Finance Act 2013

Section 26

SCHEDULE 10 U.K. Transfer of assets abroad

PART 1 U.K. Introduction

1 U.K. Chapter 2 of Part 13 of ITA 2007 (tax avoidance: transfer of assets abroad) is amended as follows.

PART 2 U.K. New exemption for genuine transactions etc

2 (1) Section 718 (meaning of “person abroad” etc) is amended as follows. U.K.

(2) For subsection (1) substitute—

“(1) In this Chapter “person abroad” means—

(a) a person who is resident outside the United Kingdom, or

(b) an individual who is domiciled outside the United Kingdom.”

(3) Omit subsection (2)(a).

3 U.K. In section 720 (charge to tax on income treated as arising under section 721) in subsection (7)—

(a) for “742” substitute “ 742A ”, and

(b) after “transaction” insert “ , etc ”.

4 U.K. In section 727 (charge to tax on income treated as arising under section 728) in subsection (5)—

(a) for “742” substitute “ 742A ”, and

(b) after “transaction” insert “ , etc ”.

5 U.K. In section 731 (charge to tax on income treated as arising under section 732) in subsection (4)—

(a) for “742” substitute “ 742A ”, and

(b) after “transaction” insert “ , etc ”.

6 (1) Section 736 (exemptions: introduction) is amended as follows. U.K.

(2) In subsection (1) for “742” substitute “ 742A ”.

(3) After subsection (2) insert—

“(2A) The exemption given by section 742A applies only in the case of a relevant transaction effected on or after 6 April 2012.”

7 U.K. After section 742 insert—

“742A Post-5 April 2012 transactions: exemption for genuine transactions

(1) Subsection (2) applies for the purpose of determining the liability of an individual to tax under this Chapter by reference to a relevant transaction if—

(a) the transaction is effected on or after 6 April 2012, and

(b) conditions A and B are met.

(2) Income is to be left out of account so far as the individual satisfies an officer of Revenue and Customs that it is attributable to the transaction.

(3) Condition A is that—

(a) were, viewed objectively, the transaction to be considered to be a genuine transaction having regard to any arrangements under which it is effected and any other relevant circumstances, and

(b) were the individual to be liable to tax under this Chapter by reference to the transaction,

the individual's liability to tax would, in contravention of a relevant treaty provision, constitute an unjustified and disproportionate restriction on a freedom protected under that relevant treaty provision.

(4) In subsection (3) “relevant treaty provision” means—

(a) Title II or IV of Part Three of the Treaty on the Functioning of the European Union,

(b) Part II or III of the EEA agreement, or

(c) the provision of any subsequent treaty replacing a provision mentioned in paragraph (a) or (b).

(5) Condition B is that the individual satisfies an officer of Revenue and Customs that, viewed objectively, the transaction must be considered to be a genuine transaction having regard to any arrangements under which it is effected and any other relevant circumstances.

(6) Without prejudice to the generality of subsection (3)(a) or (5), in order for the transaction to be considered to be a genuine transaction the transaction must not—

(a) be on terms other than those that would have been made between persons not connected with each other dealing at arm's length, or

(b) be a transaction that would not have been entered into between such persons so dealing,

having regard to any arrangements under which the transaction is effected and any other relevant circumstances.

(7) Subsection (8) applies if any asset or income falling within subsection (12) is used for the purposes of, or is received in the course of, activities carried on in a territory outside the United Kingdom by a person (“the relevant person”) through a business establishment which the relevant person has in that territory.

(8) Without prejudice to the generality of subsection (3)(a) or (5), in order for the transaction to be considered to be a genuine transaction the activities mentioned in subsection (7) must consist of the provision by the relevant person of goods or services to others on a commercial basis and involve—

(a) the use of staff in numbers, and with competence and authority,

(b) the use of premises and equipment, and

(c) the addition of economic value, by the relevant person, to those to whom the goods or services are provided,

commensurate with the size and nature of those activities.

(9) In subsection (8)(a) “staff” means employees, agents or contractors of the relevant person.

(10) To determine if a person has a “business establishment” in a territory outside the United Kingdom, apply sections 1141, 1142(1) and 1143 of CTA 2010 as if in those provisions—

(a) references to a company were to a person, and

(b) references to a permanent establishment were to a business establishment.

(11) Subsection (6) does not apply if—

(a) the relevant transfer is made by an individual who makes it wholly—

(i) for personal reasons (and not commercial reasons), and

(ii) for the personal benefit (and not the commercial benefit) of other individuals, and

(b) no consideration is given (directly or indirectly) for the relevant transfer or otherwise for any benefit received by any individual mentioned in paragraph (a)(ii),

and all assets and income falling within subsection (12) are dealt with accordingly.

(12) The assets and income falling within this subsection are—

(a) any of the assets transferred by the relevant transfer;

(b) any assets directly or indirectly representing any of the assets transferred;

(c) any income arising from any assets within paragraph (a) or (b);

(d) any assets directly or indirectly representing the accumulations of income arising from any assets within paragraph (a) or (b).

(13) In subsections (11) and (12) references to the relevant transfer are to—

(a) if the transaction mentioned in subsection (1) is a relevant transfer, the transfer, or

(b) if the transaction so mentioned is an associated operation, the relevant transfer to which it relates.

(14) Subsection (15) applies if—

(a) subsection (2) would apply in relation to a transaction but for the individual being unable to satisfy an officer of Revenue and Customs for the purposes of condition B that the transaction meets the requirements set out in subsection (6), but

(b) the individual does satisfy an officer of Revenue and Customs that those requirements are met in relation to a part of the transaction.

(15) Subsection (2) applies as if the reference to the transaction were to that part of the transaction.”

8 U.K. In section 751 (the Tribunal's jurisdiction on appeals) after paragraph (d) insert—

“(da) section 742A (post-5 April 2012 transactions: exemption for genuine transactions),”.

9 (1) The amendments made by paragraph 2 above have effect in relation to times on or after 6 April 2012. U.K.

(2) The amendments made by paragraphs 3 to 8 above have effect for the tax year 2012-13 and subsequent tax years.

PART 3 U.K. Amendments relating to the charges under sections 720 and 727

Main provision U.K.

10 (1) Section 721 (individuals with power to enjoy income as a result of a relevant transaction) is amended as follows. U.K.

(2) In subsection (3) after “the income” insert “ of the person abroad ”.

(3) Before subsection (4) insert—

“(3B) The amount of the income treated as arising under subsection (1) is equal to the amount of the income of the person abroad (subject to sections 724 and 725).

(3C) Subsection (1) does not apply if—

(a) the individual is liable for income tax charged on the income of the person abroad by virtue of a charge not contained in this Chapter, and

(b) all that income tax has been paid.”

(4) In subsection (4) after “the income” insert “ of the person abroad ”.

(5) Omit subsection (5)(a).

11 (1) Section 724 (special rules where benefit provided out of income of person abroad) is amended as follows. U.K.

(2) In subsection (2) after “on” insert “ an amount equal to ”.

(3) In subsection (3)—

(a) for “on” substitute “ by reference to ”, and

(b) after “previous tax year” insert “ under this Chapter ”.

12 (1) Section 725 (reduction in amount charged where controlled foreign company involved) is amended as follows. U.K.

(2) In subsection (1), as substituted by paragraph 22 of Schedule 20 to FA 2012, for paragraph (b) and the “ and ” before it substitute—

“(b) an amount of income is treated as arising to an individual under section 721 for a tax year, and

(c) the income mentioned in section 721(2) is or includes a sum forming part of the CFC's chargeable profits for that accounting period.”

(3) After subsection (2) insert—

“(2A) In a case in which section 724 applies, the reference to S in the formula in subsection (2) is to be read as a reference to X% of S.

(2B) “X%” is determined as follows—

where—

A is the amount on which the individual is liable as determined under section 724(2), and

I is the amount of the income mentioned in section 721(2).”

(4) In relation to cases in which the amendments made by paragraph 22 of Schedule 20 to FA 2012 are to be ignored in accordance with paragraph 50(9) of that Schedule, the amendment made by sub-paragraph (5) below has effect instead of the amendment made by sub-paragraph (2) above.

(5) In subsection (1) for paragraph (c) and the “and” before it substitute—

“(c) an amount of income is treated as arising to an individual under section 721 for a tax year, and

(d) the income mentioned in section 721(2) is or includes a sum forming part of the controlled foreign company's chargeable profits for that accounting period.”

13 U.K. In section 726 (non-UK domiciled individuals to whom remittance basis applies) in subsection (2) for “the extent” substitute “ the corresponding extent ”.

14 (1) Section 728 (individuals receiving capital sums as a result of a relevant transaction) is amended as follows. U.K.

(2) After subsection (1) insert—

“(1A) The amount of the income treated as arising under subsection (1) is equal to the amount of the income of the person abroad (subject to subsection (2)).”

(3) In subsection (2) for the words from “it applies” to the end substitute “if—

(a) in subsection (1) of that section—

(i) the reference to section 721 were a reference to this section, and

(ii) the reference to section 721(2) were a reference to subsection (1)(a) of this section, and

(b) subsections (2A) and (2B) of that section were omitted.”

(4) After subsection (2) insert—

“(2A) Subsection (1) does not apply if—

(a) the individual is liable for income tax charged on the income of the person abroad by virtue of a charge not contained in this Chapter, and

(b) all that income tax has been paid.”

(5) Omit subsection (3)(a).

15 U.K. In section 730 (non-UK domiciled individuals to whom remittance basis applies) in subsection (2) for “the extent” substitute “ the corresponding extent ”.

16 (1) Section 743 (no duplication of charges) is amended as follows. U.K.

(2) After subsection (2) insert—

“(2A) Subsection (2B) applies if—

(a) in the case of an individual, an amount of income is taken into account in charging income tax under section 720 or 727, and

(b) the individual subsequently receives that income.

(2B) The income received is treated as not being the individual's income for income tax purposes.”

(3) In subsection (3) for “subsections (1) and (2)” substitute “ this section ”.

(4) Omit subsection (4).

17 (1) Section 744 (meaning of taking income into account in charging income tax for section 743) is amended as follows. U.K.

(2) In subsection (1) for “743(1) and (2)” substitute “ 743 ”.

(3) In subsection (2)—

(a) in paragraph (a) omit “or value of the benefit”, and

(b) in paragraph (b) for “income charged” substitute “ the income mentioned in section 721(2) ”.

(4) In subsection (3) for “that income” substitute “ the income mentioned in section 728(1)(a) ”.

18 (1) Section 745 (rates of tax applicable to income charged under sections 720 and 727 etc) is amended as follows. U.K.

(2) In subsection (1) for “so far as it” substitute “ if (and to the corresponding extent that) the income mentioned in section 721(2) or 728(1)(a) ”.

(3) For subsections (3) and (4) substitute—

“(3) Subsection (4) applies to income treated as arising to an individual under section 721 or 728 so far as subsection (1) does not apply to it.

(4) The charge to income tax under section 720 or 727 operates by treating the income as if it were income within section 19(2) (meaning of “dividend income”) if the income mentioned in section 721(2) or 728(1)(a) would be dividend income were it the income of the individual.”

19 U.K. In section 746 (deductions and reliefs where individual charged under section 720 or 727) for subsection (2) substitute—

“(2) For the purpose of determining the deductions and reliefs allowed to the individual, the individual is to be treated as if the individual had actually received the amount by reference to which the income treated as arising to the individual under section 721 or 728 is determined.”

Commencement and transitional provision U.K.

20 (1) The amendments made by this Part of this Schedule have effect for the tax year 2013-14 and subsequent tax years. U.K.

(2) They have effect in relation to relevant transfers occurring before 6 April 2013 as well as relevant transfers occurring on or after that date.

21 (1) Sections 721(3C) and 728(2A) of ITA 2007 (as inserted by paragraphs 10(3) and 14(4) above) have effect only if the income of the person abroad arises to that person on or after 6 April 2013. U.K.

(2) The amendments made by paragraphs 10(5) and 14(5) above have no effect in relation to income arising to a person abroad before 6 April 2013.