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Chancellor George Osborne yesterday announced a number of measures in his autumn statement designed to combat tax avoidance.
Three schemes – group mismatch, property return-swaps, and manufactured payments – were blocked by changes to recent corporation tax acts, which will introduced by Finance Bill 2013.
New sections 938O to 938V are to be added to CTA 2010 with the aim of making certain a profit or loss is not brought into account where one company creates an economic profit as a result of asymmetries in the way it brings or does not bring debits and credits into account.
CTA 2009, s 643 is to be amended so that contracts between connected persons cannot fall within that section; s 650 will be changed to ensure contracts between connected persons, or contracts with the purpose of securing a tax advantage, cannot fall within; an altered s 659 will ensure capital returns are calculated by reference to the actual return on the contract.
The property return-swaps rules will not apply where connected companies enter a swap, or where avoidance is involved. In other cases, the capital gain for tax purposes will be limited by reference to the actual return made by a company.
Manufactured payments will be taxed when a benefit is received in any form. CTA 2010, s 812 will be amended so that where a stock lending arrangement exists and a provision is made so that the lender receives other benefits, including the release of a liability to pay any amount, as well as payments representing the dividend interest, then a manufactured payment is deemed to be made.
Also in the chancellor’s autumn statement document were legislative changes to ensure foreign bank levies do not qualify as a deduction for UK corporation tax purposes. They will also make clear that relief will not be available as a deduction against UK corporation tax where a claim for bank levy double taxation relief has yet to be made
The measure will have effect for periods of account beginning before 1 January 2013 where claims for bank levy double taxation relief in respect of those periods are made on or after 5 December 2012, and for periods of account beginning on or after 1 January 2013 otherwise.
Finally, income tax relief for payments of patent royalties will be abolished with effect for payments made on or after 5 December 2012.
Royalties payments by individuals and other persons are currently relievable against other income of the same year, in accordance with chapter 4 of Part 8 of ITA 2007, but only in respect of payments not deducted in calculating income tax liability from any source: a trade, for example.
