Finance Act 2009

Section 40

SCHEDULE 19 U.K. Income tax credits for foreign distributions

ITTOIA 2005 U.K.

1 U.K. ITTOIA 2005 is amended as follows.

2 (1) Section 397A (tax credits for distributions of non-UK resident companies: UK residents and eligible non-UK residents) is amended as follows. U.K.

(2) For subsections (1) and (2) substitute—

“(1) A UK resident or eligible non-UK resident receiving a relevant distribution made by a non-UK resident company is entitled to a tax credit equal to one-ninth of the amount or value of the grossed up distribution (but see subsections (3) and (6) and section 397AA).”

(3) In subsection (3), for “(2)” substitute “ (1) ”.

(4) In subsection (7), omit the definition of “minority shareholder”.

3 U.K. After section 397A insert—

“397AA Tax credit under section 397A: conditions

(1) Section 397A(1) only applies if condition A, B or C is met.

(2) Condition A is that—

(a) the relevant distribution is made by a company with issued share capital, and

(b) at the time the person receives the relevant distribution, the person is a minority shareholder in the company.

(3) Condition B is that the company that makes the relevant distribution is an offshore fund.

(4) Condition C is that—

(a) the company that makes the relevant distribution is a resident of (and only of) a qualifying territory at the time that the relevant distribution is received, and

(b) if the relevant distribution is one of a series of distributions made as part of a scheme—

(i) each company that makes a distribution in the series (a “scheme distribution”) is a resident of (and only of) a qualifying territory at the time that the scheme distribution is received, or

(ii) the scheme is not a tax advantage scheme.

(5) In this section—

• “minority shareholder”, in relation to a company, has the meaning given in section 397C;

• “offshore fund” has the same meaning as in Chapter 5 of Part 17 of ICTA (see sections 756A to 756C of that Act);

• “qualifying territory” has the meaning given by or under section 397BA;

• “relevant distribution” has the same meaning as in section 397A;

• “scheme” includes any scheme, arrangements or understanding of any kind, whether or not legally enforceable and whether involving a single transaction or two or more transactions;

• “tax advantage scheme” means a scheme that, ignoring any incidental purposes, has as its only purpose or purposes either or both of the following—

  (a)

  to enable a person to obtain a tax credit under section 397A, and

  (b)

  to enable a person to obtain (in any territory) any other relief from tax on a distribution.”

4 (1) Section 397B (tax credits under section 397A: manufactured overseas dividends) is amended as follows. U.K.

(2) In subsection (2), omit “that is not an offshore fund”.

(3) In subsection (3), after “representative” insert “ ;the original dividend ”).

(4) After subsection (3) insert—

“(3A) Section 397AA has effect as if—

(a) the references in subsections (2)(a), (3) and (4)(a) to the relevant distribution were to the original dividend, and

(b) the reference in subsection (2)(b) to the company that makes the relevant distribution were to the company that makes the original dividend.”

(5) In subsection (4), in the definition of “gross amount”, for “a manufactured” substitute “ an ”.

5 U.K. After that section insert—

“397BA Meaning of “qualifying territory”

(1) For the purposes of section 397AA “qualifying territory” means—

(a) the United Kingdom, or

(b) a territory within subsection (2).

(2) A territory is within this subsection if—

(a) arrangements to which section 788 of ICTA applies (“double taxation relief arrangements”) have effect in relation to the territory, and

(b) the arrangements contain a non-discrimination provision.

(3) The Treasury may by regulations—

(a) provide that a territory specified in or of a description specified in the regulations that does not satisfy subsection (2)(a) or (b) is a qualifying territory for the purpose of section 397AA, and

(b) provide that a territory so specified or described that satisfies subsection (2)(a) or (b) is not a qualifying territory for that purpose.

(4) For the purposes of section 397AA a company is a resident of a territory if, under the laws of the territory, the company is liable to tax there—

(a) by reason of its domicile, residence or place of management, but

(b) not in respect only of income from sources in that territory or capital situated there.

(5) In subsection (2) “non-discrimination provision”, in relation to double taxation relief arrangements, means a provision to the effect that nationals of a state which is a party to those arrangements (a “contracting state”) are not to be subject in any other contracting state to—

(a) any taxation, or

(b) any requirement connected with taxation,

which is other or more burdensome than the taxation and connected requirements to which nationals of that other state in the same circumstances (in particular with respect to residence) are or may be subjected.

(6) In subsection (5) “national”, in relation to a contracting state, includes—

(a) an individual possessing the nationality or citizenship of the contracting state, and

(b) a legal person, partnership or association deriving its status as such from the laws in force in that contracting state.

(7) Regulations under this section may—

(a) describe a territory by reference to the double taxation relief arrangements for the time being in force in relation to the territory,

(b) make different provision in relation to different descriptions of company, and

(c) make provision having effect in relation to the tax year current on the day on which the regulations are made.

(8) No regulations may be made under this section unless a draft of the instrument containing them has been laid before, and approved by a resolution of, the House of Commons.”

6 (1) Section 397C (meaning of “minority shareholder”) is amended as follows. U.K.

(2) In subsection (1)—

(a) for “397A” substitute “ 397AA ”, and

(b) omit “non-UK resident”.

(3) After that subsection insert—

“(1A) Where the company has more than one class of share, the reference in subsection (1) to the company's issued share capital is to issued share capital of the same class as the share in respect of which the distribution is made.”

(4) Insert at the end—

“(8) For the purposes of this section, shares are not of the same class if the amounts paid up on them (otherwise than by way of premium) are different.”

7 U.K. In section 398(1) (increase in amount or value of dividends where tax credit available), for “397A(2)” substitute “ 397A(1) ”.

8 U.K. In section 873 (orders and regulations), after subsection (3) insert—

“(4) Further, subsection (2) does not apply if any other Parliamentary procedure is expressly provided to apply in relation to the order or regulations.”

Consequential amendments of other Acts U.K.

9 U.K. In TMA 1970, in—

(a) sections 8(1AA)(b) and 8A(1AA)(b) (personal return and trustee return: amount payable by way of income tax),

(b) section 9(1)(b) (self-assessment of amount payable by way of income tax),

(c) sections 12AA(1A)(b) and 12AB(5) (partnership return etc; amount payable by way of income tax), and

(d) sections 59A(8)(b) and 59B(2)(b) (payments of and on account of income tax),

for “397A(2)” substitute “ 397A(1) ”

10 U.K. In ICTA—

(a) in section 824(4A)(b) (repayment supplements: individuals and others), for “397A(2)” substitute “ 397A(1) ”, and

(b) in section 840ZA(3)(b) (meaning of “tax advantage”), after “397(1)” insert “ or 397A(1) ”.

11 U.K. In section 171(2B) of FA 1993 (Lloyd's underwriters etc: taxation of profits and allowance of losses), for “397A(2)” substitute “ 397A(1) ”.

12 U.K. In Part 2 of Schedule 1 to ITEPA 2003 (definitions), in the entry for “tax credit”, in the second column, after “397(1)” insert “ or 397A(1) ”.

13 U.K. In ITA 2007—

(a) in section 504(4)(b) (provisions that do not apply to income of unauthorised unit trusts),

(b) in sections 592(2), 593(2) and 594(2) (stock lending arrangements and repos), and

(c) in section 989 (definitions), in the definition of “tax credit”,

for “397A(2)” substitute “ 397A(1) ”.

Commencement U.K.

14 (1) The amendments made by this Schedule have effect in relation to— U.K.

(a) qualifying distributions arising on or after 22 April 2009,

(b) cash dividends paid over to a person under paragraph 68(4) of Schedule 2 of ITEPA 2003 on or after 22 April 2009,

(c) dividends treated under section 407 of ITTOIA 2005 as paid to a person on or after 22 April 2009, and

(d) manufactured overseas dividends that are representative of a distribution within paragraph (a), (b) or (c).

(2) In this paragraph—

• “manufactured overseas dividend” has the same meaning as in Chapter 2 of Part 11 of ITA 2007;

• “qualifying distribution” has the meaning given in section 989 of ITA 2007.