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Distributions, tax credits etc: avoidance |
| Taxation of dealers in respect of distributions etc. |
24. - (1) Section 95 of the Taxes Act 1988 (taxation of dealers in respect of certain qualifying distributions etc) shall be amended in accordance with subsections (2) to (9) below.
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(2) For subsection (1) (qualifying distributions to which Schedule 7 to the Finance Act 1997 applies which are received by a dealer, and payments made by a dealer which are representative of such distributions, to be taken into account in computing profits of the dealer) there shall be substituted-
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"(1) Where a dealer-
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(a) receives a relevant distribution, that is to say- |
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(i) any distribution which is made by a company resident in the United Kingdom ("a UK distribution"), or
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(ii) any payment which is representative of a UK distribution, or
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(b) makes any payment which is representative of a UK distribution, |
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the distribution or, as the case may be, the payment shall be taken into account in computing the profits of the dealer which are chargeable to tax in accordance with the provisions of this Act applicable to Case I or II of Schedule D."
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(3) In subsection (1A) (provisions consequential on subsection (1) where dealer receives qualifying distribution to which Schedule 7 to the Finance Act 1997 applies)-
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(a) in the words preceding paragraph (a), for "qualifying distribution to which Schedule 7 to the Finance Act 1997 applies" there shall be substituted "relevant distribution"; |
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(b) paragraph (b) (distribution not to be treated for the purposes of sections 246D and 246F as a FID received by the dealer) shall cease to have effect; |
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(c) in paragraph (c), for "sections 208 and 234(1)" there shall be substituted "section 208"; |
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(d) paragraph (d) (which disapplies paragraph 2A(2) of Schedule 23A to the Taxes Act 1988 which is repealed by this section) shall be omitted; and |
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(e) the following paragraph shall be inserted at the appropriate place- |
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"(e) section 11(2)(a) shall have effect in relation to that distribution with the omission of the words "(but so that this paragraph shall not include distributions received from companies resident in the United Kingdom)"." |
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(4) Subsection (1B) (which relates to the application of section 732 and which becomes unnecessary in consequence of the amendments made to that section by section 26 below) shall cease to have effect.
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(5) In subsection (2) (meaning of "dealer")-
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(a) the word "qualifying" shall be omitted in both places where it occurs; and |
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(b) in paragraph (a) after "shares" there shall be inserted "or stock". |
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(6) After subsection (2) there shall be inserted-
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"(2A) The reference in subsection (2) above to the profits of a person does not include the profits of that person in respect of insurance business or any category of insurance business."
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(7) Subsection (4) (which makes special provision in relation to preference shares) shall cease to have effect.
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(8) Subsection (5) (definitions) shall be omitted.
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(9) For the sidenote there shall be substituted "Taxation of dealers in respect of distributions etc."
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(10) In section 20(1) of the Taxes Act 1988, in paragraph 2 of Schedule F (distribution in respect of which a person is entitled to a tax credit treated for the purposes of the Tax Acts as representing income equal to the aggregate of the distribution and the tax credit) after "purposes of the Tax Acts" there shall be inserted "(other than section 95(1))".
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(11) In section 234 of the Taxes Act 1988 (information relating to distributions) in subsection (1), the words "but subject to section 95(1A)(c)" shall be omitted.
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(12) In section 246D(1) of the Taxes Act 1988 (individuals entitled to FIDs treated as receiving grossed-up amount) after "that individual shall be treated" there shall be inserted "(except for the purposes of section 95(1))".
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(13) In Schedule 23A to the Taxes Act 1988 (manufactured dividends and interest) paragraph 2A(2) (which provides that if the dividend manufacturer is a company not resident in the UK no amount shall be deductible in the case of that company in respect of the manufactured dividend) shall be omitted (and accordingly paragraph 2(3)(c) of that Schedule has effect instead).
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(14) In Schedule 7 to the Finance Act 1997 (special treatment for certain distributions) in paragraph 2 (distributions treated as FIDs) in sub-paragraph (3)-
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(a) paragraph (a) (subjection to section 95(1A)(b)) shall be omitted; and |
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(b) in paragraph (b) (subjection to section 247(5B) to (5D)) for "of that Act" there shall be substituted "of the Taxes Act 1988". |
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(15) This section has effect in relation to-
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(a) any distribution made on or after 2nd July 1997; and |
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(b) any payment which is representative of such a distribution. |
| Repeal of s.95(5) of the Taxes Act 1988: consequential amendments. |
25. - (1) In section 246A(9) of the Taxes Act 1988 (which provides that "fixed-rate preference shares" shall be construed in accordance with section 95(5)) for "section 95(5)" there shall be substituted "paragraph 13(6) of Schedule 28B".
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(2) In Schedule 28B to the Taxes Act 1988 (venture capital trusts) paragraph 13 (general interpretation) shall be amended in accordance with subsections (3) and (4) below.
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(3) In sub-paragraph (5), paragraph (b) (which provides that "fixed-rate preference shares" has the same meaning as in section 95), and the word "and" immediately preceding that paragraph, shall be omitted.
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(4) After sub-paragraph (5) there shall be inserted-
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"(6) In this paragraph "fixed-rate preference shares" means shares which-
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(a) were issued wholly for new consideration; |
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(b) do not carry any right either to conversion into shares or securities of any other description or to the acquisition of any additional shares or securities; and |
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(c) do not carry any right to dividends other than dividends which- |
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(i) are of a fixed amount or at a fixed rate per cent. of the nominal value of the shares, and
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(ii) together with any sum paid on redemption, represent no more than a reasonable commercial return on the consideration for which the shares were issued;
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and in paragraph (a) above "new consideration" has the meaning given by section 254." |
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(5) In Schedule 7 to the Finance Act 1997 (special treatment for certain distributions) paragraph 5 (fixed-rate preference shares) shall be amended in accordance with subsections (6) and (7) below.
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(6) In sub-paragraph (2) (which defines "fixed-rate preference shares" by reference to section 95 of the Taxes Act 1988)-
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(a) in paragraph (a) for "section 95 of" there shall be substituted "paragraph 13 of Schedule 28B to"; and |
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(b) in paragraph (b) for "section 95(5)(c)(i) of that Act" there shall be substituted "paragraph 13(6)(c)(i) of that Schedule". |
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(7) After sub-paragraph (2) there shall be inserted-
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"(3) For the purposes of sub-paragraph (2) above, any reference in paragraph 13(6) of Schedule 28B to shares shall be taken as a reference to shares within the meaning of this Schedule."
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(8) This section has effect on and after 2nd July 1997.
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| Purchase and sale of securities. |
26. - (1) Section 732 of the Taxes Act 1988 (dealers in securities) shall be amended as follows.
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(2) After subsection (1) (dealers in securities: reduction for tax purposes of price paid by the appropriate amount in respect of interest) there shall be inserted-
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"(1A) Subsection (1) above shall not apply if the interest receivable by the first buyer falls to be taken into account by virtue of section 95(1) in computing profits of his which are chargeable to tax in accordance with the provisions of this Act applicable to Case I or II of Schedule D."
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(3) Subsections (2) and (2A) (exceptions from subsection (1) for certain market makers, recognised clearing houses and members of recognised investment exchanges) shall cease to have effect.
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(4) In subsection (4) (exception from subsection (1) for overseas securities bought on a stock exchange outside the United Kingdom if conditions as to computation of profits and non-allowance of credit for foreign tax are satisfied) the words "on a stock exchange outside the United Kingdom" shall be omitted.
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(5) For the definition of "overseas securities" in subsection (4) there shall be substituted-
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"In this subsection "overseas securities" means securities issued-
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(a) by a government or public or local authority of a territory outside the United Kingdom; or |
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(b) by any other body of persons not resident in the United Kingdom." |
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(6) Subsections (5) and (5A) (exceptions from subsection (1) for Eurobonds bought by dealers and for rights in a unit trust scheme where first buyer sells as manager) shall cease to have effect.
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(7) Subsections (6) and (7) (definitions for the purposes of subsections (2) and (2A)) shall cease to have effect.
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(8) This section has effect where, for the purposes of section 731(2) of the Taxes Act 1988, the interest receivable by the first buyer is paid on or after 2nd July 1997.
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