Citation, commencement and effect

1. —(1) These Regulations may be cited as the Insurance Companies and CFCs (Avoidance of Double Charge) Regulations 2012 and come into force on 31st December 2012.

(2) These Regulations have effect in relation to accounting periods beginning on or after 1st January 2013.

Introduction

2. —(1) These Regulations apply in any case where—

(a) an insurance company to which the I-E rules apply is deemed to make a disposal under section 212 of the Taxation of Chargeable Gains Act 1992 (annual deemed disposal of holdings of unit trusts etc )( 2 ) of an interest in an offshore fund,

(b) the offshore fund is a CFC, and

(c) there is (or, but for these Regulations, would be) a CFC charge on the company referable to its relevant interest in the CFC for the accounting period in which the disposal is deemed to have been made.

(2) These Regulations modify the operation of—

(a) the CFC rules (see regulations 3 to 5), and

(b) section 212 of the Taxation of Chargeable Gains Act 1992 (see regulation 6).

(3) In these Regulations—

“principal CFC” means the CFC referred to in paragraph (1);

“associated CFC” means an offshore fund which is a CFC in which the insurance company has an indirect interest by virtue of having an interest in the principal CFC.

CFC control test

3. The CFC rules apply to the insurance company by reference to its interest in the principal CFC or any associated CFC only if the insurance company controls the principal CFC by virtue of section 371RE of TIOPA 2010 (control determined by reference to accounting standards)( 3 ).

CFCs which are equity funds

4. —(1) The CFC rules do not apply to the insurance company by reference to its interest in the principal CFC or any associated CFC if—

(a) at least 95% of the total assets of the CFC consists of shares, and

(b) no more than 5% of the sum of the CFC’s assumed taxable total profits and exempt distribution income consists of interest or returns which are economically equivalent to interest.

(2) But this regulation does not apply if the insurance company enters into any arrangements the main purpose or one of the main purposes of which is—

(a) to secure a tax advantage for itself or any other company in relation to the operation of the CFC rules, or

(b) to avoid bringing an amount into account under Part 5 or 6 of CTA 2009 (loan relationships and relationships treated as loan relationships etc).

(3) In this regulation—

“arrangement” includes any agreement, scheme, transaction or understanding (whether or not legally enforceable);

“assumed taxable total profits” has the same meaning as in Part 9A of TIOPA 2010 (see section 371VA);

“economically equivalent to interest” has the same meaning as in section 486B(2) of CTA 2009( 4 );

“exempt distribution income” has the same meaning as in section 371CC(9) of TIOPA 2010;

“share” has the same meaning as in section 476(1) of CTA 2009;

“tax advantage” has the meaning given by section 1139 of CTA 2010( 5 ).

Modification relating to I-E calculation

5. Section 371BH of TIOPA 2010 (companies carrying on BLAGAB) applies as if in subsection (6) after “step 1” there were inserted “or 2”.

Modification of section 212 of the Taxation of Chargeable Gains Act 1992

6. —(1) For the purposes of section 212 of the Taxation of Chargeable Gains Act 1992 the market value at the time of the deemed disposal under that section is adjusted as follows.

(2) The market value is treated as reduced by the total chargeable profits of the principal CFC and any associated CFC in any qualifying accounting period in so far as those profits are apportioned to the insurance company under the CFC rules and give rise to a CFC charge.

(3) But if the insurance company has received a distribution from the principal CFC or any associated CFC in any accounting period in which the disposal is deemed to have been made, the market value at the time of the deemed disposal is adjusted on a just and reasonable basis having regard to all the circumstances.

(4) For the purposes of paragraph (2), a “qualifying accounting period” is an accounting period of the principal CFC and any associated CFC which ends in an accounting period of the company in which a disposal of the company’s interest in the principal CFC is deemed to have been made under section 212.

(5) In this regulation, “accounting period” and “chargeable profits”, in relation to a CFC, have the same meanings as in Part 9A of TIOPA 2010 (see section 371VA of that Act ).