Statute Law Repeals - Law Commission - Ministry of Justice

10.21 Section 774 addressed two situations. Where a dealing company paid an
associated investment company for an option which it subsequently abandoned
before the option expiry date, the investment company was deemed to have
received an amount of taxable income equal to the amount of the dealing
company’s deduction. Secondly, where a dealing company sought to waive
repayment of a loan to the investment company (producing tax relief for itself and
no tax liability on the part of the investment company), again the investment
company was deemed to have received a taxable receipt.
10.22 Portions of section 774 were amended by ITTOIA 2005, Sch 1 para 310, the
Corporation Tax Act 2009 (c.4) (“CTA 2009”), Sch 1 para 225, and the
Corporation Tax Act 2010 (c.4) (“CTA 2010”), Sch 1 para 103.
10.23 Section 774 as a whole has been superseded by other legislation by stages: by
the Taxation of Chargeable Gains Act 1992 (c.12) (“TCGA 1992”), ss 161 and
173, and then by CTA 2009, Parts 5 to 7 (which rewrote the loan relationships
legislation introduced by the Finance Act 1996 (c.8)). On that basis section 774 is
no longer required and the amending provisions can also be repealed.
10.24 Sections 812 to 814 of ICTA 1988 continued the withdrawal of tax credit for
certain non-resident companies connected with unitary states (being companies
with a qualifying presence in a province, state or territory outside the UK and
denied tax credit on qualifying distributions made by UK-based companies). 11
The sections, and their predecessor provisions, were designed to provide a
mechanism for the Treasury to override provisions in the United States Double
Taxation Convention 1975 and to withdraw the right of certain US corporations
which invested in UK companies to recover tax credit on dividends received from
them.
10.25 The sections are extant, but have never been brought into force. The Finance
(No.2) Act 1997 (c.58), s 30 reduced to a negligible amount (from April 1999) the
amount of tax credit entitlement for a non-resident person under a double
taxation relief agreement. Accordingly, sections 812 to 814 have been rendered
superfluous. As a consequence of their repeal, various amending provisions (in
the Finance Act 1996 (c.8), Finance Act 1998 (c.36), Finance Act 2002 (c.23),
Finance Act 2003 (c.14), ITTOIA 2005, ITA 2007, CTA 2010, and TIOPA 2010)
will also require repeal, as will various cross-references to the sections elsewhere
in ICTA 1988. The detail is set out in our consultation paper 12 and in the
Schedule to the draft Bill.
11 Withdrawal was initiated by the Finance Act 1985 (c.54) which enabled the UK to take
counter-measures against states (such as those in the USA) that sought to impose worldwide
unitary taxation. Certain US states apportioned (and taxed) the world-wide income of
multi-jurisdictional companies who were operating a unitary business. The UK’s view was
that this was contrary to the internationally-accepted principle that tax in such
circumstances would be charged on the basis of actual profits arising within the particular
state, calculated on an arm’s length basis.
12 At paragraphs 60-63.
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