Finance Bill - continued        House of Lords

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SCHEDULE 30
 
  DOUBLE TAXATION RELIEF
 
Power to make treaty provision for matching credit for tax spared in foreign country
     1. - (1) In section 788 of the Taxes Act 1988 (relief by agreement with other countries) in subsection (5) (matching credit for tax spared in foreign country) in the second sentence, paragraph (b) (power to provide for relief in the arrangements themselves) shall cease to have effect.
 
      (2) This paragraph comes into force on 1st April 2000.
 
 
Matching credit for tax spared below immediate overseas subsidiary: treaty relief
     2. - (1) In section 788 of the Taxes Act 1988 (relief by agreement with other countries) in subsection (5) (which in certain circumstances treats tax spared under the foreign law as tax payable) after the second sentence insert-
 
 
 " Relief does not fall to be given in accordance with section 801 by virtue of this subsection unless the arrangements in question make express provision for such relief (but this paragraph is without prejudice to section 790(10B))."
 
      (2) This paragraph has effect in relation to any claim for credit in respect of underlying tax in relation to a dividend paid on or after 21st March 2000 by a company resident outside the United Kingdom to a company resident in the United Kingdom.
 
 
Matching credit for tax spared below immediate overseas subsidiary: unilateral relief
     3. - (1) Amend section 790 of the Taxes Act 1988 (unilateral relief) as follows.
 
      (2) In subsection (3) (which postulates notional arrangements containing the provisions specified in subsections (4) to (10) of that section) for "(10)" substitute "(10C)".
 
      (3) After subsection (10) (credit for underlying tax under section 801) insert-
 
 
    "(10A) In any case where-
 
 
    (a) under the law of the territory outside the United Kingdom, an amount of tax ("the spared tax") would, but for a relief, have been payable by a company resident in that territory ("company A") in respect of any of its profits,
 
    (b) company A pays a dividend out of those profits to another company resident in that territory ("company B"),
 
    (c) company B, out of profits which consist of or include the whole or part of that dividend, pays a dividend to a company resident in the United Kingdom ("company C"), and
 
    (d) the circumstances are such that, had company B been resident in the United Kingdom, it would have been entitled, under arrangements made with the government of the territory outside the United Kingdom and having effect by virtue of section 788, to a relief to which subsection (5) of that section applies in respect of the spared tax,
       subsection (10B) below shall apply.
 
      (10B) In any case falling within subsection (10A) above, the spared tax shall be taken into account for the purposes of-
 
 
    (a) the other provisions of this section, and
 
    (b) subject to section 795(3), Chapter II of this Part in its application to relief under this section in relation to the dividend paid to company C,
       as if it had been payable and paid; and references in this section and that Chapter to double taxation, to tax payable or chargeable, or to tax not chargeable directly or by deduction shall be construed accordingly.
 
      (10C) Except as provided by subsection (10B) above, in relation to any dividend paid-
 
 
    (a) to a company resident in the United Kingdom,
 
    (b) by a company resident in the territory outside the United Kingdom,
       credit by virtue of section 801 does not fall to be given by virtue of this section in respect of tax which would have been payable under the law of that or any other territory outside the United Kingdom but for a relief (notwithstanding any arrangements made with the government of that or any other territory outside the United Kingdom which have effect by virtue of section 788 and provide for a relief to which subsection (5) of that section applies)."
 
      (4) This paragraph has effect in relation to any claim for credit, under any arrangements, in respect of underlying tax in relation to a dividend paid on or after 21st March 2000 by a company resident outside the United Kingdom to a company resident in the United Kingdom.
 
 
Relief for persons resident outside the UK who have branches or agencies in the UK
     4. - (1) Amend section 790 of the Taxes Act 1988 (unilateral relief) in accordance with sub-paragraphs (2) and (3).
 
      (2) In subsection (6) (dividend paid to company resident in United Kingdom) for "company resident in the United Kingdom" substitute "company falling within subsection (6A) below".
 
      (3) After subsection (6) insert-
 
 
    "(6A) A company falls within this subsection if-
 
 
    (a) it is resident in the United Kingdom; or
 
    (b) it is resident outside the United Kingdom but the dividend mentioned in subsection (6) above forms part of the profits of a branch or agency of the company's in the United Kingdom."
      (4) Amend section 794 of the Taxes Act 1988 (requirement as to residence) in accordance with sub-paragraphs (5) and (6).
 
      (5) In subsection (2) (cases where credit may be allowed by way of unilateral relief) after paragraph (b) insert-
 
 
    "(bb) for tax paid under the law of any territory outside the United Kingdom in respect of the income or chargeable gains of a branch or agency in the United Kingdom of a person who is not resident in the United Kingdom, where the following conditions are fulfilled, namely-
 
      (i) that the territory under whose law the tax was paid is not one in which the person is liable to tax by reason of domicile, residence or place of management; and
 
      (ii) that the amount of relief claimed does not exceed (or is by the claim expressly limited to) that which would have been available if the branch or agency had been a person resident in the United Kingdom and the income or gains in question had been income or gains of that person."
      (6) Omit subsection (2)(c) (which is superseded by the amendment made by sub-paragraph (5)).
 
      (7) Amend section 801 of the Taxes Act 1988 (dividends paid between related companies: relief for UK and third country taxes) in accordance with sub-paragraphs (8) and (9).
 
      (8) In subsection (1) (dividend paid to company resident in the United Kingdom)-
 
 
    (a) for "company resident in the United Kingdom ("the United Kingdom company")" substitute "company falling within subsection (1A) below ("the relevant company")"; and
 
    (b) for "to the United Kingdom company" substitute "to the relevant company".
      (9) After subsection (1) insert-
 
 
    "(1A) A company falls within this subsection if-
 
 
    (a) it is resident in the United Kingdom; or
 
    (b) it is resident outside the United Kingdom but the dividend mentioned in subsection (1) above forms part of the profits of a branch or agency of the company's in the United Kingdom."
      (10) Amend section 801A of the Taxes Act 1988 (restriction of relief for underlying tax) in accordance with sub-paragraphs (11) and (12).
 
      (11) In subsection (1)(a) (company resident in United Kingdom making claim for allowance by way of credit) for "a company resident in the United Kingdom ("the United Kingdom company")" substitute "a company ("the claimant company")".
 
      (12) In subsections (2), (7) and (11), for "the United Kingdom company" substitute "the claimant company".
 
      (13) In Schedule 19AC to the Taxes Act 1988 (modification of Act in relation to overseas life insurance companies) amend paragraph 13 (which notionally inserts certain provisions into section 794) as follows-
 
 
    (a) omit sub-paragraph (1) (which notionally inserts subsection (2)(d));
 
    (b) in sub-paragraph (2) (which notionally inserts subsections (3) and (4)) in the words preceding the notionally inserted subsections, for "subsections shall be treated as inserted after that subsection" substitute "subsection shall be treated as inserted after subsection (2) of section 794";
 
    (c) omit the subsection (3) notionally inserted by sub-paragraph (2);
 
    (d) in the subsection (4) notionally inserted by sub-paragraph (2), for "subsection (2)(d)" substitute "subsection (2)(bb)".
      (14) The amendments made by this paragraph have effect in relation to accounting periods ending on or after 21st March 2000.
 
 
No double relief etc.
     5. - (1) After section 793 of the Taxes Act 1988 insert-
 
 
"No double relief etc.     793A. - (1) Where relief in respect of an amount of tax that would otherwise be payable under the law of a territory outside the United Kingdom may be allowed-
 
    (a) under arrangements made with the government of that territory, or
 
    (b) under the law of that territory in consequence of any such arrangements,
       credit may not be allowed in respect of that tax, whether the relief has been used or not.
 
      (2) Where, under arrangements having effect by virtue of section 788, credit may be allowed in respect of an amount of tax, credit by way of unilateral relief may not be allowed in respect of that tax.
 
      (3) Where arrangements made with the government of a territory outside the United Kingdom contain express provision to the effect that relief by way of credit shall not be given under the arrangements in cases or circumstances specified or described in the arrangements, then neither shall credit by way of unilateral relief be allowed in those cases or circumstances."
 
      (2) Subsections (1) and (2) of the section inserted by sub-paragraph (1) have effect in relation to claims for credit made on or after 21st March 2000.
 
      (3) Subsection (3) of the section inserted by sub-paragraph (1) has effect in relation to arrangements made on or after 21st March 2000.
 
 
Limits on credit: minimisation of the foreign tax
     6. - (1) After section 795 of the Taxes Act 1988 insert-
 
 
"Limits on credit: minimisation of the foreign tax.     795A. - (1) The amount of credit for foreign tax which, under any arrangements, is to be allowed against tax in respect of any income or chargeable gain shall not exceed the credit which would be allowed had all reasonable steps been taken-
 
    (a) under the law of the territory concerned, and
 
    (b) under any arrangements made with the government of that territory,
       to minimise the amount of tax payable in that territory.
 
      (2) The steps mentioned in subsection (1) above include-
 
 
    (a) claiming, or otherwise securing the benefit of, reliefs, deductions, reductions or allowances; and
 
    (b) making elections for tax purposes.
      (3) For the purposes of subsection (1) above, any question as to the steps which it would have been reasonable for a person to take shall be determined on the basis of what the person might reasonably be expected to have done in the absence of relief under this Part against tax in the United Kingdom."
 
      (2) This paragraph has effect in relation to claims for credit made on or after 21st March 2000.
 
 
Foreign tax on amounts underlying non-trading credits
     7. - (1) Amend section 797A of the Taxes Act 1988 (foreign tax on interest brought into account as a non-trading credit) as follows.
 
      (2) In subsection (1)-
 
 
    (a) in paragraph (a) for "amount of interest" substitute "item", and
 
    (b) in paragraph (b) for "that amount" and "that interest" substitute "that item".
      (3) In consequence of sub-paragraph (2) above, in the sidenote for "interest brought into account as" substitute "items giving rise to".
 
      (4) The amendments made by this paragraph have effect in relation to accounting periods ending on or after 21st March 2000.
 
 
Restriction of relief for underlying tax
     8. - (1) Amend section 799 of the Taxes Act 1988 (computation of underlying tax) as follows.
 
      (2) In subsection (1) (underlying tax to be taken into account to be so much of the foreign tax on the relevant profits as is attributable to the proportion represented by the dividend) after "as" insert "(a)" and at the end of the subsection add ", and
 
 
    (b) does not exceed the amount calculated by applying the formula set out in subsection (1A) below."
      (3) After subsection (1) insert-
 
 
    "(1A) The formula is-

D x M / (100 - M)
 

       where-
 
 
    D is the amount of the dividend; and
 
    M is the maximum relievable rate;
       and for the purposes of this subsection the maximum relievable rate is the rate of corporation tax in force when the dividend was paid."
 
      (4) In subsection (3) (profits by reference to which underlying tax to be taken into account is calculated)-
 
 
    (a) at the end of paragraph (a) insert "and";
 
    (b) omit paragraph (b); and
 
    (c) in paragraph (c), for "paid neither for a specified period nor out of specified profits" substitute "not paid for a specified period".
      (5) This paragraph has effect in relation to any claim for an allowance by way of credit made on or after 31st March 2001 in respect of a dividend paid by a company resident outside the United Kingdom to a company resident in the United Kingdom, unless the dividend was paid before that date.
 
      (6) In determining, for the purpose of any such claim made on or after that date, the underlying tax of any such third, fourth or successive company as is mentioned in section 801(2) or (3) of the Taxes Act 1988, this paragraph shall be deemed to have had effect at the time the dividend paid by that company was paid.
 
 
Computation of underlying tax: the relevant profits
     9. - (1) Amend section 799 of the Taxes Act 1988 as follows.
 
      (2) After subsection (4) add-
 
 
    "(5) For the purposes of paragraphs (a) and (c) of subsection (3) above, "profits", in the case of any period, means the profits available for distribution.
 
      (6) In subsections (4) and (5) above, "profits available for distribution" means, in the case of any company, the profits available for distribution as shown in accounts relating to the company-
 
 
    (a) drawn up in accordance with the law of the company's home State, and
 
    (b) making no provision for reserves, bad debts or contingencies other than such as is required to be made under that law.
      (7) In this section, "home State", in the case of any company, means the country or territory under whose law the company is incorporated or formed."
 
      (3) This paragraph has effect in relation to any claim for credit, under any arrangements, in respect of underlying tax in relation to a dividend paid on or after 21st March 2000 by a company resident outside the United Kingdom to a company resident in the United Kingdom.
 
 
Dividends paid between related companies but not covered by arrangements
     10. - (1) Section 800 of the Taxes Act 1988 (dividends paid between related companies but not covered by arrangements) shall cease to have effect.
 
      (2) This paragraph has effect in relation to dividends paid on or after 1st April 2000.
 
 
Restriction of relief for underlying tax: dividends paid between related companies
     11. - (1) Amend section 801 of the Taxes Act 1988 as follows.
 
      (2) After subsection (2) (cases where the overseas company receives a dividend from a related third company) insert-
 
 
    "(2A) Section 799(1)(b) applies for the purposes of subsection (2) above only-
 
 
    (a) if the overseas company and the third company are not resident in the same territory; or
 
    (b) in such other cases as may be prescribed by regulations made by the Treasury."
      (3) This paragraph has effect in relation to any claim for an allowance by way of credit made on or after 31st March 2001 in respect of a dividend paid by a company resident outside the United Kingdom to a company resident in the United Kingdom, unless the dividend was paid before that date.
 
      (4) In determining, for the purpose of any such claim made on or after that date, the underlying tax of any such third, fourth or successive company as is mentioned in section 801(2) or (3) of the Taxes Act 1988, this paragraph shall be deemed to have had effect at the time the dividend paid by that company was paid.
 
 
Dividends paid out of transferred profits
     12. - (1) After section 801A of the Taxes Act 1988 insert-
 
 
"Dividends paid out of transferred profits.     801B. - (1) This section applies where-
 
    (a) a company ("company A") resident outside the United Kingdom has paid tax under the law of a territory outside the United Kingdom in respect of any of its profits;
 
    (b) some or all of those profits become profits of another company resident outside the United Kingdom ("company B") otherwise than by virtue of the payment of a dividend to company B; and
 
    (c) company B pays a dividend out of those profits to another company ("company C"), wherever resident.
      (2) Where this section applies, this Part shall have effect, so far as relating to the determination of underlying tax in relation to any dividend paid-
 
 
    (a) by any company resident outside the United Kingdom (whether or not company B),
 
    (b) to a company resident in the United Kingdom,
       as if company B had paid the tax paid by company A in respect of those profits of company A which have become profits of company B as mentioned in subsection (1)(b) above.
 
      (3) But the amount of relief under this Part which is allowable to a company resident in the United Kingdom shall not exceed the amount which would have been allowable to that company had those profits become profits of company B by virtue of the payment of a dividend by company A to company B."
 
      (2) This paragraph has effect in relation to any claim for credit, under any arrangements, in respect of underlying tax in relation to a dividend paid on or after 21st March 2000 by a company resident outside the United Kingdom to a company resident in the United Kingdom.
 
 
Separate streaming of dividend so far as representing an ADP dividend of a CFC
     13. - (1) After section 801B of the Taxes Act 1988 insert-
 
 
"Separate streaming of dividend so far as representing an ADP dividend of a CFC.     801C. - (1) This section applies in any case where-
 
    (a) by virtue only of section 748(1)(a), no apportionment under section 747(3) falls to be made as regards an accounting period of a controlled foreign company; and
 
    (b) one or more of the dividends paid by the controlled foreign company by virtue of which the condition in paragraph (a) above is satisfied are dividends falling within subsection (2) below.
      (2) A dividend falls within this subsection if, for the purposes of Part I of Schedule 25, the whole or any part of it falls to be treated by virtue of paragraph 4 of that Schedule as paid by the controlled foreign company to a United Kingdom resident.
 
      (3) If, in a case where this section applies,-
 
 
    (a) an initial dividend is paid to a company resident outside the United Kingdom, and
 
    (b) that company, or any other company which is related to it, pays an intermediate dividend which for the purposes of paragraph 4 of Schedule 25 to any extent represents that initial dividend,
       subsection (4) below shall have effect in relation to the UK recipient concerned.
 
      (4) Where this subsection has effect, it shall be assumed for the purposes of allowing credit relief under this Part to that UK recipient-
 
 
    (a) that, instead of the intermediate dividend, the dividends described in subsection (5) below had been paid and the circumstances had been as described in subsection (6) or (7) below, as the case may be; and
 
    (b) that any tax paid under the law of any territory in respect of the intermediate dividend, or which is underlying tax in relation to that dividend, had instead fallen to be borne accordingly (taking account of any reduction falling to be made under section 799(2)).
      (5) The dividends mentioned in subsection (4)(a) above are-
 
 
    (a) as respects each of the initial dividends which are, for the purposes of paragraph 4 of Schedule 25, to any extent represented by the intermediate dividend, a separate dividend (an "ADP dividend") representing, and of an amount equal to, so much of that initial dividend as is for those purposes represented by the intermediate dividend; and
 
    (b) a further separate dividend (a "residual dividend") representing, and of an amount equal to, the remainder (if any) of the intermediate dividend.
      (6) As respects each of the ADP dividends, the intermediate company is to be treated as if it were a separate company whose distributable profits are of a constitution corresponding to, and an amount equal to, that of the ADP dividend.
 
      (7) As respects the residual dividend (if any), the relevant profits out of which it is to be regarded for the purposes of section 799(1) as paid by the intermediate company are, in consequence of subsection (6) above, to be treated as being of such constitution and amount as remains after excluding accordingly so much of those relevant profits as constitute the whole or any part of the distributable profits out of which the ADP dividends are paid.
 
      (8) If, in a case where this section applies, an intermediate company also pays a dividend which is not an intermediate dividend (an "independent dividend") and either-
 
 
    (a) that dividend is paid to a United Kingdom resident, or
 
    (b) if it is not so paid, a dividend which to any extent represents it is paid by a company which is related to that company and resident outside the United Kingdom to a United Kingdom resident,
       subsection (9) below shall have effect in relation to the United Kingdom resident.
 
      (9) Where this subsection has effect, it shall be assumed for the purposes of allowing credit relief under this Part to the United Kingdom resident-
 
 
    (a) that the relevant profits out of which the independent dividend is to be regarded for the purposes of section 799(1) as paid by the intermediate company are, in consequence of subsection (6) above, to be treated as being of such constitution and amount as remains after excluding so much of those relevant profits as constitute the whole or any part of the distributable profits out of which the ADP dividends are paid; and
 
    (b) that any tax paid under the law of any territory in respect of the independent dividend, or which is underlying tax in relation to that dividend, had instead fallen to be borne accordingly (taking account of any reduction falling to be made under section 799(2)).
      (10) For the purposes of this section-
 
 
    (a) a controlled foreign company is an "ADP controlled foreign company" as respects any of its accounting periods if the condition in paragraph (a) of subsection (1) above is satisfied as respects that accounting period;
 
    (b) an "initial dividend" (subject to subsection (14) below) is any of the dividends mentioned in paragraph (b) of subsection (1) above paid by an ADP controlled foreign company; and
 
    (c) a "subsequent dividend" is any dividend which, in relation to one or more initial dividends, is the subsequent dividend for the purposes of paragraph 4 of Schedule 25.
      (11) In this section-
 
 
    "distributable profits" means a company's profits available for distribution, determined in accordance with section 799(6);
 
    "intermediate company" means any company resident outside the United Kingdom which pays an intermediate dividend;
 
    "intermediate dividend" means any dividend which is paid by a company resident outside the United Kingdom and which-
 
      (a) for the purposes of paragraph 4 of Schedule 25, to any extent represents one or more initial dividends paid by other companies; and
 
      (b) either is the subsequent dividend in the case of those initial dividends or is itself to any extent represented for those purposes by a subsequent dividend;
 
    "the UK recipient" means the United Kingdom resident to whom a subsequent dividend is paid.
      (12) Where-
 
 
    (a) one company pays a dividend ("dividend A") to another company, and
 
    (b) that other company, or a company which is related to it, pays a dividend ("dividend B") to another company,
       then, for the purposes of this section, dividend B represents dividend A, and dividend A is represented by dividend B, to the extent that dividend B is paid out of profits which are derived, directly or indirectly, from the whole or part of dividend A.
 
      (13) Sub-paragraph (2) of paragraph 4 of Schedule 25 (related companies) shall apply for the purposes of this section as it applies for the purposes of that paragraph.
 
      (14) Where an intermediate company which is an ADP controlled foreign company pays a dividend-
 
 
    (a) by virtue of which (whether taken alone or with other dividends) the condition in subsection (1)(a) above is satisfied as regards an accounting period of the company, but
 
    (b) which also for the purposes of paragraph 4 of Schedule 25 to any extent represents one or more initial dividends paid by other ADP controlled foreign companies,
       the dividend shall not be regarded for the purposes of this section as an initial dividend paid by the company, to the extent that it so represents initial dividends paid by other ADP controlled foreign companies."
 
      (2) This paragraph has effect in relation to any claim for an allowance by way of credit made on or after 31st March 2001 in respect of a dividend paid by a company resident outside the United Kingdom to a company resident in the United Kingdom, unless the dividend was paid before that date.
 
      (3) In determining, for the purpose of any such claim made on or after that date, the underlying tax of any such third, fourth or successive company as is mentioned in section 801(2) or (3) of the Taxes Act 1988, this paragraph shall be deemed to have had effect at the time the dividend paid by that company was paid.
 
 
UK insurance companies trading overseas: repeal of section 802
     14. - (1) Section 802 of the Taxes Act 1988 shall cease to have effect.
 
      (2) This paragraph has effect in relation to accounting periods beginning on or after 1st April 2000.
 
 
Underlying tax: foreign taxation of group as a single entity
     15. - (1) After section 803 of the Taxes Act 1988 insert-
 
 
"Foreign taxation of group as a single entity.     803A. - (1) This section applies in any case where, under the law of a territory outside the United Kingdom, tax is payable by any one company resident in that territory ("the responsible company") in respect of the aggregate profits, or aggregate profits and aggregate gains, of that company and one or more other companies so resident, taken together as a single taxable entity.
 
    (2) Where this section applies, this Part shall have effect, so far as relating to the determination of underlying tax in relation to any dividend paid by any of the companies mentioned in subsection (1) above (the "non-resident companies") to another company ("the recipient company"), as if-
 
 
    (a) the non-resident companies, taken together, were a single company,
 
    (b) anything done by or in relation to any of the non-resident companies (including the payment of the dividend) were done by or in relation to that single company, and
 
    (c) that single company were related to the recipient company, if that one of the non-resident companies which actually pays the dividend is related to the recipient company,
       (so that, in particular, the relevant profits for the purposes of section 799(1) is a single aggregate figure in respect of that single company and the foreign tax paid by the responsible company is foreign tax paid by that single company).
 
      (3) For the purposes of this section a company is related to another company if that other company-
 
 
    (a) controls directly or indirectly, or
 
    (b) is a subsidiary of a company which controls directly or indirectly,
       not less than 10 per cent. of the voting power in the first-mentioned company."
 
      (2) This paragraph has effect in relation to any claim for credit, under any arrangements, in respect of underlying tax in relation to a dividend paid on or after 21st March 2000 by a company resident outside the United Kingdom to a company resident in the United Kingdom.
 
 
Life assurance companies with overseas branches etc: restriction of credit
     16. - (1) Amend section 804A of the Taxes Act 1988 (overseas life assurance business: restriction of credit) as follows.
 
      (2) For subsection (1) (application of subsection (2)) substitute-
 
 
    "(1) Subsection (2) below applies where credit for tax-
 
 
    (a) which is payable under the laws of a territory outside the United Kingdom in respect of insurance business carried on by a company through a branch or agency in that territory, and
 
    (b) which is computed otherwise than wholly by reference to profits arising in that territory,
       is to be allowed (in accordance with this Part) against corporation tax charged under Case I or Case VI of Schedule D in respect of the profits, computed in accordance with the provisions applicable to Case I of Schedule D, of life assurance business or any category of life assurance business carried on by the company in an accounting period (in this section referred to as "the relevant profits").
 
      (1A) For the purposes of paragraph (b) of subsection (1) above, the cases where tax payable under the laws of a territory outside the United Kingdom is "computed otherwise than wholly by reference to profits arising in that territory" are those cases where the charge to tax in that territory falls within subsection (1B) below.
 
      (1B) A charge to tax falls within this subsection if it is such a charge made otherwise than by reference to profits as (by disallowing their deduction in computing the amount chargeable) to require sums payable and other liabilities arising under policies to be treated as sums or liabilities falling to be met out of amounts subject to tax in the hands of the company."
 
      (3) In subsection (3) (the shareholders' share of the overseas tax) for the definition of A (the amount of profits chargeable under section 441) substitute-
 
 
 
    " A is an amount equal to the amount of the relevant profits before making any deduction authorised by subsection (5) below;".
      (4) In subsection (5) (relaxation of rule in section 795(2)(a) against deducting foreign tax in computing the profits of the overseas life assurance business) for "the profits of the overseas life assurance business" substitute "the relevant profits".
 
      (5) In consequence of the amendments made by this paragraph, the sidenote to the section becomes "Life assurance companies with overseas branches etc: restriction of credit."
 
      (6) This paragraph has effect in relation to accounting periods beginning on or after 1st April 2000.
 
 
Allocation of foreign tax to different categories of insurance business
     17. - (1) After section 804A of the Taxes Act 1988 insert-
 
 
"Insurance companies carrying on more than one category of business: restriction of credit.     804B. - (1) Where-
 
    (a) an insurance company carries on more than one category of business in an accounting period, and
 
    (b) there arises to the company in that period any income or gain ("the relevant income") in respect of which credit for foreign tax falls to be allowed under any arrangements,
       subsection (2) below shall have effect.
 
      (2) In any such case, the amount of the credit for foreign tax which, under the arrangements, is allowable against corporation tax in respect of so much of the relevant income as is referable (in accordance with the provisions of sections 432ZA to 432E) to a particular category of business must not exceed the fraction of the foreign tax which, in accordance with the following provisions of this section, is attributable to that category of business.
 
      (3) Where the relevant income arises from an asset-
 
 
    (a) which is linked solely to a category of business (other than overseas life assurance business), or
 
    (b) which is an asset of the company's overseas life assurance fund,
       the whole of the foreign tax is attributable to the category mentioned in paragraph (a) above or, as the case may be, to the company's overseas life assurance business, unless the case is one where subsection (7) below applies in relation to the category of business in question.
 
      (4) Where subsection (3) above does not apply and the category of business in question is-
 
 
    (a) basic life assurance and general annuity business, or
 
    (b) long term business which is not life assurance business,
       the fraction of the foreign tax that is attributable to that category of business is the fraction whose numerator is the part of the relevant income which is referable to that category by virtue of any provision of section 432A and whose denominator is the whole of the relevant income.
 
      (5) Subsections (6) and (7) below apply where the category of business in question is neither-
 
 
    (a) basic life assurance and general annuity business; nor
 
    (b) long term business which is not life assurance business.
      (6) Where-
 
 
    (a) subsection (3) above does not apply, and
 
    (b) some or all of the relevant income is taken into account in accordance with section 83 of the Finance Act 1989 in an account in relation to which the provisions of section 432C or 432D apply,
       the fraction of the foreign tax that is attributable to the category of business in question is the fraction whose numerator is the part of the relevant income which is referable to that category by virtue of any provision of section 432C or 432D and whose denominator is the whole of the relevant income.
 
      (7) Where some or all of the relevant income falls to be taken into account in determining in accordance with section 83(2) of the Finance Act 1989 the amount referred to in section 432E(1) as the net amount, the fraction of the foreign tax that is attributable to the category of business in question is the fraction-
 
 
    (a) whose numerator is the part of that net amount which is referable by virtue of section 432E to that category; and
 
    (b) whose denominator is the whole of that net amount.
      (8) No part of the foreign tax is attributable to any category of business except as provided by subsections (3) to (7) above.
 
      (9) Where for the purposes of this section an amount of foreign tax is attributable to a category of life assurance business other than basic life assurance and general annuity business, credit in respect of the foreign tax so attributable shall be allowed only against corporation tax in respect of profits chargeable under Case VI of Schedule D arising from carrying on that category of business."
 
      (2) This paragraph has effect in relation to accounting periods beginning on or after 1st April 2000.
 
 
Allocation of expenses etc in a computation under Case I of Schedule D
     18. - (1) After section 804B of the Taxes Act 1988 insert-
 
"Insurance companies: allocation of expenses etc in computations under Case I of Schedule D.     804C. - (1) Where-
 
 
    (a) an insurance company carries on any category of insurance business in a period of account,
 
    (b) a computation in accordance with the provisions applicable to Case I of Schedule D falls to be made in relation to that category of business for that period, and
 
    (c) there arises to the company in that period any income or gain in respect of which credit for foreign tax falls to be allowed under any arrangements,
       subsection (2) below shall have effect.
 
      (2) In any such case, the amount of the credit for foreign tax which, under the arrangements, is to be allowed against corporation tax in respect of so much of that income or gain as is referable to the category of business concerned ("the relevant income") shall be limited by treating the amount of the relevant income as reduced in accordance with subsections (3) and (4) below.
 
      (3) The first limitation is to treat the amount of the relevant income as reduced (but not below nil) for the purposes of this Chapter by the amount of expenses (if any) attributable to the relevant income.
 
      (4) If-
 
 
    (a) the amount of the relevant income after any reduction under subsection (3) above,
  exceeds
 
 
    (b) the relevant fraction of the profits of the category of business concerned for the period of account in question which are chargeable to corporation tax,
       the second limitation is to treat the relevant amount as further reduced (but not below nil) for the purposes of this Chapter to an amount equal to that fraction of those profits.
 
  In this subsection any reference to the profits of a category of business is a reference to those profits after the set off of any losses of that category of business which have arisen in any previous accounting period.
 
      (5) In determining the amount of the credit for foreign tax which is to be allowed as mentioned in subsection (2) above, the relevant amount shall not be reduced except in accordance with that subsection.
 
      (6) For the purposes of subsection (3) above, the amount of expenses attributable to the relevant income is the appropriate fraction of the total relevant expenses of the category of business concerned for the period of account in question.
 
      (7) In subsection (6) above, the "appropriate fraction" means the fraction-
 
 
    (a) whose numerator is the amount of the relevant income before any reduction in accordance with subsection (2) above, and
 
    (b) whose denominator is the total income of the category of business concerned for the period of account in question,
       unless the denominator so determined is nil, in which case the denominator shall instead be the amount described in subsection (8) below.
 
      (8) That amount is so much in total of the income and gains-
 
 
    (a) which arise to the company in the period of account in question, and
 
    (b) in respect of which credit for foreign tax falls to be allowed under any arrangements,
       as are referable to the category of business concerned (before any reduction in accordance with subsection (2) above).
 
      (9) In subsection (4) above, the "relevant fraction" means the fraction-
 
 
    (a) whose numerator is the amount of the relevant income before any reduction in accordance with subsection (2) above; and
 
    (b) whose denominator is the amount described in subsection (8) above.
      (10) Where a 75 per cent subsidiary of an insurance company is acting in accordance with a scheme or arrangement and-
 
 
    (a) the purpose, or one of the main purposes, of that scheme or arrangement is to prevent or restrict the application of subsection (2) above to the insurance company, and
 
    (b) the subsidiary does not carry on insurance business of any description,
       the amount of corporation tax attributable (apart from this subsection) to any item of income or gain arising to the subsidiary shall be found by setting off against that item the amount of expenses that would be attributable to it under subsection (3) above if that item had arisen directly to the insurance company.
 
      (11) Where the credit allowed for any tax payable under the laws of a territory outside the United Kingdom is, by virtue of subsection (2) above, less than it would be if the relevant income were not treated as reduced in accordance with that subsection, section 795(2)(a) shall not prevent a deduction being made for the difference in computing the profits of the category of business concerned.
 
      (12) Where, by virtue of subsection (10) above, the credit allowed for any tax payable under the laws of a territory outside the United Kingdom is less than it would be apart from that subsection, section 795(2)(a) shall not prevent a deduction being made for the difference in computing the income of the 75 per cent subsidiary.
 
      (13) Any reference in this section to any income or gain being to any extent referable to a category of insurance business shall, in the case of-
 
 
    (a) life assurance business or any category of life assurance business, or
 
    (b) long term business which is not life assurance business,
       be taken as a reference to the income or gain being to that extent referable to that category of business for the purposes of Chapter I of Part XII.
 
      (14) This section shall be construed-
 
 
    (a) in accordance with section 804D, where the category of business concerned is life assurance business or a category of life assurance business; and
 
    (b) in accordance with section 804E, where the category of business concerned is not life assurance business or any category of life assurance business.
Interpretation of section 804C in relation to life assurance business etc.     804D. - (1) This section has effect for the interpretation of section 804C where the category of business concerned is life assurance business or a category of life assurance business.
 
      (2) The "total income" of the category of business concerned for the period of account in question is the amount (if any) by which-
 
 
    (a) so much of the total income shown in the revenue account in the periodical return of the company concerned for that period as is referable to that category of business,
  exceeds
 
 
    (b) so much of any commissions payable and any expenses of management incurred in connection with the acquisition of the business, as shown in that return, so far as referable to that category of business.
      (3) Where any amounts fall to be brought into account in accordance with section 83 of the Finance Act 1989, the amounts that are referable to the category of business concerned shall be determined for the purposes of subsection (2) above in accordance with sections 432B to 432F.
 
      (4) The "total relevant expenses" of the category of business concerned for any period of account is the amount of the claims incurred-
 
 
    (a) increased by any increase in the liabilities of the company, or
 
    (b) reduced (but not below nil) by any decrease in the liabilities of the company.
      (5) For the purposes of subsection (4) above, the amounts to be taken into account in the case of any period of account are the amounts as shown in the company's periodical return for the period so far as referable to the category of business concerned.
 
 
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