Deductions at source - CIOT - The Chartered Institute of Taxation

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Tax Law Rewrite Deduction at Source CIOT comments 14 November 200526.2 Furthermore, subsection (1) appears to suggest that the exemption conferredby Chapter 10 of Part 6 of ITTOIA does not cover the requirement to deduct taxunder what is currently ICTA s349. This is on the basis that the clause statesthat the payment is not to be ignored for the purposes of the duty to deduct.However, Chapter 10 provides that exempt income is to be ignored for allother income tax purposes except where there is an implied or expressprovision to the contrary. In our view, there is no such implied or expressprovision to the contrary. Instead, what FA 2004 s101 provides is that therecan be a temporary exemption when the income is thought to be exempt.However, under the FA 2004 régime (as extended by ITTOIA), exempt incomeis exempt from deduction. Therefore, truly exempt income can be ignored forthe purposes of the duty under clause 63.27 Clause 6727.1 We repeat our previous comments concerning the phrase “place of abode”.28 Clause 6828.1 We repeat our previous comments concerning the scope of FA 2004 s101.29 Clause 6929.1 Subsections (3) to (5) (and, in particular, the last two) should be hived off to aseparate clause as they go far beyond situations involving agents.30 Clause 7030.1 We wonder whether the omission of the reference to ITTOIA s599 would beworthy of a mention in the Explanatory Notes. Or should that section in fact bereferred to in subsection (4)?31 Clause 7131.1 After dealing with Chapter 6 and the preceding clauses of Chapter 7, all ofwhich deal with intellectual property rights, clause 71 stands out like a sorethumb in that it deals with non-commercial payments by companies. This ismade worse when one realises that the next clause (clause 72) is the beginningof Chapter 8, which also deals with royalty payments.31.2 Under the current layout of chapters this is perhaps inevitable (although thesituation could be slightly ameliorated by moving this clause to the top of theChapter so that it does not get lost after all the IP provisions).31.3 An alternative approach would be to hive off clause 71 into a Chapter of its own(a single-clause Chapter would not be new), leaving the rest of Chapter 7 andfor Chapter 8 to deal with the sundry IP provisions.32 Clause 7332.1 Q10: We agree it is appropriate to refer to an officer of R&C in this situation.P/bc/subsfinal/tlr 6 14.11.05
Tax Law Rewrite Deduction at Source CIOT comments 14 November 200533 Clause 7433.1 We note that the inclusive definition of “royalty” has seen an “or” change to an“and”. However, we agree that this makes no material difference to themeaning of the law – but makes the definition clearer.34 Clause 7934.1 Initially, we were tempted to agree with the Project in its decision to includeclause 79 in Bill 4. This was the case even though it makes modifications toother provisions.34.2 However, on reflection, this drafting technique is not strictly necessary.Consequently, the legislation would be clearer if:• a new para 3(5) (say) were added to FA 1998 Schedule 18;• a new paragraph 20A were inserted after para 20 (with para 20 suitablymodified) to deal with these penalties; and• clause 79 merely provided a helpful cross-reference to Schedule 18 asappropriate.35 Clause 8135.1 In subsection (1), we wonder if “none … apply” should be “none … applies”.35.2 As subsection (3) qualifies subsection (1) and subsection (4) qualifiessubsection (2), we wonder if (2) and (3) could be swapped around.35.3 Subsection (5), like existing section 349A(5), does not explain explicitly whathappens if the principal is another company. In other words, does theexemption apply if a company makes a qualifying payment on behalf of anothercompany? The Explanatory Notes suggest that there is no exemption in suchcases, but this is not obvious from the clause. We would recommend that thisbe made more explicit. We suggest that subsection (5) be varied to:Subsection (1) does not apply to any payment made by a companyacting as a trustee or agent for another person.35.4 Would it be possible to add “qualifying partnerships” to the list of payers insubsection (1)(a) and replace subsection (6) by a definition of qualifyingpartnership? Clauses 81(5), 82(5) and 88 would need to be amendedaccordingly.36 Clause 8336.1 No doubt, this clause (when compared with clause 84) risks a future challengeunder European law. A similar comment applies in respect of clause 87(4) and(5).P/bc/subsfinal/tlr 7 14.11.05
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Deductions at source - CIOT - The Chartered Institute of Taxation

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