Finance Bill

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Session 2008 - 09
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Finance Bill

Finance Bill
Schedule 14 — Corporation tax treatment of company distributions
Part 1 — Insertion of new Part 9A of CTA 2009
139

930N
Schemes involving payments for distributions
(1)
This section applies to a dividend or other distribution that would,
apart from this section, fall into an exempt class.
(2)
The distribution does not fall into an exempt class if—
(a)
the distribution is made as part of a tax advantage scheme,
5
and
(b)
the following condition is met.
(3)
The condition is that the scheme includes a payment, or the giving
up of a right to income, by a relevant person where—
(a)
the payment is made, or the right to income is given up,
10
under a liability incurred for consideration in money or
money’s worth all or any of which consists of, or of the right
to receive, the distribution, and
(b)
in the case of a payment, the conditions in subsections (2) and
(4) to (7) of section 1301 (restriction of deductions for annual
15
payments) apply to the payment.
930O
Schemes involving payments not on arm’s length terms
(1)
This section applies to a dividend or other distribution that would,
apart from this section, fall into an exempt class.
(2)
The distribution does not fall into an exempt class if—
20
(a)
the distribution is made as part of a tax advantage scheme,
and
(b)
the following condition is met.
(3)
The condition is that—
(a)
the scheme includes a payment or receipt, or the giving up of
25
a right to income, by a relevant person in respect of goods or
services, and
(b)
the amount of the payment or receipt, or the amount of
income given up, differs from the amount the relevant person
would have paid, received or given up in respect of those
30
goods or services had the distribution not been made.
(4)
This section does not apply to a scheme that consists of a transaction
or series of transactions in relation to which Schedule 28AA to ICTA
(provision not at arms length between parties under common
control) applies.
35
930P
Schemes involving diversion of trade income
(1)
This section applies to a dividend or other distribution that would,
apart from this section, fall into an exempt class.
(2)
The distribution does not fall into an exempt class if—
(a)
the distribution is made as part of a scheme entered into by
40
the recipient and another relevant person (“C”),
(b)
if C had received the distribution, it would be reasonable to
assume that the dividend would be dealt with under Part 3
(trading income), and

Finance Bill
Schedule 14 — Corporation tax treatment of company distributions
Part 1 — Insertion of new Part 9A of CTA 2009
140

(c)
the main purpose, or one of the main purposes, of the scheme
is to produce the result that the dividend is dealt with under
this Part because it is received by the recipient.
(3)
For the purposes of subsection (2)(b) it is to be assumed that, in the
case of any relevant transaction to which a relevant person other than
5
C is a party, C were that party to that transaction.
(4)
In this section “relevant transaction” means any of the transactions
giving rise to the distribution.
Chapter 4
10
  Supplementary
Election that distribution should not be exempt
930Q
Election that distribution should not be exempt
(1)
This section applies where, apart from this section, a distribution
(“the distribution”) would be exempt.
15
(2)
If the recipient so elects, the distribution is not exempt.
(3)
An election under this section must be made on or before the second
anniversary of the end of the accounting period in which the
distribution is received.
(4)
Subsection (5) applies where the distribution is a dividend that is
20
treated for certain purposes of Part 18 of ICTA (double taxation
relief) as two separate dividends by virtue of section 801C of that Act
(separate streaming of dividend so far as representing an ADP
dividend of a CFC).
(5)
If the recipient so elects—
25
(a)
the distribution is to be treated for the purposes of this Part as
if it were an ADP dividend and a separate residual dividend
as provided for in that section of that Act, and
(b)
the ADP dividend is not exempt.
(6)
The reference in subsection (4) to section 801C of ICTA is to that
30
section as it continues to have effect in accordance with paragraph
8(1) of Schedule 16 to FA 2009 in relation to dividends paid on or
after 1 July 2009 for accounting periods beginning before that day.
Interpretation
930R
Meaning of “small company”
35
(1)
For the purposes of this Part a company is a “small company” in an
accounting period if it is in that period a micro or small enterprise, as
defined in the Annex to Commission Recommendation 2003/361/
EC of 6 May 2003.
(2)
But a company is not a “small company” in an accounting period if it
40
is at any time in that period—

Finance Bill
Schedule 14 — Corporation tax treatment of company distributions
Part 1 — Insertion of new Part 9A of CTA 2009
141

(a)
an open-ended investment company,
(b)
an authorised unit trust scheme,
(c)
an insurance company, or
(d)
a friendly society.
(3)
In subsection (2)—
5
“open-ended investment company” has the meaning given by
section 236 of FISMA 2000;
“authorised unit trust scheme” means a unit trust scheme
(within the meaning given by section 237 of FISMA 2000) in
relation to which a order under section 243 of that Act
10
(authorisation orders) is in force;
“insurance company” has the meaning given by section 431 of
ICTA;
“friendly society” has the meaning given by section 466(2) of
ICTA.
15
930S
Meaning of “payer”, “recipient” and “relevant person”

In this Part—
“the payer”, in relation to a distribution, means the company
that makes the distribution;
“the recipient”, in relation to a distribution, means the company
20
that receives the distribution;
“a relevant person”, in relation to a distribution, means—
(a)
the company that receives the distribution, or
(b)
any person connected with that company.
930T
Meaning of “ordinary share” and “redeemable”
25
(1)
In this Part “ordinary share” means a share that does not carry any
present or future preferential right to dividends or to a company’s
assets on its winding up.
(2)
A share is regarded as “redeemable” for the purposes of this Part
only if it is redeemable as a result of its terms of issue (or any
30
collateral arrangements)—
(a)
requiring redemption,
(b)
entitling the holder to require redemption, or
(c)
entitling the issuing company to redeem.
930U
Meaning of “scheme” and “tax advantage scheme”
35
“(1)
For the purposes of this Part—
“scheme” includes any scheme, arrangements or understanding
of any kind whatever, whether or not legally enforceable,
involving a single transaction or two or more transactions;
“tax advantage scheme” means a scheme the main purpose, or
40
one of the main purposes, of which is to obtain a tax
advantage (other than a negligible tax advantage).
(2)
In this section “tax advantage” has the meaning given by section
840ZA of ICTA.

Finance Bill
Schedule 14 — Corporation tax treatment of company distributions
Part 2 — Other amendments
142

Boundary provisions
930V
Provisions which must be given priority over this Part
(1)
Any income so far as it falls within—
(a)
this Part, and
(b)
Chapter 2 of Part 3 (income taxed as trade profits),
5

is dealt with under Part 3.
(2)
Any income so far as it falls within—
(a)
this Part, and
(b)
Chapter 3 of Part 4 (profits of property businesses) so far as
the Chapter relates to a UK property business,
10

is dealt with under Part 4.
(3)
Any income so far as it falls within—
(a)
this Part, and
(b)
Chapter 1 of Part 12 of ICTA (insurance companies),

is dealt with under that Chapter.”
15
Part 2
Other amendments
ICTA
2
ICTA is amended as follows.
3
In section 13(7) (small companies’ relief), omit “resident in the United
20
Kingdom”.
4     (1)
Section 505(1)(c) (charitable companies: general) is amended as follows.
      (2)
After sub-paragraph (ii) insert—
“(iizza)
from tax under Part 9A of CTA 2009 (company
distributions),”.
25
      (3)
Omit sub-paragraph (iib).
5     (1)
Section 95ZA (taxation of UK distributions received by insurance
companies) is amended as follows.
      (2)
In subsection (1), for “section 1285” substitute “section 130(2)”.
      (3)
In subsection (2)(a), omit “resident in the United Kingdom”.
30
6     (1)
Section 231 (tax credits for certain recipients of qualifying distributions) is
amended as follows.
      (2)
In subsection (1)—
(a)
omit “and section 219(4B) of the Finance Act 1994”,
(b)
for “resident in the United Kingdom makes a” substitute “(whether
35
resident in the United Kingdom or outside the United Kingdom)
makes an exempt”, and
(c)
for “another such company” substitute “a company resident in the
United Kingdom”.

Finance Bill
Schedule 14 — Corporation tax treatment of company distributions
Part 2 — Other amendments
143

      (3)
After subsection (1A) insert—
“(1B)
For the purposes of subsection (1) a qualifying distribution is
“exempt” if it is exempt for the purposes of Part 9A of CTA 2009
(company distributions).”
7
In section 795 (double taxation relief: computation of income subject to
5
foreign tax), omit subsection (3A).
8     (1)
Section 799 (double taxation relief: computation of underlying tax in respect
of a dividend) is amended as follows.
      (2)
In subsection (3)—
(a)
in paragraph (a), for “the dividend is paid for a specified period”
10
substitute “the body corporate paying the dividend specifies that the
dividend is paid for the current period”, and
(b)
in paragraph (c), for “the dividend is not paid for a specified period”
substitute “the body corporate paying the dividend does not specify
that the dividend is paid for the current period”.
15
      (3)
In subsection (5), after “subsection (3) above” insert “—
(a)
“the current period”, in relation to a dividend, means the
period in which the dividend became payable, and
(b)
”.
9
Omit sections 806A to 806K (double taxation relief in relation to foreign
20
dividends: onshore pooling and utilisation of eligible unrelieved foreign
tax).
10
In section 826 (interest on tax overpaid), omit subsection (7BC).
11    (1)
Paragraph 2 of Schedule 23A (manufactured dividends on UK equities:
general) is amended as follows.
25
      (2)
After sub-paragraph (1) insert—
   “(1A)
Sub-paragraphs (1C) to (1E) apply where—
(a)
a manufactured dividend is paid by a dividend
manufacturer, and
(b)
the dividend of which the manufactured dividend is
30
representative is taxable.
     (1B)
For this purpose a dividend is “taxable” if—
(a)
it is received by the dividend manufacturer and the charge
to corporation tax on income applies to it, or
(b)
it is received by a person other than the dividend
35
manufacturer and the charge to corporation tax on income
would have applied to it if it had been received by the
dividend manufacturer.
     (1C)
Where the dividend manufacturer carries on a trade to which the
manufactured dividend relates, and neither sub-paragraph (1D)
40
nor (1E) applies, the manufactured dividend is to be treated as an
expense of the trade.
     (1D)
Where the dividend manufacturer has investment business to
which the manufactured dividend relates, the manufactured

Finance Bill
Schedule 14 — Corporation tax treatment of company distributions
Part 2 — Other amendments
144

dividend is to be treated as expenses of management of the
business for the purposes of Part 16 of CTA 2009.
     (1E)
Where the dividend manufacturer carries on life assurance
business to which the manufactured dividend relates, the
manufactured dividend is to be treated as if, to the extent that it is
5
referable to basic life assurance and general annuity business, it
were an expense payable falling to be brought into account at step
3 of section 76(7).
     (1F)
For the purposes of sub-paragraph (1E), the manufactured
dividend is to be treated as referable to basic life assurance and
10
general annuity business to the extent that the dividend of which
it is representative—
(a)
is received by the dividend manufacturer and is so
referable by virtue of section 432A, or
(b)
is received by a person other than the dividend
15
manufacturer, and would have been so referable by virtue
of section 432A if it had it been received by the dividend
manufacturer.”
      (3)
In sub-paragraph (2), omit paragraph (b) (and the “and” before it).
      (4)
After sub-paragraph (3) insert—
20
   “(3A)
In its application in relation to a manufactured dividend by virtue
of sub-paragraph (2) or (3), Part 9A of the Corporation Tax Act
2009 (company distributions) has effect subject to the following
two modifications.
     (3B)
The first modification is that the references in sections 930B(c) and
25
930D(c) to any amount determined by reference to the distribution
are to be treated as references to any amount determined by
reference to the dividend of which the manufactured dividend is
representative, other than the manufactured dividend itself (or
any other manufactured dividend that is representative of the
30
same dividend).
     (3C)
The second modification is that—
(a)
the definition of “the payer” in section 930S is to be treated
as omitted, and
(b)
references in that Part to the payer are to be treated as
35
references to the company that pays the dividend of which
the manufactured dividend is representative.”
12    (1)
Paragraph 4 of Schedule 23A (manufactured overseas dividends) is
amended as follows
      (2)
For sub-paragraph (1A) substitute—
40
   “(1A)
Sub-paragraphs (1C) to (1E) apply where the overseas dividend of
which the manufactured overseas dividend is representative is
taxable.
     (1B)
For this purpose an overseas dividend is “taxable” if—
(a)
it is received by the overseas dividend manufacturer and
45
the charge to corporation tax on income applies to it, or

Finance Bill
Schedule 14 — Corporation tax treatment of company distributions
Part 2 — Other amendments
145

(b)
it is received by a person other than the overseas dividend
manufacturer and the charge to corporation tax on income
would have applied to it if it had been received by the
overseas dividend manufacturer.
     (1C)
Where the overseas dividend manufacturer carries on a trade to
5
which the manufactured overseas dividend relates, and neither
sub-paragraph (1D) nor (1E) applies, the manufactured overseas
dividend is to be treated as an expense of the trade.
     (1D)
Where the overseas dividend manufacturer has investment
business to which the manufactured overseas dividend relates, the
10
manufactured overseas dividend is to be treated as expenses of
management of the business for the purposes of Part 16 of CTA
2009.
     (1E)
Where the overseas dividend manufacturer carries on life
assurance business to which the manufactured overseas dividend
15
relates, the manufactured overseas dividend is to be treated as if,
to the extent that it is referable to basic life assurance and general
annuity business, it were an expense payable falling to be brought
into account at step 3 of section 76(7).
     (1F)
For the purposes of sub-paragraph (1E), the manufactured
20
overseas dividend is to be treated as referable to basic life
assurance and general annuity business to the extent that the
overseas dividend of which it is representative—
(a)
is received by the overseas dividend manufacturer and is
so referable by virtue of section 432A, or
25
(b)
is received by a person other than the dividend
manufacturer, and would have been so referable by virtue
of section 432A if it had it been received by the dividend
manufacturer.”
      (3)
After sub-paragraph (4) insert—
30
   “(4A)
In its application in relation to a manufactured overseas dividend
by virtue of sub-paragraph (4), Part 9A of the Corporation Tax Act
2009 (company distributions) has effect—
(a)
as if the manufactured overseas dividend were an overseas
dividend on the overseas securities in question, and
35
(b)
subject to the following two modifications.
     (4B)
The first modification is that the references in section 930B(c) and
930D(c) to any amount determined by reference to the distribution
are to be treated as references to any amount determined by
reference to the overseas dividend of which the manufactured
40
overseas dividend is representative, other than the manufactured
overseas dividend itself (or any other manufactured overseas
dividend that is representative of the same overseas dividend).
     (4C)
The second modification is that—
(a)
the definition of “the payer” in section 930S is to be treated
45
as omitted, and
(b)
references in that Part to the payer are to be treated as
references to the company that pays the dividend of which
the manufactured overseas dividend is representative.”