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

(The document as of February, 2008)

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(b) it becomes established that the controlled foreign company has pursued an acceptable distribution policy in relation to the accounting period,

the UK company shall amend the company tax return on the basis that the accounting period is one in relation to which the controlled foreign company pursues an acceptable distribution policy.

(6) Any amendment required to be made to the company tax return by virtue of subsection (4) or (5) above ("an ADP amendment") shall be made by the UK company before the expiration of the period of 30 days next following the end of the period allowed for establishing an ADP in relation to the accounting period of the controlled foreign company.

(7) Subject to subsection (8) below, the making of any ADP amendment is subject to, and must be in accordance with, the other provisions of the Corporation Tax Acts as they apply for the purposes of this Chapter.

(8) The time limits otherwise applicable to amendment of a company tax return do not apply to an ADP amendment.

(9) A company which fails to make an ADP amendment required by subsection (4) above within the time allowed for doing so shall be liable to a tax-related penalty under paragraph 20 of Schedule 18 to the Finance Act 1998 (penalty, not exceeding amount of tax understated, for incorrect or uncorrected return).

(10) For the purposes of this section, if it has not previously been established whether or not the controlled foreign company has pursued an acceptable distribution policy in relation to the accounting period, it shall be taken to be established immediately after the end of the period allowed for establishing an ADP in relation to that accounting period.

(11) In this section, "the period allowed for establishing an ADP" means, in relation to an accounting period of a controlled foreign company, the period ending with the expiration of--

(a) subject to paragraph (b) below, the period of eighteen months next following the end of the accounting period; or

(b) if the Board have, in the case of the accounting period, allowed further time under paragraph 2(1)(b) of Schedule 25, the further time so allowed.

(12) In this section any reference to a controlled foreign company pursuing an acceptable distribution policy in relation to an accounting period shall be construed in accordance with Part I of Schedule 25. "

Determinations requiring the sanction of the Board

11 After section 754A of the Taxes Act 1988 there shall be inserted--

" 754B Determinations requiring the sanction of the Board.

(1) This section has effect where a determination requiring the Board's sanction is made for any of the following purposes, that is to say--

(a) the giving of a closure notice; or

(b) the making of a discovery assessment.

(2) If the closure notice or, as the case may be, notice of the discovery assessment is given to any person without--

(a) the determination, so far as it is taken into account in the closure notice or the discovery assessment, having been approved by the Board, or

(b) notification of the Board's approval having been served on that person at or before the time of the giving of the notice,

the closure notice or, as the case may be, the discovery assessment shall be deemed to have been given or made (and in the case of an assessment notified) in the terms (if any) in which it would have been given or made had that determination not been taken into account.

(3) A notification under subsection (2)(b) above--

(a) must be in writing;

(b) must state that the Board have given their approval on the basis that--

(i) an amount of chargeable profits, and

(ii) an amount of creditable tax (which may be nil),

for the accounting period of the controlled foreign company in question fall to be apportioned under section 747(3) to the person in question;

(d) subject to paragraphs (a) to (c) above, may be in such form as the Board may determine.

(4) For the purposes of this section, the Board's approval of a determination requiring their sanction--

(a) must be given specifically in relation to the case in question and must apply to the amount determined; but

(b) subject to that, may be given by the Board (either before or after the making of the determination) in any such form or manner as they may determine.

(5) In this section references to a determination requiring the Board's sanction are references (subject to subsection (6) below) to any determination of the amount of chargeable profits or creditable tax for an accounting period of a controlled foreign company which falls to be apportioned to a particular person under section 747(3).

(6) For the purposes of this section, a determination shall be taken, in relation to a closure notice or a discovery assessment, not to be a determination requiring the Board's sanction if--

(a) an agreement about the relevant amounts has been made between an officer of the Board and the person in whose case it is made;

(b) that agreement is in force at the time of the giving of the closure notice or, as the case may be, notice of the assessment; and

(7) In paragraph (a) of subsection (6) above, "the relevant amounts" means--

(a) the amount of chargeable profits, and

(b) the amount of creditable tax (which may be nil),

for the accounting period of the controlled foreign company in question which fall to be apportioned under section 747(3) to the person mentioned in that paragraph.

(8) For the purposes of subsection (6) above an agreement made between an officer of the Board and any person ("the taxpayer") in relation to any matter shall be taken to be in force at any time if, and only if--

(a) the agreement is one which has been made or confirmed in writing;

(b) that time is after the end of the period of thirty days beginning--

(i) in the case of an agreement made in writing, with the day of the making of the agreement, and

(ii) in any other case, with the day of the agreement's confirmation in writing; and

(c) the taxpayer has not, before the end of that period of thirty days, served a notice on an officer of the Board stating that he is repudiating or resiling from the agreement.

(9) The references in subsection (8) above to the confirmation in writing of an agreement are references to the service on the taxpayer by an officer of the Board of a notice--

(a) stating that the agreement has been made; and

(b) setting out the terms of the agreement.

(10) The matters that may be questioned on so much of any appeal by virtue of any provision of the Management Act or Schedule 18 to the Finance Act 1998 (company tax returns, assessments and related matters) as relates to a determination the making of which has been approved by the Board for the purposes of this section shall not include the Board's approval, except to the extent that the grounds for questioning the approval are the same as the grounds for questioning the determination itself.

(11) In this section--

"closure notice" means a notice under paragraph 32 of Schedule 18 to the Finance Act 1998 (completion of enquiry and statement of conclusions);
"discovery assessment" means a discovery assessment or discovery determination under paragraph 41 of that Schedule (including an assessment by virtue of paragraph 52 of that Schedule). "

Section 755

12 Section 755 of the Taxes Act 1988 (information relating to controlled foreign companies) shall cease to have effect.

Treatment of chargeable profits and creditable tax apportioned to company carrying on life assurance business

13 After section 755 of the Taxes Act 1988 there shall be inserted--

" 755A Treatment of chargeable profits and creditable tax apportioned to company carrying on life assurance business.

(1) This section applies in any case where--

(a) an amount ("the apportioned profit") of a controlled foreign company's chargeable profits for an accounting period falls to be apportioned under section 747(3) to a company resident in the United Kingdom ("the UK company");

(b) the UK company carries on life assurance business in that one of its accounting periods ("the relevant accounting period") in which ends the accounting period of the controlled foreign company; and

(c) the property or rights which represent the UK company's relevant interest in the controlled foreign company constitute to any extent assets of the UK company's long term business fund.

(2) Subsections (3) and (4) below apply if, in the case of the relevant accounting period, the UK company is not charged to tax under Case I of Schedule D in respect of its profits from life assurance business.

(3) Where this subsection applies, the "appropriate rate" for the purposes of section 747(4)(a) and paragraph 1 of Schedule 26 in relation to the policy holders' part of any BLAGAB apportioned profit shall be--

(a) if a single rate of tax under section 88A(1) of the [1989 c. 26.] Finance Act 1989 (lower corporation tax rate on certain insurance company profits) is applicable in relation to the relevant accounting period, that rate; or

(b) if more than one such rate of tax is applicable in relation to the relevant accounting period, the average of those rates over the whole of that period.

(4) Where this subsection applies, the "appropriate rate" for the purposes of section 747(4)(a) and paragraph 1 of Schedule 26 shall be nil in relation to so much of the apportioned profit as is referable to--

(a) pension business,

(b) life reinsurance business, or

carried on by the UK company.

(5) If, in the case of the relevant accounting period, the UK company is charged to tax under Case I of Schedule D in respect of its profits from life assurance business, the "appropriate rate" for the purposes of--

(a) section 747(4)(a), and

(b) paragraph 1 of Schedule 26,

shall be nil in relation to so much of the apportioned profit as is referable to the UK company's relevant interest so far as represented by assets of its long term business fund.

(6) If, in the case of the relevant accounting period,--

(a) the UK company is not charged to tax under Case I of Schedule D in respect of its profits from life assurance business,

(b) any creditable tax of the controlled foreign company falls to be apportioned to the UK company, and

(c) the apportioned profit is to any extent referable to a category of business specified in paragraphs (a) to (c) of subsection (4) above,

so much of the creditable tax so apportioned as is attributable to the apportioned profit so far as so referable shall be left out of account for the purposes of this Chapter, other than section 747(3) and this section, and shall be treated as extinguished.

(7) If, in the case of the relevant accounting period,--

(a) the UK company is charged to tax under Case I of Schedule D in respect of its profits from life assurance business, and

(b) any creditable tax of the controlled foreign company falls to be apportioned to the UK company,

so much of the creditable tax so apportioned as is attributable to so much of the apportioned profit as is referable to the UK company's relevant interest so far as represented by assets of the UK company's long term business fund shall be left out of account for the purposes of this Chapter, other than section 747(3) and this section, and shall be treated as extinguished.

(8) Any set off under paragraph 1 or 2 of Schedule 26 against the UK company's liability to tax under section 747(4)(a) in respect of the apportioned profit shall be made against only so much of that liability as is attributable to the eligible part of the apportioned profit.

(9) Accordingly, in the application of paragraph 2 of Schedule 26 in relation to the apportioned profit, in the definition of "the relevant maximum" in sub-paragraph (3)--

(a) the reference to the liability to tax referred to in sub-paragraph (1) of that paragraph shall be taken as a reference to only so much of that liability as is attributable to the eligible part of the apportioned profit; and

(b) in paragraph (a), for the amount there described there shall be substituted a reference to the eligible part of the apportioned profit.

(10) For the purposes of this section, the "eligible part" of the apportioned profit is any BLAGAB apportioned profit, other than the policy holders' part.

(11) For the purposes of this section, the "policy holders' part" of any BLAGAB apportioned profit is--

(a) in a case where subsection (4) of section 88A of the [1989 c. 26.] Finance Act 1989 applies, the whole; and

(b) in any other case, the fraction described in subsection (5)(b) of that section.

(12) In this section--

"BLAGAB apportioned profit" means so much of the apportioned profit as is referable to basic life assurance and general annuity business carried on by the UK company;
"long term business fund" has the meaning given by section 431(2).

(13) For the purposes of this section, the part of the apportioned profit which is referable to--

(a) pension business,

(b) life reinsurance business,

(d) basic life assurance and general annuity business,

carried on by the UK company is the part which would have been so referable under section 432A had the apportioned profit been a dividend paid to the UK company at the end of the accounting period mentioned in subsection (1)(a) above in respect of the property or rights which represent the UK company's relevant interest in the controlled foreign company.

(14) For the purposes of this section, any attribution of creditable tax to a particular part of the apportioned profit shall be made in the proportion which that part of the apportioned profit bears to the whole of the apportioned profit. "

Amendment of return where general insurance business of foreign company accounted for on non-annual basis

14 After section 755A of the Taxes Act 1988 there shall be inserted--

" 755B Amendment of return where general insurance business of foreign company accounted for on non-annual basis.

(1) This section applies where--

(a) a controlled foreign company carries on general insurance business in an accounting period;

(b) an amount of the company's chargeable profits, and an amount of its creditable tax (if any), for that accounting period falls to be apportioned under section 747(3) to a company resident in the United Kingdom ("the UK company");

(c) the UK company delivers a company tax return for that one of its accounting periods in which the controlled foreign company's accounting period ends; and

(d) in making or amending the return, the UK company has regard to accounts of the controlled foreign company drawn up using a method falling within subsection (2) below.

(2) The methods which fall within this subsection are--

(a) the method described in paragraph 52 of Schedule 9A to the [1985 c. 6.] Companies Act 1985 (which provides for a technical provision to be made in the accounts which is later replaced by a provision for estimated claims outstanding); and

(b) any method which would have fallen within paragraph (a) above, had final replacement of the technical provision, as described in sub-paragraph (4) of paragraph 52 of that Schedule, taken place, and been required to take place, no later than the end of the year referred to in that sub-paragraph as the third year following the underwriting year.

(3) Where this section applies--

(a) the UK company may make any amendments of its company tax return arising from the replacement of the technical provision in the controlled foreign company's accounts at any time within twelve months from the date on which the provision was replaced; and

(b) notice of intention to enquire into the return under paragraph 24 of Schedule 18 to the Finance Act 1998 may be given at any time up to two years from that date (or at any later time in accordance with the general rule in sub-paragraph (3) of that paragraph).

(4) If, in a case where this section applies, the accounts of the controlled foreign company are drawn up using a method falling within paragraph (b) of subsection (2) above--

(a) the controlled foreign company, and

(b) any person with an interest in the controlled foreign company,

shall be treated for the purposes of this section as if final replacement of the technical provision, as described in sub-paragraph (4) of paragraph 52 of Schedule 9A to the [1985 c. 6.] Companies Act 1985, had taken place at, and been required to take place no later than, the end of the year referred to in that sub-paragraph as the third year following the underwriting year.

(5) Regulations under section 755C may make provision with respect to the determination of the amount of the provision by which the technical provision is to be treated as replaced in cases falling within subsection (4) above.

(6) In this section "general insurance business" means insurance business which is general business, as defined in section 1 of the [1982 c. 50.] Insurance Companies Act 1982. "

Application of Chapter where general insurance business of foreign company accounted for on non-annual basis.

15 After section 755B of the Taxes Act 1988 there shall be inserted--

" 755C Application of Chapter where general insurance business of foreign company accounted for on non-annual basis.

(1) The Treasury may by regulations provide for the provisions of this Chapter to have effect with prescribed modifications in any case where a non-resident company--

(a) carries on general insurance business; and

(b) draws up accounts relating to that business using a method falling within subsection (2) of section 755B.

(2) Regulations under subsection (1) above may--

(a) make different provision for different cases;

(b) make provision having effect in relation to accounting periods of non-resident companies ending not more than one year before the date on which the regulations are made; and

(3) In this section--

"general insurance business" has the same meaning as in section 755B;
"non-resident company" means a company resident outside the United Kingdom;
"prescribed" means prescribed in regulations under this section. "

Section 756

16 (1) Section 756 of the Taxes Act 1988 (interpretation and construction of Chapter IV) shall be amended as follows.

(2) In subsection (1), after "In this Chapter" there shall be inserted the following definition--

" "company tax return" means a return required to be made under Schedule 18 to the Finance Act 1998; " .

Paragraph 1 of Schedule 24

17 (1) In Schedule 24 to the Taxes Act 1988 (assumptions for calculating chargeable profits, creditable tax and corresponding United Kingdom tax of foreign companies) paragraph 1 shall be amended as follows.

(2) Sub-paragraph (3A) (assumption for applying provisions of Schedule 24 which refer to the first accounting period for which a direction is given or which is an ADP exempt period in cases where, as respects the accounting period in question and any earlier ones, no direction has been given and it has not been established that there is an ADP exempt period) shall be amended in accordance with sub-paragraphs (3) to (5) below.

(3) In paragraph (a) (necessity to determine the chargeable profits) after "to determine" there shall be inserted "in the case of any person".

(4) In paragraph (b) (conditions obtaining at the time in question)--

(a) for sub-paragraph (i) (no direction given) there shall be substituted--

" (i) it has not been established in the case of that person that that or any earlier accounting period of the company is an accounting period in respect of which an apportionment under section 747(3) falls to be made, and " ; and

(b) in sub-paragraph (ii) (not established that there is an ADP exempt period) after "it has not been established" there shall be inserted "in the case of that person".

(5) For the words following paragraph (b) (assumption for purpose of the provisions in question that the accounting period is the first for which a direction is given or which is an ADP exempt period) there shall be substituted-- " in determining the chargeable profits of the company for the accounting period mentioned in paragraph (a) above, it shall be assumed, for the purposes of those provisions of paragraphs 2 and 10 below which refer to the first accounting period in respect of which an apportionment under section 747(3) falls to be made or which is an ADP exempt period, that that period (but not any earlier period) is an accounting period in respect of which such an apportionment falls to be made or which is an ADP exempt period. "

(6) Sub-paragraph (4) (assumption for applying provisions of Schedule 24 which refer to the first accounting period for which a direction is given in cases where, as respects the accounting period in question and any earlier ones, no direction has been given) shall be amended in accordance with sub-paragraphs (7) to (9) below.

(7) In paragraph (a) (necessity to determine chargeable profits) after "to determine" there shall be inserted "in the case of any person".

(8) For paragraph (b) (no direction given) there shall be substituted--

" (b) at that time it has not been established in the case of that person that that or any earlier accounting period of the company is an accounting period in respect of which an apportionment under section 747(3) falls to be made, " .

(9) For the words following paragraph (b) (assumption for the purpose of the provisions in question that the accounting period is the first for which a direction is given) there shall be substituted-- " in determining the chargeable profits of the company for the accounting period mentioned in paragraph (a) above, it shall be assumed, for the purposes of those provisions of paragraph 9 below which refer to the first accounting period in respect of which an apportionment under section 747(3) falls to be made, that such an apportionment falls to be made in respect of that period (but not in respect of any earlier period). "

Paragraph 2 of Schedule 24

18 In paragraph 2(1) of Schedule 24 to the Taxes Act 1988 (foreign company assumed to become resident in UK at beginning of first accounting period in respect of which a direction is given or which is an ADP exempt period)--

(a) in paragraph (a), for "a direction is given under section 747(1)" there shall be substituted "an apportionment under section 747(3) falls to be made"; and

(b) in the words following paragraph (b), for "a direction is given" there shall be substituted "an apportionment falls to be made".

Paragraph 4 of Schedule 24

19 (1) Paragraph 4 of Schedule 24 to the Taxes Act 1988 (assumption that claims or elections giving maximum relief have been made, subject to notice to the contrary) shall be amended as follows.

(2) In sub-paragraph (1A)(a) (sub-paragraph (2) to apply to accounting period of foreign company in respect of which a direction is given) for "a direction is given under section 747(1)" there shall be substituted "an apportionment under section 747(3) falls to be made".

(3) In sub-paragraph (2) (notice to be given to the Board at any time not later than the expiry of the appropriate period etc)--

(a) for "given to the Board" there shall be substituted "given to an officer of the Board"; and

(b) for "the appropriate period" there shall be substituted "the period of twenty months following the end of the accounting period".

(4) In consequence of sub-paragraph (3)(b) above, sub-paragraph (2A) shall cease to have effect.

(5) In sub-paragraph (3) (majority interest in foreign company) in paragraph (b) for "an assessment" there shall be substituted "any liability".

(6) In sub-paragraph (3A) (application of sub-paragraph (3) to ADP exempt periods)--

(a) in paragraph (a), for "a direction had been duly given under section 747(1)" there shall be substituted "an apportionment under section 747(3) had fallen to be made";

(b) for paragraph (b) there shall be substituted--

" (b) such apportionments as are mentioned in sub-paragraph (3) above had been made and such liabilities as are mentioned in that sub-paragraph had arisen. "

Paragraph 9 of Schedule 24

20 (1) Paragraph 9 of Schedule 24 to the Taxes Act 1988 (losses in pre-direction accounting periods) shall be amended as follows.

(2) For "pre-direction", wherever occurring, there shall be substituted "pre-apportionment".

(3) In sub-paragraph (1) (which provides that, subject to sub-paragraph (2), the paragraph applies where the foreign company incurs a loss in an accounting period preceding the first in respect of which a direction is given etc)--

(a) the words "Subject to sub-paragraph (2) below," shall cease to have effect; and

(b) in paragraph (a), for "a direction is given under section 747(1)" there shall be substituted "an apportionment under section 747(3) falls to be made".

(4) Sub-paragraph (2) (which provides that the paragraph does not apply where a declaration is made under paragraph 11(3)) shall cease to have effect.

(5) In sub-paragraph (3) (assumption that pre-direction period was first accounting period in respect of which a direction was given) for "a direction was given under section 747(1)" there shall be substituted "an apportionment under section 747(3) fell to be made".

(6) For sub-paragraph (4) (claim to be made by notice given to Board within 60 days of notice under section 753(1) or (3) relating to starting period etc) there shall be substituted--

" (4) A claim under sub-paragraph (3) above shall be made by notice given to an officer of the Board within the period of twenty months following the end of the starting period or within such longer period as the Board may in any particular case allow. "

(7) Sub-paragraph (5) (which provides for an assumption that Chapter IV was in force before the beginning of the first of the pre-direction periods, and which is of no further practical utility) shall cease to have effect.

(8) Sub-paragraph (6) (no account to be taken of declaration under paragraph 11(3)) shall cease to have effect.

(9) At the end of the paragraph there shall be added--

" (7) Nothing in--

(a) paragraph 10 of Schedule 18 to the Finance Act 1998 (claims or elections in company tax returns), or

(b) Schedule 1A to the Management Act (claims or elections not included in returns),

shall apply, whether by virtue of section 754 or otherwise, to a claim under sub-paragraph (3) above. "

Paragraph 10 of Schedule 24

21 In paragraph 10 of Schedule 24 to the Taxes Act 1988 (capital allowances) in sub-paragraph (1) (which, subject to paragraphs 11 and 12, provides an assumption where capital expenditure is incurred in an accounting period falling before the first accounting period in respect of which a direction is given or which is an ADP exempt period)--

(a) for "Subject to paragraphs 11 and 12 below," there shall be substituted "Subject to paragraph 12 below,"; and

(b) in paragraph (a), for "a direction is given under section 747(1)" there shall be substituted "an apportionment under section 747(3) falls to be made".Paragraph 11 of Schedule 24

22 Paragraph 11 of Schedule 24 to the Taxes Act 1988 (power of Board by notice to declare that a specified accounting period is to be treated as the first direction period where it appears that no direction was given as respects that period as a result of capital allowances being claimed) shall cease to have effect.Paragraph 11A of Schedule 24

23 In paragraph 11A of Schedule 24 to the Taxes Act 1988 (capital allowances) sub-paragraphs (3) and (6) (which relate to the application of paragraph 11(1)(c)) shall cease to have effect.Transfer pricing

24 After paragraph 19 of Schedule 24 to the Taxes Act 1988 there shall be inserted--

" Transfer pricing

20 (1) Sub-paragraph (2) of paragraph 5 of Schedule 28AA (no potential UK tax advantage where both parties are within charge to income or corporation tax etc) shall be assumed not to apply in any case where, apart from that sub-paragraph (and on the assumption in paragraph 1(1) above),--

(a) paragraph 6 of that Schedule would apply; and

(b) the company would be the disadvantaged person for the purposes of that paragraph.

(2) Schedule 28AA (transfer pricing etc: provision not at arm's length) shall be assumed not to apply in any case where, apart from this sub-paragraph,--

(a) the actual provision would (on the assumption in paragraph 1(1) above) confer a potential advantage in relation to United Kingdom taxation on the company;

(b) the other affected person would be a company resident outside the United Kingdom; and

(c) each accounting period of that company which falls wholly or partly within the accounting period in question is one as regards which--

(i) an apportionment under section 747(3) falls to be made; or

(ii) no such apportionment falls to be made by virtue of the period being an ADP exempt period.

(3) In any case where--

(a) by virtue of sub-paragraph (2) above, Schedule 28AA is assumed not to apply, and

(b) the actual provision mentioned in paragraph (a) of that sub-paragraph involves (on the assumption in paragraph 1(1) above) any such interest or other distribution out of assets as would constitute a distribution for the purposes of the Corporation Tax Acts by virtue of paragraph (da) of section 209(2),

that interest or distribution out of assets shall be assumed not to constitute such a distribution by virtue of that paragraph. "

Schedule 25

25 For the heading to Schedule 25 to the Taxes Act 1988 (cases excluded from direction-making powers) there shall be substituted--

" Cases where section 747(3) does not apply " .Paragraph 1 of Schedule 25

26 In paragraph 1 of Schedule 25 to the Taxes Act 1988 (which provides that Part I of the Schedule has effect for the purposes of section 748(1)(a)) there shall be added at the end "and the other provisions of Chapter IV of Part XVII which refer to a company pursuing an acceptable distribution policy".Paragraph 2A of Schedule 25

27 (1) Paragraph 2A of Schedule 25 to the Taxes Act 1988 (acceptable distribution policy: modifications of paragraph 2) shall be amended as follows.

(2) In sub-paragraph (2) (dividend paid for earlier accounting period which is not an excluded period to be treated as falling within paragraph 2(1)(a)) in paragraph (a) and paragraph (b)--

(a) for "which immediately precedes" there shall be substituted "immediately preceding"; and

(b) for "is not an excluded period" there shall be substituted "which is not an excluded dividend".

(3) In sub-paragraph (4) (position where no direction could be given under section 747(1) in respect of earlier accounting period because foreign company pursued acceptable distribution policy) for "no direction could be given in respect of the earlier period under section 747(1)" there shall be substituted "no apportionment under section 747(3) fell to be made in respect of the earlier period".

(4) In sub-paragraph (8), before paragraph (a) (definition of "excluded period") there shall be inserted--

" (aa) a dividend is an excluded dividend if it is paid, in whole or in part, out of the total profits from which (in accordance with section 747(6)(a)) the chargeable profits for an excluded period are derived, " .

(5) In sub-paragraph (8)(a) (which defines an excluded period as one for which a direction is given under section 747(1)) for "a direction is given under section 747(1)" there shall be substituted "an apportionment under section 747(3) falls to be made".Paragraph 3 of Schedule 25

28 In paragraph 3(4A) of Schedule 25 to the Taxes Act 1988 (meaning of "net chargeable profits") in paragraph (b), for "a direction were given under section 747(1)" there shall be substituted "an apportionment under section 747(3) fell to be made".Paragraph 5 of Schedule 25

29 In paragraph 5(2)(a) of Schedule 25 to the Taxes Act 1988, for "749(3)" there shall be substituted "749(5)".Paragraph 6 of Schedule 25

30 (1) Paragraph 6 of Schedule 25 to the Taxes Act 1988 (exemption for controlled foreign companies engaged in exempt activities) shall be amended as follows.

(2) In sub-paragraph (1)(c) (which provides that for a company to be engaged in exempt activities, any of sub-paragraphs (2) to (4) must apply) for "(4)" there shall be substituted "(4A)".

(3) In sub-paragraph (2)(b) (which in certain cases requires less than 50 per cent. of gross trading receipts to be derived from connected or associated persons or persons who have an interest in the company at any time during the accounting period) for "an interest in the company at any time during" there shall be substituted "a 25 per cent. assessable interest in the company in the case of".

(4) In sub-paragraph (3) (local holding companies) in paragraph (b) (controlled companies which are not themselves holding companies but which are otherwise engaged in exempt activities)--

(a) after "holding companies" there shall be inserted "or superior holding companies"; and

(b) after "exempt activities" there shall be inserted "or are, in terms of sub-paragraph (5A) below, exempt trading companies".

(5) In sub-paragraph (4) (holding companies other than local holding companies) in paragraph (b) (controlled companies which are not holding companies but which are otherwise engaged in exempt activities)--

(a) after "holding companies (whether local or not)" there shall be inserted "or superior holding companies"; and

(b) after "exempt activities" there shall be inserted "or are, in terms of sub-paragraph (5A) below, exempt trading companies".

(6) After sub-paragraph (4) there shall be inserted--

" (4A) This sub-paragraph applies to a company which is a superior holding company if at least 90 per cent. of its gross income during the accounting period in question--

(a) represents qualifying exempt activity income of its subsidiaries; and

(b) is derived directly from companies which it controls and which fall within sub-paragraph (4B) below.

(4B) For the purposes of paragraph (b) of sub-paragraph (4A) above, a company falls within this sub-paragraph if--

(a) throughout the accounting period mentioned in that sub-paragraph, it is not itself a superior holding company but otherwise is, in terms of this Schedule, engaged in exempt activities or is, in terms of sub-paragraph (5A) below, an exempt trading company; or

(b) it is itself a superior holding company throughout that period and at least 90 per cent of its gross income during that period--

(i) represents qualifying exempt activity income of its subsidiaries, and

(ii) is derived directly from companies which it controls and which themselves fall within this paragraph or paragraph (a) above. "

(7) After sub-paragraph (4B) there shall be inserted--

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