Finance Act 1994

Part II U.K. Liability for and collection of advance corporation tax

2 In section 14 of the Taxes Act 1988 (advance corporation tax and qualifying distributions) in subsection (3) for the words “section 241” there shall be substituted “ sections 241 and 246F ”.

3 (1) Schedule 13 to the Taxes Act 1988 (collection of advance corporation tax) shall be amended as follows.

(2) In paragraph 1 (duty to make returns) for sub-paragraph (1) there shall be substituted—

“(1) A company shall for each of its accounting periods make, in accordance with this Schedule, returns to the collector of—

(a) the franked payments made and franked investment income received by it in that period,

(b) the foreign income dividends paid and foreign income dividends received by it in that period, and

(c) the advance corporation tax (if any) payable by it in respect of the franked payments made and foreign income dividends paid by it in that period;

and references in this Schedule to foreign income dividends shall be construed in accordance with Chapter VA of this Part.”

(3) In paragraph 1, for sub-paragraph (4) there shall be substituted—

“(4) Subject to paragraphs 4(2), 4A(2) and 7(3) below, no return need be made under this Schedule by a company for any period in which it has—

(a) made no franked payments, and

(b) paid no foreign income dividends.”

(4) In paragraph 2 (contents of return) for sub-paragraph (1) there shall be substituted—

“(1) Subject to paragraphs 7(2), 3A(2) and 9A(2) below, the return made by a company for any return period shall show—

(a) the amount of the franked payments, if any, made by it in that period,

(b) the amount of franked investment income, if any, received by it in that period,

(c) if any advance corporation tax is payable in respect of the franked payments, the amount thereof,

(d) the amount of the foreign income dividends, if any, paid by it in that period,

(e) the amount of the foreign income dividends, if any, received by it in that period, and

(f) if any advance corporation tax is payable in respect of the foreign income dividends paid, the amount thereof.”

(5) In paragraph 2, after sub-paragraph (4) there shall be inserted—

“(5) For the purposes of paragraph (e) of sub-paragraph (1) above the amount of foreign income dividends received by a company in a return period shall be treated as including the excess, if any, of—

(a) any amount carried forward under section 246F(3) to the accounting period for which the return is made, and

(b) any amount of foreign income dividends received by the company in that accounting period but before the beginning of the return period,

over the amount of any foreign income dividends paid by the company in that accounting period but before the beginning of the return period.

(6) For the purposes of paragraph (f) of sub-paragraph (1) above advance corporation tax shall be payable in respect of foreign income dividends paid in a return period if—

(a) the amount shown under paragraph (d) of that sub-paragraph exceeds the amount shown under paragraph (e) of that sub-paragraph, or

(b) no amount is shown under paragraph (e) of that sub-paragraph;

and the amount of that tax shall be calculated at the rate of advance corporation tax in force for the financial year in which the return period ends on an amount equal to that excess or, if no amount is shown under sub-paragraph (1)(e) above, to the amount shown under sub-paragraph (1)(d) above.”

(6) In paragraph 3 (payment of tax)—

(a) in sub-paragraph (1) after the words “franked payments” there shall be inserted “ and foreign income dividends ”, and

(b) in sub-paragraph (3) after the words “franked payment” there shall be inserted “ or foreign income dividend ”.

(7) After paragraph 3 there shall be inserted—

“3A International headquarters companies

“3A (1) This paragraph and paragraph 3B below apply where—

(a) a company pays a foreign income dividend in a return period, and

(b) at the time it pays the dividend the company treats itself as an international headquarters company by virtue of section 246S(9).

(2) The return made by the company for the return period—

(a) shall state that the company has so treated itself;

(b) shall show the basis on which it has so treated itself;

(c) shall not include the amount of the dividend in the amount shown under paragraph 2(1)(d) above;

(d) shall state separately that the dividend was paid and show its amount.

(3) The dividend shall be treated for the purposes of section 246F(1) and (2), paragraph 2(5) above and paragraph 4A below as if it had not been paid.

(1) Without prejudice to paragraph 3 above, if at any time before the end of the accounting period in which the return period mentioned in paragraph 3A(1) above falls the inspector is not satisfied that there was a reasonable basis for the company treating itself as mentioned in paragraph 3A(1) he may make an assessment on the company to the best of his judgment; and any advance corporation tax due under an assessment made by virtue of this sub-paragraph shall be treated for the purposes of interest on unpaid tax as having been payable at the time when it would have been payable if the company had not so treated itself.

(2) Where an assessment which takes account of the dividend mentioned in paragraph 3A(1) above is made under sub-paragraph (1) above, then, subject to any appeal—

(a) the company shall be deemed for the purposes of Chapter VA of this Part not to have treated itself as an international headquarters company by virtue of section 246S(9) at the time it paid the dividend;

(b) paragraph 3A(3) above shall not apply to the dividend.

(3) In a case where—

(a) the company is not an international headquarters company in the accounting period in which the return period mentioned in paragraph 3A(1) above falls, and

(b) as regards any relevant return period amount X exceeds amount Y,

after the end of the accounting period the inspector may make an assessment on the company for an amount of advance corporation tax equal to the excess; and a relevant return period is a return period falling within the accounting period in question.

(4) For the purposes of sub-paragraph (3) above—

(a) amount X is the amount of advance corporation tax which, if the company had not treated itself as an international headquarters company at any time in the accounting period and had made a return for the relevant return period under paragraph 2 above accordingly, would have been payable by the company in respect of the relevant return period under paragraph 2(6) above;

(b) amount Y is the aggregate of the amounts mentioned in sub-paragraph (5) below.

(5) The amounts referred to in sub-paragraph (4)(b) above are—

(a) the amount (if any) of advance corporation tax which was in fact payable by the company under paragraph 2(6) above in respect of the relevant return period,

(b) any amount of advance corporation tax to which the company has been assessed under sub-paragraph (1) above in respect of that period, and

(c) any amount of advance corporation tax to which the company has been assessed under paragraph 3 above in respect of that period and which is attributable to foreign income dividends.

(6) Any advance corporation tax due under an assessment made by virtue of sub-paragraph (3) above shall be treated for the purposes of interest on unpaid tax as having been payable at the time when it would have been payable if the company had not treated itself as an international headquarters company at any time in the accounting period.”

(8) In paragraph 4 (receipt of franked investment income after payment of advance corporation tax) in sub-paragraph (2) after the words “any franked payments” there shall be inserted “ , or paid any foreign income dividends, ”.

(9) After paragraph 4 there shall be inserted—

“4A Receipt of foreign income dividends after payment of advance corporation tax

“4A (1) This paragraph shall have effect where—

(a) a return has been made of foreign income dividends paid in any return period falling within an accounting period and advance corporation tax has been paid in respect of those dividends, and

(b) the company receives foreign income dividends after the end of the return period but before the end of the accounting period.

(2) The company shall make a return under paragraph 1 above for the return period in which the foreign income dividends are received whether or not it has made any franked payments, or paid any foreign income dividends, in that period, and, subject to sub-paragraphs (3) to (5) below, shall be entitled to repayment of any advance corporation tax paid (and not repaid) in respect of foreign income dividends paid in the accounting period in question.

(3) If no foreign income dividends were paid by the company in the return period for which a return is made by virtue of sub-paragraph (2) above (the relevant return period), the amount of the repayment shall not exceed the amount which would have been payable under paragraph 2 above as regards the relevant return period if the company—

(a) had paid in the period foreign income dividends of an amount equal to the foreign income dividends actually received by it in the period and had paid in the period no other foreign income dividends or franked payments, and

(b) had received in the period no foreign income dividends or franked investment income.

(4) If at least one foreign income dividend was paid by the company in the relevant return period and the amount of the foreign income dividends received by it in the period exceeds the amount of the foreign income dividends paid by it in the period, the amount of the repayment shall not exceed the amount which would have been payable under paragraph 2 above as regards the relevant return period if the company—

(a) had paid in the period foreign income dividends of an amount equal to the foreign income dividends actually received by it in the period and had paid in the period no other foreign income dividends or franked payments, and

(b) had received in the period foreign income dividends of an amount equal to the foreign income dividends actually paid by it in the period and had received in the period no other foreign income dividends or franked investment income.

(5) If at least one foreign income dividend was paid by the company in the relevant return period and the amount of the foreign income dividends paid by it in the period exceeds the amount of the foreign income dividends received by it in the period, the company shall not be entitled to a repayment under this paragraph as regards the relevant return period.”

(10) After paragraph 6 there shall be inserted—

“6A Claims for set-off in respect of foreign income dividends received by a company

“6A (1) Where under paragraph 2 or 4A above foreign income dividends received by a company fall to be taken into account in determining—

(a) whether advance corporation tax is payable or repayable, or

(b) the amount of such tax which is payable or repayable,

the inclusion of the foreign income dividends in the appropriate return shall be treated as a claim by the company to have them so taken into account, and any such claim shall be supported by such evidence as the inspector may reasonably require.

(2) Paragraph 6 above shall apply in relation to a claim under this paragraph as it applies in relation to a claim under paragraph 5 above.”

(11) In paragraph 7 (qualifying distributions which are not payments and payments of uncertain nature) in sub-paragraph (3) for the words from “and if” to “that period” there shall be substituted “ and if in that period no franked payment (apart from that distribution or payment) is made and no foreign income dividend is paid ”.

(12) After paragraph 9 there shall be inserted—

“9A Manufactured foreign income dividends

“9A (1) This paragraph applies in any case where, by virtue of paragraph 2(2) and (6) of Schedule 23A, a company is treated as having paid a foreign income dividend.

(2) No amount shall be shown under paragraph 2(1)(d) above in respect of the dividend which is treated as having been paid, but the company’s return for the return period in which the dividend is treated as having been paid shall state separately that it was treated as paid and shall show its amount.”

(13) This paragraph shall have effect in relation to any return period ending after 30th June 1994.