Income Tax Bill

House of Commons

Session 2006 - 07
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Other Bills before Parliament

Income Tax Bill

Income Tax Bill
Part 13 — Tax avoidance
Chapter 1 — Transactions in securities
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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.
689
Receipt of consideration in connection with relevant company distribution
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(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
(see section 691), or
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(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
by the company, or
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(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.
(4)
The person so receives the consideration that the person does not pay or bear
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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.
690
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 691) 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).
(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.
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(7)
The person does not pay or bear income tax on the consideration (apart from
this Chapter).
(8)
In this section—
(a)
references to the receipt of consideration include references to the
receipt of any money or money’s worth,
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(b)
“security” has the meaning given in section 254(1) of ICTA
(interpretation of Part 6 of ICTA: company distributions, tax credits
etc), and
(c)
“share” includes stock and any other interest of a member in a
company.
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691
Meaning of “relevant company” in sections 689 and 690
(1)
A company is a relevant company for the purposes of sections 689 and 690 if it
is—
(a)
a company under the control of not more than 5 persons (but see
subsection (2)), or
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(b)
any other company none of whose shares or stocks is—
(i)
listed in the Official List of the Stock Exchange, and
(ii)
dealt in on the Stock Exchange regularly or from time to time.

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Chapter 1 — Transactions in securities
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(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
debenture stock, preferred shares or preferred stock.
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(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”).
692
Abnormal dividends: general
(1)
An amount received by way of dividend is treated as abnormal for the
purposes of this Chapter if the appropriate authority is satisfied—
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(a)
in any case that the excessive return condition is met (see section 693),
or
(b)
in the case of a dividend at a fixed rate, that the excessive accrual
condition is met (see section 694).
(2)
In subsection (1) “the appropriate authority” means whichever of the following
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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,
(c)
the Special Commissioners, or
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(d)
the tribunal appointed under section 704.
693
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.
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(2)
In this section “the relevant securities” means-
(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
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normal return, regard must be had—
(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.
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(4)
If—
(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,
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for the purposes of subsection (1) consideration equal to that market value is
taken to have been so provided.

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Chapter 1 — Transactions in securities
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694
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
(b)
the recipient had been entitled to only so much of the dividend as
5
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—
(a)
sell or otherwise dispose of any of the securities or any securities
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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
entitle their holders—
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(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
treated as rights against the Treasury.
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(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.
Procedure for counteraction of income tax advantages
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695
Preliminary notification that section 684 may apply
(1)
An officer of Revenue and Customs must notify a person if the officer has
reason to believe that—
(a)
section 684 (person liable to counteraction of income tax advantage)
may apply to the person in respect of a transaction or transactions, and
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(b)
a counteraction notice ought to be served on the person under section
698 about the transaction or transactions.
(2)
The notification must specify the transaction or transactions.
(3)
See section 698 for the serving of counteraction notices, and sections 696 and
697 for cases where the person on whom the notice under this section is served
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disagrees that section 684 applies.
696
Opposed notifications: statutory declarations
(1)
If a person on whom a notification is served under section 695 is of the opinion
that section 684 (person liable to counteraction of income tax advantage) does
not apply to the person in respect of the transaction or transactions specified in
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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

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Part 13 — Tax avoidance
Chapter 1 — Transactions in securities
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(b)
send it to the officer of Revenue and Customs.
(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 684 does not so apply, and
5
(b)
accordingly no counteraction notice may be served on the person under
section 698 about the transaction or transactions.
697
Opposed notifications: determinations by tribunal
(1)
This section applies if the officer of Revenue and Customs receiving a statutory
declaration under section 696(1) sees reason to take further action about the
10
transaction or transactions in question.
(2)
The officer must send the tribunal appointed under section 704 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—
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(a)
consider the declaration and certificate and any counter-statement, and
(b)
determine whether there is a prima facie case for the officer to take
further action on the basis that section 684 (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
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question.
(5)
If the tribunal determines that there is no such case—
(a)
section 684 does not so apply, and
(b)
accordingly no counteraction notice may be served on the person under
section 698 about the transaction or transactions.
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(6)
But such a determination does not affect the application of sections 684 and 698
in respect of transactions including not only the ones to which the
determination relates but also others.
698
Counteraction notices
(1)
If—
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(a)
a person on whom a notification is served under section 695 does not
send a statutory declaration to an officer of Revenue and Customs
under section 696 within 30 days of the issue of the notification, or
(b)
the tribunal to which such a declaration is sent under section 697
determines that there is a prima facie case for serving a notice on a
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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
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.
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(3)
In this Chapter such a notice is referred to as a “counteraction notice”.
(4)
Any of the following adjustments may be specified—

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(a)
an assessment,
(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.
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(5)
Nothing in this section authorises the making of an assessment later than 6
years after the tax year to which the income tax advantage relates.
(6)
This section is subject to—
section 699 (limit on amount assessed in section 689 and 690 cases),
section 700 (timing of assessments in section 690 cases), and
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section 702(2) (effect of clearance notification under section 701).
(7)
But no other provision in the Income Tax Acts is to be read as limiting the
powers conferred by this section.
699
Limit on amount assessed in section 689 and 690 cases
(1)
This section applies if a counteraction notice is served in a case where the
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income tax advantage—
(a)
consists of the avoidance of a charge to income tax, and
(b)
is obtained by a person in circumstances falling within—
section 689 (receipt of consideration in connection with relevant
company distribution (circumstance D)), or
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section 690 (receipt of assets of relevant company (circumstance
E)).
(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.
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(3)
The qualifying distribution equivalent is the amount of income tax for which
the person would be liable if—
(a)
the person received a qualifying distribution on the date on which the
consideration mentioned in section 689 or, as the case may be, section
690 is received, and
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(b)
that distribution were of an amount equal to the amount or value of that
consideration.
700
Timing of assessments in section 690 cases
(1)
This section applies if section 684 (person liable to counteraction of income tax
advantage) applies to a person because the person is in a position to obtain or
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has obtained an income tax advantage by falling within the circumstances
mentioned in section 690 (receipt of relevant company assets (circumstance E))
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.
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(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
dissolution of the company.

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(4)
In subsection (3) “shares” includes stock and any other interest of a member in
a company.
Clearance procedure and information powers
701
Application for clearance of transactions
(1)
A person may provide the Commissioners for Her Majesty’s Revenue and
5
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
provided under this subsection, are insufficient for the purposes of this section,
10
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
proceed further under this section.
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(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.
(5)
The notification must be given within 30 days of receipt of the particulars, or,
20
if subsection (2) applies, of all further information required.
702
Effect of clearance notification under section 701
(1)
This section applies if the Commissioners for Her Majesty’s Revenue and
Customs notify a person under section 701 that they are satisfied that a
transaction or transactions, as described in the particulars provided under that
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section, were or will be such that no counteraction notice ought to be served
about the transaction or transactions.
(2)
No such notice may be served on the person in respect of the transaction or
transactions.
(3)
But the notification does not prevent such a notice being served on the person
30
in respect of transactions including not only the ones to which the notification
relates but also others.
(4)
The notification is void if the particulars and any further information given
under section 701 about the transaction or transactions do not fully and
accurately disclose all facts and considerations which are material for the
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purposes of that section.
703
Power to obtain information
(1)
This section applies if it appears to an officer of Revenue and Customs that a
person may be a person to whom section 684 (person liable to counteraction of
income tax advantage) applies in respect of one or more transactions.
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