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Finance Bill
Schedule 14 — Corporation tax treatment of company distributions
Part 1 — Insertion of new Part 9A of CTA 2009

133

 

Schedule 14

Section 34

 

Corporation tax treatment of company distributions

Part 1

Insertion of new Part 9A of CTA 2009

1          

In CTA 2009, after Part 9 insert—

5

“Part 9A

Company distributions

Chapter 1

10

The charge to tax

930A    

Charge to tax on distributions received

(1)   

The charge to corporation tax on income applies to any dividend or

other distribution of a company, but only if the distribution is not

exempt.

15

(2)   

Subsection (1) does not apply in the case of a distribution of a capital

nature.

(3)   

For provision as to whether a distribution is exempt, see—

Chapter 2 (distributions received by small companies), and

Chapter 3 (distributions received by companies that are not

20

small).

Chapter 2

Exemption of distributions received by small companies

930B    

Exemption from charge to tax

25

   

A dividend or other distribution of a company that is received in an

accounting period of the recipient in which the recipient is a small

company is exempt if—

(a)   

the payer is a resident of (and only of) the United Kingdom

or a qualifying territory at the time that the distribution is

30

received,

(b)   

the distribution is not of a kind mentioned in paragraph (d)

or (e) of section 209(2) of ICTA (certain non-dividend

distributions),

(c)   

no deduction is allowed to a resident of any territory outside

35

the United Kingdom under the law of that territory in respect

 
 

Finance Bill
Schedule 14 — Corporation tax treatment of company distributions
Part 1 — Insertion of new Part 9A of CTA 2009

134

 

of any amount determined by reference to the distribution,

and

(d)   

the distribution is not made as part of a tax advantage

scheme.

930C    

Meaning of “qualifying territory”

5

(1)   

For the purpose of section 930B a territory is a “qualifying territory”

if—

(a)   

arrangements to which section 788 of ICTA applies (“double

taxation relief arrangements”) have effect in relation to the

territory, and

10

(b)   

the arrangements contain a non-discrimination provision.

(2)   

The Treasury may by regulations—

(a)   

provide that a territory specified in or of a description

specified in the regulations that does not satisfy subsection

(1)(a) or (b) is a qualifying territory for the purpose of section

15

930B, and

(b)   

provide that a territory so specified or described that satisfies

subsection (1)(a) and (b) is not a qualifying territory for that

purpose.

(3)   

For the purpose of section 930B, a company is a resident of a territory

20

if, under the laws of the territory, the company is liable to tax there—

(a)   

by reason of its domicile, residence or place of management,

but

(b)   

not in respect only of income from sources in that territory or

capital situated there.

25

(4)   

In subsection (1) “non-discrimination provision”, in relation to

double taxation relief arrangements, means a provision to the effect

that nationals of a state which is a party to those arrangements (a

“contracting state”) are not to be subject in any other contracting state

to—

30

(a)   

any taxation, or

(b)   

any requirement connected with taxation,

   

which is other or more burdensome than the taxation and connected

requirements to which nationals of that other state in the same

circumstances (in particular with respect to residence) are or may be

35

subjected.

(5)   

In subsection (4) “national”, in relation to a contracting state,

includes—

(a)   

an individual possessing the nationality or citizenship of the

contracting state, and

40

(b)   

a legal person, partnership or association deriving its status

as such from the laws in force in that contracting state.

(6)   

Regulations under this section may—

(a)   

describe a territory by reference to the double taxation relief

arrangements for the time being in force in relation to the

45

territory,

(b)   

make different provision in relation to different descriptions

of company, and

 
 

Finance Bill
Schedule 14 — Corporation tax treatment of company distributions
Part 1 — Insertion of new Part 9A of CTA 2009

135

 

(c)   

make provision having effect in relation to accounting

periods current on the day on which the regulations are

made.

Chapter 3

5

Exemption of distributions received by companies that are not small

930D    

Exemption from charge to tax

   

A dividend or other distribution of a company that is received in an

accounting period of the recipient in which the recipient is not a

small company is exempt if—

10

(a)   

the distribution falls into an exempt class (see sections 930E

to 930O),

(b)   

the distribution is not of a kind mentioned in paragraph (d)

or (e) of section 209(2) of ICTA (certain non-dividend

distributions), and

15

(c)   

no deduction is allowed to a resident of any territory outside

the United Kingdom under the law of that territory in respect

of any amount determined by reference to the distribution.

Exempt classes

930E    

Distributions from controlled companies

20

(1)   

A dividend or other distribution falls into an exempt class if

condition A or B is met.

(2)   

Condition A is that the recipient controls the payer.

(3)   

Condition B is that—

(a)   

the recipient is one of two persons who, taken together,

25

control the payer,

(b)   

the recipient is a person in whose case the 40% test in section

755D(3) of ICTA is satisfied, and

(c)   

the other is a person in whose case the 40% test in section

755D(4) of ICTA is satisfied.

30

(4)   

Section 755D of ICTA (meaning of “control” etc) applies for the

purposes of this section.

(5)   

As so applied, that section has effect with the omission of subsection

(6)(c) and (d).

930F    

Distributions in respect of non-redeemable ordinary shares

35

   

A dividend or other distribution falls into an exempt class if it is

made in respect of a share that—

(a)   

is an ordinary share, and

(b)   

is not redeemable.

 
 

Finance Bill
Schedule 14 — Corporation tax treatment of company distributions
Part 1 — Insertion of new Part 9A of CTA 2009

136

 

930G    

Distributions in respect of portfolio holdings

(1)   

A dividend or other distribution falls into an exempt class if the

recipient—

(a)   

holds less than 10% of the issued share capital of the payer,

(b)   

is entitled to less than 10% of the profits available for

5

distribution to holders of the issued share capital of the

payer, and

(c)   

would be entitled on a winding up to less than 10% of the

assets of the company available for distribution to holders of

the issued share capital of the payer.

10

(2)   

Where the payer has more than one class of share, references in

subsection (1) to the issued share capital of the payer are to issued

share capital of the same class as the share in respect of which the

distribution is made.

(3)   

For the purposes of this section shares are not of the same class if the

15

amounts paid up on them (otherwise than by way of premium) are

different.

930H    

Dividends derived from transactions not designed to reduce tax

(1)   

A dividend falls into an exempt class if it is paid in respect of relevant

profits.

20

(2)   

In this section “relevant profits” means any profits available for

distribution at the time that the dividend is paid, other than profits

that reflect the results of a transaction, or of one or more of a series of

transactions, where—

(a)   

the transaction or series of transactions achieve a reduction

25

(other than a negligible reduction) in United Kingdom tax,

and

(b)   

the purpose or one of the main purposes of that transaction

or series of transactions is to achieve that reduction.

(3)   

A dividend that falls into an exempt class apart from this section is

30

for the purposes of this section treated, so far as possible, as paid in

respect of relevant profits.

(4)   

A dividend that does not fall into an exempt class apart from this

section is for the purposes of this section treated, so far as possible,

as paid in respect of profits other than relevant profits.

35

(5)   

Where by virtue of subsection (4) part of a dividend is treated as paid

in respect of relevant profits and part is treated as paid in respect of

profits other than relevant profits, the two parts are treated for the

purposes of this Part and Part 18 of ICTA (double taxation relief) as

separate dividends.

40

930I    

Dividends in respect of shares accounted for as liabilities

   

A dividend falls into an exempt class if the dividend is paid in

respect of a share to which, at the time of the payment, section 521C

(shares accounted for as liabilities treated as loan relationships) does

not apply only because the condition in subsection (1)(f) of that

45

section is not met.

 
 

Finance Bill
Schedule 14 — Corporation tax treatment of company distributions
Part 1 — Insertion of new Part 9A of CTA 2009

137

 

Exempt classes: anti-avoidance

930J    

Schemes involving manipulation of controlled company rules

(1)   

This section applies to a dividend that would, apart from this section,

fall into an exempt class by virtue of section 930E.

(2)   

The dividend does not fall into an exempt class by virtue of that

5

section if—

(a)   

the dividend is paid as part of a scheme the main purpose, or

one of the main purposes, of which is to secure that dividends

of the payer received by the recipient fall into an exempt class

by virtue of that section, and

10

(b)   

the following condition is met.

(3)   

The condition is that the dividend is paid in respect of pre-control

profits.

(4)   

A dividend that falls into an exempt class apart from section 930E is

for the purposes of this section treated, so far as possible, as paid in

15

respect of profits other than pre-control profits.

(5)   

A dividend that does not fall into an exempt class apart from section

930E is for the purposes of this section treated, so far as possible, as

paid in respect of pre-control profits.

(6)   

In this section “pre-control profits” means any profits available for

20

distribution at the time the dividend is paid that arose at a time when

neither condition A nor condition B in section 930E was met.

(7)   

Where—

(a)   

the condition in subsection (2)(a) is met, and

(b)   

by virtue of subsection (5) part of a dividend is treated as paid

25

in respect of pre-control profits and part is treated as paid in

respect of profits other than pre-control profits,

   

the two parts are treated for the purposes of this Part and Part 18 of

ICTA (double taxation relief) as separate dividends.

930K    

Schemes involving quasi-preference or quasi-redeemable shares

30

(1)   

This section applies to a dividend or other distribution that would,

apart from this section, fall into an exempt class by virtue of section

930F.

(2)   

The distribution does not fall into an exempt class by virtue of that

section if—

35

(a)   

the distribution is made as part of a scheme the main

purpose, or one of the main purposes, of which is to secure

that distributions of the payer received by the recipient fall

into an exempt class by virtue of that section, and

(b)   

the following condition is met.

40

(3)   

The condition is that the distribution is made in respect of a share

that—

(a)   

would not be an ordinary share, or

(b)   

would be redeemable,

 
 

Finance Bill
Schedule 14 — Corporation tax treatment of company distributions
Part 1 — Insertion of new Part 9A of CTA 2009

138

 

   

were the rights under the scheme of each relevant person to be

attached to the share.

930L    

Schemes involving manipulation of portfolio holdings rule

(1)   

This section applies to a dividend or other distribution that would,

apart from this section, fall into an exempt class by virtue of section

5

930G.

(2)   

The distribution does not fall into an exempt class by virtue of that

section if—

(a)   

the distribution is made as part of a scheme the main

purpose, or one of the main purposes, of which is to secure

10

that distributions of the payer received by the recipient fall

into an exempt class by virtue of that section, and

(b)   

the following condition is met.

(3)   

The condition is that the distribution would not fall into an exempt

class by virtue of section 930G if the reference in subsection (1) of that

15

section to the recipient were to all relevant persons taken together.

930M    

Schemes in the nature of loan relationships

(1)   

This section applies to a dividend or other distribution that would,

apart from this section, fall into an exempt class otherwise than by

virtue of section 930E.

20

(2)   

The distribution does not fall into an exempt class if—

(a)   

the distribution is made as part of a tax advantage scheme,

and

(b)   

conditions A to C are met.

(3)   

Condition A is that the distribution constitutes part of a return in

25

relation to an amount that is produced by the scheme for a relevant

person, or two or more relevant persons taken together.

(4)   

Condition B is that the return is economically equivalent to interest.

(5)   

For this purpose a return produced for a person or persons by a

scheme in relation to an amount is “economically equivalent to

30

interest” if (and only if)—

(a)   

it is reasonable to assume that it is a return by reference to the

time value of that amount of money,

(b)   

it is at a rate reasonably comparable to a commercial rate of

interest, and

35

(c)   

at the time the scheme is entered into by the person or any of

the persons, there is no practical likelihood that it will cease

to be produced in accordance with the scheme.

(6)   

Condition C is that there is a connection between the payer and the

recipient for the accounting period of the payer in which the

40

distribution is made.

(7)   

Section 466 (companies connected for an accounting period) applies

for the purposes of subsection (6) as if that subsection were a

provision of Part 5 to which that section is applied (but this does not

affect the application of section 1316(1) (meaning of connected

45

persons) for the purposes of any other provision of this Part).

 
 

 
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