5(1)For the purposes of this Schedule (but subject to sub-paragraph (2) below) the actual provision confers a potential advantage on a person in relation to United Kingdom taxation wherever, disregarding this Schedule, the effect of making or imposing the actual provision, instead of the arm’s length provision, would be one or both of the following, that is to say—
(a)that a smaller amount (which may be nil) would be taken for tax purposes to be the amount of that person’s profits for any chargeable period; or
(b)that a larger amount (or, if there would not otherwise have been losses, any amount of more than nil) would be taken for tax purposes to be the amount for any chargeable period of any losses of that person.
(2)Subject to paragraph 11(2) below, the actual provision shall not be taken for the purposes of this Schedule to confer a potential advantage in relation to United Kingdom taxation on either of the persons as between whom it is made or imposed if—
(a)the three conditions set out in sub-paragraphs (3) to (5) below are all satisfied in the case of each of those two persons; and
(b)the further condition set out in sub-paragraph (6) below is satisfied in the case of each of those persons who is an insurance company.
(3)The first condition is satisfied in the case of any person if—
(a)that person is within the charge to income tax or corporation tax in respect of profits arising from the relevant activities;
(b)that person is not entitled to any exemption from income tax or corporation tax in respect of, or of a part of, the income or profits arising from the relevant activities in respect of which he is within that charge; and
(c)where that person is within the charge to income tax in respect of profits arising from those activities, he is resident in the United Kingdom in the chargeable periods in which he is so within that charge.
(4)The second condition is satisfied in the case of any person if he is neither—
(a)a person with an entitlement, in pursuance of any double taxation arrangements or under section 790(1), to be given credit in any chargeable period for any foreign tax on or in respect of profits arising from the relevant activities; nor
(b)a person who would have such an entitlement in any such period if there were any such profits or if they exceeded a certain amount.
(5)The third condition is satisfied in the case of any person if the amounts taken into account in computing the profits or losses arising from the relevant activities to that person in any chargeable period in which he is within the charge to income tax or corporation tax in respect of profits arising from those activities do not include any income the amount of which is reduced in accordance with section 811(1) (deduction for foreign tax where no credit allowable).
(6)The further condition is satisfied in the case of an insurance company if the profits arising from the relevant activities in respect of which the company is within the charge to corporation tax do not include—
(a)any profits in the computation of which acquisition expenses have been brought into account in accordance with section 86 of the M1Finance Act 1989 (expenses of acquiring insurance business); or
(b)any profits in relation to which the rate of corporation tax is fixed by section 88 or 88A of that Act (lower rate on certain profits of insurance companies).
Marginal Citations