Statutory Instrument 1999 No. 358
The Corporation Tax (Treatment of Unrelieved Surplus Advance Corporation Tax) Regulations 1999
(The document as of February, 2008)
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STATUTORY INSTRUMENTS
1999 No. 358
INCOME TAX
The Corporation Tax (Treatment of Unrelieved Surplus Advance Corporation Tax) Regulations 1999
| | Made | 15th February 1999 | |
| | Laid before the House of Commons | 16th February 1999 | |
| | Coming into force | 9th March 1999 | |
The Treasury, in exercise of the powers conferred on them by section 32 of the Finance Act 1998[1], hereby make the following Regulations:
Citation and commencement 1.These Regulations may be cited as the Corporation Tax (Treatment of Unrelieved Surplus Advance Corporation Tax) Regulations 1999 and shall come into force on 9th March 1999.
Introductory 2. - (1) These Regulations make provision for and in connection with enabling unrelieved surplus ACT that a company has as at 6th April 1999 to be set against its liability to corporation tax on profits charged to corporation tax for an accounting period beginning on or after that date, other than an accounting period that is subsequent to the company's final accounting period.
(2) In paragraph (1) the reference to unrelieved surplus ACT of a company includes, where the company is a member of a group at any time in an accounting period to which that paragraph applies, a reference to unrelieved surplus ACT that another company, which is a member of the same group at any time in that accounting period, has as at 6th April 1999.
Interpretation 3. - (1) In these Regulations unless the context otherwise requires-
"accounting period" shall be construed in accordance with regulation 2(1);
"ACT" means advance corporation tax;
"the Board" means the Commissioners of Inland Revenue;
"distribution" has the meaning given by section 832(1);
"final accounting period" shall be construed in accordance with regulations 4 and 5;
"franked distribution" means the sum of the amount or value of a relevant distribution and such proportion of that amount or value as corresponds to the rate of shadow ACT specified in regulation 11(9), and references in these Regulations to any accounting period in which a franked distribution is made are references to the accounting period in which the relevant distribution in question is made;
"franked investment income" means income of a company resident in the United Kingdom which consists of a distribution in respect of which the company is entitled to a tax credit (and which accordingly represents income equal to the aggregate of the amount or value of the distribution and the amount of that credit), except that it does not include income to which regulation 7, 8(4) or 9 refers, or income falling within regulation 10 to which paragraph (4) of that regulation does not apply;
"group" has the meaning given by regulation 6;
"notification" means notification in writing;
"parent company" in relation to a group shall be construed in accordance with regulation 6(1) to (7); and "immediate parent company" shall be construed in accordance with regulation 6(8);
"relevant distribution" means a distribution made on or after 6th April 1999;
"shadow ACT" means a notional amount of ACT treated as paid by a company in respect of a relevant distribution and computed in accordance with regulation 11;
"straddling accounting period" means an accounting period beginning before, and ending on or after, 6th April 1999, and includes a separate accounting period mentioned in sections 245(2), 245A(2) and 245B(2)[2];
"surplus franked investment income"-
(a) as respects an accounting period beginning on or after 6th April 1999, has the meaning given by regulation 11(13);
(b) as respects an accounting period beginning before that date, has the meaning given by section 238(1A)[3];
"surplus shadow ACT" means the excess amount of shadow ACT over the total amount of shadow ACT set against a company's liability to corporation tax for an accounting period in accordance with regulation 12(1);
"the Taxes Act" means the Income and Corporation Taxes Act 1988[4];
"unrelieved surplus ACT" means the ACT (if any) which, apart from sub-paragraph (3) of paragraph 12 of Schedule 3 to the Finance Act 1998 but otherwise in accordance with that paragraph, would be treated by virtue of section 239(4)[5] as paid in respect of distributions made by a company in the first accounting period of the company to begin on or after 6th April 1999.
(2) References in these Regulations to the profits of a company charged to corporation tax for any accounting period are references to the amount of the company's profits for that period on which corporation tax falls finally to be borne.
(3) References in these Regulations, however expressed, to a company's liability to corporation tax for an accounting period include references to a company's liability in respect of any sums chargeable on the company for that period under section 747(4)(a)[6] (controlled foreign companies).
(4) For the purposes only of these Regulations, a straddling accounting period shall be treated as if-
(a) it were composed of two accounting periods, the one ending on 5th April 1999 and the other beginning on 6th April 1999;
(b) there were apportioned to each of those accounting periods the proportionate part of the profits of the company charged to corporation tax for the straddling accounting period.
(5) References in these Regulations to an accounting period beginning on or after 6th April 1999 include references to-
(a) an accounting period deemed by virtue of paragraph (4) of this regulation to begin on 6th April 1999, and
(b) a separate accounting period referred to in regulations 16(2) and 17(2) that begins on or after that date.
(6) References in these Regulations, other than the reference in paragraph (4)(b) above, to a requirement for profits charged to corporation tax for an accounting period to be apportioned between two separate parts of that accounting period are references to a requirement for those profits to be apportioned either-
(a) on a time basis, or
(b) where that basis would be unjust and unreasonable, on such basis as would be just and reasonable.
(7) In these Regulations any reference to a particular provision, without more, is a reference to that provision of the Taxes Act.
Definition of final accounting period - company not a member of a group
4. - (1) For the purpose of regulation 2(1) and subject to paragraphs (3) to (5) of this regulation and to regulation 5(10), where a company is not a member of a group at any time in the relevant accounting period, the final accounting period of that company is the accounting period beginning in the period of twelve months immediately following the end of the relevant accounting period or, if there is more than one accounting period beginning in that period of twelve months, the latest accounting period beginning in that period.
(2) In paragraph (1) "the relevant accounting period" is the first accounting period of the company after which no amount of unrelieved surplus ACT is available to be set against the company's liability to corporation tax in accordance with these Regulations.
(3) Paragraph (1) shall not apply where, at any time in the first of its accounting periods to begin on or after 6th April 1999, the company notifies an officer of the Board that it will not seek or, as the case may be, will cease to seek recovery of unrelieved surplus ACT in respect of that accounting period or any subsequent accounting period.
(4) Where, otherwise than in a case to which paragraph (3) applies, the company notifies an officer of the Board at any time in an accounting period that it wishes that accounting period to be its final accounting period and that it will not seek recovery of unrelieved surplus ACT in respect of any subsequent accounting period, the final accounting period of that company is, subject to paragraph (5), the accounting period in which the notification is made.
(5) Where-
(a) there is an amount of surplus shadow ACT in respect of an accounting period of the company beginning in the period of twelve months ("the relevant period") immediately following the end of the accounting period in which the company notifies an officer of the Board as mentioned in paragraph (4) or, if there is more than one such accounting period, the latest accounting period beginning in the relevant period, and
(b) that amount or any part of it falls to be carried back in accordance with regulation 12(7) to the accounting period in which that notification is made,
the final accounting period shall be the accounting period or, as the case may be, the latest accounting period beginning in the relevant period from which an amount of surplus shadow ACT falls to be carried back as mentioned in sub-paragraph (b) of this paragraph, and not the accounting period in which the notification is made.
Definition of final accounting period - company a member of a group
5. - (1) For the purpose of regulation 2 and subject to paragraphs (3) to (10), where a company is a member of a group at any time in the relevant accounting period, the final accounting period of that company in its capacity as a member of that group is the accounting period beginning in the period of twelve months immediately following the end of the relevant accounting period or, if there is more than one accounting period beginning in that period of twelve months, the latest accounting period beginning in that period.
(2) In paragraph (1) "the relevant accounting period" is the first accounting period of the company after which no amount of unrelieved surplus ACT belonging to the company or any other company which is a member of the group at any time in that accounting period is available to be set against any liability to corporation tax in accordance with these Regulations; and for this purpose unrelieved surplus ACT belonging to another company that is a member of the group at any time in that accounting period shall be regarded as so available until the end of that other company's accounting period.
(3) Paragraph (1) shall not apply where-
(a) the company is a member of the group as at 6th April 1999, and
(b) at any time in the first accounting period of the parent company of the group to begin on or after that date, the parent company notifies an officer of the Board on behalf of the group that the group will not seek or, as the case may be, will cease to seek recovery of unrelieved surplus ACT in respect of any accounting period of any member of the group that begins on or after that date.
(4) A notification made in accordance with paragraph (3) shall, subject to paragraph (9), be binding on each company that was a member of the group as at 6th April 1999.
(5) Where, otherwise than in a case to which paragraph (3) applies, at any time in an accounting period of the parent company of the group the parent company notifies an officer of the Board on behalf of the group that the group wishes the accounting period of any member of the group in which the notification is made to be the final accounting period of that member and that it will not seek recovery of amounts of unrelieved surplus ACT available to that member in respect of any subsequent accounting period, the final accounting period of that member and the final accounting period of the parent company is, subject to paragraphs (7) to (10), the accounting period of the parent company in which the notification by the parent company is made.
(6) A notification made in accordance with paragraph (5) shall, subject to paragraph (10), be binding on each company that was a member of the group when the notification was made or that subsequently becomes a member of the group prior to the end of the parent company's final accounting period.
(7) Where paragraph (5) applies and the accounting period of a company in the group other than the parent company that would otherwise be its final accounting period in accordance with that paragraph begins before the end of, but ends after, the accounting period of the parent company in which the notification by the parent company is made, the accounting period of the company concerned shall be treated as if the part ending with the last day of the parent company's accounting period, and the part after, were two separate accounting periods; and the part ending with the last day of the parent company's accounting period shall, subject to paragraph (10), be treated as the company's final accounting period for the purposes of this regulation.
(8) Where-
(a) there is an amount of surplus shadow ACT in respect of an accounting period of any company that is a member of the group beginning in the period of twelve months ("the relevant period") immediately following the end of the accounting period of the company in which the parent company notifies an officer of the Board as mentioned in paragraph (5), and
(b) all or any part of that surplus amount falls to be carried back under regulation 12 or 13 to an accounting period of a company that is a member of the group ending before the relevant period of the company referred to in sub-paragraph (a),
the final accounting period of any company that is a member of the group at any time in the relevant period shall, subject to paragraph (10), be the accounting period or, if more than one, the latest accounting period beginning in the relevant period from which an amount of surplus shadow ACT falls to be carried back as mentioned in sub-paragraph (b) of this paragraph, and not the accounting period referred to in paragraph (5).
(9) Where in an accounting period ("the material period") subsequent to the accounting period in which the parent company notifies an officer of the Board as mentioned in paragraph (3), a company which has an amount of unrelieved surplus ACT becomes a member of the group, these Regulations shall apply in relation to the material period (but not earlier accounting periods) as if no notification had been made in accordance with that paragraph, but not so as to entitle any company to whom that notification, when made, applied to seek recovery of any amount of unrelieved surplus ACT.
(10) Where in an accounting period ("the material period") subsequent to the final accounting period as determined in accordance with paragraph (1), (5), (7) or (8), a company which has an amount of unrelieved surplus ACT becomes a member of the group, these Regulations shall apply in relation to the material period (but not earlier accounting periods) as if the final accounting period had not yet been determined in accordance with any of those paragraphs, but not so as to entitle a company whose final accounting period had previously been determined in accordance with those provisions to seek recovery of any amount of unrelieved surplus ACT.
(11) Where-
(a) a company is a member of two or more groups,
(b) its final accounting period as a member of one or more, but not all, of the groups concerned has been determined in accordance with the previous provisions of this regulation, and
(c) at least one of those determinations is as a result of a notification made by a parent company in accordance with paragraph (5) of this regulation,
these Regulations shall have effect in relation to the group or groups in respect of which the final accounting period of the company has not been determined as if the total amount of its unrelieved surplus ACT had been set against its liability to corporation tax in accordance with regulation 14.
Definition of group
6. - (1) In these Regulations "group" means a company resident in the United Kingdom ("the parent company") which has one or more 51 per cent. subsidiaries together with that or those subsidiaries.
(2) For the purposes of paragraph (1)-
(a) "51 per cent. subsidiary" means a 51 per cent. subsidiary that is a company resident in the United Kingdom;
(b) a company is not the parent company within a group if-
(i) it has no 51 per cent. subsidiary but is itself a 51 per cent. subsidiary of another company, or
(ii) it and its 51 per cent. subsidiaries are all members of another group;
(c) the question whether a company is a 51 per cent. subsidiary of the parent company shall be determined, subject to paragraph (3), in accordance with section 838, except that the parent company shall be treated as not being the owner-
(i) of any share capital which it owns directly in a company if a profit on the sale of the shares would be treated as a trading receipt of its trade; or
(ii) of any share capital which it owns indirectly, and which is owned directly by a body corporate for which a profit on the sale of the shares would be treated as a trading receipt of its trade; or
(iii) of any share capital which it owns directly or indirectly in a body corporate not resident in the United Kingdom.
(3) Where a company would otherwise not be a 51 per cent. subsidiary, but-
(a) persons, whether company members or not, enjoy extraordinary rights or powers under the articles of association or under any other document regulating the company, and
(b) because of that fact, ownership of the ordinary share capital (for the purposes of the definition of "51 per cent. subsidiary" in section 838(1)(a)) may not be an appropriate test of whether a company is a 51 per cent. subsidiary of the parent company,
then in considering whether a company is a 51 per cent. subsidiary of the parent company for the purposes of paragraph (1), holdings of all kinds of share capital, including preference shares, or of any particular category of share capital, or voting power or any other kind of special power may be taken into account instead of ordinary share capital.
(4) Notwithstanding that, apart from this paragraph, a company ("the subsidiary company") would at any time be a 51 per cent. subsidiary of the parent company for the purposes of this regulation, the subsidiary company shall not be treated at that time as a 51 per cent. subsidiary for those purposes-
(a) if arrangements are in existence by virtue of which any person has or could obtain, or any persons together have or could obtain, control of the subsidiary company but not of the parent company; and
(b) unless the following conditions are also fulfilled, namely-
(i) that the parent company is beneficially entitled to more than 50 per cent. of any profits available for distribution to equity holders of the subsidiary company; and
(ii) that the parent company would be beneficially entitled to more than 50 per cent. of any assets of the subsidiary company available for distribution to its equity holders on a winding up.
(5) In paragraph (4)-
"arrangements" means arrangements of any kind, whether in writing or not, other than arrangements whose sole or main purpose is to reduce the amount of surplus shadow ACT available to be utilised by a company other than the subsidiary company in accordance with regulation 13;
"control" has the meaning given by section 840.
(6) Where by virtue of any enactment a Minister of the Crown or Northern Ireland department has power to give directions to a statutory body as to the disposal of assets belonging to, or to a subsidiary of, that body, the existence of that power shall not be regarded as constituting (or as having at any time constituted) an arrangement within the meaning of paragraph (4)(a).
(7) The provisions of Schedule 18 shall apply for the purposes of paragraph (4)(b) as if-
(a) for any reference to section 413(7) to (9) there were substituted a reference to paragraph (4)(b);
(b) paragraph 7(1) of that Schedule were omitted and for any reference to "the relevant accounting period" there were substituted a reference to the accounting period current at the time in question.
(8) For the purposes of these Regulations, a company ("A") is the "immediate parent company" of another company ("B") if, disregarding any other company of which B is a 51 per cent. subsidiary by virtue of section 838 and this regulation, A would be the parent company of B by virtue of section 838 and this regulation.
Restriction on franked investment income - replacement of income
7.Where a company takes any action the effect of which is that income consisting of interest to which a company is or will be entitled becomes or is replaced by income consisting of a distribution, and the main purpose of that action is to reduce the amount of shadow ACT which it would be treated as having paid under regulation 11 for an accounting period, the income consisting of the distribution shall not be regarded for the purposes of these Regulations as franked investment income.
Restriction on franked investment income - arrangements to pass on value of franked investment income
8. - (1) This regulation applies in any case where-
(a) a person ("A") who is a company is entitled to franked investment income;
(b) arrangements subsist such that another person ("B") obtains, whether directly or indirectly, a payment representing any of the value of that franked investment income, in excess of the payment that would have been made in the circumstances specified in paragraph (2);
(c) the arrangements (whether or not made directly between A and B) were entered into for an unallowable purpose, and
(d) neither A nor B is a company whose final accounting period has been determined in accordance with regulation 4 or 5.
(2) The circumstances specified in this paragraph are where-
(a) the payment representing any of the value of that franked investment income was made under a transaction between persons at arm's length both of whom were companies;
(b) neither company was or had been at any time a member of a group, and
(c) neither company was entitled to an amount of unrelieved surplus ACT as at 6th April 1999.
(3) This regulation does not apply if and to the extent that any provision of the Tax Acts has the effect of cancelling or reducing the tax advantage which would otherwise be obtained by virtue of the arrangements.
(4) Where this regulation applies, the franked investment income referred to in paragraph (1) shall not be regarded for the purposes of these Regulations as franked investment income.
(5) For the purposes of this regulation, the question whether any arrangements were entered into for an "unallowable purpose" shall be determined in accordance with paragraphs (6) and (7).
(6) Arrangements are entered into for an unallowable purpose if the purposes for which A is a party to the arrangements include the purpose of reducing the amount of shadow ACT treated as paid, in accordance with regulation 11, on relevant distributions made-
(a) by A, or
(b) where A is a member of a group, by any other company which is a member of that group,
at any time in, or after the end of, the accounting period in which the arrangements are entered into.
(7) In determining for the purposes of paragraph (6) whether a company could have used franked investment income for the purpose of reducing shadow ACT, the company shall be taken to use its actual franked investment income for that purpose before using the franked investment income in question.
(8) In this regulation-
"arrangements" means arrangements of any kind, whether in writing or not (and includes a series of arrangements, whether or not between the same parties);
"tax advantage" has the same meaning as in Chapter I of Part XVII of the Taxes Act.
Notes:[1] 1998 c. 36.back
[2] Section 245 was repealed in relation to changes in ownership occurring on or after 6th April 1999 by paragraph 15 of Schedule 3 to the Finance Act 1998. Sections 245A and 245B were inserted by section 98 of the Finance Act 1989 (c. 26) and repealed in relation to changes in ownership and disposals occurring on or after 6th April 1999 by paragraphs 16 and 17 of Schedule 3 to the Finance Act 1998.back
[3] Section 238 was amended by paragraph 18(2) to (4) of Schedule 8 to the Finance Act 1995 (c. 4) and repealed in relation to accounting periods beginning on or after 6th April 1999 by paragraph 11 of Schedule 3 to the Finance Act 1998.back
[4] 1988 c. 1.back
[5] Section 239 was amended by Part V of Schedule 17 to the Finance Act 1989 and repealed in relation to accounting periods beginning on or after 6th April 1999 by paragraph 12 of Schedule 3 to the Finance Act 1998.back
[6] Section 747 was amended by paragraph 1 of Schedule 17 to the Finance Act 1998.back
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