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New Schedule

Volume 82: debated on Wednesday 10 July 1985

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Supplementary Provisions As To Withdrawal Of Tax Credits

Recovery Of Tax Credits Incorrectly Paid

1. — (1) Where the provisions of section [Withdrawal of right of certain non-resident companies to payment of tax credits] of this Act apply so as to withdraw the entitlement of a company to claim to have a tax credit in respect of a qualifying distribution set against the income tax chargeable on its income and to have the excess of the credit over that income tax paid to it and the company (in this paragraph referred to as "the recipient company") has either had that excess paid to it, or has received an additional amount in accordance with arrangements made under Regulation 2(1) of the Double Taxation Relief (Taxes on Income) (General) (Dividend) Regulations 1973, it shall be liable to a fine for the violation of the provisions of section [Withdrawal of right of certain non-resident companies to payment of tax credits] of this Act equal to twice the amount of the excess or additional amount as the case may be and such fine (in this section referred to as "the recoverable amount") shall be payable to the Board and be treated as having become payable at the date when the excess or additional amount was paid to the recipient company and may be recovered in accordance with subparagraphs (2) to (5) below.

(2) The recoverable amount may be assessed and recovered as if it were unpaid tax and section 30 of the Taxes Management Act 1970 (recovery of overpayment of tax, etc) shall apply accordingly.

(3) Any amount which may be assessed and recovered as if it were unpaid tax by virtue of this paragraph shall carry interest at the rate of 9 per cent. per annum from the date when it was payable in accordance with this paragraph until the date it is paid and it is hereby declared that this paragraph applies to a recoverable amount which is paid without the making of an assessment (but is paid after it is due) and that, where the recoverable amount is charged by any assessment (whether or not any part of it has been paid when the assessment is made), this paragraph applies in relation to interest running before, as well as after, the making of the assessment.

(4) Where the recoverable amount is not paid by the recipient company within six months from the date on which it became payable—

  • (a) the recoverable amount may at any time within six years from the date on which it became payable be assessed and recovered as if it were unpaid tax due from any person who is or was at any time prior to the expiration of the said six year period connected with the recipient company, or would have been connected on the assumption that all the facts and circumstances relating to the recipient company at the time the excess or additional amount as the case may be was paid continued to apply for six years thereafter, and section 30 of the Taxes Management Act 1970 shall apply accordingly, and
  • (b) as respects its accounting periods beginning with that in which the excess or additional amount referred to in sub-paragraph (1) above was paid and ending with that following that in which the recoverable amount is paid in accordance with the provisions of this paragraph, the company which made the qualifying distribution in respect of which the recipient company received the excess or additional amount shall not be entitled to set any advance corporation tax paid by it against its liability to corporation tax for such periods in accordance with section 85 of the Finance Act 1972 (payments of advance corporation tax to be set against company's liability to corporation tax on its income) nor to surrender the benefit of the whole or any part of any amount of advance corporation tax to a subsidiary in accordance with section 92 of that Act (setting of company's surplus advance corporation tax against subsidiary's liability) in such periods.
  • (5) Where a recoverable amount is assessed and recovered from a person connected with the recipient company in accordance with sub-paragraph (4) (a) above, that person shall be liable for the interest payable in accordance with sub-paragraph (3) above and, until the interest is so paid, sub-paragraph (4) (b) above shall apply as if the words "the interest due in accordance wih subparagraph (3) above is paid" were substituted for the words "the recoverable amount is paid in accordance with the provisions of this paragraph".

    (6) Interest payable under this paragraph shall be paid without any deduction of income tax and shall not be allowed as a deduction in computing any income, profits or losses for any tax purposes.

    (7) Where under the law in force in a territory outside the United Kingdom interest is payable subject to a deduction in respect of taxation and such deduction applies to an amount of interest paid in accordance with sub-paragraph (3) above, the reference to the rate of 9 per cent. per annum in that sub-paragraph shall be deemed to be a reference to such rate of interest as after such deduction shall be equal to the rate of 9 per cent, per annum.

    Claims To Payment Of Tax Credits Following Remedial Legislation In Unitary States

    2. — (1) This paragraph has effect where a company to which section [ Withdrawal of right of certain non-resident companies to payment of tax credits] applies has a qualifying presence in a province, state or other part of a territory outside the United Kingdom which has been prescribed as a unitary state for the purposes of that section and, at the time when a qualifying distribution is made to that company by a company which is resident in the United Kingdom, that state has enacted legislation the effect of which is that, as from a future date which shall not be later than 31st December 1986, it will cease to be a unitary state within the meaning of the definition in paragraph 5(1) below, notwithstanding that it remains prescribed as such for the purposes of that section.

    (2) In the circumstances described in sub-paragraph (1) above the company in receipt of the qualifying distribution shall be entitled on or after the effective date to claim to have the tax credit to which it is entitled in respect of the distribution set against its liability to income tax and to have the excess (if any) of the credit over that liability paid to it; but, if payment of the excess or of the additional amount referred to in Regulation 2(1) of the Double Taxation Relief (Taxes on Income) (General) (Dividend) Regulations 1973 is made before the effective date, the provisions of paragraph 1 above shall apply in relation to that payment regardless of the enactment of the legislation referred to in sub-paragraph (1) above.

    (3) For the purposes of this paragraph the efective date shall be deemed to be the date (Not to be later than 31st December 1986) on which the legislation referred to in sub-paragraph (1) above actually becomes effective in the province, state or other part of the territory outside the United Kingdom which has been prescribeed as a unitary state for the purposes of section [ Withdrawal of right of certain non-resident companies to payment of tax credits], irrespective of the date, if any, specified in that legislation.

    Avoidance Of Provision Withdrawing Tax Credits

    3.—(1) in any case where arrangements are made, whether before or after section [ Withdrawl of right of certain non-resident companies to payment of tax credits] comes into force, as a result of which interest is paid or a discount is allowed by or through a person who is resident in the United Kingdom, or carries on business in the United Kingdom through a branch or agency, and it is reasonable to suppose that, if such payment or allowance had not been made, a qualifying distribution would have been made by the person by or through whom the payment or allowance is made, or by another company resident in the United Kingdom,

    to a company which has, or is an associated company of a company which has, a qualifying presence in a unitary state at the time when the payment or allowance is made, then—

  • (a) no person who receives that payment or allowance shall be entitled to relief from income tax or corporation tax thereon by virtue of arrangements having effect under section 497(1) of the Taxes Act, and
  • (b) the payment or allowance shall not be allowed as a deduction in computing any income profits or losses for any tax purposes.
  • (2) Without prejudice to the generality of sub-paragraph (1) above, where a payment or allowance is not of itself a payment or allowance to which sub-paragraph (1) above applies, but is made in conjunction with other payments of whatever nature and taken together with those payments has substantially similar effect to a distribution, then, for the purposes of sub-paragraph (1) above, it shall be treated as a payment or allowance within that sub-paragraph.

    (3) Any company which has received such a payment of interest as is referred to in sub-paragraph (1) above, from which income tax has not been deducted by the person making the payment, and has a qualifying presence in a unitary state at the time of the payment, shall be treated for the purposes of paragraph 1 above as a company from which the entitlement to claim payment of the excess of a tax credit over the income tax chargeable on its income has been withdrawn by section [Withdrawal of right of certain non-resident companies to payment of tax credits] (1) and which has had paid to it such an excess in an amount equal to the income tax which should have been deducted from the payment of interest.

    Power To Inspect Documents Of Non-Resident Companies

    4.—(1) Where it appears to the Board that the provisions of section [Withdrawal of right of certain non-resident companies to payment of tax credits] and this Schedule may apply to a company resident outside the United Kingdom (in this paragraph referred to as a "foreign parent"), the Board may, by notice in writing given to the foreign parent or any associated company of that foreign parent, require that company within such time (not being less than thirty days) as may be specified in the notice to make available for inspection any books, accounts, or other documents or records whatsoever of that company where in the opinion of the Board it is proper that they should inspect such documents for the purposes of ascertaining whether the said provisions apply to the foreign parent or such associated company notwithstanding that in the opinion of the person to whom the notice is given those provisions do not apply to that company or any associated company of that company.

    (2) In the Table to section 98 of the Taxes Management Act 1970 (penalties) at the end of the first column there shall be added—

    "Paragraph 4 of Schedule [Supplementary provisions as to withdrawal of tax credits] to the Finance Act 1985".

    Meaning Of "Unitary State", Etc

    5.—(1) In this Schedule and section [Withdrawal of right of certain non-resident companies to payment of tax credits] of this Act—

    "group" and "member of a group" shall be construed in accordance with section 272(1) of the Taxes Act (definition of groups of companies) with the omission of the restriction in paragraph (a) of that subsection and the substitution of the words "51 per cent." for the words "75 per cent." wherever they occur,
    "qualifying distribution" has the same meaning as in Part V of the Finance Act 1972 (taxation of companies and company distributions),
    "unitary state" means a province, state or other part of a territory outside the United Kingdom with the government of which the arrangements referred to in subsection (1) of section [Withdrawal of right of certain non-resident companies to payment of tax credits] have been made which, in taxing the income or profits of companies from sources within that province, state or other part, takes into account, or is entitled to take into account, income, receipts, deductions, outgoings or assets of such companies, or of associated companies of such companies, arising, expended or situated as the case may be outside that territory and which has been prescribed under subsection (7) of that section as a unitary state for the purposes of that section; but no such province, state or other part shall be so prescribed which only takes into account such income, receipts, deductions, outgoings or assets—
  • (a) if the associated company was incorporated under the law of the territory, or
  • (b) for the purpose of granting relief in taxing dividends received by companies.
  • (2) For the purposes of this Schedule and section [Withdrawal of right of certain non-resident companies to payment of tax credits] of this Act—

  • (a) section 533 of the Taxes Act (connected persons) applies; and
  • (b) section 302 of the Taxes Act (meaning of "associated company" and "control") applies with the substitution of the words "six years" for "one year" in subsection (1) of that section.'.—[Mr. Peter Rees.]
  • Brought up, read the First and Second time, and added to the Bill.