Corporation Tax Bill

House of Commons

Session 2009 - 10
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Other Bills before Parliament

Corporation Tax Bill

Corporation Tax Bill
Part 23 — Company distributions
Chapter 2 — Matters which are distributions
501

(a)
a security of a company is issued at a premium representing new
consideration, and
(b)
there is a distribution in respect of the security.
(3)
The reference in paragraph F in section 1000(1) to however much of the
distribution represents the principal secured by the security is to be read as a
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reference to the sum of—
(a)
however much of the distribution represents the principal, and
(b)
however much of it represents the premium.
1019
Relevant alternative finance return
(1)
Relevant alternative finance return is not treated by virtue of section 1015(4) as
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being a distribution for the purposes of the Corporation Tax Acts.
(2)
For corporation tax purposes “relevant alternative finance return” in
subsection (1) means—
(a)
anything that is alternative finance return for the purposes of Part 6 of
CTA 2009 as a result of section 513 of that Act, or
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(b)
any part of the redemption payment under arrangements to which
section 507 of CTA 2009 (investment bond arrangements) applies.
(3)
For income tax purposes “relevant alternative finance return” in subsection (1)
means—
(a)
anything that is alternative finance return for the purposes of Part 10A
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of ITA 2007 as a result of section 564L of that Act, or
(b)
any part of the redemption payment under arrangements to which
section 564G of ITA 2007 (investment bond arrangements) applies.
Transfers of assets or liabilities treated as distributions
1020
Transfers of assets or liabilities treated as distributions
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(1)
This section applies if on a transfer of assets or liabilities—
(a)
by a company to its members, or
(b)
to a company by its members,

the amount or value of the benefit received by a member exceeds the amount
or value of any new consideration given by the member.
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(2)
The company is treated for the purposes of the Corporation Tax Acts as making
a distribution to the member of an amount equal to the excess.

But this is subject to section 1021.
(3)
For the purposes of subsection (1) the amount or value of a benefit, or of any
consideration, is determined in accordance with the market value.
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1021
Section 1020: exceptions
(1)
Section 1020 does not apply if—
(a)
the company and the member receiving the benefit are both UK
resident, and
(b)
either—
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(i)
the company is a 51% subsidiary of the member, or

Corporation Tax Bill
Part 23 — Company distributions
Chapter 2 — Matters which are distributions
502

(ii)
both are 51% subsidiaries of a third company which is also UK
resident.
(2)
In determining whether one body corporate is a 51% subsidiary of another
body corporate (“A”) for the purposes of subsection (1), A is treated as not
being the owner of—
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(a)
any share capital which it owns directly in a body corporate as trading
stock,
(b)
any share capital which it owns indirectly, and which is owned directly
by a body corporate as trading stock, or
(c)
any share capital which it owns directly or indirectly in a body
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corporate which is not UK resident.
(3)
For the purposes of subsection (2) share capital owned by a body corporate is
owned as trading stock if (and only if) a profit on the sale of the shares would
be treated as a trading receipt of the body’s trade.
(4)
No transfer of assets (other than cash) or of liabilities between one company
15
and another constitutes, or is treated as giving rise to, a distribution by virtue
of section 1020 if—
(a)
both the companies are UK resident,
(b)
neither of them is a 51% subsidiary of a non-UK resident company, and
(c)
they are not under common control, either at the time of the transfer or
20
as a result of it.
(5)
In this section—
“under common control” means under the control of the same person or
persons, and
“control” has the same meaning as in Part 10 (see sections 450 and 451).
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Bonus issue following repayment of share capital
1022
Bonus issue following repayment of share capital treated as distribution
(1)
Subsection (3) applies if a company—
(a)
repays or has repaid any share capital, and
(b)
at or after the time of the repayment issues any share capital as paid up
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otherwise than by the receipt of new consideration.
(2)
But subsection (3) does not apply so far as any provision of the Corporation Tax
Acts makes contrary provision.
(3)
The amount paid up as mentioned in subsection (1)(b) is treated for the
purposes of the Corporation Tax Acts as a distribution made in respect of the
35
shares on which it is paid up, except so far as that amount exceeds the adjusted
amount of the repaid share capital.
(4)
The reference in subsection (3) to the adjusted amount of the repaid share
capital is to—
(a)
the amount, or total amount, of share capital repaid as mentioned in
40
subsection (1)(a), minus
(b)
any amounts previously paid up as mentioned in subsection (1)(b) and
treated as distributions by virtue of subsection (3).

Corporation Tax Bill
Part 23 — Company distributions
Chapter 2 — Matters which are distributions
503

1023
Exceptions to section 1022(3)
(1)
Section 1022(3) does not apply if the issue of share capital mentioned in section
1022(1)(b)—
(a)
takes place more than 10 years after the repayment of share capital
mentioned in subsection 1022(1)(a), and
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(b)
is not of redeemable share capital.
(2)
But subsection (1) does not prevent section 1022(3) from applying in the case of
a company which is a relevant company for the purposes mentioned in section
739 (certain companies not included in the official UK list etc).
(3)
Section 1022(3) does not apply if the repaid share capital consists of fully paid
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preference shares and—
(a)
those shares were issued as fully paid preference shares,
(b)
they were issued wholly for new consideration not derived from
ordinary shares, and
(c)
throughout the period from their issue until the repayment those
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shares continued to be fully paid preference shares.
(4)
For the purposes of subsection (3) consideration is derived from ordinary
shares if (and only if)—
(a)
it consists of the surrender, transfer or cancellation of ordinary shares,
(b)
it consists of the variation of rights in ordinary shares, or
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(c)
it is derived from a repayment of share capital paid in respect of
ordinary shares,

and for the purposes of this subsection it does not matter whether the ordinary
shares are of the company or another company.
(5)
In this section—
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“ordinary shares” means shares other than preference shares, and
“preference shares” means shares which—
(a)
do not carry any right to dividends other than dividends at a
fixed rate per cent of the nominal value of the shares, and
(b)
carry rights in respect of dividends and capital which are
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comparable with those general for fixed-dividend shares
included in the official UK list.
Interpretation of references to repayment of share capital
1024
Premiums paid on redemption of share capital
Premiums paid on redemption of share capital are not treated as repayments
35
of share capital for the purposes of this Chapter.
This is subject to section 1025.
1025
Share capital issued at a premium representing new consideration
(1)
This section applies if—
(a)
share capital is issued at a premium representing new consideration,
40
and
(b)
a distribution is made in respect of shares representing the share
capital.

Corporation Tax Bill
Part 23 — Company distributions
Chapter 2 — Matters which are distributions
504

(2)
The amount of the premium is treated as forming part of the share capital for
the purpose of determining under this Chapter whether the distribution is a
repayment of share capital.
(3)
Subsection (2) does not have effect in relation to any part of the premium after
that part has been applied to paying up share capital.
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1026
Distributions following a bonus issue
(1)
This section applies if—
(a)
a company issues, or has issued, any share capital (“the bonus share
capital”) as paid up otherwise than by the receipt of new consideration,
and
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(b)
an amount paid up as mentioned in paragraph (a) does not fall to be
treated as a qualifying distribution.
(2)
Distributions made afterwards by the company in respect of shares
representing the bonus share capital are not treated as repayments of share
capital for the purposes of this Chapter.
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But this is subject to section 1027 and any other contrary provision in the
Corporation Tax Acts.
(3)
Except where the company is a relevant company for the purposes mentioned
in section 739 (certain companies not included in the official UK list etc),
subsection (2) does not prevent a distribution being treated as a repayment of
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share capital if it is made—
(a)
more than 10 years after the issue of the share capital mentioned in
subsection (1)(a), and
(b)
in respect of share capital other than redeemable share capital.
(4)
For the purposes of this section and section 1027—
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(a)
all shares of the same class are treated as representing the same share
capital, and
(b)
if shares are issued in respect of other shares, or are (directly or
indirectly) converted into or exchanged for other shares, all such shares
are treated as representing the same share capital.
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(5)
This section is to be read with section 1049(3)(b) (stock dividends).
1027
Cap on amount of distributions affected by section 1026
(1)
Section 1026(2) does not apply to the distributions in question so far as they,
together with any affected distributions made previously but after the issue of
the bonus share capital, exceed the cap.
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(2)
In subsection (1) “the cap” means the total of the amounts—
(a)
paid up, otherwise than by the receipt of new consideration, on shares
representing the bonus share capital, and
(b)
not falling to be treated as qualifying distributions.
(3)
In subsection (1) “affected distribution” means however much of a distribution
40
made in respect of shares representing the bonus share capital—
(a)
would, but for section 1026, be treated as a repayment of share capital,
but
(b)
cannot be so treated because of that section.

Corporation Tax Bill
Part 23 — Company distributions
Chapter 3 — Matters which are not distributions
505

(4)
In subsection (2)(a) the reference to amounts paid up is to amounts paid up at
the time of the distributions in question or previously.
1028
Certain payments connected with exempt distributions
(1)
A chargeable payment made within 5 years after an exempt distribution is not
to be (if it otherwise would be) treated as a repayment of share capital for the
5
purposes of sections 1022 and 1023 (bonus issue following repayment of share
capital).
(2)
The purpose of the provisions about demergers (which include this section) is
set out in section 1074.
(3)
In this section—
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(a)
“chargeable payment” has the meaning given by section 1088, and
(b)
“exempt distribution” has the meaning given by section 1075(2).
Chapter 3
Matters which are not distributions
Introduction
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1029
Overview of Chapter
(1)
In this Chapter the following sections provide that a particular matter is not a
distribution—
(a)
section 1030 (distributions in respect of share capital on a winding up),
(b)
section 1031 (distribution as part of a cross-border merger),
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(c)
section 1032 (interest etc paid in respect of certain securities),
(d)
section 1033 (purchase by unquoted trading company of own shares),
(e)
section 1049 (stock dividends),
(f)
section 1054 (building society payments),
(g)
section 1055 (industrial and provident societies: interest and share
25
dividends),
(h)
section 1056 (dividend or bonus relating to transactions with industrial
and provident society), and
(i)
section 1057 (UK agricultural or fishing co-operatives: interest and
share dividends).
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(2)
The following make similar provision outside this Chapter—
(a)
section 1075 (exempt distributions), and
(b)
paragraph 6 of Schedule 12 to FA 1988 (transfer of building society’s
business to a company: qualifying benefits).
Distributions in a winding up
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1030
Distribution in respect of share capital in a winding up
A distribution made in respect of share capital in a winding up is not a
distribution of a company for the purposes of the Corporation Tax Acts.