Part 3 U.K.Income tax, corporation tax and capital gains tax

Chapter 6U.K.Exemption from income tax for certain interest and royalty payments

IntroductoryU.K.

F197IntroductoryU.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Exemption from income taxU.K.

F298Exemption from income tax for certain interest and royalty paymentsU.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F399Permanent establishments and “25% associates”U.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Exemption noticesU.K.

F4100Interest payments: exemption noticesU.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Payment without deductionU.K.

101Payment of royalties without deduction at sourceU.K.

(1)Where—

(a)section 349(1) of the Taxes Act 1988 (certain payments to be made subject to deduction of income tax) applies to a payment of a royalty, but

(b)at the time the payment is made, the company making the payment reasonably believes that [F5section 758 (exemption from income tax for certain interest and royalty payments) of the Income Tax (Trading and Other Income) Act 2005] applies to the payment,

the company may, if it thinks fit, make the payment without deduction of tax under section 349(1).

(2)But if [F6section 758 of the Income Tax (Trading and Other Income) Act 2005] does not in fact apply to the payment, section 350 of, and Schedule 16 to, the Taxes Act 1988 (charge to tax where payments are made under section 349 etc) are to have effect as if subsection (1) never applied in relation to the payment.

(3)If the Board are not satisfied that [F6section 758 of the Income Tax (Trading and Other Income) Act 2005] will apply to one or more payments of royalties to be made by a company, they may direct the company that subsection (1) is not to apply to the payment or payments.

(4)A direction under subsection (3) may be varied or revoked by a subsequent such direction.

(5)If, before a payment of a royalty is made, the company beneficially entitled to the income in respect of which the payment is to be made—

(a)believed that [F7section 758 of the Income Tax (Trading and Other Income) Act 2005] would apply to the payment, but

(b)has subsequently become aware that any of [F8conditions A to C in that section] has ceased to be satisfied,

it must without delay notify the Board and the company which is to make the payment.

(6)Paragraph 3(1) of Schedule 18 to the Finance Act 1998 (c. 36) (requirement to make return in respect of information relevant to application of Corporation Tax Acts) has effect as if the reference to the Corporation Tax Acts included a reference to subsections (1) to (4) of this section.

(7)Paragraph 20 of that Schedule (penalties for incorrect returns), in its application to an error relating to information required in a return by virtue of subsection (6), has effect as if—

(a)the reference in sub-paragraph (1) to a tax-related penalty were a reference to an amount not exceeding £3,000, and

(b)sub-paragraphs (2) and (3) were omitted.

[F9(8)In a case where section 763 of the Income Tax (Trading and Other Income) Act 2005 (special relationships) applies, this section has effect in relation to only so much of the payment as does not exceed the arm's length amount (within the meaning of that section).

(9)Expressions used in this section and in sections 757 to 767 of the Income Tax (Trading and Other Income) Act 2005 have the same meaning in this section as in those sections.]

102Claim for tax deducted at source from exempt interest or royalty paymentsU.K.

A claim for relief under [F10section 758 of the Income Tax (Trading and Other Income) Act 2005] in respect of a payment which is made subject to deduction of tax under section 349 of the Taxes Act 1988 shall be made to the Board.

Special relationships and anti-avoidanceU.K.

F11103Special relationshipsU.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

F12104Anti-avoidanceU.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

SupplementaryU.K.

105Consequential amendmentsU.K.

(1)Section 98 of the Taxes Management Act 1970 (c. 9) (special returns etc) is amended as follows.

(2)In subsection (4A)(b), after “(4D)” insert “ , (4DA) ”.

(3)After subsection (4D) insert—

“(4DA)A payment is within this subsection if—

(a)it is a payment to which section 349(1) of the principal Act (requirement to deduct tax) applies,

(b)a company, purporting to rely on section 101 of the Finance Act 2004 (payment of royalties without deduction at source), makes the payment without deduction of tax under section 349(1) of the principal Act, and

(c)at the time the payment is made section 98 of the Finance Act 2004 does not apply to the payment and the company—

(i)does not believe that that section does so apply, or

(ii)if it does so believe, cannot reasonably do so.”.

(4)In section 18 of the Taxes Act 1988 (Schedule D) after subsection (5) insert—

“(6)This section is subject to Chapter 6 of Part 3 of the Finance Act 2004 (exemption from income tax for certain interest and royalty payments).”.

(5)In section 349 of the Taxes Act 1988 (certain payments to be made subject to deduction of income tax) after subsection (6) insert—

“(7)This section is subject to Chapter 6 of Part 3 of the Finance Act 2004 (exemption from income tax for certain interest and royalty payments).”.

F13106Transitional provisionU.K.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .