Income Tax Bill

House of Commons

Session 2006 - 07
Internet Publications
Other Bills before Parliament

Income Tax Bill

Income Tax Bill
Part 12 — Tax avoidance
Chapter 1 — Transactions in securities
322

618
Exception where no tax avoidance object shown
(1)
Section 617 does not apply to a person in respect of a transaction in securities
or two or more such transactions if the person shows that the transaction or
transactions meet conditions A and B.
(2)
Condition A is that the transaction or transactions are effected—
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(a)
for genuine commercial reasons, or
(b)
in the ordinary course of making or managing investments.
(3)
Condition B is that enabling income tax advantages to be obtained is not the
main object or one of the main objects of the transaction or, as the case may be,
any of the transactions.
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Circumstances in which income tax advantages obtained or obtainable
619
Abnormal dividends used for exemptions or reliefs (circumstance A)
(1)
This section applies in relation to a person if subsections (2) to (4) apply.
(2)
The person receives an abnormal amount by way of dividend (see section 625).
(3)
The receipt is in connection with—
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(a)
the purchase of securities where the purchase is followed by the sale of
the same or other securities,
(b)
the sale of securities where the sale is followed by the purchase of the
same or other securities,
(c)
the distribution, transfer or realisation of assets of a company, or
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(d)
the application of such assets in discharge of liabilities.
(4)
The amount so received is taken into account for the purposes of—
(a)
any exemption from income tax,
(b)
the setting-off of losses against profits or income, or
(c)
the giving of relief under section 383 (relief for interest payments).
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620
Deductions from profits obtained following distribution or dealings
(circumstance B)
(1)
This section applies in relation to a person if subsections (2) to (4) apply.
(2)
The person becomes entitled—
(a)
in respect of securities held or sold by the person, or
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(b)
in respect of securities formerly held by the person,

to a deduction in calculating profits or gains.
(3)
The entitlement arises in connection with—
(a)
the purchase of securities where the purchase is followed by the sale of
the same or other securities,
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(b)
the sale of securities where the sale is followed by the purchase of the
same or other securities,
(c)
the distribution, transfer or realisation of assets of a company, or
(d)
the application of such assets in discharge of liabilities.
(4)
The entitlement arises because of a fall in the value of the securities resulting
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from—

Income Tax Bill
Part 12 — Tax avoidance
Chapter 1 — Transactions in securities
323

(a)
the payment of a dividend on them, or
(b)
any other dealing with any assets of a company.
(5)
Subsection (2)(b) applies whether or not the person has sold the securities.
621
Receipt of consideration representing company’s assets, future receipts or
trading stock (circumstance C)
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(1)
This section applies in relation to a person (“A”) if subsections (2), (3) and (6)
apply.
(2)
A receives consideration which—
(a)
is or represents the value of—
(i)
assets which are available for distribution by a company by way
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of dividend, or
(ii)
assets which would have been so available apart from anything
done by the company,
(b)
is received in respect of future receipts of a company, or
(c)
is or represents the value of trading stock of a company.
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(3)
The receipt is in consequence of a transaction whereby another person (“B”)—
(a)
subsequently receives, or has received, an abnormal amount by way of
dividend (see section 625), or
(b)
subsequently becomes entitled, or has become entitled—
(i)
in respect of securities held or sold by B, or
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(ii)
in respect of securities formerly held by B,

to a deduction in calculating profits or gains, if the entitlement meets
the conditions in subsections (4) and (5).
(4)
The entitlement must arise in connection with—
(a)
the purchase of securities where the purchase is followed by the sale of
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the same or other securities,
(b)
the sale of securities where the sale is followed by the purchase of the
same or other securities,
(c)
the distribution, transfer or realisation of assets of a company, or
(d)
the application of such assets in discharge of liabilities.
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(5)
The entitlement must arise because of a fall in the value of the securities
resulting from—
(a)
the payment of a dividend on them, or
(b)
any other dealing with any assets of a company.
(6)
The receipt of the consideration is such that A does not pay or bear income tax
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on it (apart from this Chapter).
(7)
The assets mentioned in subsection (2) do not include assets which are shown
to represent a return of sums paid by subscribers on the issue of securities,
despite the fact that under the law of the country in which the company is
incorporated assets of that description are available for distribution by way of
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dividend.
(8)
In this section references to the receipt of consideration include references to
the receipt of any money or money’s worth.
(9)
Subsection (3)(b)(ii) applies whether or not B has sold the securities.

Income Tax Bill
Part 12 — Tax avoidance
Chapter 1 — Transactions in securities
324

622
Receipt of consideration in connection with relevant company distribution
(circumstance D)
(1)
This section applies in relation to a person if subsections (2) to (4) apply.
(2)
The person receives consideration in connection with—
(a)
the distribution, transfer or realisation of assets of a relevant company
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(see section 624), or
(b)
the application of such assets in discharge of liabilities.
(3)
The consideration—
(a)
is or represents the value of—
(i)
assets which are available for distribution by way of dividend
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by the company, or
(ii)
assets which would have been so available apart from anything
done by the company,
(b)
is received in respect of future receipts of the company, or
(c)
is or represents the value of trading stock of the company.
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(4)
The person so receives the consideration that the person does not pay or bear
income tax on it (apart from this Chapter).
(5)
The assets mentioned in subsection (3) do not include assets which are shown
to represent a return of sums paid by subscribers on the issue of securities,
despite the fact that under the law of the country in which the company is
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incorporated assets of that description are available for distribution by way of
dividend.
(6)
In this section references to the receipt of consideration include references to
the receipt of any money or money’s worth.
623
Receipt of assets of relevant company (circumstance E)
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(1)
This section applies in relation to a person if subsections (2) to (4) and (7) apply.
(2)
The person receives consideration in connection with—
(a)
the direct or indirect transfer of assets of a relevant company (see
section 624) to another such company, or
(b)
any transaction in securities in which two or more relevant companies
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are concerned.
(3)
The consideration is or represents the value of assets which—
(a)
are available for distribution by way of dividend by a relevant
company,
(b)
would have been so available apart from anything done by the
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company, or
(c)
are trading stock of a relevant company.
(4)
The consideration consists of any share capital or any security issued by a
relevant company.
(5)
So far as subsection (4) relates to share capital other than redeemable share
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capital, it applies only so far as the share capital is repaid (in a winding up or
otherwise).

Income Tax Bill
Part 12 — Tax avoidance
Chapter 1 — Transactions in securities
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(6)
The reference in subsection (5) to the repayment of share capital includes a
reference to any distribution made in respect of any shares in a winding up or
dissolution of the company.
(7)
The person does not pay or bear income tax on the consideration (apart from
this Chapter).
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(8)
In this section—
(a)
references to the receipt of consideration include references to the
receipt of any money or money’s worth,
(b)
“security” has the meaning given in section 254(1) of ICTA
(interpretation of Part 6 of ICTA: company distributions, tax credits
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etc), and
(c)
“share” includes stock and any other interest of a member in a
company.
624
Meaning of “relevant company” in sections 622 and 623
(1)
A company is a relevant company for the purposes of sections 622 and 623 if it
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is—
(a)
a company under the control of not more than 5 persons (but see
subsection (2)), or
(b)
any other company none of whose shares or stocks is—
(i)
listed in the Official List of the Stock Exchange, and
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(ii)
dealt in on the Stock Exchange regularly or from time to time.
(2)
A company is not a relevant company for those purposes if it is under the
control of one or more companies which are not relevant companies for those
purposes.
(3)
The reference in subsection (1)(b) to shares or stocks does not include
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debenture stock, preferred shares or preferred stock.
(4)
In this section “control” has the meaning given by section 416(2) to (6) of ICTA
(close companies: meaning of “associated company” and “control”).
625
Abnormal dividends: general
(1)
An amount received by way of dividend is treated as abnormal for the
30
purposes of this Chapter if the appropriate authority is satisfied—
(a)
in any case that the excessive return condition is met (see section 626),
or
(b)
in the case of a dividend at a fixed rate, that the excessive accrual
condition is met (see section 627).
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(2)
In subsection (1) “the appropriate authority” means whichever of the following
is determining the question whether the amount is abnormal for the purposes
of this Chapter—
(a)
an officer of Revenue and Customs,
(b)
the Commissioners for Her Majesty’s Revenue and Customs,
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(c)
the Special Commissioners, or
(d)
the tribunal appointed under section 637.