Schedule 20 - Controlled foreign companies and foreign permanent establishments

Finance Bill – in a Public Bill Committee at 4:45 pm on 19th June 2012.

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Amendments made: 46, in schedule 20, page 428, line 15, leave out ‘section’ and insert ‘sections 371BG and’.

Amendment 47, in schedule 20, page 428, line 46, leave out ‘to 371BG’ and insert ‘and 371BF’.

Amendment 48, in schedule 20, page 430, line 2, leave out from beginning to end of line 3 on page 431 and insert—

“(1) Subsection (2) applies if conditions A to C are met in relation to a relevant interest, or a part of a relevant interest, which a chargeable company (“CC”) has in the CFC at all times during the CFC’s accounting period.

(2) Step 5 in section 371BC(1) is to be taken in relation to CC on the following basis.

(3) That basis is—

(a) so much of P% as is attributable to CC having the relevant interest, or the part of a relevant interest, during the CFC’s accounting period is to be left out of P%, and

(b) so much of Q% as is so attributable is to be left out of Q%.

(4) Condition A is that, at all times during the CFC’s accounting period, CC has the relevant interest, or the part of a relevant interest, by virtue of its holding shares (“the relevant shares”) in the CFC (directly or indirectly).

(5) Condition B is that any increase in the value of the relevant shares at any time during the relevant corporation tax accounting period is (or would be) income, or brought into account in determining any income, of CC chargeable to corporation tax for that period.

(6) Condition C is that any dividend or other distribution received at any time during the relevant corporation tax accounting period by CC from the CFC (directly or indirectly) by virtue of its holding the relevant shares is (or would be) income, or brought into account in determining any income, of CC chargeable to corporation tax for that period.

(7) Subsection (8) applies if—

(a) CC has the relevant interest, or the part of a relevant interest, by virtue of section 371OB(3) or (4),

(b) the CFC is an offshore fund (as defined in section 355) which does not meet the qualifying investments test in section 493 of CTA 2009, and

(c) conditions B and C would be met but for the offshore fund not meeting that test.

(8) Conditions B and C are to be taken to be met.

(9) This section is subject to section 371BH.

371BH Companies carrying on BLAGAB

(1) Subsection (2) applies in relation to a chargeable company (“CC”) if—

(a) CC carries on basic life assurance and general annuity business during the relevant corporation tax accounting period,

(b) the I-E rules apply to CC for the relevant corporation tax accounting period, and

(c) the following are met in relation to a relevant interest, or a part of a relevant interest, which CC has in the CFC at all times during the CFC’s accounting period—

(i) condition D,

(ii) condition E or F (or both), and

(iii) condition G.

(2) An additional sum is charged on CC at step 5 in section 371BC(1) and, for this purpose, step 5 is to be taken on the following basis.

(2A) That basis is—

(a) in paragraph (a) at step 5, the reference to the appropriate rate is to be read as a reference to—

(i) the policyholders’ rate of tax under section 102 of FA 2012 applicable to the I-E profit for the relevant corporation tax accounting period, or

(ii) if there is more than one such rate, the average rate over the whole of the relevant corporation tax accounting period, and

(b) any reduction of P% or Q% under section 371BG(3) by reference to any relevant interest of CC is to be ignored, but—

(i) P% is to be reduced so that it represents only the policyholders’ share of the BLAGAB component of the apportioned profit (see subsections (2H) to (4)), and

(ii) Q% is to be reduced by the same proportion as P% is reduced under sub-paragraph (i).

(2B) Condition D is that, at all times during the CFC’s accounting period, CC has the relevant interest, or the part of a relevant interest, by virtue of its holding shares (“the relevant shares”) in the CFC (directly or indirectly).

(2C) Condition E is met if the following requirement is met in relation to a time during the relevant corporation tax accounting period.

(2D) The requirement is that any increase (or any part of any increase) in the value of the relevant shares which occurs at that time is not (or would not be) brought into account at step 1 in section 73 of FA 2012 in determining whether CC has an I-E profit for the relevant corporation tax accounting period.

(2E) Condition F is met if the following requirement is met in relation to a time during the relevant corporation tax accounting period.

(2F) The requirement is that any dividend or other distribution (or any part of any dividend or other distribution) received at that time by CC from the CFC (directly or indirectly) by virtue of its holding the relevant shares is not (or would not be) brought into account at step 1 in section 73 of FA 2012 in determining whether CC has an I-E profit for the relevant corporation tax accounting period.

(2G) Condition G is that the assets which represent the relevant interest, or the part of a relevant interest, during the CFC’s accounting period are (to any extent) assets held by CC for the purposes of CC’s long-term business.

(2H) “The apportioned profit” means so much of P% as is attributable to CC having the relevant interest, or the part of a relevant interest, during the CFC’s accounting period.’.

Amendment 49, in schedule 20, page 433, line 14, leave out from ‘under’ to end of line 15 and insert ‘—

(i) the law of the territory in which the CFC is incorporated or formed,

(ii) the articles of association or other document regulating the CFC, or

(iii) any arrangement entered into by or in relation to the CFC,’.

Amendment 50, in schedule 20, page 435, line 33, at end insert—

“(2A) Profits treated as non-trading finance profits under subsection (2) are not to be taken to fall within section 371CB(3) or (4).’.

Amendment 51, in schedule 20, page 435, line 36, at end insert—

“(3A) For this purpose, section 337(1) (definition of “the worldwide group”) applies with the omission of paragraph (a).’.

Amendment 146, in schedule 20, page 436, leave out lines 36 and 37 and insert

‘by a UK connected company.

(3) In subsection (2)(b)(ii)—

“services” does not include services provided as part of insurance business, and

“UK connected company” means—

(a) a UK resident company connected with the CFC, or

(b) a non-UK resident company connected with the CFC acting through a UK permanent establishment.’.

Amendment 52, in schedule 20, page 447, line 1, leave out

‘derive (directly or indirectly) from’

and insert

‘represent, or derive (directly or indirectly) from,’.

Amendment 53, in schedule 20, page 449, line 14, leave out ‘section 371FB’ and insert ‘sections 371FB and 371FBA’.

Amendment 54, in schedule 20, page 449, line 39, leave out from ‘CFC”)’ to end of line 40.

Amendment 55, in schedule 20, page 450, line 41, leave out ‘371BC(3))’ and insert

‘371BC(3), ignoring sections 371BG(3)(a) and 371BH(2A)(b))’.

Amendment 56, in schedule 20, page 450, line 41, at end insert—

‘371FBA Loans from foreign permanent establishments of UK resident companies

(1) Subsection (2) applies if—

(a) there is a company (“C”) which has made an election under section 18A of CTA 2009 (exemption for profits or losses of foreign permanent establishments),

(b) during a relevant accounting period of C which begins on or after 1 January 2013, C has a creditor relationship which, applying the assumptions set out in section 18H(3) of CTA 2009 in relation to C for the relevant accounting period, would be a qualifying loan relationship (within the meaning of Chapter 9 of this Part) of C in relation to which the CFC would be the ultimate debtor,

(c) in the application of section 18H(2) of CTA 2009 for the relevant accounting period, C makes a claim under Chapter 9 of this Part (as applied by section 18H(2)), and

(d) the relevant accounting period falls wholly or partly in the CFC’s accounting period.

(2) 75% of the principal outstanding during the CFC’s accounting period on the loan which is the subject of the qualifying loan relationship is to be added to the CFC’s free capital or free assets (as the case may be).

(3) Terms used in this section which are defined in section 18A of CTA 2009 have the meaning given by that section.’.

Amendment147, in schedule 20, page 451, leave out lines 43 and 44 and insert

‘by a UK connected company.

“(2A) In subsection (2)(b)(ii)—

“services” does not include services provided as part of insurance business, and

“UK connected company” means—

(a) a UK resident company connected with the CFC, or

(b) a non-UK resident company connected with the CFC acting through a UK permanent establishment.’.

Amendment 57, in schedule 20, page 452, leave out lines 9 to 11.

Amendment 58, in schedule 20, page 452, line 27, at end insert—

“(8) In this section “original contract of insurance”, in relation to a contract of reinsurance which is one in a chain of contracts of reinsurance, means the original contract of insurance reinsured by the first contract in the chain; and in subsection (6)(b) the reference to the original insured is to be read accordingly.’.

Amendment 59, in schedule 20, page 455, line 3, leave out from ‘which’ to end of line 4 and insert

‘a member of the CFC group incurs a debt in the United Kingdom to—

(a) a non-UK resident person, or

(b) a UK resident person who is not a member of the CFC group.’.

Amendment 187, in schedule 20, page 457, line 10, leave out ‘and’ and insert—

‘(ba) the CFC’s accounting period ends in that period of account, and’.

Amendment 60, in schedule 20, page 457, line 11, leave out from ‘this’ to end of line 15 and insert ‘section—

(i) the charging of a sum on company C at step 5 in section 371BC(1) would cause section 314A (finance income amounts of chargeable companies) to apply in the case of company C, and

(ii) the relevant finance profits (see section 314A(1)(c)) would include the leftover profits.’.

Amendment 61, in schedule 20, page 457, line 33, after ‘have’ insert

‘as a result of the application of section 314A’.

Amendment 62, in schedule 20, page 457, leave out lines 39 to 41 and insert—

“(6) For the purposes of subsection (5)(a) assume that company C’s finance income amount would include P% of the leftover profits.

(6A) “P%” has the meaning given by section 371BC(3), subject to sections 371BG(3)(a) and 371BH(2A)(b).

(6B) Subject to what follows, terms used in this section which are defined in Part 7 (tax treatment of financing costs and income) have the same meaning as they have in Part 7.

(6C) In subsections (2) to (4) references to the tested income amount or the tested expense amount are to that amount determined without regard to any debits, credits or other amounts arising from UK banking business or insurance business.

(6D) But subsection (6C) does not apply for the purpose of determining any finance income amount under section 314A or affect the way in which any such amount is to be taken into account in determining the tested income amount or the tested expense amount.

(6E) “UK banking business or insurance business” means banking business or insurance business carried on by—

(a) a UK resident company, or

(b) a non-UK resident company acting through a UK permanent establishment.’.

Amendment 63, in schedule 20, page 458, leave out lines 1 to 5.

Amendment 64, in schedule 20, page 458, line 17, leave out

‘(so far as not reflected in the step 1 credits)’.

Amendment 65, in schedule 20, page 458, line 20, leave out

‘(which is not itself a qualifying loan relationship of the CFC)’

and insert

‘(other than a qualifying loan relationship)’.

Amendment 66, in schedule 20, page 458, line 30, leave out from beginning to ‘credits’ in line 42 and insert—

‘Allocate to the qualifying loan relationship a just and reasonable proportion of the credits from the CFC’s relevant debtor relationships which are brought into account in determining the CFC’s non-trading finance profits (so far as not reflected in the step 2 credits).

Add the credits to the step 2 credits.

The result is “the step 3 credits”.

A debtor relationship of the CFC is “relevant” if the loan which is the subject of it is used by the CFC to fund the loan which is the subject of the qualifying loan relationship.

Step 4

Allocate to the qualifying loan relationship a just and reasonable proportion of the credits and debits which are brought into account in determining the CFC’s non-trading finance profits so far as they—

(a) are from any derivative contract or other arrangement (other than a qualifying loan relationship or a relevant debtor relationship) entered into by the CFC as a hedge of risk in connection with a relevant debtor relationship, and

(b) are attributable to the hedge of risk.

If the credits exceed the debits add the excess to the step 3 credits and if the debits exceed the credits subtract the deficit from the step 3 credits.

The result is “the step 4 credits”.

Step 5

Allocate to the qualifying loan relationship a just and reasonable proportion of—

(a) the debits from the CFC’s loan relationships which are brought into account in determining the CFC’s non-trading finance profits (so far as not reflected in the step 4 credits), and

(b) any amounts set off under Chapter 16 of Part 5 of CTA 2009 (non-trading deficits) against amounts which, apart from the set off, would be included in the CFC’s non-trading finance profits.

Reduce the step 4’.

Amendment 67, in schedule 20, page 459, line 35, leave out ‘business,’ and insert

‘business (as the case may be),’.

Amendment 68, in schedule 20, page 459, line 36, leave out from ‘company’ to end of line 37.

Amendment 69, in schedule 20, page 460, line 39, leave out ‘a loan to another person’ and insert

‘—

(a) a loan to another person, or

(b) so far as not covered by paragraph (a), an arrangement intended to produce for any person a return in relation to any amount which it is reasonable to suppose would be a return by reference to the time value of that amount of money.

“(5A) Subsection (5) does not apply if—

(a) the main business of the ultimate debtor is banking business or insurance business, and

(b) the funding for the loan or arrangement would be provided in the ordinary course of the ultimate debtor’s banking business or insurance business (as the case may be).

(5B) A creditor relationship of the CFC cannot be a qualifying loan relationship if—

(a) the main business of the ultimate debtor in relation to the creditor relationship is banking business or insurance business, and

(b) the creditor relationship is, or is connected (directly or indirectly) to, an arrangement the main purpose, or one of the main purposes, of which is for the ultimate debtor to provide (directly or indirectly) funding for a loan or arrangement as mentioned in subsection (5)(a) or (b) in order to obtain a tax advantage for the ultimate debtor.’.

Amendment 70, in schedule 20, page 460, line 42, leave out from ‘relationship’ to ‘an’ in line 48 and insert

‘if the loan which is the subject of the creditor relationship is made to any extent (other than a negligible one) out of funds received by the CFC (directly or indirectly)—

(a) from a relevant UK connected company other than by way of a loan, or

(b) as a result of’.

Amendment 71, in schedule 20, page 461, leave out lines 3 to 5 and insert—

“(7) For the purposes of subsection (6) a company is “relevant UK connected” if—

(a) the company is a UK resident company connected with the CFC,

(b) the company’s main business is banking business or insurance business, and

(c) the company’s banking business or insurance business (as the case may be) is a trade.’.

Amendment 72, in schedule 20, page 461, line 13, leave out ‘company,’ and insert

‘company by—

(i) a non-UK resident person, or

(ii) a UK resident person who is not connected with the CFC,’.

Amendment 73, in schedule 20, page 461, line 41, leave out from ‘relationship”’ to end of line 42 and insert

‘or “ultimate debtor” for the purposes of this Chapter.’.

Amendment 74, in schedule 20, page 462, line 2, at end insert—

“(2A) The claim may be amended or withdrawn by company C only by amending the return.’.

Amendment 75, in schedule 20, page 462, line 14, leave out ‘assessment’ and insert ‘amendment’.

Amendment 76, in schedule 20, page 473, line 42, leave out ‘by the CFC’.

Amendment 77, in schedule 20, page 473, line 46, leave out

‘a person other than the CFC,’

and insert ‘any person,’.

Amendment 78, in schedule 20, page 479, line 43, at end insert—

‘371QG Anti-avoidance

(1) This section applies in relation to an accounting period (“the relevant accounting period”) of a CFC if—

(a) at any time an arrangement is entered into, and

(b) the main purpose, or one of the main purposes, of the arrangement is to obtain for any person a tax advantage within section 1139(2)(da) of CTA 2010 in relation to—

(i) the relevant accounting period, or

(ii) that period and one or more other accounting periods of the CFC.

(2) The CFC’s chargeable profits and creditable tax for the relevant accounting period are to be apportioned in accordance with section 371QC(2) (and not section 371QD if that section would otherwise apply).

(3) The apportionments must (in particular) be made in a way which, so far as practicable, counteracts the effects of the arrangement mentioned in subsection (1)(a) so far as those effects are referable to the purpose mentioned in subsection (1)(b).’.

Amendment 79, in schedule 20, page 480, line 7, leave out

‘Sections 371RC and 371RG set out circumstances’

and insert

‘Section 371RC sets out certain cases’.

Amendment 80, in schedule 20, page 483, line 30, at end insert—

“(3A) The Treasury may by regulations provide that, if specified conditions are met, a company is not to be taken to be a CFC by virtue of—

(a) section 371RE, or

(b) provision corresponding to section 371RE contained in regulations under subsection (3).’.

Amendment 81, in schedule 20, page 483, line 31, leave out ‘subsection (3)’ and insert ‘subsections (3) and (3A)’.

Amendment 82, in schedule 20, page 483, line 33, leave out from beginning to end of line 45 on page 484.

Amendment 83, in schedule 20, page 489, line 5, at end insert—

“(2A) Subsection (2)(b) does not apply if—

(a) a notice is given to an officer of Revenue and Customs revoking the notice under subsection (1), and

(b) the time at which the notice revoking the notice under subsection (1) is given is a time at which, applying the corporation tax assumptions apart from this section and the assumption in subsection (2)(a), the CFC would have been able to revoke its assumed election under section 9A of CTA 2010.’.

Amendment 84, in schedule 20, page 489, line 6, after ‘(1)’ insert ‘or (2A)’.

Amendment 85, in schedule 20, page 489, line 29, after ‘(1)’ insert

‘or (2A) (as the case may be)’.

Amendment 86, in schedule 20, page 496, line 5, at end insert—

“(4A) In subsections (2) to (4) references to apportioned percentages of the CFC’s chargeable profits for the relevant accounting period are to the percentages apportioned at step 3 in section 371BC(1).’.

Amendment 87, in schedule 20, page 496, line 40, after ‘including’ insert ‘an assessment’.

Amendment 88, in schedule 20, page 497, line 13, after ‘conferring’ insert ‘or regulating’.

Amendment 89, in schedule 20, page 498, line 40, at end insert—

“(8) But, in relation to a sum charged on a company by virtue of section 371BH(2), in this section—

(a) “the appropriate rate” means the rate given by section 371BH(2A)(a), and

(b) “relevant allowance” means any adjusted BLAGAB management expenses for the purposes of section 73 of FA 2012.’.

Amendment 90, in schedule 20, page 500, line 20, leave out ‘371RC, 371RE(2) and 371RG,’ and insert

‘371RC and 371RE(2) and regulations under section 371RF(3A),’.

Amendment 91, in schedule 20, page 500, line 24, leave out

‘has the meaning given at’

and insert

‘means a company which is a chargeable company for the purposes of’.

Amendment 92, in schedule 20, page 500, line 34, leave out ‘371RG(6),’ and insert ‘371RF,’.

Amendment 93, in schedule 20, page 502, line 1, leave out

‘(see Chapter 15) ceasing to have that interest’

and insert

‘ceasing to have any relevant interest in the CFC at all’.

Amendment 94, in schedule 20, page 503, line 28, leave out ‘profits,’ and insert

‘profits or property business losses,’.

Amendment 95, in schedule 20, page 503, line 29, at end insert—

“(2A) In subsection (2)(b) “property business losses” means any losses of a UK property business or overseas property business of the CFC; such losses are to be determined in a way corresponding to the way in which property business profits are determined.’.

Amendment 96, in schedule 20, page 503, line 45, leave out from ‘(6)’ to ‘Part’ in line 46.

Amendment 97, in schedule 20, page 505, leave out lines 16 to 20.

Amendment 98, in schedule 20, page 505, line 37, leave out ‘and 371CE(2).’ and insert ‘, 371CE(2) and 371IA(9).’.

Amendment 99, in schedule 20, page 506, line 13, leave out from ‘entitled’ to end of line 15 and insert

‘—

(i) to direct how income or assets of the company are to be applied,

(ii) to have such income or assets applied on the person’s behalf, or

(iii) otherwise to secure that such income or assets will be applied (directly or indirectly) for the person’s benefit, and’.

Amendment 100, in schedule 20, page 506, leave out lines 22 to 26 and insert—

“(4) In subsection (2)(c) references to a person being entitled to do anything also cover cases in which it is reasonable to suppose that a person is presently able, or will at a future date become able, to do the thing (even though the person presently has, or will have, no entitlement to do the thing).

(4A) Subsection (4B) applies if a person’s entitlement (or supposed ability) to do anything mentioned in subsection (2)(c) is (or would be) contingent upon a default of the company or any other person under any agreement.

(4B) The person is not to have an interest in the company under subsection (2)(c) by virtue of that entitlement (or supposed ability) unless the default has occurred.’.

Amendment 101, in schedule 20, page 506, line 45, leave out from beginning to end of line 5 on page 507.

Amendment 102, in schedule 20, page 507, line 45, leave out

‘a loan to any other person.’

and insert

‘—

(i) a loan to any other person, or

(ii) so far as not covered by sub-paragraph (i), an arrangement intended to produce for any person a return in relation to any amount which it is reasonable to suppose would be a return by reference to the time value of that amount of money.’.

Amendment 103, in schedule 20, page 508, line 37, leave out ‘they’ and insert ‘the assets’.

Amendment 104, in schedule 20, page 511, leave out line 19 and insert—

“(3) For section 371IA(5) there is to be substituted—

(5) 75% of the profits of each qualifying loan relationship are “exempt” under this Chapter.”

(3A) In section 371IA(9)(a) the words “or Chapter 8 (solo consolidation)” are to be omitted.

(3B) Sections 371IB to 371IE are to be omitted.

(3C) Section 371IH(9)(a) is to be read ignoring the modification in section 18HC(b) above.’.

Amendment 105, in schedule 20, page 511, line 21, after ‘X’ insert

‘and subsection (5) is to be omitted’.

Amendment 106, in schedule 20, page 513, leave out lines 17 to 19 and insert—

“(4) For the purposes of step 3 in section 371NB(1) the amount of the corresponding UK tax for the accounting period is to be determined in accordance with subsection (5) below; and section 371NE is to be omitted accordingly.

(5) “The corresponding UK tax” is the amount of corporation tax which would be payable in respect of the adjusted relevant profits amount if it were subject in full to corporation tax, ignoring any credit which would be allowed against it under section 18(3) of TIOPA 2010 and assuming, where there is more than one rate of corporation tax applicable to period X, that it were chargeable at the average rate over period X.”’.

Amendment 107, in schedule 20, page 517, line 13, leave out from ‘paragraph’ to end of line 16 and insert

‘(b), and

(b) before paragraph (k) (as inserted by paragraph 136 of Schedule 16 to this Act) insert—

“(ja) Part 9A of that Act (controlled foreign companies),”.’.

Amendment 108, in schedule 20, page 518, line 44, leave out from beginning to ‘references’ in line 7 on page 519 and insert—

“(4) Section 371RB of TIOPA 2010 (read with section 371RD of that Act) applies for the purposes of this section.

(5) Section 371RD of TIOPA 2010 applies for the purpose of determining if the requirements of subsection (3)(b) and (c) are met in any case.

(6) In subsections (4) and (5)’.

Amendment 109, in schedule 20, page 519, line 32, at end insert—

38A (1) Section 938M (group mismatch schemes: controlled foreign companies) is amended as follows.

(2) In subsection (1) for the words from the beginning to “company” substitute “Section 371SL(1) of TIOPA 2010 (assumption that a CFC”.

(3) In subsection (2)—

(a) for “chargeable profits” substitute “assumed taxable total profits”, and

(b) for “Chapter 4 of Part 17 of ICTA” substitute “Part 9A of TIOPA 2010”.’.

Amendment 110, in schedule 20, page 519, line 40, at end insert—

‘40A (1) Section 179 (compensating payment if advantaged person is controlled foreign company) is amended as follows.

(2) For subsection (1) substitute—

“(1) Subsection (2) applies if—

(a) the actual provision is provision made or imposed in relation to a CFC,

(b) for the purpose of determining the CFC’s assumed taxable total profits for an accounting period, the CFC’s profits and losses are to be calculated in accordance with section 147(3) or (5) in the case of that provision,

(c) in relation to the accounting period, sums are charged on chargeable companies at step 5 in section 371BC(1), and

(d) in consequence of the application of section 147(3) or (5) as mentioned in paragraph (b), the total of those sums is more than it would otherwise be.”

(3) In subsection (2) for “controlled foreign company” substitute “CFC”.

(4) In subsection (3)—

(a) in paragraph (a) for “companies mentioned in subsection (1)(c)” substitute “chargeable companies on which a sum is charged”, and

(b) in paragraph (b) for “tax chargeable under section 747(4) of ICTA” substitute “the CFC charge”.

‘(5) For subsection (4) substitute—

“(4) In this section terms which are defined in Part 9A have the same meaning as they have in that Part.

(5) For the purposes of subsections (1)(c) and (d) and (3)(a) assume that any claims made under Chapter 9 of Part 9A for the accounting period were not made.”’.

Amendment 188, in schedule 20, page 520, line 1, at beginning insert—

‘40B In Chapter 4 of Part 7 (exemption for financing income) after section 298 insert—

“298A Application of Chapter to financing income amounts determined under section 314A

(1) The Commissioners may by regulations amend this Chapter—

(a) to enable a financing income amount determined in accordance with section 314A for the relevant period of account (or a proportion of such an amount so determined) to be specified in a statement of allocated exemptions under section 292(4)(b), and

(b) to require, where a financing income amount so determined (or a proportion of such an amount so determined) is specified in such a statement, the sum charged on the company as mentioned in section 314A(1)(a) to be re-determined at step 5 in section 371BC(1) on the basis set out in subsection (2) below.

(2) The basis referred to in subsection (1)(b) is—

(a) the relevant finance profits (see section 314A(1)(c)) are to be left out of the CFC’s chargeable profits mentioned in paragraph (a) at step 5 in section 371BC(1), and

(b) the CFC’s creditable tax mentioned in paragraph (b) at that step is to be reduced so far as it is just and reasonable for it to be reduced having regard to the amounts left out of the CFC’s chargeable profits.

(3) For a case where only a proportion (“X%”) of a financing income amount is specified in a statement of allocated exemptions under section 292(4)(b), in subsection (2)(a) the reference to the relevant finance profits is to be read as a reference to X% of those profits.

(4) The Commissioners may by regulations amend this Chapter to require, where a financing income amount determined in accordance with section 314A for the relevant period of account is reduced under section 296, the sum charged on the company as mentioned in section 314A(1)(a) to be re-determined in accordance with provision made by regulations under subsection (1)(b) as if the proportion of the financing income amount represented by the amount of the reduction were specified in a statement of allocated exemptions under section 292(4)(b).

(5) The Commissioners may by regulations amend this Part or Part 9A in consequence of provision made by regulations under subsection (1) or (4).”’.

Amendment 189, in schedule 20, page 520, line 12, leave out ‘and’ and insert—

‘(ba) the CFC’s accounting period in relation to which the sum is charged ends in the period of account of the worldwide group, and’.

Amendment 111, in schedule 20, page 520, line 21, after ‘371BC(3)’ insert

‘, subject to sections 371BG(3)(a) and 371BH(2A)(b)’.

Amendment 112, in schedule 20, page 520, line 23, leave out from ‘9A’ to ‘by’ in line 24 and insert

‘or which are qualifying loan relationship profits is limited to amounts—

(a) which so fall or which are such profits’.

Amendment 113, in schedule 20, page 520, line 28, at end insert—

‘Insurance Companies (Reserve) (Tax) Regulations 1996 (S.I. 1996/2991)

42A The Insurance Companies (Reserve) (Tax) Regulations 1996 (S.I. 1996/2991) are amended as follows.

42B (1) Regulation 8A is amended as follows.

(2) In paragraph (1)—

(a) in sub-paragraph (a) for “controlled foreign company” substitute “CFC (within the meaning of Part 9A of the Taxation (International and Other Provisions) Act 2010)”, and

(b) in sub-paragraph (b) for “controlled foreign company” substitute “CFC”.

(3) In paragraph (4)—

(a) for “controlled foreign company’s” substitute “CFC’s”, and

(b) for “the company” substitute “the CFC”.

42C In regulation 8B for “controlled foreign company” substitute “CFC (within the meaning of Part 9A of the Taxation (International and Other Provisions) Act 2010)”.’.

Amendment 114, in schedule 20, page 521, line 26, leave out ‘and 38’ and insert ‘, 38, 38A, 40A, 42B and 42C’.—(Mr Gauke.)

Amendment proposed: 190, in schedule 20, page 522, line 2, at end insert—

‘(3) HM Treasury and HM Revenue and Customs shall publish an assessment of the implementation and impact of the changes made in this schedule each year from commencement for the first three years of operation, including—

(a) the impact of the changes on developing countries and whether any further aid or technical assistance needs to be provided to those countries to safeguard their tax revenues;

(b) the cost of the changes to the Exchequer and whether they are consistent with HM Treasury forecasts;

(c) whether the rules operate as expected and provide certainty to companies.’.—(Catherine McKinnell.)

Question put, That the amendment be made.

The Committee divided: Ayes 13, Noes 18.

Division number 12 Decision Time — Schedule 20 - Controlled foreign companies and foreign permanent establishments

Aye: 13 MPs

No: 19 MPs

Ayes: A-Z by last name

Nos: A-Z by last name

Question accordingly negatived.

Amendments made: 115, in schedule 20, page 522, line 4, at end insert—

‘First accounting periods

49A (1) This paragraph applies in relation to a CFC the first accounting period of which is determined in accordance with paragraph 43(2) or 44(4) above.

(2) For the purposes of sections 371SD(6), 371SK(3) and 371SM(3) of TIOPA 2010, assume that the CFC became a CFC at the time mentioned in paragraph 43(2) or 44(4) (as the case may be).

Elections under section 9A of CTA 2010

49B (1) This paragraph applies if—

(a) during a company’s accounting period within the meaning of Chapter 4 of Part 17 of ICTA a notice is given in relation to the company under paragraph 4(2C) of Schedule 24 to ICTA,

(b) as a result of that, the company is to be assumed under paragraph 4(2C) of Schedule 24 to ICTA to have made an election under section 9A of CTA 2010,

(c) the assumed election—

(i) does not cease to have effect before the end of the company’s last accounting period within the meaning of Chapter 4 of Part 17 of ICTA to begin before 1 January 2013, and

(ii) apart from the repeal of that Chapter by paragraph 14 above, would not have ceased to have effect at the end of that period, and

(d) the company is a CFC immediately after the end of its last accounting period mentioned in paragraph (c) and its first accounting period within the meaning of Part 9A of TIOPA 2010 begins at that time accordingly.

(2) In the application of Part 9A of TIOPA 2010 in relation to the company as a CFC, the assumption mentioned in sub-paragraph (1)(b) is to continue to be made as if it were required to be made by section 371SH(2) of TIOPA 2010.’.

Amendment 116, in schedule 20, page 522, line 10, leave out from ‘exempt’ to end of line 12 and insert

‘period—

(i) does not end before the end of the company’s last accounting period within the meaning of Chapter 4 of Part 17 of ICTA to begin before 1 January 2013, and

(ii) apart from the repeal of that Chapter by paragraph 14 above, would not have ended at the end of that period, and’.

Amendment 117, in schedule 20, page 522, line 29, after ‘exemption’ insert

‘or section 371JE of TIOPA 2010’.—(Mr Gauke.)

Schedule 20, as amended, agreed to.