Introduction Details of the Schedule Part 2
3.Paragraph 2 sub-paragraph (2) amends the definition of a ”person abroad” in section 718 ITA 2007 so that a person abroad for the purposes of the transfer of assets legislation is:
4.Paragraph 2 sub-paragraph (3) provides that sub-section 718 (2)(a) is omitted with the result that UK resident companies that are incorporated outside the UK will no longer automatically be treated as a ‘person abroad’ for the purposes of this legislation.
5.Paragraphs 3, 4 and 5 make amendments to section 720 ITA 2007 consequent upon the introduction of new section 742A.
6.Paragraph 6 makes further amendments, in this case to section 736 ITA 2007, consequent upon the introduction of new section 742A. It also provides for new section 742A to exempt relevant transactions effected on or after 6th April 2012.
7.Paragraph 7 inserts new section 742A (a new exemption for genuine transactions) into Chapter 2 Part 13 of ITA 2007.
8.Subsections (1) and (2) of new section 742A provide that income is to be left out of account (that is, it will be exempt from charge) if an officer of HMRC is satisfied that it is attributable to a transaction that takes place on or after 6 April 2012 and which meets Conditions A and B.
9.Subsection (3) of new section 742A sets out Condition A. Condition A is met where, if the transaction in question were to be considered to be a genuine one (when viewed objectively, having regard to the circumstances under which it was effected and any other relevant circumstances), and gave rise to a transfer of assets charge, that liability would constitute an unjustified and disproportionate restriction on a relevant EU treaty freedom.
10.Subsection (4) of new section 742A sets out that provisions of the Treaty on the Functioning of the European Union and the EEA Agreement (or any subsequent treaty replacing either of those provisions) are to be considered as relevant for the purposes of subsection (3). They contain the four freedoms mentioned in subsection (3): freedom of movement of persons, capital, services and goods.
11.Subsection (5) of new section 742A sets out Condition B. Condition B is met where an officer of HMRC is satisfied that the transaction in question should be considered genuine when viewed objectively, having regard to the circumstances under which it was effected and any other relevant circumstances.
12.Subsection (6) of new section 742A makes further provision, about what constitutes a “genuine” transaction for the purposes of meeting Conditions A and B. A transaction will not be considered genuine where it is made other than on arm’s length terms. A transaction is not on arm’s length terms if either :
	it is on terms other than those that would have been made between persons not connected with each other dealing at arm’s length, or
	it would not have been entered into at all between persons not connected with each other dealing at arm’s length.
When considering whether a transaction is on arm’s length terms regard must be had to all arrangements and relevant circumstances in connection with which the transaction is carried out.
13.Subsection (7), (8) and (13) of new section 742A make further provision about what constitutes a “genuine” transaction. These provisions concern the use of the assets transferred; any assets directly or indirectly representing those assets; any income arising from the assets transferred and any assets representing the accumulation of income arising in relation to the transaction being considered. That transaction may be a relevant transfer (as defined in section 716), or an associated operation (as defined in section 719).
14.Where such assets are used for the purposes of, or received in the course of, activities carried out in a territory outside the UK, by a person who has a business establishment in that territory, in order for the transaction to be considered to be a genuine transaction, those activities must consist of the provision, by the person who has the business establishment in the overseas territory, of goods or services to others on a commercial basis. The activities must involve the use of sufficient staff with the appropriate level of competence and authority to carry out them out. The activities must involve the use of premises and equipment commensurate with their size and nature. And the activities must involve the person who has the business establishment adding a commensurate level of economic value to the customers to whom the goods or services are provided.
15.Subsection (9) of new section 742A defines “staff” as employees, agents or contractors engaged by the person who has the overseas business establishment.
16.Subsection (10) of new section 742A explains how to determine whether a person has a “business establishment” in a territory, by analogy with the provisions at sections 1141, 1142(1) and 1143 of the Corporation Tax Act 2010 which define a permanent establishment of a company.
17.Subsection (11) of new Section 742A sets out circumstances where the arm’s length test in subsection (6) does not apply to a transaction. This will be the case where:
	the relevant transfer is made by an individual wholly for personal (not commercial) reasons, for the personal benefit (not commercial) benefit of other individuals,
	no consideration is given (whether directly or indirectly) for the relevant transfer or otherwise for any benefit received by the other individuals, and
	all the assets and income described in subsection (12) in relation to the transaction being considered, are used only in this respect.
This may be the case where, for example, an individual settles assets into a non-resident trust for the benefit of his family.
18.Subsection (12) of new section 742A defines assets and income for the purposes of subsections (7) and (11) as:
19.Subsections (14) and (15) of new section 742A apply where a transaction is not shown to be genuine because it does not fully meet the requirements of subsection (6). They provide for income shown to be attributable to that part of a relevant transaction which is genuine to be exempt from the charge whilst the part which is not shown to be genuine will be subject to the charge.
20.Paragraph 8 inserts a provision into section 751 of ITA 2007 to extend the jurisdiction of the tribunal on any appeal to cover the new section 742A.
21.Paragraph 9 sets out the dates from which the changes in Part 2 of the Schedule take effect. Sub-paragraph (1) provides for resident companies which are incorporated abroad to be treated as resident with effect from 6th April 2012. Sub-paragraph 2 provides for all other amendments set out in part 2 to take effect for the 2012-13 and subsequent tax years.