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567 | Meaning of “overseas securities” and “overseas dividend” |
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(1) | This section applies for the purposes of this Part. |
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(2) | “Overseas securities” means shares, stock or other securities issued by— |
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(a) | a government, local authority or other public authority of a territory |
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outside the United Kingdom, or |
| 5 |
(b) | another non-UK resident body of persons. |
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(3) | “Overseas dividend” means any interest, dividend or other annual payment |
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payable in respect of overseas securities. |
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(4) | In this section “securities” includes loan stock or any similar security. |
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568 | Meaning of “stock lending arrangement” |
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(1) | For the purposes of this Part there is a stock lending arrangement in respect of |
| |
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(a) | a person (“the lender”) has transferred the securities to another person |
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(“the borrower”) otherwise than by way of sale, |
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(b) | the securities are UK shares, UK securities or overseas securities, |
| 15 |
(c) | the transfer is under an arrangement between the lender and the |
| |
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(d) | under the arrangement, the borrower is required to transfer the |
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securities back to the lender otherwise than by way of sale. |
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(2) | The reference in subsection (1)(d) to the transfer of the securities back to the |
| 20 |
lender includes a reference to— |
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(a) | a transfer within subsection (3), and |
| |
(b) | a payment within subsection (5). |
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(3) | A transfer is within this subsection if it is a transfer to the lender of securities |
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of the same description as the securities— |
| 25 |
(a) | in accordance with a requirement to do so, or |
| |
(b) | in exercise of a power to substitute securities of the same description for |
| |
the securities that are required to be transferred back. |
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(4) | For the purposes of subsection (3), securities are taken to be of the same |
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description as other securities if (and only if) they— |
| 30 |
(a) | are in the same quantities, |
| |
(b) | give the same rights against the same persons, and |
| |
(c) | are of the same type and nominal value, |
| |
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(5) | A payment is within this subsection if it is a payment to the lender, in |
| 35 |
pursuance of a redemption obligation, of an amount equal to the amount of the |
| |
entitlement under the redemption obligation. |
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(6) | A redemption obligation is an obligation that arises on a person’s becoming |
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entitled to receive an amount in respect of the redemption of the securities. |
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| 40 |
(1) | For the purposes of this Part there is a repo in respect of securities if conditions |
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|
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|
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(2) | Condition A is that a person (“the original owner”) has agreed to sell the |
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securities to another person (“the interim holder”). |
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(3) | Condition B is that the securities are UK shares, UK securities or overseas |
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(4) | Condition C is that the original owner or a person connected with the original |
| 5 |
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(a) | is required to buy back the securities by the agreement or a related |
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(b) | is required to buy back the securities under an obligation imposed as a |
| |
result of the exercise of an option acquired under the agreement or a |
| 10 |
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(c) | exercises an option to buy back the securities which was acquired |
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under the agreement or a related agreement. |
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570 | Meaning of “buying back” securities etc |
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(1) | This section applies for the purposes of this Part, in the context of a repo. |
| 15 |
(2) | References to buying back securities include references to— |
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(a) | buying similar securities, and |
| |
(b) | in the case of a person connected with the person who is the original |
| |
owner under the repo, buying the securities sold by the original owner |
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| 20 |
(3) | Subsection (2) applies even if the person buying the securities has not held |
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(4) | References to repurchase or a repurchaser are to be read accordingly. |
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(5) | For the purposes of subsection (2) securities are similar if they give their |
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| 25 |
(a) | the same rights against the same persons as to capital and distributions, |
| |
interest and dividends, and |
| |
(b) | the same remedies to enforce those rights. |
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(6) | Subsection (5) applies even if there is a difference in— |
| |
(a) | the total nominal amounts of the securities, |
| 30 |
(b) | the form in which they are held, or |
| |
(c) | the manner in which they can be transferred. |
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571 | Meaning of “related” agreements |
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Agreements are related for the purposes of this Part if they are entered into in |
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pursuance of the same arrangement (regardless of the date on which either |
| 35 |
agreement is entered into). |
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|
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This Chapter is about the situation where a person— |
| 5 |
(a) | pays another person an amount which is representative of— |
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(i) | dividends on UK shares, |
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(ii) | periodical payments of interest on UK securities, or |
| |
(iii) | overseas dividends on overseas securities, and |
| |
(b) | does so under a requirement of an arrangement between them for the |
| 10 |
transfer of the UK shares, UK securities or overseas securities |
| |
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Manufactured dividends on UK shares |
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573 | Manufactured dividends on UK shares |
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(1) | This section applies if a person— |
| 15 |
(a) | pays another person an amount (a “manufactured dividend”) which is |
| |
representative of a dividend on UK shares, and |
| |
(b) | does so under a requirement of an arrangement between them for the |
| |
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(2) | The Income Tax Acts apply in relation to the recipient, and persons claiming |
| 20 |
title through or under the recipient, as if the manufactured dividend were a |
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(3) | If the payer is a UK resident company, the Income Tax Acts apply in relation |
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to the payer as if the manufactured dividend were a dividend of the company. |
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(4) | If the payer is UK resident and is not a company, the Income Tax Acts apply in |
| 25 |
relation to the payer subject to sections 574 and 575 (allowable deductions). |
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(5) | This section is subject to— |
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(a) | section 576 (manufactured dividends on UK shares: Real Estate |
| |
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(b) | section 583 (manufactured payments exceeding underlying payments), |
| 30 |
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(c) | section 585 (power to deal with other special cases). |
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574 | Allowable deductions: matching |
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(1) | This section applies if a person who pays a manufactured dividend as |
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mentioned in section 573(1) is UK resident and is not a company. |
| 35 |
(2) | An amount equal to the lesser of— |
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(a) | the amount of the manufactured dividend, and |
| |
(b) | the amount of the dividend of which the manufactured dividend is |
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|
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|
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| is allowable as a deduction for income tax purposes, subject to subsection (3). |
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(3) | It is allowable only so far as— |
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(a) | it is not otherwise deductible, and |
| |
(b) | it falls within subsection (4) or (7). |
| |
(4) | An amount falls within this subsection so far as the payer— |
| 5 |
(a) | receives either the dividend which is represented by the manufactured |
| |
dividend or a payment which is representative of that dividend, and |
| |
(b) | is chargeable to income tax on the dividend or payment received. |
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(5) | An amount falls within subsection (4) only if the amount of the dividend or |
| |
payment received is received by the payer in— |
| 10 |
(a) | the tax year in which the payer pays the manufactured dividend, or |
| |
(b) | the tax year immediately before, or immediately after, that year. |
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(6) | An amount which falls within subsection (4) is allowable as a deduction only |
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from the amount of the dividend or payment received on which the payer is |
| |
chargeable to income tax. |
| 15 |
(7) | An amount falls within this subsection so far as the payer— |
| |
(a) | is treated under section 607 (treatment of price differences under repos) |
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as receiving a payment of interest in respect of the shares, and |
| |
(b) | is chargeable to income tax on the payment. |
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(8) | An amount which falls within subsection (7) is allowable as a deduction in |
| 20 |
calculating the net income of the payer (see Step 2 of the calculation in section |
| |
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(9) | See section 575 for a further qualification to the rule in subsection (2). |
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(10) | For the purposes of subsection (3)(a) an amount is deductible if it is— |
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(a) | deductible in calculating any of the payer’s profits or gains for income |
| 25 |
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(b) | deductible for those purposes in calculating the net income of the |
| |
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575 | Allowable deductions: restriction on double-counting |
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(1) | This section applies if an amount has been allowed as a deduction under |
| 30 |
section 574(2) by reference to the whole or part of— |
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(a) | the dividend or payment mentioned in section 574(4)(a), or |
| |
(b) | the deemed payment of interest mentioned in section 574(7)(a). |
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(2) | No further deduction is allowable by reference to all or part of the matched |
| |
portion of the dividend, payment or deemed payment. |
| 35 |
(3) | The “matched portion” of the dividend, payment or deemed payment means— |
| |
(a) | the whole of it, if the amount has been allowed as a deduction by |
| |
reference to the whole of it, or |
| |
(b) | the part of it by reference to which the amount has been allowed as a |
| |
deduction, in any other case. |
| 40 |
576 | Manufactured dividends on UK shares: Real Estate Investment Trusts |
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(1) | This section applies (instead of section 573(2) and (3)) if— |
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|
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|
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(a) | a person pays a manufactured dividend as mentioned in section 573(1), |
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(b) | the manufactured dividend is representative of a dividend which is— |
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(i) | paid by a company to which Part 4 of FA 2006 applies (Real |
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Estate Investment Trusts) in respect of profits of C (tax-exempt), |
| 5 |
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(ii) | paid by the principal company of a group to which that Part |
| |
applies in respect of profits of G (property rental business). |
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(2) | This section applies only so far as the manufactured dividend is representative |
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| 10 |
(3) | The Income Tax Acts apply in relation to the recipient, and persons claiming |
| |
title through or under the recipient, as if the manufactured dividend were a |
| |
dividend to which section 121 of FA 2006 applied (distributions treated as UK |
| |
property business profits). |
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(4) | This section is subject to— |
| 15 |
(a) | section 583 (manufactured payments exceeding underlying payments), |
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(b) | section 585 (power to deal with other special cases). |
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577 | Statements about manufactured dividends |
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(1) | Subsections (3) to (7) apply to a person who— |
| 20 |
(a) | pays a manufactured dividend as mentioned in section 573(1), and |
| |
(b) | is not within the charge to corporation tax. |
| |
(2) | But those subsections do not apply so far as the manufactured dividend is |
| |
representative of a dividend which is— |
| |
(a) | paid by a company to which Part 4 of FA 2006 applies (Real Estate |
| 25 |
Investment Trusts) in respect of profits of C (tax-exempt), or |
| |
(b) | paid by the principal company of a group to which that Part applies in |
| |
respect of profits of G (property rental business). |
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(3) | The person must, at the same time as paying the manufactured dividend, give |
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the recipient a statement. |
| 30 |
(4) | The statement must set out— |
| |
(a) | the amount of the manufactured dividend, |
| |
(b) | the date of its payment, and |
| |
(c) | the amount of associated tax credit. |
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(5) | The statement must be in writing. |
| 35 |
(6) | The amount of associated tax credit is the amount of tax credit to which the |
| |
recipient, or a person claiming title through or under the recipient— |
| |
(a) | is entitled in respect of the manufactured dividend as a result of section |
| |
573(2) of this Act or paragraph 2(3)(b) of Schedule 23A to ICTA |
| |
(manufactured dividend treated as dividend), or |
| 40 |
(b) | would be so entitled if all the conditions for a tax credit had been met |
| |
in the case of the deemed dividend and the recipient or that person. |
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(7) | The duty under subsection (3) to give a statement is enforceable by the |
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|
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(8) | For provisions corresponding to subsections (3) to (7) which apply if the payer |
| |
of a manufactured dividend is within the charge to corporation tax see— |
| |
(a) | section 234A of ICTA (by virtue of paragraph 2(2)(b) of Schedule 23A |
| |
to ICTA), if the payer is a UK resident company, and |
| |
(b) | paragraph 2(6) to (8) of Schedule 23A to ICTA, if the payer is a non-UK |
| 5 |
resident company within the charge to corporation tax. |
| |
(9) | For a power for regulations to make provision corresponding to subsections (3) |
| |
to (7) for a case within subsection (2), see section 906 as applied by section |
| |
851(3) (and in particular section 907(1)(k)). |
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Manufactured interest on UK securities |
| 10 |
578 | Manufactured interest on UK securities |
| |
(1) | This section applies if a person— |
| |
(a) | pays another person an amount (“manufactured interest”) which is |
| |
representative of a periodical payment of interest on UK securities, and |
| |
(b) | does so under a requirement of an arrangement between them for the |
| 15 |
transfer of the securities. |
| |
(2) | The Income Tax Acts apply in relation to the recipient, and persons claiming |
| |
title through or under the recipient, as if— |
| |
(a) | the manufactured interest were a periodical payment of interest on the |
| |
| 20 |
(b) | the gross amount of the deemed interest payment were equal to the |
| |
gross amount of the interest of which the manufactured interest is |
| |
| |
(3) | If the payer is UK resident, or a person acting in the course of a trade carried |
| |
on in the United Kingdom through a branch or agency, the Income Tax Acts |
| 25 |
apply in relation to the payer subject to sections 579 and 580 (allowable |
| |
| |
| |
section 852 (manufactured interest payments by UK residents etc: |
| |
deduction of income tax at source), and |
| 30 |
section 853 (foreign payers of manufactured interest: the reverse charge). |
| |
(5) | This section is subject to— |
| |
section 583 (manufactured payments exceeding underlying payments), |
| |
section 584 (manufactured payments less than underlying payments), and |
| |
section 585 (power to deal with other special cases). |
| 35 |
579 | Allowable deductions: matching |
| |
(1) | This section applies to a person who pays manufactured interest as mentioned |
| |
| |
(2) | The gross amount of the manufactured interest is allowable for income tax |
| |
purposes as a deduction in calculating the net income of the payer (see Step 2 |
| 40 |
of the calculation in section 23). |
| |
| This is subject to subsection (3). |
| |
(3) | It is allowable only so far as— |
| |
|
| |
|
| |
|
(a) | it is not otherwise deductible, and |
| |
(b) | it falls within subsection (4), (6) or (7). |
| |
(4) | An amount falls within this subsection so far as the payer— |
| |
(a) | receives either the periodical payment of interest which is represented |
| |
by the manufactured interest or a payment which is representative of |
| 5 |
the periodical payment of interest, and |
| |
(b) | is chargeable to income tax on the payment received. |
| |
(5) | See section 714(5) of ICTA (accrued income scheme: treatment of deemed sums |
| |
and reliefs) for the amount chargeable to income tax in a case where section |
| |
714(4) of that Act applies. |
| 10 |
(6) | An amount falls within this subsection so far as— |
| |
(a) | the payer is, by virtue of section 714(2) of ICTA (accrued income |
| |
scheme: treatment of deemed sums and reliefs), chargeable to income |
| |
tax on income in respect of transfers of securities, and |
| |
(b) | the transfers are subject to the arrangement giving rise to the payment |
| 15 |
of manufactured interest. |
| |
(7) | An amount falls within this subsection so far as the payer— |
| |
(a) | is treated under section 607 (treatment of price differences under repos) |
| |
as receiving a payment of interest in respect of the securities, and |
| |
(b) | is chargeable to income tax on the payment. |
| 20 |
(8) | See section 580 for a further qualification to the rule in subsection (2). |
| |
(9) | For the purposes of subsection (3)(a) an amount is deductible if it is— |
| |
(a) | deductible in calculating any of the payer’s profits or gains for income |
| |
| |
(b) | deductible for those purposes in calculating the net income of the |
| 25 |
| |
580 | Allowable deductions: restriction on double counting |
| |
(1) | This section applies if an amount has been allowed as a deduction under |
| |
section 579(2) by reference to the whole or part of— |
| |
(a) | the periodical payment of interest, or other payment, mentioned in |
| 30 |
| |
(b) | the sum mentioned in section 579(6)(a), or |
| |
(c) | the deemed payment of interest mentioned in section 579(7)(a). |
| |
(2) | No further deduction is allowable by reference to all or part of the matched |
| |
portion of the payment, sum or deemed payment. |
| 35 |
(3) | The “matched portion” of the payment, sum or deemed payment means— |
| |
(a) | the whole of it, if the amount has been allowed as a deduction by |
| |
reference to the whole of it, or |
| |
(b) | the part of it by reference to which the amount has been allowed as a |
| |
deduction, in any other case. |
| 40 |
|
| |
|