Taxation (International and Other Provisions) Act 2010

Consequences of deduction notices U.K.

243 Consequences of deduction notices U.K.

(1) This section applies in relation to a transaction if—

(a) a deduction notice specifying the transaction is given to a company under section 232, and

(b) when the notice is given, each of the deduction scheme conditions is met in relation to the transaction.

(2) The company must calculate (or recalculate) its income or chargeable gains for the purposes of corporation tax, or its liability to corporation tax, for—

(a) the accounting period specified in the deduction notice, and

(b) any later accounting period.

(3) That calculation (or recalculation) must be done in accordance with—

(a) the rule in section 244 (the rule against double deduction), and

(b) the rule in section 248 (the rule against deduction for untaxable payments) if it applies (see section 245).

(4) But the company is treated as having complied with subsections (2) and (3), so far as the scheme specified in the deduction notice is concerned, if the company incorporates the necessary relevant adjustments in its company tax return for the accounting period specified in the notice.

(5) For the purposes of subsection (4), adjustments are relevant if they—

(a) treat all or part of a deduction allowable for corporation tax purposes as not being allowable, or

(b) treat all or part of an amount that for corporation tax purposes may be set off against profits in an accounting period as not falling to be set off.

(6) For the purposes of subsection (4), relevant adjustments are the necessary adjustments if—

(a) they are such adjustments as are necessary for counteracting those effects of the scheme that are referable to the purpose referred to in deduction scheme condition C (see section 233(4)), and

(b) as a result of their incorporation in the return, the company counteracts those effects.

244 The rule against double deduction U.K.

(1) The rule referred to in section 243(3)(a) is that, in respect of the transaction specified in the deduction notice, no amount is allowable as a deduction for the purposes of the Corporation Tax Acts so far as an amount is otherwise deductible or allowable in relation to the expense in question.

(2) An amount is otherwise deductible or allowable if it may be otherwise deducted or allowed in calculating the income, profits or losses of any person for the purposes of any tax to which this subsection applies.

(3) Subsection (2) applies to any tax (including any non-UK tax) other than—

(a) petroleum revenue tax, or

(b) the tax chargeable under section 330(1) of CTA 2010 (supplementary charge in respect of ring fence trades).

(4) The reference in subsection (2) to an amount being able to be otherwise deducted or allowed as mentioned in that subsection includes a reference to an amount that would be able to be so deducted or allowed but for any tax rule that has the same effect as the rule in subsection (1).

(5) In subsection (4) “tax rule” means—

(a) a provision of the Tax Acts, or

(b) a rule having effect under the tax law of any territory outside the United Kingdom.

(6) In this section “non-UK tax” has the meaning given in section 187 of CTA 2010.

245 Application of the rule against deduction for untaxable payments U.K.

(1) Section 248 (the rule against deduction for untaxable payments) applies if conditions A, B and C are met.

(2) Condition A is that a transaction that forms part of the deduction scheme, or a series of transactions that forms part of the scheme, makes or imposes provision as a result of which—

(a) one person (“the payer”) makes a payment, and

(b) another person (“the payee”) receives, or becomes entitled to receive, a payment or payments.

(3) Condition B is that, in respect of the payment by the payer, an amount may be deducted by, or otherwise allowed to—

(a) the payer, or

(b) another person who is party to, or concerned in, the scheme,

in calculating any profits or losses for tax purposes.

(4) Condition C is that as a result of provision made or imposed by the deduction scheme—

(a) the payee is not liable to tax—

(i) in respect of the payment or payments that the payee receives or is entitled to receive as a result of the transaction or series of transactions, or

(ii) in respect of part of such payment or payments, or

(b) if the payee is so liable, the payee's liability to tax is reduced.

(5) In this section—

(a) “the deduction scheme” means the scheme in relation to which the deduction scheme conditions are met, and

(b) “tax purposes” includes the purposes of any non-UK tax (within the meaning of section 187 of CTA 2010).

(6) Sections 246 and 247 make further provision about condition C.

(7) Expressions used in those sections or section 248 have the same meaning as in this section.

246 Cases where payee's non-liability treated as not a result of scheme U.K.

(1) This section sets out two cases in which condition C in section 245(4) (which requires that as a result of the deduction scheme the payee is not liable to tax in respect of the whole or part of certain payments) is treated as not met.

(2) The first case is where the reason why the payee is not liable to tax is that under the tax law of any territory the payee is not liable to tax on any income or gains received by the payee or received for the payee's benefit.

(3) The second case is where, or to the extent that, the payee is not subject to tax because an exemption within subsection (4) applies.

(4) An exemption is within this subsection if—

(a) it exempts a person from being liable to tax in respect of income or gains, without providing for that income or those gains to be treated as the income or gains of another person, and

(b) it is conferred by a provision contained in, or having the force of, an Act or by a provision of the tax law of any territory outside the United Kingdom.

247 Cases where payee treated as having reduced liability as a result of scheme U.K.

(1) This section sets out two cases in which the payee's liability to tax in respect of the scheme payment is treated for the purposes of section 245(4)(b) as reduced as a result of provision made or imposed by the deduction scheme.

(2) But that does not mean that there are no other cases in which that liability is so reduced.

(3) In this section “the scheme payment” means the payment or payments that the payee receives or is entitled to receive as a result of the transaction or series of transactions referred to in section 245(2).

(4) Case A is that an amount arising from—

(a) a transaction forming part of the scheme, or

(b) a series of such transactions,

falls to be deducted by, or otherwise allowed to, the payee in calculating for tax purposes any profits or losses arising from the scheme payment or the entitlement to receive it.

(5) Case B is that an amount of relief arising from—

(a) a transaction forming part of the scheme, or

(b) a series of such transactions,

may be deducted from the amount of income or gains arising from the scheme payment or the entitlement to receive it.

248 The rule against deduction for untaxable payments U.K.

(1) The rule referred to in section 243(3)(b) is that the total deduction amount must be reduced.

(2) In this section “the total deduction amount” means the total of the amounts allowable as a deduction for the purposes of the Corporation Tax Acts in calculating any profits arising to the company from any transaction forming part of the deduction scheme.

(3) If the payee is not liable to tax for the purposes of section 245(4) in respect of the payment or payments that the payee receives or is entitled to receive, the total deduction amount must be reduced to nil.

(4) If the payee is liable to tax for those purposes in respect of part of that payment or those payments, the total deduction amount must be reduced by the same proportion of that amount as the proportion of the payment or payments on which the payee is not liable to tax.

(5) If the payee's liability to tax is reduced as described in section 245(4)(b), the total deduction amount must be reduced by the same proportion of that amount as the reduction in the payee's liability bears to that liability before reduction.