activities condition is met.

(2) The secondary activities condition is that either—

(a) the secondary activities do not, at any time during the accounting period, constitute a substantial part of the activities of C's business taken as a whole, or

(b) section 748(1)(b) or (ba) would apply to prevent an apportionment under section 747(3) falling to be made as regards that period, if C's business consisted only of the secondary activities carried on by it during the accounting period.

UK connection

12L

(1) The requirement of this paragraph is that C does not have a significant connection with the United Kingdom during the accounting period.

(2) C has a significant connection with the United Kingdom during the accounting period if—

(a) all or a substantial proportion of C's gross income for that period consists of income from the exploitation of intellectual property which derives from persons within the charge to United Kingdom tax, or

(b) during that period C incurs expenditure (other than expenditure of an incidental or insignificant nature) on—

(i) R&D sub-contractor payments, or

(ii) the creation, development or maintenance of relevant intellectual property,

and that expenditure forms part of the income of a person who for some or all of that period is related to C and within the charge to United Kingdom tax.

(3) In this paragraph—

“R&D sub-contractor payment” means a payment made by C to another person in respect of research and development contracted out by C to that person;

“relevant intellectual property” means intellectual property which does not have a relevant UK connection (see paragraph 12J(3)) and which C exploits in the course of its main business.

Finance income

12M

The requirement of this paragraph is that not more than 5% of C's gross income for the accounting period consists of finance income (within the meaning of paragraph 12F(3)).

Interpretation of Part 2B

12N

(1) For the purpose of this Part of this Schedule—

“intellectual property” is to be construed in accordance with paragraph 9(1A);

“United Kingdom tax” means corporation tax or income tax;

and paragraph 12G (meaning of “gross income”) applies as it applies for the purposes of Part 2A of this Schedule.

(2) For the purposes of this Part of this Schedule a person is “related” to C at a particular time if at that time—

(a) the person is connected or associated with C,

(b) the person has a 25 per cent assessable interest in C in the case of the accounting period of C in which that time falls (within the meaning of paragraph 6(4C)), or

(c) if C is a controlled foreign company in the accounting period in which that time falls by virtue of subsection (1A) of section 747, the person is connected or associated with either or both of the two persons mentioned in that subsection.

(3) In the case of a company which is within the charge to United Kingdom tax only because it carries on a trade in the United Kingdom through a permanent establishment there—

(a) for the purposes of paragraph 12J(3)(b), the activities carried on by the company are such of the activities as are carried on through that establishment,

(b) for the purposes of paragraph 12L(2)(a), the income derived from that company is such of the income so derived as is attributable to that establishment, and

(c) for the purposes of paragraph 12L(2)(b), the income of that company is such of its income as is attributable to that establishment.

Part 3A — Exempt Periods

Introductory

15A

The provisions of this Part of this Schedule have effect for the purposes of section 748(1)(f).

Beginning of exempt period

15B

(1) An exempt period begins in relation to a company (“X”) at a time (“the relevant time”) when—

(a) X is resident outside the United Kingdom,

(b) X is controlled by persons resident in the United Kingdom,

(d) the requirements of paragraph 15C or 15D are met.

(2) There is a “relevant UK corporate investor in X” at a particular time if, at that time, there is a company which—

(a) is resident in the United Kingdom, and

(b) would, on the assumptions set out in sub-paragraph (3), be a company to which an apportionment of X's chargeable profits for the relevant accounting period would fall to be made in circumstances where section 747(5) would not prevent tax being chargeable on the company under section 747(4).

(3) The assumptions are—

(a) X has chargeable profits for the relevant accounting period,

(b) an apportionment of those profits falls to be made under section 747(3) for that period, and

(4) “The relevant accounting period” means the accounting period of X in which the time mentioned in sub-paragraph (2) falls.

15C

(1) The requirements of this paragraph are that—

(a) no company was, at any time before the relevant time, a relevant UK corporate investor in X,

(b) no asset owned by X, or part of the business carried on by X, at the relevant time was previously owned, or carried on, by a company which—

(i) was under the control of persons resident in the United Kingdom at any time it owned the asset or carried on the part of the business, and

(ii) is or has been related to X,

(d) no disqualifying relevant transaction occurs (see paragraph 15E).

(2) Condition A is that, immediately before the relevant time, X—

(a) was in existence, but

(b) was not a member of the same group of companies as any person who, at the relevant time, was a controlling UK person.

(3) Condition B is that—

(a) at the relevant time X is controlled by a company which is resident in the United Kingdom, and

(b) immediately before that time, X was controlled by that same company but that company was not then resident in the United Kingdom.

(4) Condition C is that—

(a) at the relevant time—

(i) X is controlled by a company which is resident in the United Kingdom (“the intermediate parent”), and

(ii) the intermediate parent is controlled by a company which is not resident in the United Kingdom (“the parent”), and

(b) immediately before that time X was controlled by the parent but not the intermediate parent.

(5) Condition D is that X—

(a) is a controlled foreign company at the time it is formed, and

(b) is formed by one or more persons for the purpose of controlling one or more companies in circumstances where it is expected that an exempt period will begin in relation to one or more of those companies at the time when X begins to control the company or companies.

(6) In this paragraph “controlling UK person” means a person resident in the United Kingdom who alone, or together with other such persons, controls X.

15D

(1) The requirements of this paragraph are that—

(a) the relevant time falls after 23 March 2011,

(b) X has an accounting period during which 23 March 2011 falls,

(d) no company was, immediately before the relevant time, a relevant UK corporate investor in X,

(e) at the relevant time X is controlled by a company which—

(i) is resident in the United Kingdom, and

(ii) is not under the control of another body corporate, or two or more other bodies corporate taken together, and

(f) no disqualifying relevant transaction occurs (see paragraph 15E).

(2) In determining for the purposes of sub-paragraph (1)(e)(ii) whether a company is under the control of two or more bodies corporate taken together, a body corporate which holds less than 10% of the issued ordinary shares of that company is to be disregarded.

(3) For the purposes of sub-paragraph (2), a body corporate is treated as holding any shares held by persons who are connected or associated with the body corporate.

Disqualifying relevant transactions

15E

(1) This paragraph applies for the purposes of paragraph 15C and 15D.

(2) A disqualifying relevant transaction occurs if—

(a) a relevant transaction occurs at the relevant time (whether or not the transaction occurs pursuant to an agreement entered into by X before that time), or

(b) a relevant transaction occurs on or after 9 December 2010 but before the relevant time and that transaction forms part of an avoidance scheme.

(3) “Relevant transaction” means—

(a) the making by X of a loan or advance of an amount (other than a negligible amount) to a person who, at the time it is made, is related to X and subject to United Kingdom tax,

(b) an increase (other than an increase of a negligible amount) in the amount of an existing loan or advance made by X to a person who, at the time of the increase, is related to X and subject to United Kingdom tax,

(i) the loan or advance is to a person who, at the time the change is made, is related to X and subject to United Kingdom tax, and

(ii) the change has an effect (other than a negligible effect) on the amount of interest payable, or

(d) a transaction to which sub-paragraph (4) applies.

(4) This sub-paragraph applies to a transaction if—

(a) it is referable to an activity carried on by X as part, or the whole, of any non-exempt activities carried on by X,

(b) the results of the transaction are reflected in the profits arising in an accounting period of X and are not negligible in value, and

(c) the results of the transaction alone, or together with the results of one or more other transactions, achieves a reduction in United Kingdom tax.

(5) A transaction achieves, or two or more transactions together achieve, a reduction in United Kingdom tax if, had the transaction or transactions not been effected, any person—

(a) would have been liable for any such tax or for a greater amount of any such tax, or

(b) would not have been entitled to a relief from or repayment of any such tax or would have been entitled to a smaller relief from or repayment of any such tax.

(6) In this paragraph—

“avoidance scheme” means a scheme the main purpose, or one of the main purposes, of any party to which in entering into the scheme is to secure that section 748(1)(f) prevents an apportionment falling to be made under section 747(3) as regards an accounting period, or accounting periods, of X;

“non-exempt activities” has the meaning given by paragraph 12D(2);

“scheme” means any scheme, arrangements or understanding of any kind whatever, whether or not legally enforceable, involving one or more transactions;

“United Kingdom tax” means corporation tax (or any tax chargeable as if it were corporation tax) or income tax.

Ending of exempt period

15F

(1) An exempt period ends on the expiry of the period of 24 months which begins immediately after the first accounting period of X to end after the relevant time, unless sub-paragraph (2) applies.

(2) If an early termination event occurs after the relevant time but before the time the exempt period would end under sub-paragraph (1), the exempt period ends immediately before that event.

(3) An early termination event occurs if and when—

(a) a relevant transaction occurs, whether or not the transaction occurs pursuant to an agreement entered into by X before that time, or

(b) where the exempt period began because Condition D was met, X's business does not consist wholly in the holding of shares of companies which X controls, together with activities incidental to the holding of such shares.

Interpretation of Part 3A

15G

(1) In this Part of this Schedule—

“group” means a company and any other companies it controls;

“the relevant time” has the meaning given by paragraph 15B;

“relevant transaction” has the meaning given by paragraph 15E;

“relevant UK corporate investor in X” has the meaning given by paragraph 15B(2);

“X” is to be construed in accordance with paragraph 15B.

(2) For the purposes of this Part of this Schedule a person is “related” to X at a particular time if—

(a) the person is connected or associated with X at that time,

(b) the person has a 25 per cent assessable interest in X in the case of the accounting period in which that time falls (within the meaning of paragraph 6(4C)), or

(c) if X is a controlled foreign company in the accounting period in which that time falls by virtue of subsection (1A) of section 747, the person is connected or associated with either or both of the two persons mentioned in that subsection.

Application of this Schedule in relation to umbrella funds and funds comprising more than one class of interest

21

(1) The Treasury may make provision by regulations as to the application of the provisions of this Schedule in relation to—

(a) a part of an umbrella fund which is treated as an offshore fund under section 756B, or

(b) a class of interest in an offshore fund which is treated as an offshore fund under section 756C.

(2) Regulations under this paragraph may—

(a) make different provision for different cases, and

(b) include such supplementary, incidental, consequential or transitional provisions (including provisions modifying the effect of other enactments) as appear to the Treasury to be necessary or expedient.

Part 3 — Supplementary

Application of this Schedule in relation to umbrella funds and funds comprising more than one class of interest

9

(1) The Treasury may make provision by regulations as to the application of the provisions of this Schedule in relation to—

(a) a part of an umbrella fund which is treated as an offshore fund under section 756B, or

(b) a class of interest in an offshore fund which is treated as an offshore fund under section 756C.

(2) Regulations under this paragraph may—

(a) make different provision for different cases, and

(b) include such supplementary, incidental, consequential or transitional provisions (including provisions modifying the effect of other enactments) as appear to the Treasury to be necessary or expedient.

Schedule 28A

Part I — Significant increase in company capital

General

1

The provisions referred to in section 768B(2) for determining whether there is a significant increase in the amount of a company’s capital after a change in the ownership of the company are as follows.

The basic rule

2

There is a significant increase in the amount of a company’s capital if amount B—

(a) exceeds amount A by at least £1 million; or

(b) is at least twice amount A.

Amount A

3

(1) Amount A is the lower of—

(a) the amount of the company’s capital immediately before the change in the ownership; and

(b) the highest 60 day minimum amount for the pre-change year, found in accordance with sub-paragraphs (2) to (6) below.

(2) Find the daily amounts of the company’s capital over the pre-change year.

(3) Take the highest of the daily amounts.

(4) Find out whether there was in the pre-change year a period of 60 days or more in which there was no daily amount lower than the amount taken.

(5) If there was, the amount taken is the highest 60 day minimum amount for the pre-change year.

(6) If there was not, take the next highest of the daily amounts and repeat the process in sub-paragraph (4) above; and so on, until the highest 60 day minimum amount for the pre-change year is found.

(7) In this Part of this Schedule “the pre-change year” means the period of one year ending immediately before the change in the ownership of the company in question.

Amount B

4

(1) Amount B is the highest 60 day minimum amount for the post-change period (finding that amount for that period in the same way as the highest 60 day minimum amount for the pre-change year is found).

(2) In this paragraph “the post-change period” means the period of three years beginning with the change in the ownership of the company in question.

Capital and amounts of capital

5

(1) The capital of a company consists of the aggregate of—

(a) the amount of the paid up share capital of the company;

(b) the amount outstanding of any debts incurred by the company which are of a description mentioned in any of paragraphs (a) to (c) of section 417(7); and

(2) For the purposes of sub-paragraph (1) above—

(a) the amount of the paid up share capital includes any amount in the share premium account of the company (construing “share premium account” in the same way as in section 610 of the Companies Act 2006); and

(b) the amount outstanding of any debts includes any interest due on the debts.

(3) Amounts of capital shall be expressed in sterling and rounded up to the nearest pound.

Part II — Amounts in issue for purposes of section 768B

6

The amounts in issue referred to in section 768B(4)(c) are—

(a) the amount of any expenses of management referable to the accounting period (within the meaning of Chapter 2 of Part 16 of CTA 2009) being divided, except any such expenses as would (apart from section 768B) be deductible in computing profits otherwise than under section 1219 of CTA 2009 (expenses of management of a company's investment business);

(b) the amount of any charges which are paid in that accounting period wholly and exclusively for the purposes of the company’s business;

(c) the amount of any excess carried forward under section 1223 of CTA 2009 (expenses of management carried forward) to the accounting period being divided;

(d) the amount of any allowances falling to be made for that accounting period by virtue of section 253 of the Capital Allowances Act which would (apart from section 768B) be added to the expenses of management for that accounting period by virtue of section 1233 of CTA 2009 (excess capital allowances);

(da) the amount (if any) of the adjusted non-trading profits or non-trading deficit of the company for that accounting period (other than one within sub-paragraph (dc) below) ;

(db) the amount of any non-trading debit (other than one within sub-paragraph . . . (dd) below) that falls to be brought into account for that accounting period for the purposes of Part 5 of CTA 2009 (loan relationships) in respect of any debtor relationship of the company;

(dc) the amount of any non-trading deficit carried forward to that accounting period undersection 457(1) of CTA 2009 (carried forward deficit not set off against profits);

(dd) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(de) the amount of any non-trading credits or debits in respect of intangible fixed assets that fall to be brought into account for that period under section 751 of CTA 2009;

(df) the amount of any non-trading loss on intangible fixed assets carried forward to that accounting period under section 753(3) of CTA 2009;

(e) any other amounts by reference to which the profits or losses of that accounting period would (apart from section 768B) be calculated.

6A

For the purposes of paragraph 6(da) above, the amount for any accounting period of the adjusted non-trading profits or non-trading deficit of a company is the amount which, as the case may be, would be—

(a) the amount of the profits arising from the company's loan relationships chargeable under section 299 of CTA 2009 (charge to tax on non-trading profits), or

(b) the amount of the company’s non-trading deficit on those relationships for that period,

if, in computing that amount, amounts for that period falling within paragraph 6(db) or (dc) above were disregarded.

Part III — Apportionment for purposes of section 768B

7

(1) Subject to paragraph 8 below, the apportionment required by section 768B(4)(c) shall be made—

(a) in the case of the sums mentioned in paragraph 6(a) above, by apportioning to each accounting period the amounts that would fall to be brought into account in that period as such sums, if it were a period of account for which accounts were drawn up in accordance with generally accepted accounting practice;

(aa) in the case of the charges mentioned in paragraph 6(b) above, by reference to the time when the charge is due to be paid;

(b) in the case of the excess mentioned in paragraph 6(c) above, or in the case of the non-trading deficit mentioned in paragraph 6(dc) above, by apportioning the whole amount of the excess or, as the case may be, of the deficit to the first part of the accounting period being divided;

(c) in the case of the amounts mentioned in paragraph 6(d) , (da) and (e) above, by reference to the respective lengths of the parts of the accounting period being divided;

(d) in the case of any such debit as—

(i) is mentioned in paragraph 6(db) above,

(ii) falls to be brought into account for the purposes of Part 5 of CTA 2009 in accordance with an amortised cost basis of accounting, . . .

(iii) so falls to be brought into account otherwise than on the assumption, specified in section 373 of to that Act, that the interest to which it relates does not accrue until it is paid , and

(iv) so falls to be brought into account without any adjustment under sections 406 to 412 of that Act (debit relating to amount of discount referable to the relevant accounting period to be brought into account instead for the accounting period in which the security is redeemed),

by reference to the time of accrual of the amount to which the debit relates;

(e) in the case of any such debit as—

(i) is mentioned in paragraph 6(db) above,

(ii) falls to be brought into account for the purposes of Part 5 of CTA 2009 in accordance with an amortised cost basis of accounting, . . . and

(iii) so falls to be brought into account—

— on the assumption mentioned in paragraph (d)(iii) above, or

— with such an adjustment as is mentioned in paragraph (d)(iv) above,

by apportioning the whole amount of the debit to the first part of the accounting period being divided;

(f) in the case of any such debit as is mentioned in paragraph 6(dd) above, by apportioning the whole amount of the debit to the first part of the accounting period being divided.

(g) in the case of any such credit or debit as is mentioned in paragraph 6(de), by apportioning to each accounting period the credits or debits that would fall to be brought into account in that period if it were a period of account for which accounts were drawn up in accordance with generally accepted accounting practice;

(h) in the case of any such loss as is mentioned in paragraph 6(df) above, by apportioning the whole amount of the loss to the first part of the accounting period being divided.

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

8

If it appears that any method of apportionment given by paragraph 7 above would work unreasonably or unjustly for any case for which it is given, such other method shall be used for that case as appears just and reasonable.

Part IV — Excess overdue interest

Introductory

9

(1) This paragraph has effect in a case to which section 768B applies for determining the debits to be brought into account for the purposes of Part 5 of CTA 2009 (loan relationships) for—

(a) the accounting period beginning immediately after the change in the ownership of the company; and

(b) any subsequent accounting period.

(2) The debits so brought into account shall not include the debits falling within paragraph 11 below to the extent (if at all) that the aggregate of—

(a) the amount of those debits, and

(b) the amount of any debits falling within that paragraph which have been brought into account for the purposes of that Part for any previous accounting period ending after the change in the ownership,

exceeds the profits for the accounting period ending with the change in the ownership.

(3) The reference in sub-paragraph (2) above to the profits is a reference to profits after making all deductions and giving all reliefs that for the purposes of corporation tax are made or given against the profits, including deductions and reliefs which under any provision are treated as reducing them for those purposes.

The rules

10

(1) This paragraph has effect in a case to which section 768C applies for determining the debits to be brought into account for the purposes of Part 5 of CTA 2009 (loan relationships) for—

(a) the accounting period beginning immediately after the change in the ownership of the relevant company; and

(b) any subsequent accounting period.

(2) The debits so brought into account for any such accounting period shall not include the debits falling within paragraph 11 below to the extent (if at all) that the amount of those debits exceeds the modified total profits for the accounting period.

(3) The reference in sub-paragraph (2) above to the modified total profits for an accounting period is a reference to the total profits for that period—

(a) reduced, if that period is the period in which the relevant gain accrues, by an amount equal to the amount of the total profits for that period which represents the relevant gain; and

(b) after making all deductions and giving all reliefs that for the purposes of corporation tax are made or given against the profits, including deductions and reliefs which under any provision are treated as reducing them for those purposes, other than any reduction by virtue of section 461 of CTA 2009.

(4) Where by virtue of sub-paragraph (2) above a debit is to any extent not brought into account for an accounting period, that debit may (to that extent) be brought into account for the next accounting period, but this is subject to the application of sub-paragraphs (1) to (3) above to that next accounting period.

11

(1) A debit falls within this paragraph if it is a non-trading debit which—

(a) falls to be brought into account for the purposes of Part 5 of CTA 2009 in accordance with an amortised cost basis of accounting;

(b) so falls to be brought into account—

(i) with an adjustment under sections 406 to 412 of that Act (debit relating to amount of discount referable to the relevant accounting period to be brought into account instead for the accounting period in which the security is redeemed); or

(ii) on the assumption, specified in section 373(1) of that Act, that the interest to which it relates does not accrue until it is paid; and

(c) apart from sections 373 and 406 to 412 of that Act, would have fallen to be brought into account for those purposes for an accounting period ending before or with the change in the ownership of the company or, as the case may be, the relevant company.

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

(3) The debits that fall within this paragraph also include any non-trading debit which—

(a) is not such a debit as is mentioned in sub-paragraph (1) . . . above;

(b) is a debit in respect of a debtor relationship of the company or, as the case may be, the relevant company;

(c) falls to be brought into account for the purposes of Part 5 of CTA 2009 in accordance with an amortised cost basis of accounting; and

(d) relates to an amount that accrued before the change in the ownership of that company.

(4) In this paragraph “post-change accounting period” means the accounting period beginning immediately after the change in the ownership of the company or, as the case may be, the relevant company.

12

Expressions used both in this Part of this Schedule and in Part 5 of CTA 2009 have the same meanings in this Part of this Schedule as in that Chapter.

Part IV — Disallowed debits and non-trading deficits

9A

(1) This paragraph has effect in any case to which section 768B applies where the non-trading deficit mentioned in paragraph 6(dc) above is apportioned by paragraph 7(b) above to the first part of the accounting period being divided.

(2) In any such case, none of that non-trading deficit shall be carried forward to—

(a) the accounting period beginning immediately after the change in the ownership of the company, or

(b) any subsequent accounting period.

10A

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