450 Double taxation relief.

[FA80 s39D; FA95 s62]

(1) (a) In this section—

“appropriate inspector”, “chargeable period” and “specified return date for the chargeable period” have the same meanings respectively as in Part 41;

“arrangements” and “foreign tax” have the same meanings respectively as in paragraph 1(1) of Schedule 24;

“credit institution” means an undertaking whose business it is to receive deposits or other repayable funds from the public and to grant credit on its own account;

“group relevant payment” means a relevant payment made to a relevant company by a company related to the relevant company;

“qualified company” and “relevant trading operations” have, subject to paragraph (e), the same meanings respectively as in section 446;

“relevant company” means a qualified company, other than a credit institution or a 25 per cent subsidiary of a credit institution, the relevant trading operations of which—

(i) are wholly carried on by persons—

(I) who are employees of the qualified company or a company related to it and who are not employees of any employer other than the qualified company or the company related to it, as the case may be, and

(II) in respect of whom there does not exist any understanding or arrangement the purpose of which, or one of the purposes of which, is to provide for the engagement of the services of those persons, whether as employees or otherwise, should they cease to be employed by the qualified company or the company related to it, as the case may be,

and

(ii) are not managed or directed, whether directly or indirectly, by another qualified company other than a company related to the first-mentioned qualified company;

“relevant foreign tax” means so much of the amount of foreign tax as—

(i) has been deducted from relevant payments,

(ii) would have been so deducted if the laws of the territory under which the tax was deducted prohibited the deduction of tax from such payments at a rate in excess of 10 per cent, and

(iii) has not been repaid;

“relevant payment” means a payment of interest which—

(i) arises from a source within a territory in regard to which arrangements have the force of law, and

(ii) is regarded, subject to paragraph (e), by virtue of section 446(10)(b) as receivable by a relevant company from the sale of goods for the purposes of relief under this Part.

(b) For the purposes of this section, a company shall be treated as related to another company at any relevant time if at that time one of the 2 companies is a 25 per cent subsidiary of the other company, or both companies are 25 per cent subsidiaries of the same company.

(c) For the purposes of paragraph (b), a company (in this paragraph referred to as “the subsidiary company”) shall not be deemed to be a 25 per cent subsidiary of another company (in this paragraph referred to as “the parent company”) at any time if the percentage—

(i) of any profits, which are available for distribution to equity holders, of the subsidiary company at such time to which the parent company is beneficially entitled at such time, or

(ii) of any assets, which are available for distribution to equity holders on a winding up, of the subsidiary company at such time to which the parent company would be beneficially entitled at such time on a winding up of the subsidiary company,

is less than 25 per cent of such profits or assets, as the case may be, of the subsidiary company at such time, and sections 413, 414, 415 and 418 shall, with any necessary modifications but without regard to section 411(1)(c) in so far as it relates to those sections, apply to the determination of the percentage of those profits or assets, as the case may be, to which a company is beneficially entitled as they apply to the determination for the purposes of Chapter 5 of Part 12 of the percentage of any such profits or assets to which a company is so entitled.

(d) For the purposes of this section, a company shall be deemed to be a 25 per cent subsidiary of another company if and so long as not less than 25 per cent of its ordinary share capital would be treated as owned directly or indirectly by that other company if section 9 (other than subsection (1) of that section) were to apply for the purposes of this paragraph, and, where a company (in this paragraph referred to as “that company”) would be treated for the purposes of this section as a 25 per cent subsidiary of a credit institution which is not a company, if the credit institution were a company, that company shall be so treated for those purposes.

(e) For the purpose of this section apart from this paragraph—

(i) a payment made to a company in the course of relevant trading operations (within the meaning of section 445), being a payment which is regarded by virtue of section 445(9)(b) as receivable from the sale of goods for the purposes of relief under this Part, shall be treated as so regarded by virtue of section 446(10)(b), and

(ii) if the company is a qualified company carrying on relevant trading operations (within the meaning of section 445), it shall be treated as being a qualified company carrying on relevant trading operations (within the meaning of section 446),

so long as the relevant trading operations (within the meaning of section 445) could be certified by the Minister for Finance as relevant trading operations for the purposes of section 446 if they were carried on in the Area (within the meaning of section 446) rather than in the airport (within the meaning of section 445).

(2) Notwithstanding paragraph 4 of Schedule 24 but subject to subsection (3), where a relevant company elects to have the amount of the credit, which is to be allowed to the company in respect of foreign tax deducted from group relevant payments made to the company in a relevant accounting period, computed as if, for the purposes of paragraph 4 of Schedule 24, the amount of the corporation tax attributable to the income attributable to those group relevant payments were deemed to be increased by an amount which—

(a) shall be allocated by the company in such amounts and to such part of that income as the company thinks fit, and

(b) shall not exceed 35 per cent of the amount of corporation tax which—

(i) apart from this section would be payable by the company, and

(ii) is attributable to all relevant payments made to the company in the course of the trade in the accounting period,

the amount of that credit shall be so computed for those purposes.

(3) Where an election is made by a company under subsection (2) in respect of a relevant accounting period—

(a) any credit for foreign tax deducted from group relevant payments made to the company in the accounting period shall be computed as if the amount of foreign tax deducted from those group relevant payments were the amount of relevant foreign tax comprised in that amount, and

(b) so much of that credit as would not have been allowed to the company apart from this section shall be disregarded for the purposes of paragraph 7(3)(c) of Schedule 24.

(4) (a) For the purposes of subsection (2), the amount of corporation tax which apart from this section would be payable by a company and which is attributable to relevant payments made to the company shall be an amount determined by the formula—

A − B

where—

A is an amount equal to 10 per cent of the amount of the income of the company attributable to relevant payments, and

B is the credit which apart from this section would be allowed to the company in respect of foreign tax deducted from those payments.

(b) For the purposes of paragraph (a)—

(i) the amount of the income of a company attributable to relevant payments made to the company in the course of a trade in a relevant accounting period shall, subject to paragraph 4(5) of Schedule 24, be taken to be such sum as bears to the total amount of the income of the company from the sale of goods in the course of the trade in the relevant accounting period the same proportion as those relevant payments bear to the total amount receivable by the company from the sale of goods in the course of the trade in the accounting period, and

(ii) the total amount of income of a company from the sale of goods in the course of a trade in a relevant accounting period shall be taken to be the sum referred to in subsection (3) of section 448 which, for the purposes of subsection (2) of that section, is to be taken to be the income of the trade for the relevant accounting period referred to in the expression “the income from the sale of those goods” in subsection (2) of that section.

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(5) Where as respects a relevant accounting period corporation tax payable by a company is by virtue of section 448(7) reduced by a fraction (referred to in that section as “the revised relief”), this section shall apply to the company as if the references to 10 per cent in the definition of “relevant foreign tax” in subsection (1) and in the definition of “A” in subsection (4)(a) were references to a rate per cent determined by the formula—

C × (1 – D)

where—

C is the rate per cent of corporation tax specified in section 21(1) for the financial year in which the relevant accounting period ends, and

D is the fraction referred to in section 448(7) as “the revised relief”.

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(6) An election referred to in subsection (2) shall be made in writing to the appropriate inspector in relation to the company making the election on or before that company’s specified return date for the chargeable period in respect of which it is making the election.