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Corporation tax treatment of company distributions |
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Insertion of new Part 9A of CTA 2009 |
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1 | In CTA 2009, after Part 9 insert— |
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930A | Charge to tax on distributions received |
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(1) | The charge to corporation tax on income applies to any dividend or |
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other distribution of a company, but only if the distribution is not |
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(2) | Subsection (1) does not apply in the case of a distribution of a capital |
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(3) | For provision as to whether a distribution is exempt, see— |
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Chapter 2 (distributions received by small companies), and |
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Chapter 3 (distributions received by companies that are not |
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Exemption of distributions received by small companies |
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930B | Exemption from charge to tax |
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| A dividend or other distribution of a company that is received in an |
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accounting period of the recipient in which the recipient is a small |
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(a) | the payer is a resident of (and only of) the United Kingdom |
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or a qualifying territory at the time that the distribution is |
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(b) | the distribution is not of a kind mentioned in paragraph (d) |
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or (e) of section 209(2) of ICTA (certain non-dividend |
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(c) | no deduction is allowed to a resident of any territory outside |
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the United Kingdom under the law of that territory in respect |
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of any amount determined by reference to the distribution, |
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(d) | the distribution is not made as part of a tax advantage |
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930C | Meaning of “qualifying territory” |
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(1) | For the purpose of section 930B a territory is a “qualifying territory” |
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(a) | arrangements to which section 788 of ICTA applies (“double |
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taxation relief arrangements”) have effect in relation to the |
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(b) | the arrangements contain a non-discrimination provision. |
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(2) | The Treasury may by regulations— |
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(a) | provide that a territory specified in or of a description |
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specified in the regulations that does not satisfy subsection |
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(1)(a) or (b) is a qualifying territory for the purpose of section |
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(b) | provide that a territory so specified or described that satisfies |
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subsection (1)(a) and (b) is not a qualifying territory for that |
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(3) | For the purpose of section 930B, a company is a resident of a territory |
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if, under the laws of the territory, the company is liable to tax there— |
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(a) | by reason of its domicile, residence or place of management, |
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(b) | not in respect only of income from sources in that territory or |
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(4) | In subsection (1) “non-discrimination provision”, in relation to |
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double taxation relief arrangements, means a provision to the effect |
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that nationals of a state which is a party to those arrangements (a |
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“contracting state”) are not to be subject in any other contracting state |
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(b) | any requirement connected with taxation, |
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| which is other or more burdensome than the taxation and connected |
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requirements to which nationals of that other state in the same |
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circumstances (in particular with respect to residence) are or may be |
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(5) | In subsection (4) “national”, in relation to a contracting state, |
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(a) | an individual possessing the nationality or citizenship of the |
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(b) | a legal person, partnership or association deriving its status |
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as such from the laws in force in that contracting state. |
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(6) | Regulations under this section may— |
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(a) | describe a territory by reference to the double taxation relief |
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arrangements for the time being in force in relation to the |
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(b) | make different provision in relation to different descriptions |
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(c) | make provision having effect in relation to accounting |
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periods current on the day on which the regulations are |
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Exemption of distributions received by companies that are not small |
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930D | Exemption from charge to tax |
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| A dividend or other distribution of a company that is received in an |
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accounting period of the recipient in which the recipient is not a |
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small company is exempt if— |
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(a) | the distribution falls into an exempt class (see sections 930E |
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(b) | the distribution is not of a kind mentioned in paragraph (d) |
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or (e) of section 209(2) of ICTA (certain non-dividend |
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(c) | no deduction is allowed to a resident of any territory outside |
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the United Kingdom under the law of that territory in respect |
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of any amount determined by reference to the distribution. |
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930E | Distributions from controlled companies |
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(1) | A dividend or other distribution falls into an exempt class if |
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(2) | Condition A is that the recipient controls the payer. |
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(a) | the recipient is one of two persons who, taken together, |
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(b) | the recipient is a person in whose case the 40% test in section |
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755D(3) of ICTA is satisfied, and |
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(c) | the other is a person in whose case the 40% test in section |
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755D(4) of ICTA is satisfied. |
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(4) | Section 755D of ICTA (meaning of “control” etc) applies for the |
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purposes of this section. |
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(5) | As so applied, that section has effect with the omission of subsection |
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930F | Distributions in respect of non-redeemable ordinary shares |
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| A dividend or other distribution falls into an exempt class if it is |
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made in respect of a share that— |
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(a) | is an ordinary share, and |
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930G | Distributions in respect of portfolio holdings |
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(1) | A dividend or other distribution falls into an exempt class if the |
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(a) | holds less than 10% of the issued share capital of the payer, |
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(b) | is entitled to less than 10% of the profits available for |
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distribution to holders of the issued share capital of the |
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(c) | would be entitled on a winding up to less than 10% of the |
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assets of the company available for distribution to holders of |
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the issued share capital of the payer. |
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(2) | Where the payer has more than one class of share, references in |
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subsection (1) to the issued share capital of the payer are to issued |
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share capital of the same class as the share in respect of which the |
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(3) | For the purposes of this section shares are not of the same class if the |
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amounts paid up on them (otherwise than by way of premium) are |
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930H | Dividends derived from transactions not designed to reduce tax |
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(1) | A dividend falls into an exempt class if it is paid in respect of relevant |
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(2) | In this section “relevant profits” means any profits available for |
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distribution at the time that the dividend is paid, other than profits |
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that reflect the results of a transaction, or of one or more of a series of |
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(a) | the transaction or series of transactions achieve a reduction |
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(other than a negligible reduction) in United Kingdom tax, |
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(b) | the purpose or one of the main purposes of that transaction |
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or series of transactions is to achieve that reduction. |
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(3) | A dividend that falls into an exempt class apart from this section is |
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for the purposes of this section treated, so far as possible, as paid in |
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respect of relevant profits. |
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(4) | A dividend that does not fall into an exempt class apart from this |
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section is for the purposes of this section treated, so far as possible, |
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as paid in respect of profits other than relevant profits. |
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(5) | Where by virtue of subsection (4) part of a dividend is treated as paid |
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in respect of relevant profits and part is treated as paid in respect of |
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profits other than relevant profits, the two parts are treated for the |
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purposes of this Part and Part 18 of ICTA (double taxation relief) as |
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930I | Dividends in respect of shares accounted for as liabilities |
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| A dividend falls into an exempt class if the dividend is paid in |
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respect of a share to which, at the time of the payment, section 521C |
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(shares accounted for as liabilities treated as loan relationships) does |
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not apply only because the condition in subsection (1)(f) of that |
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Exempt classes: anti-avoidance |
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930J | Schemes involving manipulation of controlled company rules |
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(1) | This section applies to a dividend that would, apart from this section, |
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fall into an exempt class by virtue of section 930E. |
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(2) | The dividend does not fall into an exempt class by virtue of that |
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(a) | the dividend is paid as part of a scheme the main purpose, or |
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one of the main purposes, of which is to secure that dividends |
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of the payer received by the recipient fall into an exempt class |
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by virtue of that section, and |
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(b) | the following condition is met. |
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(3) | The condition is that the dividend is paid in respect of pre-control |
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(4) | A dividend that falls into an exempt class apart from section 930E is |
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for the purposes of this section treated, so far as possible, as paid in |
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respect of profits other than pre-control profits. |
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(5) | A dividend that does not fall into an exempt class apart from section |
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930E is for the purposes of this section treated, so far as possible, as |
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paid in respect of pre-control profits. |
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(6) | In this section “pre-control profits” means any profits available for |
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distribution at the time the dividend is paid that arose at a time when |
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neither condition A nor condition B in section 930E was met. |
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(a) | the condition in subsection (2)(a) is met, and |
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(b) | by virtue of subsection (5) part of a dividend is treated as paid |
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in respect of pre-control profits and part is treated as paid in |
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respect of profits other than pre-control profits, |
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| the two parts are treated for the purposes of this Part and Part 18 of |
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ICTA (double taxation relief) as separate dividends. |
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930K | Schemes involving quasi-preference or quasi-redeemable shares |
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(1) | This section applies to a dividend or other distribution that would, |
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apart from this section, fall into an exempt class by virtue of section |
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(2) | The distribution does not fall into an exempt class by virtue of that |
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(a) | the distribution is made as part of a scheme the main |
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purpose, or one of the main purposes, of which is to secure |
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that distributions of the payer received by the recipient fall |
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into an exempt class by virtue of that section, and |
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(b) | the following condition is met. |
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(3) | The condition is that the distribution is made in respect of a share |
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(a) | would not be an ordinary share, or |
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| were the rights under the scheme of each relevant person to be |
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930L | Schemes involving manipulation of portfolio holdings rule |
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(1) | This section applies to a dividend or other distribution that would, |
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apart from this section, fall into an exempt class by virtue of section |
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(2) | The distribution does not fall into an exempt class by virtue of that |
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(a) | the distribution is made as part of a scheme the main |
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purpose, or one of the main purposes, of which is to secure |
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that distributions of the payer received by the recipient fall |
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into an exempt class by virtue of that section, and |
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(b) | the following condition is met. |
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(3) | The condition is that the distribution would not fall into an exempt |
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class by virtue of section 930G if the reference in subsection (1) of that |
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section to the recipient were to all relevant persons taken together. |
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930M | Schemes in the nature of loan relationships |
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(1) | This section applies to a dividend or other distribution that would, |
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apart from this section, fall into an exempt class otherwise than by |
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(2) | The distribution does not fall into an exempt class if— |
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(a) | the distribution is made as part of a tax advantage scheme, |
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(b) | conditions A to C are met. |
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(3) | Condition A is that the distribution constitutes part of a return in |
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relation to an amount that is produced by the scheme for a relevant |
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person, or two or more relevant persons taken together. |
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(4) | Condition B is that the return is economically equivalent to interest. |
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(5) | For this purpose a return produced for a person or persons by a |
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scheme in relation to an amount is “economically equivalent to |
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interest” if (and only if)— |
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(a) | it is reasonable to assume that it is a return by reference to the |
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time value of that amount of money, |
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(b) | it is at a rate reasonably comparable to a commercial rate of |
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(c) | at the time the scheme is entered into by the person or any of |
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the persons, there is no practical likelihood that it will cease |
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to be produced in accordance with the scheme. |
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(6) | Condition C is that there is a connection between the payer and the |
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recipient for the accounting period of the payer in which the |
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(7) | Section 466 (companies connected for an accounting period) applies |
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for the purposes of subsection (6) as if that subsection were a |
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provision of Part 5 to which that section is applied (but this does not |
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affect the application of section 1316(1) (meaning of connected |
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persons) for the purposes of any other provision of this Part). |
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