Explanatory note

These regulations should be read with Schedule 17 of the Finance Act 2009 (chapter 10). Paragraph 4 of Schedule 17 imposes a reporting requirement in relation to certain events and transactions involving subsidiary companies which are not resident in the United Kingdom (see paragraph 8(1) and (2) of Schedule 17). The requirement is imposed on UK bodies corporate controlling one or more bodies corporate that are not resident in the United Kingdom.

Regulation 1 provides for the citation, commencement and effect of these regulations. In accordance with the power conferred by paragraph 14(2) of Schedule 17, the regulations have effect in relation to events which take place on or after 1st July 2009 and to transactions which are carried out on or after that date. The earliest date by which a report is required is 1st April 2010 (see paragraph 14(1) of Schedule 17).

Regulation 2 contains interpretative provisions.

Regulation 3 deals with the information which a reporting body is required to provide to an officer of Revenue and Customs. Regulation 3(1) introduces the specific reporting regulations.

Regulation 3(2) provides that the information required as it relates to a foreign subsidiary is its name and the territory from which it derives its status as a body corporate.

Regulation 3(3) provides that the information required in relation to each event, each transaction and each step taken in the course of a transaction is a full description including in particular the date, the names of the parties, the reasons for it, and an estimate of its effect on liability to United Kingdom tax.

Regulation 4 deals with determining the value of an event or transaction. Regulation 4(1) introduces the specific valuation regulations.

Regulation 4(2) provides that the value of an issue or transfer of shares or debentures is their market value.

Regulation 4(3) provides that the value of an event or transaction which results in a foreign subsidiary becoming, or ceasing to be, a controlling partner in a partnership is the market value of the share of the subsidiary in the assets of the partnership immediately after it becomes a controlling partner or, as the case may be, immediately before it ceases to be a controlling partner.

Regulation 4(4) provides for the aggregation of the value of all the events and transactions in a series.

Regulation 5(1)(a) and (b) exclude certain transactions from the reporting requirement. The exclusions are in addition to those specified in paragraph 9(1)(a) to (d) of Schedule 17 to the Finance Act 2009. Regulation 5(1)(a) excludes transactions pursuant to cash pooling arrangements where the conditions in paragraph (2) have been met.

Regulation 5(2) provides that, before the transaction takes place, the parties to the cash pooling arrangements must notify an officer of Revenue and Customs in writing of the terms of the arrangements and written notice must have been given to the parties by an officer of Revenue and Customs that transactions entered into pursuant to the arrangements after the date of the notice will be excluded transactions for the purposes of the Schedule.

Regulation 5(1)(b) provides that transactions described in the Schedule to the Regulations (the Schedule is introduced by paragraph (3) to regulation 5) and meeting any specified conditions are excluded from the reporting requirement.

Paragraph 2 of the Schedule excludes the issue of shares by the foreign subsidiary to the reporting body or to another company belonging to the same group as the reporting body. The shares must not be redeemable and the issue must be made either at market value and for consideration paid in cash to the foreign subsidiary or made in or towards payment for any business undertaking or property acquired by the foreign subsidiary at market value.

Paragraph 3 of the Schedule excludes the issue of shares by the foreign subsidiary to a person not connected with the reporting body. The issue must be at market value and for consideration paid to the foreign subsidiary and must not be an issue to a nominee or trustee for a person who is connected with the reporting body. There must not be any arrangements by which the reporting body, a person connected with the reporting body, or a nominee or trustee for that person or the reporting body is or may become entitled to the shares or any interest in any of them.

Paragraph 4 of the Schedule excludes the issue of shares by the foreign subsidiary to all its shareholders. The shares must be issued in respect of and in proportion to the shares already held at the time of the issue. The issued shares must not be redeemable or, if no shares are issued to a company resident in the United Kingdom or to a nominee or trustee for such a company, the shares must be issued at market value and for consideration paid in cash to the foreign subsidiary.

Paragraph 5 of the Schedule excludes the issue of debentures by the foreign subsidiary to the reporting body or a company in the same group as the reporting body. There must not be a loan associated with or present in connection with the issue. This applies to any loan which is made by a company not resident in the United Kingdom to a company which is resident in the United Kingdom. It does not matter whether or not the loan is of the same amount as the amount secured by the debentures.

Paragraph 6 of the Schedule excludes the issue of debentures by the foreign subsidiary to persons who are not connected with the reporting body. The debentures must be issued at market value and for consideration paid to the foreign subsidiary and must not be issued to a nominee or trustee for a person who is connected with the reporting body. There must not be any arrangements by which the reporting body, a person connected with the reporting body, or a nominee or trustee for that person or the reporting body is or may become entitled to the debentures or any interest in them.

Paragraph 7 of the Schedule excludes certain transfers by the reporting body or any company (whether or not it is resident in the United Kingdom) of shares or debentures of the foreign subsidiary. The exclusion applies where the transfer is to a person not connected with the reporting body. The transfer must be at market value and for consideration paid to the transferor and must not be to a nominee or trustee for a person who is connected with the reporting body. There must not be any arrangements by which the reporting body, or a nominee or trustee for the reporting body, or a person connected with the reporting body, or a nominee or trustee for a person connected with the reporting body is or may become entitled to the shares or debentures or any interest in them.

Paragraph 8 of the Schedule excludes transfers by the reporting body of shares or debentures of the foreign subsidiary to a company in the same group as the reporting body.

Paragraph 9 of the Schedule excludes transfers other than by the reporting body of shares or debentures of a foreign subsidiary in which the reporting body has an interest. The transfers must be permitted or caused by the reporting body and must be to the reporting body or to a company in the same group as the reporting body.

Paragraph 10 of the Schedule excludes transactions whereby the reporting body or a company in the same group as the reporting body gives security over the shares of a foreign subsidiary. The security must be given in connection with the borrowing of money and the lender must not be connected to the reporting body or to a company in the same group as the reporting body.

Regulation 6 contains provision about making an arrangement under paragraph 6 of Schedule 17 to the Finance Act 2009. An arrangement under paragraph 6 permits two or more United Kingdom corporate parents controlled by the same foreign corporate parent to nominate one of those United Kingdom corporate parents to exercise the functions conferred by Schedule 17 on a reporting body.

Regulation 6(2) requires the parties to give notice of the arrangement to an officer of Revenue and Customs within 28 days of entering into it.

Regulation 6(3) requires the notice to be in writing and signed by all the parties to the arrangement.

Regulation 6(4) requires the notice to state the name and tax reference of each party and to state which of them is the nominated reporting body.

Regulation 6(5) provides that the parties to an arrangement are treated as having withdrawn from it if they do not give notice to an officer of Revenue and Customs in accordance with paragraphs (2) to (4).

Regulation 6(6) provides that if a party to an arrangement ceases to be controlled by the foreign parent, that party is treated as having withdrawn from the arrangement.

Regulation 6(7) requires that a party which withdraws from or is treated as withdrawing from an arrangement must give notice to an officer of Revenue and Customs and to any other party to the arrangement of that fact within 28 days of the date of withdrawal or the date on which it ceases to be controlled by the foreign parent, as the case may be.

Schedule 17 and the Regulations are included in a package of measures being introduced as part of the Government’s review of the taxation of the foreign profits of companies. A full and final impact assessment of the effect which the package as a whole will have on the costs of business and the voluntary sector was published on 22nd April 2009. A copy is available at http://www.hm-treasury.gov.uk/d/Budget2009/bud09_impactassessment_1395.pdf.