Taxation (International and Other Provisions) Act 2010

CHAPTER 5 Intra-group financing income where payer denied deduction

299 Tax exemption for certain financing income received from EEA companies

(1) A financing income amount of a company that is a member of the worldwide group (“the recipient”) is not to be brought into account for the purposes of corporation tax if—

(a) it arises as a result of a payment by another company that is a member of the worldwide group (“the payer”),

(b) the payment is received during a period of account of the worldwide group to which this Part applies, and

(c) conditions A, B and C are met.

(2) Condition A is that, at the time the payment is received, the payer is a relevant associate of the recipient (see section 300).

(3) Condition B is that, at the time the payment is received—

(a) the payer is tax-resident in an EEA territory (see section 301), and

(b) the payer is liable to a tax of that territory that is chargeable by reference to profits, income or gains arising to the payer.

(4) Condition C is that—

(a) qualifying EEA tax relief for the payment is not available to the payer in the period in which the payment is made (“the current period”) or any previous period (see section 302), and

(b) qualifying EEA tax relief for the payment is not available to the payer in any period after the current period (see section 303).

(5) For the meaning of “financing income amount”, see section 305.

300 Meaning of “relevant associate”

For the purposes of this Chapter, the payer is a “relevant associate” of the recipient if—

(a) the payer is a parent of the recipient,

(b) the payer is a 75% subsidiary of the recipient, or

(c) the payer is a 75% subsidiary of a parent of the recipient.

301 Meaning of “tax-resident” and “EEA territory”

(1) For the purposes of this Chapter, the payer is “tax-resident” in a territory if it is liable, under the law of that territory, to tax by reason of domicile, residence or place of management.

(2) In this Chapter “EEA territory” means a territory outside the United Kingdom that is within the European Economic Area.

302 Qualifying EEA tax relief for payment in current or previous period

(1) For the purposes of this Chapter, qualifying EEA tax relief for a payment is not available to the payer in the current period or a previous period if conditions A and B are met in relation to the payment.

(2) Condition A is that no deduction calculated by reference to the payment can be taken into account in calculating any profits, income or gains that—

(a) arise to the payer in the current period or any previous period, and

(b) are chargeable to any tax of the United Kingdom or an EEA territory for the current period or any previous period.

(3) Condition B is that no relief determined by reference to the payment can be given in the current period or any previous period for the purposes of any tax of the United Kingdom or an EEA territory by—

(a) the payment of a credit,

(b) the elimination or reduction of a tax liability, or

(c) any other means of any kind.

(4) Conditions A and B are not met in relation to the payment unless every step is taken (whether by the payer or any other person) to secure that deductions are taken into account as mentioned in subsection (2) and reliefs are given as mentioned in subsection (3).

(5) Conditions A and B are not met in relation to the payment unless they would be met disregarding a failure to obtain a deduction or relief as a result of—

(a) this Part, or

(b) provision made as a result of double taxation arrangements between any two territories (including provision sanctioned by associated enterprise rules contained in such arrangements).

(6) For this purpose—

(a) arrangements are “double taxation arrangements” if they are arrangements made between any two territories with a view to affording relief from double taxation, and

(b) “associated enterprise rules” means—

(i) rules that, on the passing of FA 2009, were contained in Article 9 of the Model Tax Convention on Income and on Capital published by the Organisation for Economic Co-operation and Development, or

(ii) any rules in the same or equivalent terms.

303 Qualifying EEA tax relief for payment in future period

(1) For the purposes of this Chapter, qualifying EEA tax relief for a payment is not available to the payer in a period after the current period if conditions A and B are met in relation to the payment.

(2) Condition A is that no deduction calculated by reference to the payment can be taken into account in calculating any profits, income or gains that—

(a) might arise to the payer in any period after the current period, and

(b) would, if they did so arise, be chargeable to any tax of the United Kingdom or an EEA territory for any period after the current period.

(3) Condition B is that no relief determined by reference to the payment can be given in any period after the current period for the purposes of any tax of the United Kingdom or an EEA territory by—

(a) the payment of a credit,

(b) the elimination or reduction of a tax liability, or

(c) any other means of any kind.

(4) The question whether a deduction can be taken into account as mentioned in subsection (2) or a relief can be given as mentioned in subsection (3) is to be determined by reference to the position immediately after the end of the current period.

(5) Conditions A and B are not met in relation to the payment unless they would be met disregarding a failure to obtain a deduction or relief as a result of—

(a) this Part, or

(b) provision made as a result of double taxation arrangements between any two territories (including provision sanctioned by associated enterprise rules contained in such arrangements).

(6) For this purpose—

(a) arrangements are “double taxation arrangements” if they are arrangements made between any two territories with a view to affording relief from double taxation, and

(b) “associated enterprise rules” means—

(i) rules that, on the passing of FA 2009, were contained in Article 9 of the Model Tax Convention on Income and on Capital published by the Organisation for Economic Co-operation and Development, or

(ii) any rules in the same or equivalent terms.

304 References to tax of a territory

(1) References in this Chapter to a tax of the United Kingdom are to income tax or corporation tax.

(2) References in this Chapter to a tax of a territory outside the United Kingdom are to a tax chargeable under the law of that territory that—

(a) is charged on income and corresponds to income tax, or

(b) is charged on income or chargeable gains or both and corresponds to corporation tax.

(3) For the purposes of this section, a tax chargeable under the law of a territory outside the United Kingdom does not fail to correspond to income tax or corporation tax just because—

(a) it is chargeable under the law of a province, state or other part of a country, or

(b) it is levied by or on behalf of a municipality or other local body.

305 Financing income amounts of a company

(1) References in this Chapter to a “financing income amount” of a company are (subject to subsection (6)) to any amount that meets condition A, B or C.

(2) Condition A is that the amount is a credit that—

(a) would, apart from this Chapter, be brought into account by the company for the purposes of corporation tax,

(b) would be so brought into account in respect of a loan relationship—

(i) under Part 3 of CTA 2009 as a result of section 297 of that Act (loan relationships for purposes of trade), or

(ii) under Part 5 of that Act (other loan relationships), and

(c) is not an excluded credit.

(3) A credit is “excluded” if it is in respect of—

(a) the reversal of an impairment loss,

(b) an exchange gain, or

(c) a profit from a related transaction.

(4) Condition B is that the amount is an amount that would, apart from this Chapter, be brought into account by the company for the purposes of corporation tax in respect of the financing income implicit in amounts received under finance leases.

(5) Condition C is that the amount is an amount that would, apart from this Chapter, be brought into account by the company for the purposes of corporation tax in respect of the financing income receivable on debt factoring, or any similar transaction.

(6) The provisions of Chapter 7 apply in relation to an amount that is a financing income amount of a company because of meeting condition A, B or C in this section as they apply in relation to an amount that is a financing income amount of a relevant group company because of meeting condition A, B or C in section 314.