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Finance Bill
Part 7 — Income tax, corporation tax and capital gains tax: general

    87

 

                  (b)                 as requiring the payer to comply with the regulations in

circumstances in which the Inland Revenue is satisfied that it is

unnecessary or not appropriate for the payer to do so.

           (7B)              References in this section and section 685 to income tax in respect of

PAYE income are references to income tax in respect of that income if

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reasonable assumptions are (when necessary) made about other

income.

           (7C)              In this section and section 685—

                                  “payer” means any person paying PAYE income and “payee”

means any person in receipt of such income;

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                                  “specified” means specified in PAYE regulations.”.

     (3)    In subsection (2) of section 685 of that Act (tax tables), for paragraph (b)

substitute—     

                  “(b)                    subject to an adjustment in respect of amounts required to be

deducted or repaid by PAYE regulations made under item 1A

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or 2 in the list in section 684(2).”.

     (4)    After subsection (3) of that section insert—

           “(4)              PAYE regulations may make provision, where it appears to the Inland

Revenue that it is impracticable for a payer to deduct tax by reference

to tax tables—

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                  (a)                 for deductions to be made by the payer in accordance with other

arrangements agreed as mentioned in section 684(7A)(a), or

                  (b)                 for the payee to be required to keep records and make payments

and returns as if he were the payer.”.

     (5)    In section 707 of that Act (interpretation of Chapter 5 of Part 11), in the

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definition of “employment”, for “this section” substitute “this Chapter”.

     (6)    In section 710 of that Act (notional payments: accounting for tax)—

           (a)           in subsections (1) and (4), after “must” insert “, subject to and in

accordance with PAYE regulations,”;

           (b)           in subsection (5)(b) and (c), for “accounted for” substitute “deducted or

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accounted for (or required to be deducted or accounted for)”; and

           (c)           in subsection (6), for “an amount which” substitute “an amount of tax

which” and for “is paid by the employee” substitute “is deducted”.

     (7)    Substitute “PAYE regulations”—

           (a)           for “the said section 203” in subsection (8) of section 59A of the Taxes

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Management Act 1970 (c. 9) (payments on account of income tax); and

           (b)           for “that section” in subsection (10) of that section and subsections (2)

and (8) of section 59B of that Act (payments of income tax and capital

gains tax).

 146   Payroll giving: extension of 10% supplement to 5th April 2004

40

In section 38 of the Finance Act 2000 (c. 17) (which provides for a 10%

supplement on donations under the payroll deduction scheme), in subsection

(6) (which limits the provision by reference to sums withheld by employers

before 6th April 2003, and requires claims for reimbursement to be made

before 6th April 2004)—

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           (a)           for “6th April 2003” substitute “6th April 2004”, and

 

 

Finance Bill
Part 7 — Income tax, corporation tax and capital gains tax: general

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           (b)           for “6th April 2004” substitute “6th April 2005”.

 147   Sub-contractor deductions etc: interest on late payment or repayment

     (1)    In section 566 of the Taxes Act 1988 (construction industry scheme: powers to

make regulations) after subsection (1) insert—

           “(1A)              Interest required to be paid by regulations under subsection (1) above

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shall be paid without any deduction of income tax and shall not be

taken into account in computing any income, profits or losses for any

tax purposes.”.

     (2)    In the Social Security Contributions and Benefits Act 1992 (c. 4) and the Social

Security Contributions and Benefits (Northern Ireland) Act 1992 (c. 7), in

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paragraph 6 of Schedule 1 (power to combine collection of national insurance

contributions with tax) after sub-paragraph (4A) insert—

                       “(4B)                Interest required to be paid, by virtue of sub-paragraph (2)(a) or (b)

above, by regulations under sub-paragraph (1) above shall be paid

without any deduction of income tax and shall not be taken into

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account in computing any income, profits or losses for any tax

purposes.”.

     (3)    In section 22 of the Teaching and Higher Education Act 1998 (c. 30) (student

loans), after subsection (9) insert—

           “(10)              Interest required to be paid, by virtue of subsection (5)(d), by

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regulations under this section shall be paid without any deduction of

income tax and shall not be taken into account in computing any

income, profits or losses for any tax purposes.”.

     (4)    In Article 3 of the Education (Student Support) (Northern Ireland) Order 1998

(S.I. 1998/1760 (N.I. 14)) (student loans), after paragraph (9) insert—

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           “(10)              Interest required to be paid, by virtue of paragraph (5)(d), by

regulations under this Article shall be paid without any deduction of

income tax and shall not be taken into account in computing any

income, profits or losses for any tax purposes.”.

     (5)    In its application to the computation of income, profits or losses for an

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accounting period (in the case of a company) or a year of assessment (in the

case of a person who is not a company), this section has effect in relation to—

           (a)           accounting periods ending on or after 9th April 2003, or

           (b)           2003-04 and subsequent years of assessment.

Taxation of non-resident companies and related matters

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 148   Meaning of “permanent establishment”

     (1)    For the purposes of the Tax Acts a company has a permanent establishment in

a territory if, and only if—

           (a)           it has a fixed place of business there through which the business of the

company is wholly or partly carried on, or

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           (b)           an agent acting on behalf of the company has and habitually exercises

there authority to do business on behalf of the company.

            This general definition is subject to the following provisions.

 

 

Finance Bill
Part 7 — Income tax, corporation tax and capital gains tax: general

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     (2)    For this purpose a “fixed place of business” includes (without prejudice to the

generality of that expression)—

           (a)           a place of management;

           (b)           a branch;

           (c)           an office;

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           (d)           a factory;

           (e)           a workshop;

           (f)           an installation or structure for the exploration of natural resources;

           (g)           a mine, an oil or gas well, a quarry or any other place of extraction of

natural resources;

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           (h)           a building site or construction or installation project.

     (3)    A company is not regarded as having a permanent establishment in a territory

by reason of the fact that it carries on business there through an agent of

independent status acting in the ordinary course of his business.

     (4)    A company is not regarded as having a permanent establishment in a territory

15

by reason of the fact that—

           (a)           a fixed place of business is maintained there for the purpose of carrying

on activities for the company, or

           (b)           an agent carries on activities there for and on behalf of the company,

            if, in relation to the business of the company as a whole, the activities carried

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on are only of a preparatory or auxiliary character.

     (5)    For this purpose “activities of a preparatory or auxiliary character” include

(without prejudice to the generality of that expression)—

           (a)           the use of facilities for the purpose of storage, display or delivery of

goods or merchandise belonging to the company;

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           (b)           the maintenance of a stock of goods or merchandise belonging to the

company for the purpose of storage, display or delivery;

           (c)           the maintenance of a stock of goods or merchandise belonging to the

company for the purpose of processing by another person;

           (d)           purchasing goods or merchandise, or collecting information, for the

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company.

     (6)    In section 832(1) of the Taxes Act 1988 (interpretation of the Tax Acts), at the

appropriate place insert—

                    ““permanent establishment”, in relation to a company, has the meaning

given by section 148 of the Finance Act 2003;”.

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     (7)    In section 288(1) of the Taxation of Chargeable Gains Act 1992 (c. 12)

(interpretation), at the appropriate place insert—

                    ““permanent establishment”, in relation to a company, has the meaning

given by section 148 of the Finance Act 2003;”.

 149   Non-resident companies: basis of charge to corporation tax

40

     (1)    In section 11 of the Taxes Act 1988 (corporation tax: companies not resident in

the United Kingdom), for subsections (1) and (2) (basis of taxation) substitute—

           “(1)              A company not resident in the United Kingdom is within the charge to

corporation tax if, and only if, it carries on a trade in the United

Kingdom through a permanent establishment in the United Kingdom.

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Finance Bill
Part 7 — Income tax, corporation tax and capital gains tax: general

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           (2)              If it does so, it is chargeable to corporation tax, subject to any exceptions

provided for by the Corporation Tax Acts, on all profits, wherever

arising, that are attributable to its permanent establishment in the

United Kingdom.

                         These profits, and these only, are the company’s “chargeable profits”

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for the purposes of corporation tax.

           (2A)              The profits attributable to a permanent establishment for the purposes

of corporation tax are—

                  (a)                 trading income arising directly or indirectly through or from

the establishment,

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                  (b)                 income from property or rights used by, or held by or for, the

establishment, and

                  (c)                                     chargeable gains falling within section 10B of the 1992 Act—

                        (i)                        by virtue of assets being used in or for the purposes of

the trade carried on by the company through the

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establishment, or

                        (ii)                       by virtue of assets being used or held for the purposes of

the establishment or being acquired for use by or for the

purposes of the establishment.”.

     (2)    After that section insert—

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       “11AA Determination of profits attributable to permanent establishment

           (1)           This section provides for determining for the purposes of corporation

tax the amount of the profits attributable to a permanent establishment

in the United Kingdom of a company that is not resident in the United

Kingdom (“the non-resident company”).

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           (2)           There shall be attributed to the permanent establishment the profits it

would have made if it were a distinct and separate enterprise, engaged

in the same or similar activities under the same or similar conditions,

dealing wholly independently with the non-resident company.

           (3)           In applying subsection (2)—

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                  (a)                 it shall be assumed that the permanent establishment has the

same credit rating as the non-resident company, and

                  (b)                 it shall also be assumed that the permanent establishment has

such equity and loan capital as it could reasonably be expected

to have in the circumstances specified in that subsection.

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                         No deduction may be made in respect of costs in excess of those that

would have been incurred on those assumptions.

           (4)           There shall be allowed as deductions any allowable expenses incurred

for the purposes of the permanent establishment, including executive

and general administrative expenses so incurred, whether in the

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United Kingdom or elsewhere.

                         “Allowable expenses” means expenses of a kind in respect of which a

deduction would be allowed for corporation tax purposes if incurred

by a company resident in the United Kingdom.

           (5)           The Board may by regulations make provision as to the application of

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subsection (2) in relation to insurance companies.

                         The regulations may, in particular, make provision in place of

subsection (3)(b) as to the basis on which, in the case of insurance

 

 

Finance Bill
Part 7 — Income tax, corporation tax and capital gains tax: general

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companies, capital is to be attributed to a permanent establishment in

the United Kingdom.

                         In this subsection “insurance company” has the meaning given by

section 431(2).

           (6)           Schedule A1 to this Act contains provisions supplementing the

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provisions of this section.”.

     (3)    At the beginning of the Schedules to the Taxes Act 1988 insert as Schedule A1

the Schedule set out in Schedule 25 to this Act.

     (4)    After section 10A of the Taxation of Chargeable Gains Act 1992 (c. 12) insert—

       “10B                                                                          Non-resident company with United Kingdom permanent

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establishment

           (1)           Subject to any exceptions provided by this Act, the chargeable profits

for the purposes of corporation tax of a company not resident in the

United Kingdom but carrying on a trade in the United Kingdom

through a permanent establishment there include chargeable gains

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accruing to the company on the disposal of—

                  (a)                 assets situated in the United Kingdom and used in or for the

purposes of the trade at or before the time the gain accrued, or

                  (b)                 assets situated in the United Kingdom and used or held for the

purposes of the permanent establishment at or before the time

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the gain accrued or acquired for use by or for the purposes of

the permanent establishment.

           (2)           Subsection (1) does not apply unless the disposal is made at a time

when the company is carrying on a trade in the United Kingdom

through a permanent establishment there.

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           (3)           This section does not apply to a company that, by virtue of Part 18 of

the Taxes Act (double taxation relief arrangements), is exempt from

corporation tax for the chargeable period in respect of the profits of the

permanent establishment.

           (4)           In this section “trade” has the meaning given by section 6(4)(b) of the

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Taxes Act.”.

     (5)    In section 834(1) of the Taxes Act 1988 (interpretation of the Corporation Tax

Acts), at the appropriate place insert—

                    ““chargeable profits”, in relation to a company that is not resident in the

United Kingdom—

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                  (a)                 for corporation tax purposes generally, has the meaning given

by section 11(2), and

                  (b)                 for the purposes of Chapter 4 of Part 17 (controlled foreign

companies), has the meaning given by section 747(6);”.

     (6)    This section has effect in relation to accounting periods (of the non-resident

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company) beginning on or after 1st January 2003, and regulations under

section 11AA(5) of the Taxes Act 1988 (inserted by subsection (2) above) may

be made so as to have effect from that date.

 

 

 
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