Finance Act 2009

60 Anti-fragmentation

(1) Part 18 of ICTA (double taxation relief) is amended as follows.

(2) In section 798A (section 797: trade income), after subsection (3) insert—

“(3A) Subsection (3) is subject to subsection (3B) if—

(a) the taxpayer is a bank or a company connected with a bank, and

(b) the amount of the included funding costs is significantly less than the amount of the notional funding costs.

(3B) The amount of the notional funding costs is to be included in the subsection (3) total, but only to the extent that it exceeds the amount of the included funding costs.

(3C) In subsections (3A) and (3B) and this subsection—

• “bank” has the meaning given by section 840A;

• “connected” has the meaning given by section 839;

• “included funding costs” means the total of the funding costs that are—

  (a)

  incurred by the taxpayer, or any company connected with the taxpayer, in respect of capital used to fund the relevant transaction, and

  (b)

  included in the subsection (3) total (before the application of subsection (3B));

• “notional funding costs” means the funding costs that the relevant bank would incur (on the basis of its average funding costs) in respect of the capital that would be needed to wholly fund the relevant transaction if that transaction were funded in that way (and for this purpose “relevant bank” means the bank that is the taxpayer, or with which the taxpayer is connected);

• “relevant transaction” means the transaction, arrangement or asset from which the income or gain arises;

• “subsection (3) total” means the amount to be taken into account under subsection (3) for the purposes of section 797(1).”

(3) Section 798B (section 798A: special cases), after subsection (4) insert—

“(4A) Income of a person (“D”) is to be treated for the purposes of section 798A as trade income (if it is not otherwise trade income) of D in a case where—

(a) the income is received by D as part of a scheme or arrangement entered into by D and a connected person (“C”),

(b) if C had received the income, it would be reasonable to assume that it would be trade income of C, and

(c) a main purpose of the scheme or arrangement is to produce the result that section 798A will not have effect in relation to the income because it is received by D.

(4B) For the purposes of subsection (4A)(b) it is to be assumed that, in the case of any relevant transaction to which a relevant person is a party, C were that party to that transaction.

(4C) In subsections (4A) and (4B) and this subsection—

• “connected person” means a person with whom D is connected (within the meaning of section 839);

• “relevant person” means—

  (a)

  D, or

  (b)

  any other connected person who is a party to the scheme or arrangement;

• “relevant transaction” means any of the transactions giving rise to the income.”

(4) The amendments made by this section have effect in relation to a credit for foreign tax which relates to—

(a) a payment of foreign tax on or after 22 April 2009, or

(b) income received on or after that date in respect of which foreign tax has been deducted at source.