Part 3 U.K. Income tax, corporation tax and capital gains tax

Chapter 2 U.K. Corporation tax: general

Transfer pricing U.K.

32 Special applications of paragraph 6 of Schedule 28AA to the Taxes Act 1988 U.K.

(1) Schedule 28AA to the Taxes Act 1988 (provision not at arm’s length) is amended as follows.

(2) After paragraph 6 insert—

“6A “Application of paragraph 6 in relation to transfers of trading stock etc

(1) Paragraph 6(2)(a) above does not affect the credits to be brought into account by the disadvantaged person in respect of—

(a) closing trading stock, or

(b) closing work in progress in a trade,

for accounting periods ending on or after the last day of the relevant accounting period of the advantaged person.

(2) For the purposes of sub-paragraph (1) above, the relevant accounting period of the advantaged person is the accounting period in which the actual provision was made or imposed.

(3) For the purposes of this paragraph “trading stock”, in relation to any trade, has the same meaning as it has for the purposes of section 100 (valuation of trading stock at discontinuance of trade) (see subsection (2) of that section).”.

(3) After paragraph 6A insert—

“6B “Compensating adjustment where advantaged person is a controlled foreign company

(1) This paragraph applies in any case where—

(a) the actual provision is provision made or imposed in relation to a controlled foreign company,

(b) in determining for the purposes of Chapter 4 of Part 17 the amount of that company’s chargeable profits for an accounting period, its profits and losses fall to be computed in accordance with paragraph 1(2) above in the case of that provision,

(c) the whole of those chargeable profits fall to be apportioned under section 747(3) to one or more companies resident in the United Kingdom, and

(d) tax is chargeable by virtue of section 747(4) in respect of the whole of those chargeable profits, as so apportioned to those companies.

(2) Where this paragraph applies, paragraph 6 above shall have effect as if the controlled foreign company were a person on whom a potential advantage in relation to United Kingdom taxation were conferred by the actual provision.

(3) In the application of paragraph 6 above by virtue of this paragraph—

(a) references to the advantaged person in sub-paragraphs (4)(a) and (b), (5)(a) and (b) and (6)(b) of that paragraph include a reference to any of the companies mentioned in sub-paragraph (1)(c) above, and

(b) references to corporation tax include a reference to tax chargeable by virtue of section 747(4).

(4) In this paragraph—

• “controlled foreign company” has the same meaning as in Chapter 4 of Part 17;

• “accounting period”, in relation to a controlled foreign company, has the same meaning as in Chapter 4 of Part 17.”.

(4) In paragraph 13 (saving for provisions relating to capital allowances and capital gains) at the beginning insert “(1) Subject to sub-paragraph (2) below,” and at the end add—

“(2) Nothing in sub-paragraph (1) above applies to paragraph 6 above.”.