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
326

626
Abnormal dividends: the excessive return condition
(1)
The excessive return condition is that the dividend substantially exceeds a
normal return on the consideration provided by the recipient for the relevant
securities.
(2)
In this section “the relevant securities” means-
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(a)
the securities in respect of which the dividend was received, and
(b)
if those securities are derived from securities previously acquired by
the recipient, the securities which were previously acquired.
(3)
In determining whether an amount received by way of dividend exceeds a
normal return, regard must be had—
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(a)
to the length of time before its receipt that the recipient first acquired
any of the relevant securities, and
(b)
to any dividends paid and other distributions made in respect of them
during that time.
(4)
If—
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(a)
the consideration provided by the recipient for any of the relevant
securities exceeded their market value at the time the recipient acquired
them, or
(b)
no consideration was so provided,

for the purposes of subsection (1) consideration equal to that market value is
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taken to have been so provided.
627
Abnormal dividends: the excessive accrual condition
(1)
The excessive accrual condition is that the dividend substantially exceeds the
amount which the recipient would have received if—
(a)
the dividend had accrued from day to day, and
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(b)
the recipient had been entitled to only so much of the dividend as
accrued while the recipient held the securities.
(2)
But the excessive accrual condition is treated as not being met if during the
period of 6 months beginning with the purchase of the securities the recipient
does not—
30
(a)
sell or otherwise dispose of any of the securities or any securities
similar to them, or
(b)
acquire an option to sell any of the securities or any securities similar to
them.
(3)
For the purposes of subsection (2) securities are taken to be similar if they
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entitle their holders—
(a)
to the same rights against the same persons as to capital and interest,
and
(b)
to the same remedies for the enforcement of those rights.
(4)
For the purposes of subsection (3) rights guaranteed by the Treasury are
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treated as rights against the Treasury.
(5)
Subsection (3) applies despite any differences—
(a)
in the total nominal amounts of the respective securities,
(b)
in the form in which they are held, or
(c)
in the manner in which they can be transferred.
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Income Tax Bill
Part 12 — Tax avoidance
Chapter 1 — Transactions in securities
327

Procedure for counteraction of income tax advantages
628
Preliminary notification that section 617 may apply
(1)
An officer of Revenue and Customs must notify a person if the officer has
reason to believe that—
(a)
section 617 (person liable to counteraction of income tax advantage)
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may apply to the person in respect of a transaction or transactions, and
(b)
a counteraction notice ought to be served on the person under section
631 about the transaction or transactions.
(2)
The notification must specify the transaction or transactions.
(3)
See section 631 for the serving of counteraction notices, and sections 629 and
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630 for cases where the person on whom the notice under this section is served
disagrees that section 617 applies.
629
Opposed notifications: statutory declarations
(1)
If a person on whom a notification is served under section 628 is of the opinion
that section 617 (person liable to counteraction of income tax advantage) does
15
not apply to the person in respect of the transaction or transactions specified in
the notification, the person may—
(a)
make a statutory declaration to that effect, stating the facts and
circumstances on which the opinion is based, and
(b)
send it to the officer of Revenue and Customs.
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(2)
Such a declaration must be sent within 30 days of the issue of the notification.
(3)
If the person sends that declaration to the officer and the officer sees no reason
to take further action—
(a)
section 617 does not so apply, and
(b)
accordingly no counteraction notice may be served on the person under
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section 631 about the transaction or transactions.
630
Opposed notifications: determinations by tribunal
(1)
This section applies if the officer of Revenue and Customs receiving a statutory
declaration under section 629(1) sees reason to take further action about the
transaction or transactions in question.
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(2)
The officer must send the tribunal appointed under section 637 a certificate to
that effect, together with the statutory declaration.
(3)
The officer may also send the tribunal a counter-statement with the certificate.
(4)
The tribunal must—
(a)
consider the declaration and certificate and any counter-statement, and
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(b)
determine whether there is a prima facie case for the officer to take
further action on the basis that section 617 (person liable to
counteraction of income tax advantage) applies to the person by whom
the declaration was made in respect of the transaction or transactions in
question.
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(5)
If the tribunal determines that there is no such case—
(a)
section 617 does not so apply, and

Income Tax Bill
Part 12 — Tax avoidance
Chapter 1 — Transactions in securities
328

(b)
accordingly no counteraction notice may be served on the person under
section 631 about the transaction or transactions.
(6)
But such a determination does not affect the application of sections 617 and 631
in respect of transactions including not only the ones to which the
determination relates but also others.
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631
Counteraction notices
(1)
If—
(a)
a person on whom a notification is served under section 628 does not
send a statutory declaration to an officer of Revenue and Customs
under section 629 within 30 days of the issue of the notification, or
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(b)
the tribunal to which such a declaration is sent under section 630
determines that there is a prima facie case for serving a notice on a
person under this section,

the income tax advantage in question is to be counteracted by adjustments.
(2)
The adjustments required to be made to counteract the income tax advantage
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and the basis on which they are to be made are to be specified in a notice served
on the person by an officer of Revenue and Customs.
(3)
In this Chapter such a notice is referred to as a “counteraction notice”.
(4)
Any of the following adjustments may be specified—
(a)
an assessment,
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(b)
the nullifying of a right to repayment,
(c)
the requiring of the return of a repayment already made, or
(d)
the calculation or recalculation of profits or gains or liability to income
tax.
(5)
Nothing in this section authorises the making of an assessment later than 6
25
years after the tax year to which the income tax advantage relates.
(6)
This section is subject to—
section 632 (limit on amount assessed in section 622 and 623 cases),
section 633 (timing of assessments in section 623 cases), and
section 635(2) (effect of clearance notification under section 634).
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(7)
But no other provision in the Income Tax Acts is to be read as limiting the
powers conferred by this section.
632
Limit on amount assessed in section 622 and 623 cases
(1)
This section applies if a counteraction notice is served in a case where the
income tax advantage—
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(a)
consists of the avoidance of a charge to income tax, and
(b)
is obtained by a person in circumstances falling within—
section 622 (receipt of consideration in connection with relevant
company distribution (circumstance D)), or
section 623 (receipt of assets of relevant company (circumstance
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E)).

Income Tax Bill
Part 12 — Tax avoidance
Chapter 1 — Transactions in securities
329

(2)
The amount of income tax which may be specified in an assessment made in
accordance with the notice must not exceed the qualifying distribution
equivalent.
(3)
The qualifying distribution equivalent is the amount of income tax for which
the person would be liable if—
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(a)
the person received a qualifying distribution on the date on which the
consideration mentioned in section 622 or, as the case may be, section
623 is received, and
(b)
that distribution were of an amount equal to the amount or value of that
consideration.
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633
Timing of assessments in section 623 cases
(1)
This section applies if section 617 (person liable to counteraction of income tax
advantage) applies to a person because the person is in a position to obtain or
has obtained an income tax advantage by falling within the circumstances
mentioned in section 623 (receipt of relevant company assets (circumstance E))
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when share capital is repaid.
(2)
An assessment to income tax made in accordance with a counteraction notice
must be an assessment for the tax year in which the repayment occurs.
(3)
The references in this section to the repayment of share capital include
references to any distribution made in respect of any shares in a winding up or
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dissolution of the company.
(4)
In subsection (3) “shares” includes stock and any other interest of a member in
a company.
Clearance procedure and information powers
634
Application for clearance of transactions
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(1)
A person may provide the Commissioners for Her Majesty’s Revenue and
Customs with particulars of a transaction or transactions effected or to be
effected by the person in order to obtain a notification about them under this
section.
(2)
If the Commissioners consider that the particulars, or any further information
30
provided under this subsection, are insufficient for the purposes of this section,
they must notify the person what further information they require for those
purposes within 30 days of receiving the particulars or further information.
(3)
If any such further information is not provided within 30 days from the
notification, or such further time as the Commissioners allow, they need not
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proceed further under this section.
(4)
The Commissioners must notify the person whether they are satisfied that the
transaction or transactions, as described in the particulars, were or will be such
that no counteraction notice ought to be served about the transaction or
transactions.
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(5)
The notification must be given within 30 days of receipt of the particulars, or,
if subsection (2) applies, of all further information required.