“(1) Section 5 of CTA 2009 (territorial scope of charge) is amended in accordance with subsections (2) to (4).
(2) For subsection (2) substitute—
‘(2) A non-UK resident company is within the charge to corporation tax only if—
(a) it carries on a trade of dealing in or developing UK land (see section 5B), or
(b) it carries on a trade in the United Kingdom (other than a trade of dealing in or developing UK land) through a permanent establishment in the United Kingdom.’
(3) After subsection (2) insert—
‘(2A) A non-UK resident company which carries on a trade of dealing in or developing UK land is chargeable to corporation tax on all its profits wherever arising that are profits of that trade.’
(4) In subsection (4), after ‘(1)’ insert ‘, (2A)’.
(5) After section 5 of CTA 2009 insert—
“5A Arrangements for avoiding tax
(1) Subsection (3) applies if a company has entered into an arrangement the main purpose or one of the main purposes of which is to obtain a relevant tax advantage for the company.
(2) In subsection (1) the reference to obtaining a relevant tax advantage includes obtaining a relevant tax advantage by virtue of any provisions of double taxation arrangements, but only in a case where the relevant tax advantage is contrary to the object and purpose of the provisions of the double taxation arrangements (and subsection (3) has effect accordingly, regardless of section 6(1) of TIOPA 2010).
(3) The relevant tax advantage is to be counteracted by means of adjustments.
(4) For this purpose adjustments may be made (whether by an officer of Revenue and Customs or by the company) by way of an assessment, the modification of an assessment, amendment or disallowance of a claim, or otherwise.
(5) In this section “relevant tax advantage” means a tax advantage in relation to corporation tax to which the company is chargeable (or would without the tax advantage be chargeable) by virtue of section 5(2A).
(6) In this section—
“arrangement” (except in the phrase “double taxation arrangements”) includes any agreement, understanding, scheme, transaction or series of transactions, whether or not legally enforceable;
“double taxation arrangements” means arrangements which have effect under section 2(1) of TIOPA 2010 (double taxation relief by agreement with territories outside the United Kingdom);
“tax advantage” has the meaning given by section 1139 of CTA 2010.
5B Trade of dealing in or developing UK land
‘(1) A non-UK resident company’s “trade of dealing in or developing UK land” consists of —
(a) any activities falling within subsection (2) which it carries on, and
(b) any activities from which profits, gains or losses arise which are treated under Part 8ZB of CTA 2010 as profits or losses of the company’s trade of dealing in or developing UK land.
(2) The activities within this subsection are—
(a) dealing in UK land;
(b) developing UK land for the purpose of disposing of it.
(3) In this section “land” includes—
(a) buildings and structures,
(b) any estate, interest or right in or over land, and
(c) land under the sea or otherwise covered by water.
(4) In this section—
“disposal” is to be interpreted in accordance with section 356OQ of CTA 2010;
“UK land” means land in the United Kingdom.”
(6) In section 3 of CTA 2009 (exclusion of charge to income tax), in subsection (1), for paragraph (b) substitute—
“(b) the company is not UK resident and—
(i) the income is profits of a trade of dealing in or developing UK land, or
(ii) the income is within its chargeable profits as defined by section 19.”
(7) In section 18A of CTA 2009 (exemption for profits or losses of foreign permanent establishments), after subsection (2) insert—
“(2A) But profits and losses are not to be left out of account as mentioned in subsection (2) so far as they are, or would if the company were non-UK resident be, profits of the company’s trade of dealing in or developing UK land (as defined in section 5B).”
(8) In section 19 of CTA 2009 (chargeable profits)—
(a) in subsection (2) for “company’s chargeable profits” substitute “company’s “chargeable profits””;
(b) after subsection (2) insert—
“(2A) But the company’s “chargeable profits” do not include profits of a trade of dealing in or developing UK land (and accordingly such profits are not attributable to any permanent establishment of the company).”
(9) In section 189 of CTA 2009 (post-cessation receipts: extent of charge to tax), in subsection (4), at the end insert “other than a company’s trade of dealing in or developing UK land”.
(10) In section 107 of CTA 2010 (restrictions on losses etc surrenderable by non-UK resident), in subsection (1), for the words from “non-UK resident” to the end substitute “non-UK resident company—
(a) carrying on a trade of dealing in or developing UK land, or
(b) carrying on a trade in the United Kingdom through a permanent establishment.”
(11) In section 1119 of CTA 2010 (definitions for purposes of Corporation Tax Acts), at the appropriate place insert—
New clauses 11 to 17 will introduce the legislation announced in the 2016 Budget for a specific charge to income tax or corporation tax on profits from the disposal of land in the UK. The new clauses will ensure that offshore structures cannot be used to avoid UK tax on profits generated from dealing in or developing land in the UK.
New clauses 11, 12 and 15 will introduce new rules to ensure that profits generated by a company from dealing in or developing land in the UK will be chargeable to UK corporation tax. Those rules will apply regardless of the residence of the person carrying on the trade and regardless of whether the developer has a permanent establishment in the UK.
New clauses 13 and 14 will ensure that the profits generated by an individual from dealing in or developing land will always be chargeable to UK income tax. To prevent avoidance, the new charge will also apply where, instead of dealing in land, a developer sells shares in a company that carries on such developments. It will also apply where arrangements are put in place to split profits from development activity between the developer and related entities that could otherwise reduce chargeable allowance. In addition, the Government have strengthened long-standing rules on transactions in land to ensure that they can effectively counter abuse of the new rules.
To support those new rules, the Government are introducing an anti-avoidance rule to prevent manipulation between the policy announcement on Budget day 2016 and the introduction of the new clauses. The anti-avoidance rule is in new clause 16 for corporation tax and new clause 17 for income tax, along with other commencement and transitional rules. We have taken steps to amend our double taxation treaties; I am grateful to our partners in Guernsey, the Isle of Man and Jersey for agreeing to make changes to those treaties, taking effect from Budget day 2016. These measures will raise £2.2 billion over the scorecard period and take effect from
The changes made by new clauses 11 to 17 will continue the Government’s fight against aggressive tax planning and profit shifting. They will bring the UK in line with other major economies and ensure fair treatment between UK and overseas developers.
The measures appear to be closing a tax loophole. On that basis, we do not oppose them, especially as they are estimated to bring in £130 million in this financial year, rising to a peak of £640 million in 2019-20. I must say, however, that this important addition to the Bill was tabled rather late in the day, even if the outline of the measure itself was announced for consultation at the Budget. It could be argued that the Opposition and stakeholders have been given insufficient time to go through the detail of the legislation.
None the less, the Chartered Institute of Taxation has identified two areas of concern on which it would like some clarification. First, will the Minister confirm that the Government do not intend pure investment structures to be affected by the new measures? Secondly, will he confirm that new clause 16 is simply a timing rule dealing with the opposition of pre-trading expenditure that would not be deductible under normal principles and where reliance needs to be placed on section 61 of the Corporation Tax Act 2009? The concern is that the clause seeks to restrict normal trading expenses incurred prior to the company’s falling within the new charge. Some clarification from the Minister on those points would be appreciated.
I will of course address the questions that the hon. Lady has raised, but it might be helpful if I first provide a bit of background. Stamp duty is usually payable at 0.5% on instruments that transfer shares—no, I do not want to give that background. [Interruption.]
Yes, let us turn to this new clause. To give a bit of background, it is worth pointing out that this measure has two key principles. First, UK land is a national resource and profits from dealing in or developing land should be fully taxed in the UK. This is an internationally accepted principle. However, some companies based offshore have organised their operations to reduce their UK tax on these profits. The new specific charge on these profits will put an end to such arrangements.
Secondly, this measure is about fairness. It will level the playing field between UK and offshore developers by preventing arrangements that are designed to avoid UK tax. This will ensure that UK and overseas businesses are put on the same tax footing when carrying out the same activities. This measure was announced at Budget 2016 alongside an anti-avoidance rule that had immediate effect. HMRC has also created a taskforce to ensure that tax on these profits is effectively collected by identifying and investigating offshore businesses that try to avoid paying tax.
This measure is targeted at those who have a property building trade; it does not impact the tax profile for investors in UK property. On the timing, I understand why the hon. Member for Salford and Eccles raised the fact that we have done this through new clauses. It is important that we get this legislation right. In these particular circumstances, it was not possible to bring the legislation forward at the time the Finance Bill was published. None the less, I think these new clauses deliver what the Government are seeking to do. I therefore hope that they will stand part of the Bill.