817U. Interpretation

(1) In this Chapter—

“arrangement” has the same meaning as it has in Part 35A;

“associated entities” shall be construed in accordance with subsection (3);

“controlled foreign company charge” has the same meaning as it has in Part 35B;

“domestic tax” means income tax, corporation tax or capital gains tax;

“EEA Agreement” means the Agreement on the European Economic Area signed at Oporto on 2 May 1992, as adjusted by the Protocol signed at Brussels on 17 March 1993;

“EEA State” means a state which is a contracting party to the EEA Agreement;

“entity” has the same meaning as it has in Part 35C;

“excluded payment” means a payment, or a portion thereof, made by a company to the extent that it is reasonable to consider that—

(a) an amount of income, profits or gains arising from the payment is within the charge to—

(i) supplemental tax,

(ii) foreign tax at a nominal rate greater than zero per cent, or

(iii) domestic tax, other than as applied by this Chapter,

or

(b) the payment is made out of an amount of income, profits or gains

where—

(i) that income, profits or gains are within the charge to foreign tax at a nominal rate greater than zero per cent, and

(ii) in calculating the amount of foreign tax to which that income, profits or gains are subject, no account is taken of that payment or any amount in respect of that payment,

and includes a payment which would be a payment to which paragraph (a) or (b) applies but for the fact that the entity which would be within the charge to tax—

(I) in respect of that payment, or

(II) in respect of the income, profits or gains out of which the payment is made,

is a pension fund, government body or other entity, resident in a territory other than a specified territory, that, under the laws of that territory, is exempted from tax which generally applies to profits, income or gains in that territory;

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“foreign company charge” has the same meaning as it has in Part 35B;

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“foreign tax” has the same meaning as it has in Part 35C;

“permanent establishment”, in respect of a company, means a fixed place of business situated in a territory other than where that company is resident, through which the business of a company is wholly or partly carried on;

“qualified IIR”, “qualified UTPR”, and “qualified domestic top-up tax” have the same meaning, respectively, as they have in Part 4A;

“relevant distribution” has the same meaning as it has in Chapter 8A of Part 6;

“relevant Member State” means—

(a) a Member State of the European Union, or

(b) not being such a Member State, an EEA State;

“relevant payment” means a payment made by a company of an amount of interest or royalties which has been, or may be, in any accounting period, deducted, allowed or relieved in computing its or another company’s profits or losses for the purposes of corporation tax;

“royalty” means a payment of any kind for—

(a) the use of, or the right to use—

(i) any copyright of literary, artistic or scientific work, including cinematograph films,

(ii) any patent, trademark, design or model, plan, secret formula or process,

or

(b) information concerning industrial, commercial or scientific experience;

“specified territory” means a territory, other than a relevant Member State, which is a listed territory or a zero-tax territory;

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“supplemental tax” means—

(a) a foreign company charge,

(b) a qualified IIR,

(c) a qualified UTPR,

(d) a qualified domestic top-up tax, or

(e) any other tax which is similar to any of the taxes referred to in paragraphs (a) to (d);

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“supplemental tax” means—

(a) a qualified IIR,

(b) a qualified UTPR,

(c) a qualified domestic top-up tax, or

(d) any other tax which is similar to any of the taxes referred to in paragraphs (a) to (c);

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“tax period” has the same meaning as it has in section 835Z;

“zero-tax territory” means a territory that, other than in respect of an entity whose income, profits or gains are treated by that territory, or would be so treated but for an insufficiency of income, profits or gains, as arising or accruing to another entity—

(a) generally subjects entities to tax at a rate of zero per cent on income, profits and gains, or

(b) does not generally subject entities, whether on a remittance basis or otherwise, to a tax on income, profits and gains.

(2) In this Chapter, “listed territory” has the same meaning as in section 835YA subject to the modification that references to “an accounting period beginning” shall be read as references to “the making of a payment or distribution”.

(3) In this Chapter, two entities shall be ‘associated entities’ in respect of each other where—

(a) one entity, directly or indirectly, possesses or is beneficially entitled to—

(i) where the other entity is an entity having share capital, more than 50 per cent of the issued share capital of the other entity, or

(ii) where the other entity is an entity not having share capital, an interest of more than 50 per cent of the ownership rights in the other entity,

(b) one entity, directly or indirectly, is entitled to exercise more than 50 per cent of the voting power in the other entity,

(c) one entity (in this paragraph referred to as ‘the first-mentioned entity’), directly or indirectly, holds such rights as would—

(i) where the other entity is a company, if the whole of the profits of that other entity were distributed, entitle the first-mentioned entity, directly or indirectly, to receive more than 50 per cent of the profits so distributed, or

(ii) where the other entity is an entity other than a company, if the share of the profits of that other entity to which the first-mentioned entity is entitled, directly or indirectly, is more than 50 per cent,

(d) one entity has definite influence in the management of the other entity, ^[5]>or^<[5]

(e) there is another entity in respect of which the two entities are, in accordance with paragraph (a), (b), (c) or (d), associated ^[6]>entities.^<[6][6]>entities, or^<[6]

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(f) in relation to each of the two entities (in this paragraph referred to as ‘the first-mentioned entity’), an individual (in this paragraph referred to as ‘the first-mentioned individual’) and, subject to subsection (3A), any other entity or individual connected (within the meaning of section 10) with the first-mentioned individual—

(i) directly or indirectly possess or are beneficially entitled to—

(I) where the first-mentioned entity has share capital, more than 50 per cent of the issued share capital of that entity, or

(II) where the first-mentioned entity does not have share capital, an interest of more than 50 per cent of the ownership rights in that entity,

or

(ii) directly or indirectly hold such rights as would—

(I) where the first-mentioned entity is a company, if the whole of the profits of that entity were distributed, entitle the first-mentioned individual, and any other entity or individual connected (within the meaning of section 10) with the first-mentioned individual, to receive more than 50 per cent of the profits so distributed, or

(II) where the first-mentioned entity is not a company, entitle the first-mentioned individual, and any other entity or individual connected (within the meaning of section 10) with the first-mentioned individual, to a share of more than 50 per cent of the profits of the first-mentioned entity,

or

(iii) directly or indirectly are entitled to exercise more than 50 per cent of the voting power in the first-mentioned entity.

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(3A) (a) For the purposes of subsection (3)(f), subsections (5) and (8) of section 10 shall not operate so as to connect an individual (in this paragraph referred to as ‘the first-mentioned individual’) with any other entity or individual by reason only of the first-mentioned individual and such other entity or individual being in partnership where—

(i) the first-mentioned individual’s interest in the ownership rights of that partnership is not greater than 5 per cent, and

(ii) the first-mentioned individual is a limited partner in that partnership,

where the first-mentioned individual, or persons connected with the first-mentioned individual, would not otherwise be connected (within the meaning of section 10) with such other entity or individual.

(b) For the purposes of paragraph (a), a limited partner means—

(i) a person carrying on a business as a limited partner in a limited partnership registered in accordance with the Limited Partnerships Act 1907,

(ii) a person carrying on a business as a general partner in a partnership who is not entitled to take part in the management of the business but is entitled to have the person’s liabilities, or those liabilities beyond a certain limit, for debts or obligations incurred for the purposes of the business, discharged or reimbursed by some other person, or

(iii) a person who carries on a business jointly with others under any agreement, arrangement, scheme or understanding which is governed by the law of any territory outside the State and, under the law of that territory, is not entitled to take part in the management of the business and is not liable beyond a certain limit for debts or obligations incurred for the purposes of the business.

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(4) For the purposes of subsection (3)(d), one entity (in this subsection referred to as ‘the first-mentioned entity’) shall be considered to have definite influence in the management of another entity (in this subsection referred to as ‘the second-mentioned entity’) where the first-mentioned entity has the ability to participate, on the board of directors or equivalent governing body of the second-mentioned entity, in the financial and operating policy decisions of the second-mentioned entity, where that ability causes, or could cause, the affairs of the second-mentioned entity to be conducted in accordance with the wishes of the first-mentioned entity.

(5) For the purposes of this Chapter, an entity shall be regarded as being a resident of a territory if—

(a) in a case where the territory is a territory with the government of which arrangements having the force of law by virtue of section 826(1) have been made, the entity is regarded as being a resident of that territory under those arrangements, and

(b) in any other case, the entity is by virtue of the law of a territory resident for the purposes of tax in that territory,

but where an entity is not resident in any territory in accordance with paragraph (a) or (b) it shall be regarded as being resident in the territory under whose laws it was created.

(6) For the purposes of this Chapter, where a relevant payment or a relevant distribution is made to an entity or a permanent establishment (in this subsection referred to as ‘the first-mentioned entity or permanent establishment’) and some or all of that payment or distribution is treated as arising or accruing to another entity or permanent establishment (in this section referred to as ‘the secondmentioned entity or permanent establishment’) or an individual^[4]>, that is resident or situated in a different territory,^<[4] under the tax law of the territory where—

(a) the first-mentioned entity or permanent establishment is resident or situated, as the case may be, and

(b) the second-mentioned entity or permanent establishment or such individual is resident or situated, as the case may be,

then, for the purposes of this Chapter, the payment or distribution, or the relevant portion thereof, shall be treated as if it had been made to the second-mentioned entity or permanent establishment or that individual.