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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).