(1)In section 799(1A) of ICTA (computation of foreign tax on dividends), for “in force when the dividend was paid” substitute “applicable to profits of the company by which the dividend is received for the accounting period in which it is received or, where there is more than one such rate, the average rate over the whole of that accounting period”.
(2)Section 801 of ICTA (dividends paid between related companies) is amended as follows.
(3)In subsection (2), after “had been paid” insert “(at the time when the dividend mentioned in subsection (1) above is received)”.
(4)In the version of section 799(1A) set out in subsection (2B), for “in force when the dividend was paid” substitute “applicable to profits of the company by which the dividend is received for the accounting period in which it is received or, where there is more than one such rate, the average rate over the whole of that accounting period”.
(5)The amendment made by subsection (3) has effect in relation to dividends paid to a company falling within section 801(1A) of ICTA if they are paid on or after 22 April 2009.
(6)The other amendments made by this section have effect in relation to dividends paid on or after 1 April 2008.
Schedule 29 contains provision about the amount of overseas tax treated as withheld in relation to certain manufactured overseas dividends.
(1)Part 18 of ICTA (double taxation relief) is amended as follows.
(2)Before section 805 insert—
(1)This section applies if—
(a)credit for foreign tax falls to be allowed to a person (“P”) under any arrangements, and
(b)a payment is made by a tax authority to P, or any person connected with P, by reference to the foreign tax.
(2)The amount of that credit is to be reduced by an amount equal to that payment.
(3)Section 839 applies for the purposes of determining whether or not a person is connected with P.”
(3)Section 806 (time limit for claims etc) is amended as follows.
(4)In subsection (2)—
(a)after “arrangements” insert “is reduced under section 804G, or”,
(b)for “to which the adjustment gives rise” substitute “to which the reduction or adjustment gives rise”, and
(c)for “all such assessments, adjustments” substitute “all such assessments, reductions, adjustments”.
(5)In subsection (3)—
(a)in paragraph (b), after “subsequently” insert “reduced under section 804G or”, and
(b)in the words after paragraph (b), after “Board that” insert “a reduction has been made or that”.
(6)In subsections (4) and (5), for “the adjustment” substitute “the reduction or adjustment”.
(7)In subsection (6)—
(a)for “any adjustment” substitute “any reduction or adjustment”, and
(b)after “allowed” insert “has been reduced or”.
(8)Section 811 (deduction for foreign tax where no credit allowable) is amended as follows.
(9)After subsection (3) insert—
“(3A)If—
(a)income of any person (“P”) is treated under subsection (1) as reduced by a sum paid in respect of tax on that income in the place where the income has arisen (“foreign tax”), and
(b)a payment is made by a tax authority to P, or any person connected with P, by reference to the foreign tax,
the amount of P’s income is to be increased by an amount equal to the payment made to P or the connected person.
(3B)Section 839 applies for the purposes of determining whether or not a person is connected with P.”
(10)In subsection (4)—
(a)before “nothing” insert “or the amount of P’s income is increased under subsection (3A),”,
(b)for “adjustment gives rise” substitute “adjustment or increase gives rise”,
(c)for “all such assessments, adjustments” substitute “all such assessments, adjustments, increases”, and
(d)insert at the end “or increase under subsection (3A) falls to be made”.
(11)In subsection (5)—
(a)in paragraph (b), after “United Kingdom” insert “or an increase under subsection (3A)”, and
(b)in the words after paragraph (b), after “adjustment” insert “or increase”.
(12)In subsections (6), (7) and (8), after “adjustment” insert “or increase”.
(13)The amendments made by this section have effect in relation to payments made on or after 22 April 2009.
(1)Part 18 of ICTA (double taxation relief) is amended as follows.
(2)In section 798A (section 797: trade income), after subsection (3) insert—
“(3A)Subsection (3) is subject to subsection (3B) if—
(a)the taxpayer is a bank or a company connected with a bank, and
(b)the amount of the included funding costs is significantly less than the amount of the notional funding costs.
(3B)The amount of the notional funding costs is to be included in the subsection (3) total, but only to the extent that it exceeds the amount of the included funding costs.
(3C)In subsections (3A) and (3B) and this subsection—
“bank” has the meaning given by section 840A;
“connected” has the meaning given by section 839;
“included funding costs” means the total of the funding costs that are—
incurred by the taxpayer, or any company connected with the taxpayer, in respect of capital used to fund the relevant transaction, and
included in the subsection (3) total (before the application of subsection (3B));
“notional funding costs” means the funding costs that the relevant bank would incur (on the basis of its average funding costs) in respect of the capital that would be needed to wholly fund the relevant transaction if that transaction were funded in that way (and for this purpose “relevant bank” means the bank that is the taxpayer, or with which the taxpayer is connected);
“relevant transaction” means the transaction, arrangement or asset from which the income or gain arises;
“subsection (3) total” means the amount to be taken into account under subsection (3) for the purposes of section 797(1).”
(3)Section 798B (section 798A: special cases), after subsection (4) insert—
“(4A)Income of a person (“D”) is to be treated for the purposes of section 798A as trade income (if it is not otherwise trade income) of D in a case where—
(a)the income is received by D as part of a scheme or arrangement entered into by D and a connected person (“C”),
(b)if C had received the income, it would be reasonable to assume that it would be trade income of C, and
(c)a main purpose of the scheme or arrangement is to produce the result that section 798A will not have effect in relation to the income because it is received by D.
(4B)For the purposes of subsection (4A)(b) it is to be assumed that, in the case of any relevant transaction to which a relevant person is a party, C were that party to that transaction.
(4C)In subsections (4A) and (4B) and this subsection—
“connected person” means a person with whom D is connected (within the meaning of section 839);
“relevant person” means—
D, or
any other connected person who is a party to the scheme or arrangement;
“relevant transaction” means any of the transactions giving rise to the income.”
(4)The amendments made by this section have effect in relation to a credit for foreign tax which relates to—
(a)a payment of foreign tax on or after 22 April 2009, or
(b)income received on or after that date in respect of which foreign tax has been deducted at source.