Finance Act 2015

Finance Act 2015

2015 CHAPTER 11

Introduction

Section 106: “the Participation Condition”

Summary

1. This section sets out the requirements for the participation condition to be met between “the first party” and “the second party” (as defined) for the purposes of sections 80 and 86.

Details of the Section

2. Subsection (2) sets out the meaning of “the first party” and “the second party”. For the purposes of section 80 these are, respectively, the UK-resident company (“C”) and another person (“P”). For the purposes of section 86 these are, respectively, the foreign company and another person (“A”).

3. Subsection (3) provides that the participation condition is met if condition A is met in relation to the material provision, so far as that provision is one relating to financing arrangements, and condition B is met in relation to the material provision, so far as that provision is not one relating to financing arrangements.

4. Subsection (4) sets out condition A, which considers the relationship between the parties at the time the material provision was made or imposed, or within the period of 6 months beginning with the day the material provision was made or imposed.

5. Subsection (5) sets out condition B which considers the relationship between the parties at the time the material provision was made or imposed.

6. Subsection (6) defines the term “financing arrangements”.

7. Subsection (7) provides for section 157(2) of the Taxation (International and Other Provisions) Act 2010 to apply for the purposes of the section and for sections 158 to 163 of that Act to apply in relation to subsections (4) and (5).

Background Note

8. The diverted profits tax is a new charge on diverted profits. The main objective is to counteract contrived arrangements used by large groups (typically multinational enterprises) that result in the erosion of the UK tax base.