Finance Act 1998 (c. 36) (c. 36)

(The document as of February, 2008)

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(8) Subsection (9) shall be renumbered as subsection (13) and after subsection (8) there shall be inserted--

" (9) If, in a case falling within subsection (1)(d) above, the trustees were resident in the United Kingdom immediately before the happening of the chargeable event in question, the amount of the gain--

(a) shall be deemed to form part of the income of the trustees for the year of assessment in which the chargeable event happened; and

(b) shall be chargeable to income tax at the rate applicable to trusts for that year.

(10) If, in a case falling within subsection (1)(d) above, the trustees were not resident in the United Kingdom immediately before the happening of the chargeable event in question, then, for the purpose of determining whether an individual ordinarily resident in the United Kingdom has a liability for income tax in respect of the amount of the gain, section 740 shall apply as if--

(a) the amount of the gain constituted income becoming payable to the trustees; and

(b) that income were income arising to the trustees in the year of assessment in which the chargeable event happened.

(11) In a case falling within subsection (1)(e) above, for the purpose of determining whether an individual ordinarily resident in the United Kingdom has a liability for income tax in respect of the amount of the gain, section 740 shall apply as if--

(a) the amount of the gain constituted income becoming payable to the foreign institution; and

(b) that income were income arising to the foreign institution in the year of assessment in which the chargeable event happened.

(12) For the purposes of this section, property held for the purposes of a foreign institution shall be regarded as in the beneficial ownership of the foreign institution. "

(9) In subsection (13) (definitions) the following definition shall be inserted at the appropriate place--

" "foreign institution" means a person which is a company or other institution resident or domiciled outside the United Kingdom. "

(10) After that subsection there shall be inserted--

" (14) Any reference in this section to trusts created by an individual includes a reference to trusts arising under--

(a) section 11 of the [1882 c. 75.] Married Women's Property Act 1882;

(b) section 2 of the [1880 c. 26.] Married Women's Policies of Assurance (Scotland) Act 1880; or

and references to the settlor or to the person creating the trusts shall be construed accordingly. "

Multiple interests

2 After section 547 of the Taxes Act 1988 there shall be inserted--

" 547A Method of charging gain to tax: multiple interests.

(1) Where, immediately before the happening of a chargeable event, two or more persons have relevant interests in the rights conferred by the policy or contract in question, section 547 shall have effect in relation to each of those persons as if that person had been the only person with a relevant interest in those rights, but with references to the amount of the gain construed as references to his proportionate share of the amount of the gain.

(2) References in this section to the rights conferred by a policy or contract are, in the case of an assignment of a share only in any rights, references to that share.

(3) For the purposes of this section, a person has a "relevant interest" in the rights conferred by a policy or contract--

(a) in the case of an individual, if a share in the rights is vested in him as beneficial owner, or is held on trusts created, or as security for a debt owed, by him;

(b) in the case of a company, if a share in the rights is in the beneficial ownership of the company, or is held on trusts created, or as security for a debt owed, by the company;

(d) in the case of trustees--

(i) if a share in the rights is held by them, and the person who created the trusts is not resident in the United Kingdom or has died or (in the case of a company or foreign institution) has been dissolved or wound up or has otherwise come to an end; or

(ii) if a share in the rights is held as security for a debt owed by them;

(e) in the case of a foreign institution, if a share in the rights is in the beneficial ownership of the foreign institution, or is held as security for a debt owed by the foreign institution.

(4) For the purposes of subsection (1) above, a person's "proportionate share" of the amount of a gain is that share of it which is proportionate to the share of the rights by reference to which he has the relevant interest in question.

(5) Where, immediately before the happening of a chargeable event, the rights conferred by the policy or contract in question are, or a share in those rights is, held as security for one or more debts owed by two or more persons, this section shall effect in relation to the chargeable event as if--

(a) each of those persons were instead the sole debtor in respect of a separate debt; and

(b) the security for that separate debt were the appropriate share of the security for the actual debt or debts (so far as consisting of the rights, or a share in the rights, conferred by the policy or contract);

and for the purposes of paragraph (b) above the appropriate share, in the case of any person, is a share which is proportionate to that share of the actual debt or, as the case may be, the aggregate of the two or more actual debts, for which he is liable as between the debtors.

(6) Where, immediately before the happening of a chargeable event, the rights conferred by the policy or contract in question are, or a share in those rights is, held on trusts created by two or more persons, this section shall have effect in relation to that chargeable event as if--

(a) each of those persons had instead been the sole settlor in relation to a separate share of the rights or share so held; and

(b) that separate share were proportionate to the share which originates from him of the whole of the property subject to the trusts immediately before the happening of the chargeable event.

(7) The reference in subsection (6)(b) above to the share of the property which originates from a person is a reference to the share of the property which consists of--

(a) property which that person has provided directly or indirectly for the purposes of the trusts;

(b) property representing property which that person has so provided; and

(c) so much of any property which represents both property so provided and other property as, on a just apportionment, represents the property so provided.

(8) References in subsection (7) above to property which a person has provided directly or indirectly--

(a) include references to property which has been provided directly or indirectly by another in pursuance of reciprocal arrangements with the person, but

(b) do not include references to property which the person has provided directly or indirectly in pursuance of reciprocal arrangements with another.

(9) References in subsection (7) above to property which represents other property include references to property which represents accumulated income from that other property.

(10) Where immediately before the happening of a chargeable event--

(a) the rights conferred by the policy or contract in question are, or a share in those rights is, held subject to any trusts, and

(b) different shares of the whole of the property subject to those trusts originate (within the meaning of subsection (6)(b) above) from different persons,

the rights or share shall, in relation to that chargeable event, be taken for the purposes of this section to be held on trusts created by those persons.

(11) Where the rights conferred by a policy or contract are, or an interest in any such rights is, in the beneficial ownership of two or more persons jointly, the rights or interest shall be treated for the purposes of this section as if they were in the beneficial ownership of those persons in equal shares.

(12) A non-fractional interest in the rights conferred by a policy or contract shall be treated for the purposes of this section as if it were instead such a share in those rights as may justly and reasonably be regarded for those purposes as representing the non-fractional interest.

(13) For the purposes of subsection (12) above, a "non-fractional interest" in the rights conferred by a policy or contract is an interest in some or all of those rights which is not a share in all of those rights (otherwise than by virtue only of subsection (2) above).

(14) This section applies in a case where the same person has two or more relevant interests in the rights conferred by a policy or contract as it applies in a case where two or more persons have separate relevant interests, unless--

(a) that person is the only person with a relevant interest in those rights, and

(b) he has all the relevant interests in the same capacity,

in which case section 547 applies.

(15) In this section--

"foreign institution" has the same meaning as in section 547;
"personal representatives" has the same meaning as in Part XVI.

(16) Subsections (12) and (14) of section 547 apply for the purposes of this section as they apply for the purposes of that section. "

Right of company to recover tax from trustees

3 After section 551 of the Taxes Act 1988 (right of individual to recover tax from trustees) there shall be inserted--

" 551A Right of company to recover tax from trustees.

(1) Where--

(a) an amount is included in a company's income by virtue of section 547(1)(b), and

(b) the rights or share in question were held immediately before the happening of the chargeable event on trust,

the company shall be entitled to recover from the trustees, to the extent of any sums, or to the value of any benefits, received by them by reason of the event, the amount (if any) by which T1 exceeds T2.

(2) For the purposes of subsection (1) above--

T1 is the tax with which the company is chargeable for the accounting period in question; and
T2 is the tax with which the company would have been chargeable for the accounting period if the amount mentioned in subsection (1)(a) above had not been included as there mentioned.

(3) A company may require the Board to certify any amount recoverable by the company by virtue of this section, and the certificate shall be conclusive evidence of the amount. "

Foreign institution policies: no reduction under section 553

4 (1) Section 553 of the Taxes Act 1988 (non-resident policies and capital redemption policies) shall be amended as follows.

(2) In subsection (3) (which, subject to subsection (5), provides for the gain to be reduced by reference to the policy holder's time of residence in the United Kingdom) for "subsection (5)" there shall be substituted "subsections (5) and (5A)".

(3) After subsection (5) there shall be inserted--

" (5A) If, on the happening of the chargeable event referred to in subsection (3) above or at any time during the period referred to in that subsection, the policy is or was held by a foreign institution, no reduction shall be made under that subsection unless--

(a) the policy was issued in respect of an insurance made on or before 16th March 1998; and

(b) on that date the policy was held by a foreign institution. "

(4) In subsection (10) (definitions) there shall be inserted at the appropriate place--

" "foreign institution" has the same meaning as in section 547; " .

Consequential amendments

5 In section 7(9) of the [1970 c. 9.] Taxes Management Act 1970 (meaning of "relevant trustees" for the purposes of that Act)--

(a) in paragraph (a), after "in relation to income" there shall be inserted "(other than gains treated as arising under Chapter II of Part XIII of the principal Act)"; and

(b) after paragraph (a) there shall be inserted--

" (aa) in relation to gains treated as arising under Chapter II of Part XIII of the principal Act, the persons who are trustees in the year of assessment in which the gains arise and any persons who subsequently become trustees; and " .

6 In section 151 of the [1989 c. 26.] Finance Act 1989 (assessment of trustees etc) for subsection (2) (definition of "the relevant trustees") there shall be substituted--

" (2) In this section "the relevant trustees"--

(a) in relation to any income, other than gains treated as arising under Chapter II of Part XIII of the Taxes Act 1988, means the trustees to whom the income arises and any subsequent trustees of the settlement; and

(b) in relation to gains treated as arising under Chapter II of Part XIII of the Taxes Act 1988, means the trustees in the year of assessment in which the gains arise and any subsequent trustees of the settlement;

and "the relevant personal representatives" has a corresponding meaning. "

Commencement

7 (1) Paragraph (d) of section 547(1) of the Taxes Act 1988 shall not have effect in relation to the amount of a gain if--

(a) the gain is treated as arising on the happening of a chargeable event on or after 6th April 1998 in relation to a pre-commencement policy or contract; and

(b) the trusts in question were created before 17th March 1998 and the person, or (disregarding section 547A(6) of that Act) at least one of the persons, who created them was an individual who died before that date.

(2) In sub-paragraph (1) above, "pre-commencement policy or contract" means--

(a) a policy of life insurance issued in respect of an insurance made before 17th March 1998,

(b) a contract for a life annuity made before that date, or

but does not include a policy or contract varied on or after that date so as to increase the benefits secured or to extend the term of the insurance, annuity or capital redemption policy (any exercise of rights conferred by the policy or contract being regarded for this purpose as a variation).

(3) The amendment made by paragraph 6 above has effect in relation to income arising on or after 6th April 1998.

(4) In that amendment, the express references to gains treated as arising under Chapter II of Part XIII of the Taxes Act 1988 are references to gains treated as so arising on the happening of chargeable events on or after 6th April 1998.

(5) Except as provided by the preceding provisions of this paragraph, this Schedule has effect in relation to chargeable events happening on or after 6th April 1998.

Section 92.

SCHEDULE 15 Approved retirement benefits schemes

Amendment of section 591C of the Taxes Act 1988

1 (1) Section 591C of the Taxes Act 1988 (charge to tax arising on cessation of approval) shall be amended as follows.

(2) In subsection (4) (section to apply to schemes in respect of which either of the specified conditions is satisfied), for "either" there shall be substituted "one or more".

(3) After subsection (6) there shall be inserted the following subsection--

" (6A) The third condition is satisfied in respect of a scheme if--

(a) at any time within the period of three years ending with the date of the cessation of the approval of the scheme, the scheme has received a transfer value in respect of any person;

(b) contributions made by or in respect of that person to any approved pension arrangements (whether or not those from which the transfer value was received) were represented in the transfer value; and

(i) any service by him with a company of which he is or has at any time been a controlling director;

(ii) any remuneration in respect of any such service; or

(iii) any income chargeable to tax under Schedule D and immediately derived by him from the carrying on or exercise by him (whether as an individual or in partnership with others) of a trade, profession or vocation. "

(4) In subsection (7) of that section (meaning of "controlling director"), for "subsection (6) above" there shall be substituted "this section".

(5) After that subsection there shall be inserted the following subsections--

" (8) In subsection (6A) above--

(a) the references to the receipt of a transfer value by a scheme are references to the transfer, so as to become held for the purposes of the scheme, of any sum or asset held for the purposes of any other approved pension arrangements; and

(b) the references to contributions to approved pension arrangements include references to--

(i) any contributions made in accordance with, or for the purposes of, the arrangements; and

(ii) anything paid by way of premium or other consideration under an annuity contract for which the arrangements provide.

(9) In this section "approved pension arrangements" means--

(a) any scheme or arrangements approved for the purposes of this Chapter or Chapter IV of this Part or, in relation to a time before 6th April 1988, the corresponding provisions then in force;

(b) any scheme being considered for approval under this Chapter;

(c) any annuity contract entered into for the purposes of any scheme or arrangements falling within paragraph (a) or (b) above; or

(d) any contract or scheme approved for the purposes of Chapter III of this Part or, in relation to a time before 6th April 1988, the corresponding provisions then in force. "

(6) This paragraph has effect in relation to any case in which the date of the cessation of the approval is on or after 17th March 1998.

Amendment of section 591D

2 (1) In section 591D(3) of the Taxes Act 1988 (persons loans to whom are loans to which the valuation rule in section 591D(2) applies), for paragraphs (c) and (d) there shall be substituted the following paragraphs--

" (c) any person who has at any time (whether or not before the making of the loan) been a member of the scheme;

(d) any person connected, at the time of the making of the loan or subsequently, with a person falling within paragraph (c) above. "

(2) This paragraph has effect in relation to any case in which the date of the cessation of the approval of the scheme is on or after 17th March 1998.

Application for scheme approval

3 (1) In subsection (1) of section 604 of the Taxes Act 1988 (application for approval)--

(a) for "the administrator of the scheme" there shall be substituted "the appropriate applicant"; and

(b) in paragraph (c), after "given to the" there shall be inserted "appropriate applicant,".

(2) After that subsection there shall be inserted the following subsection--

" (1A) In subsection (1) above "the appropriate applicant" means--

(a) in the case of a trust scheme, the trustee or trustees of the scheme; and

(b) in the case of a non-trust scheme, the scheme sponsor or scheme sponsors;

and subsection (9) of section 611AA applies for the purposes of this subsection as it applies for the purposes of that section. "

(3) This paragraph has effect in relation to any application made on or after the day on which this Act is passed.

Information powers

4 In section 605(1B) of the Taxes Act 1988 (matters about which information may be obtained in pursuance of regulations under section 605(1A) of that Act), for paragraph (a) there shall be substituted the following paragraph--

" (a) a scheme which is or has been an approved scheme; " .

Employers responsible for discharging administrator's duties

5 (1) Section 606 of the Taxes Act 1988 (persons responsible where there is no administrator or the administrator cannot be traced or is in default) shall have effect, and shall be deemed always to have had effect, with the insertion of the following subsection after subsection (9)--

" (9A) Where by virtue of this section any person is the person, or one of the persons, responsible for the discharge of the duties of the administrator of a scheme, any power or duty by virtue of this Part to serve any notice on, or to do any other thing in relation to, the administrator may be exercised or performed, instead, by the service of that notice on that person or, as the case may be, by the doing of that other thing in relation to that person. "

(2) After subsection (11) of that section there shall be inserted the following subsection--

" (11A) In determining for the purposes of this section--

(a) whether all of the persons who are the administrator of a scheme are at any time in default in respect of an amount of tax chargeable by virtue of section 591C, or

(b) whether a trustee of a scheme is in default in respect of any amount of tax so chargeable,

the persons who at that time are trustees of the scheme or hold appointments in relation to the scheme under section 611AA(4) to (6) shall be deemed not to include any person who by virtue of section 591D(4) is not liable for that tax. "

(3) Sub-paragraph (2) above has effect for determinations made in relation to any time on or after 17th March 1998.

Recourse to scheme members in respect of section 591C charge

6 (1) After section 606 of the Taxes Act 1988 there shall be inserted the following section--

" 606A Recourse to scheme members.

(1) This section applies where--

(a) an approval of a retirement benefits scheme has ceased to have effect;

(b) a person ("the employer") has become liable by virtue of section 606 to any tax chargeable on the administrator of the scheme under section 591C;

(d) a person falling within subsection (2) below ("the relevant member") was a member of the scheme at the time ("the relevant time") immediately before the date of the cessation of its approval.

(2) A person falls within this subsection in relation to any tax chargeable under section 591C if--

(a) at the relevant time or at any time before that time he was a controlling director of the employer; or

(b) he is a person by or in respect of whom any contributions were made by reference to which the condition in subsection (6A) of that section has been satisfied for the purpose of the charge to that tax.

(3) Subject to subsection (4) below, if in a case where this section applies--

(a) the employer has ceased to exist, or

(b) the Board notify the relevant member that they consider the failure of the employer to pay the unpaid tax to be of a serious nature,

the relevant member shall be treated as included in the persons on whom the unpaid tax was charged and shall be assessable accordingly.

(4) The amount of tax for which the relevant member shall be taken to be assessable by virtue of this section shall not exceed the amount determined by--

(a) taking the amount equal to 40 per cent. of his share of the scheme; and

(b) subtracting from that amount his share of any tax charged under section 591C that has already been paid otherwise than by another person on whom it is treated as charged in accordance with this section.

(5) For the purposes of this section the relevant member's share of the scheme is the amount equal to so much of the value of the assets held for the purposes of the scheme at the relevant time (taking the value at that time) as, on a just and reasonable apportionment, would have fallen to be treated as the value at that time of the assets then held for the purposes of the provision under the scheme of benefits to or in respect of the relevant member.

(6) For the purposes of this section the relevant member's share of an amount of tax already paid is such sum as bears the same proportion to the amount paid as is borne by his share of the scheme to the total value at the relevant time of the assets then held for the purposes of the scheme.

(7) The reference in subsection (5) above to the provision of benefits to or in respect of the relevant member includes a reference to the provision of a benefit to or in respect of a person connected with the relevant member.

(8) For the purposes of this section a person is a controlling director of a company if he is a director of the company and is within section 417(5)(b) in relation to the company.

(9) A notification given to any person for the purposes of subsection (3)(b) above may be included in any assessment on that person of the tax to which he becomes liable by virtue of the notification.

(10) An assessment to tax made by virtue of this section shall not be out of time if it is made within three years after the date on which the tax which the employer has failed to pay first became due from him.

(11) Subsections (1) to (3) of section 591D shall apply to the determination of the value at any time of an asset held for the purposes of a scheme as they apply for the purposes of section 591C(2).

(12) Subsections (7) and (8) of section 591D shall apply for the purposes of this section as they apply for the purposes of subsection (1) of section 591C and section 591C, respectively.

(13) Section 839 (connected persons) shall apply for the purposes of this section. "

(2) This paragraph has effect in relation to any case in which the date of the cessation of the approval is on or after 17th March 1998.

Modification of certain existing approved schemes

7 (1) This paragraph applies in relation to any retirement benefits scheme which--

(a) was approved by the Board on or before 17th March 1998; and

(b) contains provision requiring one of the trustees of the scheme to be an approved independent trustee.

(2) Notwithstanding anything to the contrary in the scheme or its rules, the appointment (whenever made) of any person to be a trustee of the scheme, and any requirement on him or entitlement of his to act as such, shall be (and be treated as having been) incapable of termination at any time on or after 17th March 1998 except--

(a) by the death of that person;

(b) by an order of the court;

(c) by virtue of section 3, 4 or 29 of the [1995 c. 26.] Pensions Act 1995 or Article 3, 4 or 29 of the [S.I. 1995/3213 (N.I. 22).] Pensions (Northern Ireland) Order 1995 (prohibition, suspension or disqualification); or

(d) in circumstances mentioned in sub-paragraph (3)(a), (b) or (c) below, in accordance with the rules of the scheme.

(3) Those circumstances are--

(a) where the trustee is not the trustee by reference to whom the requirement mentioned in sub-paragraph (1)(b) above was satisfied immediately before the termination;

(b) where immediately after the termination that requirement is satisfied by reference to a trustee whose appointment takes effect at that time;

(c) where the trustee whose appointment is terminated has committed a fraudulent breach of trust in relation to the scheme and that is the reason for the termination.

(4) Any provisions of the scheme or of any instrument by which the administration of the scheme is governed which require a successor to an approved independent trustee of the scheme to be appointed in specified circumstances shall have effect, in relation to any case in which those circumstances arise at a time on or after the day on which this Act is passed, as if they required the appointment to be made no more than 30 days after that time.

(5) Subsection (5) of section 591D of the Taxes Act 1988 (meaning of "approved independent trustee") shall apply for the purposes of this paragraph as it applies for the purposes of that section.

(6) In this paragraph "retirement benefits scheme" has the same meaning as in Chapter I of Part XIV of the Taxes Act 1988, and "approved" means approved for the purposes of that Chapter or any enactment re-enacted in that Chapter.

Section 108.

SCHEDULE 16 Transfer pricing etc: new regime

The Schedule inserted after Schedule 28A to the Taxes Act 1988 is as follows:--

" SCHEDULE 28AA Provision not at arm's length

Basic rule on transfer pricing etc.

1 (1) This Schedule applies where--

(a) provision ("the actual provision") has been made or imposed as between any two persons ("the affected persons") by means of a transaction or series of transactions, and

(b) at the time of the making or imposition of the actual provision--

(i) one of the affected persons was directly or indirectly participating in the management, control or capital of the other; or

(ii) the same person or persons was or were directly or indirectly participating in the management, control or capital of each of the affected persons.

(2) Subject to paragraphs 8, 10 and 13 below, if the actual provision--

(a) differs from the provision ("the arm"s length provision') which would have been made as between independent enterprises, and

(b) confers a potential advantage in relation to United Kingdom taxation on one of the affected persons, or (whether or not the same advantage) on each of them,

the profits and losses of the potentially advantaged person or, as the case may be, of each of the potentially advantaged persons shall be computed for tax purposes as if the arm's length provision had been made or imposed instead of the actual provision.

(3) For the purposes of this Schedule the cases in which provision made or imposed as between any two persons is to be taken to differ from the provision that would have been made as between independent enterprises shall include the case in which provision is made or imposed as between any two persons but no provision would have been made as between independent enterprises; and references in this Schedule to the arm's length provision shall be construed accordingly.

Principles for construing rules in accordance with OECD principles

2 (1) This Schedule shall be construed (subject to paragraphs 8 to 11 below) in such manner as best secures consistency between--

(a) the effect given to paragraph 1 above; and

(b) the effect which, in accordance with the transfer pricing guidelines, is to be given, in cases where double taxation arrangements incorporate the whole or any part of the OECD model, to so much of the arrangements as does so.

(2) In this paragraph "the OECD model" means--

(a) the rules which, at the passing of this Act, 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

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

(3) In this paragraph "the transfer pricing guidelines" means--

(a) all the documents published by the Organisation for Economic Co-operation and Development, at any time before 1st May 1998, as part of their Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations; and

(b) such documents published by that Organisation on or after that date as may for the purposes of this Schedule be designated, by an order made by the Treasury, as comprised in the transfer pricing guidelines.

Meaning of "transaction" and "series of transactions"

3 (1) In this Schedule "transaction" includes arrangements, understandings and mutual practices (whether or not they are, or are intended to be, legally enforceable).

(2) References in this Schedule to a series of transactions include references to a number of transactions each entered into (whether or not one after the other) in pursuance of, or in relation to, the same arrangement.

(3) A series of transactions shall not be prevented by reason only of one or more of the matters mentioned in sub-paragraph (4) below from being regarded for the purposes of this Schedule as a series of transactions by means of which provision has been made or imposed as between any two persons.

(4) Those matters are--

(a) that there is no transaction in the series to which both those persons are parties;

(b) that the parties to any arrangement in pursuance of which the transactions in the series are entered into do not include one or both of those persons; and

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