Corporation Tax Bill

House of Commons

Session 2009 - 10
Internet Publications
Other Bills before Parliament

Corporation Tax Bill

Corporation Tax Bill
Part 23 — Company distributions
Chapter 4 — Special rules for distributions made by certain companies
523

1067
Companies acting in concert or under arrangements
(1)
Subsection (2) applies if—
(a)
each of two or more close companies makes a payment,
(b)
each of those payments is made to a person who—
(i)
is not a participator in the company making the payment, but
5
(ii)
is a participator in another of those companies, and
(c)
the companies are acting in concert or under arrangements made by
any person.
(2)
For the purposes of sections 1064 to 1066, each payment made to a person as
mentioned in subsection (1) is treated as if it had been made to that person by
10
the company in which that person is a participator.
(3)
Subsections (1) and (2) apply, with any necessary adaptations, in relation to the
giving of any consideration, and to the provision of any facilities, as they apply
in relation to the making of a payment.
1068
Meaning of “participator” in sections 1064 to 1067
15
(1)
In sections 1064 to 1067 “participator” has the same meaning as in Part 10 (see
section 454).
(2)
Section 1069 extends the meaning given by subsection (1).
1069
Additional persons treated as participators
(1)
In sections 1064 to 1067 any reference to a participator includes an associate of
20
a participator.
(2)
If a company (“A”) controls another company (“B”), a person who—
(a)
is a participator in A, or
(b)
is an associate of a participator in A,

is treated for the purposes of sections 1064 to 1067 as being a participator in B
25
as well.
(3)
In this section the following expressions have the same meaning as in Part 10
(close companies)—
(a)
“associate” (see section 448),
(b)
“control” (see sections 450 and 451), and
30
(c)
“participator” (see section 454).
Companies carrying on a mutual business
1070
Companies carrying on a mutual business
(1)
Subsection (2) applies if a company carries on a business (“the mutual
business”) of—
35
(a)
mutual trading,
(b)
mutual insurance, or
(c)
other mutual business.

Corporation Tax Bill
Part 23 — Company distributions
Chapter 4 — Special rules for distributions made by certain companies
524

(2)
The provisions of the Corporation Tax Acts relating to distributions apply to
relevant distributions made by the company only so far as they are made out
of—
(a)
profits of the company which are brought into charge to corporation
tax, or
5
(b)
franked investment income.

This is subject to subsection (4).
(3)
In subsection (2) “relevant distributions” means distributions which—
(a)
are made to persons participating in the mutual activities of the mutual
business, and
10
(b)
derive from those activities.
(4)
If a company carries on a mutual life assurance business, the provisions of the
Corporation Tax Acts relating to distributions do not apply to distributions
made by the company which—
(a)
are made to persons participating in the mutual activities of the
15
business, and
(b)
derive from those activities.
(5)
Subject to subsections (1) to (4), the fact that—
(a)
a distribution made by a company carrying on a mutual business is
derived from the mutual activities of that business, and
20
(b)
the recipient is a company participating in those activities,

does not affect the character that the payment or other receipt has for the
purposes of corporation tax or income tax in the hands of the recipient.
(6)
In subsection (2) “profits” means income and chargeable gains.
Companies not carrying on a business
25
1071
Companies not carrying on a business
(1)
This section applies if a company meets conditions A, B and C.
(2)
Condition A is that the company does not carry on, and has never carried on—
(a)
a trade, or
(b)
a business of holding investments.
30
(3)
Condition B is that the company does not hold, and has never held, an office.
(4)
Condition C is that the company is not established for purposes which
include—
(a)
carrying on a trade,
(b)
carrying on a business of holding investments, or
35
(c)
holding an office.
(5)
The provisions of the Corporation Tax Acts relating to distributions apply to
distributions made by the company only so far as the distributions are made
out of—
(a)
profits of the company which are brought into charge to corporation
40
tax, or
(b)
franked investment income.
(6)
In subsection (5) “profits” means income and chargeable gains.

Corporation Tax Bill
Part 23 — Company distributions
Chapter 5 — Demergers
525

Members of a 90% group
1072
Members of a 90% group
(1)
In the Corporation Tax Acts “distribution”, in relation to a company which is a
member of a 90% group, includes anything distributed out of assets of the
company (whether in cash or otherwise) in respect of shares in or securities of
5
another company in the group.
(2)
Subsection (1) is without prejudice to paragraph B in section 1000(1)
(distributions, other than dividends, in respect of shares) as extended by
section 1113(1).
(3)
Nothing in subsection (1) requires a company to be treated as making a
10
distribution to any other company which is in the same group and is UK
resident.
(4)
In this section “90% group” means a company and all its 90% subsidiaries.
Chapter 5
Demergers
15
Introduction
1073
Key terms etc
(1)
The following are key terms in this Chapter—
(a)
“chargeable payment” (see sections 1088 and 1089),
(b)
“company concerned in an exempt distribution” (see section 1090),
20
(c)
“the distributing company” (see section 1079),
(d)
“exempt distribution” (defined in section 1075), and
(e)
“relevant company” (defined in section 1080).
(2)
For a further rule about chargeable payments made within 5 years after an
exempt distribution see section 1028 (rule that they are not treated as
25
repayments of capital for certain purposes).
1074
Purpose of provisions about demergers
(1)
The purpose of the provisions about demergers is to facilitate certain
transactions by which trading activities carried on by a single company or
group are divided so as to be carried on—
30
(a)
by two or more companies not belonging to the same group, or
(b)
by two or more independent groups.
(2)
In subsection (1) “the provisions about demergers” means—
(a)
this Chapter, except section 1078 (and section 1075, so far as relating to
section 1078), and
35
(b)
section 1028 (chargeable payments not treated as repayments of share
capital).

Corporation Tax Bill
Part 23 — Company distributions
Chapter 5 — Demergers
526

Exempt distributions
1075
Exempt distributions
(1)
An exempt distribution is not a distribution of a company for the purposes of
the Corporation Tax Acts.
(2)
In this Chapter “exempt distribution” means a distribution which is an exempt
5
distribution by virtue of section 1076, 1077 or 1078.
1076
Transfer of shares in subsidiaries to members
A distribution is an exempt distribution if—
(a)
it consists of the transfer by a company to all or any of its members of
shares in one or more companies which are its 75% subsidiaries,
10
(b)
each of conditions A to F in sections 1081 and 1082 is met in respect of
the distribution, and
(c)
if the company making the transfer is a 75% subsidiary of another
company, conditions L and M in section 1085 are met in respect of the
distribution.
15
1077
Transfer by distributing company and issue of shares by transferee company
(1)
This section applies to a distribution which consists of both of the following—
(a)
the transfer by a company to one or more other companies (“the
transferee company or companies”) of—
(i)
a trade or trades, or
20
(ii)
shares in one or more companies which are 75% subsidiaries of
the company making the transfer, and
(b)
the issue of shares by the transferee company or companies to all or any
of the members of the company making the transfer.
(2)
A distribution to which this section applies is an exempt distribution if—
25
(a)
each of conditions A to D in section 1081 and each of conditions G to K
in section 1083 is met in respect of the distribution, and
(b)
if the company making the transfer is a 75% subsidiary of another
company, conditions L and M in section 1085 are met in respect of the
distribution.
30
1078
Division of business in a cross-border transfer
(1)
This section applies to a distribution which consists of—
(a)
the transfer of part of a business by a company to one or more other
companies (“the transferee company or companies”), and
(b)
the issue of shares by the transferee company or companies to the
35
members of the company making the transfer.
(2)
A distribution to which this section applies is an exempt distribution if either—
(a)
each of the tests in paragraphs (a) to (f) of section 140A(1A) of TCGA
1992 (cross-border transfers: division of UK business) is met in relation
to it, or
40

Corporation Tax Bill
Part 23 — Company distributions
Chapter 5 — Demergers
527

(b)
each of the tests in paragraphs (a) to (e) of section 140C(1A) of TCGA
1992 (cross-border transfers: division of non-UK business) is met in
relation to it.
1079
“The distributing company”
References in this Chapter to the distributing company are—
5
(a)
in the case of a distribution falling within paragraph (a) of section 1076,
to the company that makes the transfer of shares mentioned in that
paragraph,
(b)
in the case of a distribution falling within section 1077(1), to the
company that makes the transfer mentioned in section 1077(1)(a), and
10
(c)
in the case of a distribution falling within section 1078(1), to the
company that makes the transfer of part of a business mentioned in
section 1078(1)(a).
1080
Meaning of “relevant company”
(1)
This section gives the meaning of “relevant company” in this Chapter.
15
(2)
In the case of a distribution falling within section 1076(a) the relevant
companies are—
(a)
the distributing company, and
(b)
each subsidiary whose shares are transferred as mentioned in section
1076(a).
20
(3)
In the case of a distribution falling within section 1077(1), the relevant
companies are—
(a)
the distributing company,
(b)
each transferee company mentioned in section 1077(1)(a), and
(c)
each subsidiary whose shares are transferred as mentioned in section
25
1077(1)(a)(ii).
(4)
In the case of a distribution falling within section 1078(1), the relevant
companies are—
(a)
the distributing company, and
(b)
each transferee company mentioned in section 1078(1)(a).
30
Exemption by virtue of section 1076 or 1077: conditions
1081
General conditions
(1)
Condition A is that each relevant company must be resident in a member State
at the time of the distribution.
(2)
Condition B is that at the time of the distribution—
35
(a)
the distributing company must be either a trading company or a
member of a trading group, and
(b)
each subsidiary whose shares are transferred as mentioned in section
1076(a) or 1077(1)(a)(ii) must be either a trading company or the
holding company of a trading group.
40
(3)
Condition C is that the distribution must be made wholly or mainly for the
purpose of benefiting some or all of the trading activities which—

Corporation Tax Bill
Part 23 — Company distributions
Chapter 5 — Demergers
528

(a)
before the distribution are carried on by a single company or group,
and
(b)
after the distribution will be carried on by two or more companies or
groups.
(4)
Condition D is that the distribution must not form part of a scheme or
5
arrangement to which subsection (5) applies.
(5)
This subsection applies to any scheme or arrangement the main purpose or one
of the main purposes of which is—
(a)
the avoidance of tax,
(b)
the making of a chargeable payment (see section 1088),
10
(c)
the making, in pursuance of a scheme or arrangements with a company
(“A”) or with any of its main participators, of what would be a
chargeable payment if A were an unquoted company,
(d)
the acquisition by any person or persons, other than the members of the
distributing company, of control of—
15
(i)
the distributing company,
(ii)
any other relevant company, or
(iii)
any company which belongs to the same group as the
distributing company or any other relevant company,
(e)
the cessation of a trade after the distribution, or
20
(f)
the sale of a trade after the distribution.
(6)
Subsections (5)(b) and (c) are without prejudice to the width of subsection
(5)(a).
(7)
In subsection (5)—
“group” means a company which has one or more 51% subsidiaries
25
together with those subsidiaries,
“main participators” has the meaning given by section 1089(1)(b), and
“tax” includes stamp duty and stamp duty land tax.
1082
Conditions for distributions within section 1076(a)
(1)
Condition E is that the shares mentioned in section 1076(a)—
30
(a)
must not be redeemable,
(b)
must constitute the whole or substantially the whole of the distributing
company’s holding of the ordinary share capital of the subsidiary, and
(c)
must confer the whole or substantially the whole of the distributing
company’s voting rights in the subsidiary.
35
(2)
Condition F is that the distributing company must after the distribution be
either—
(a)
a trading company, or
(b)
the holding company of a trading group.

But see subsections (3) and (4).
40
(3)
Condition F need not be met if the distributing company is a 75% subsidiary of
another company.
(4)
Condition F need not be met if—
(a)
the transfer mentioned in section 1076(a) relates to two or more 75%
subsidiaries of the distributing company, and
45

Corporation Tax Bill
Part 23 — Company distributions
Chapter 5 — Demergers
529

(b)
the distributing company is dissolved without there having been after
the distribution any net assets of the company available for distribution
on a winding up or otherwise.
1083
Conditions for distributions within section 1077(1)
(1)
Condition G is that if a trade is transferred, the distributing company must
5
either—
(a)
not retain any interest in that trade, or
(b)
retain only a minor interest in it.
(2)
Condition H is that if shares in a subsidiary are transferred those shares—
(a)
must constitute the whole or substantially the whole of the distributing
10
company’s holding of the ordinary share capital of the subsidiary, and
(b)
must confer the whole or substantially the whole of the distributing
company’s voting rights in the subsidiary.
(3)
Condition I is that the only or main activity of the transferee company, or each
transferee company, after the distribution must be—
15
(a)
the carrying on of the trade, or
(b)
the holding of the shares transferred to it.
(4)
Condition J is that the shares issued by the transferee company or each
transferee company—
(a)
must not be redeemable,
20
(b)
must constitute the whole or substantially the whole of its issued
ordinary share capital, and
(c)
must confer the whole or substantially the whole of the voting rights in
that company.
(5)
Condition K is that the distributing company must after the distribution be
25
either a trading company or the holding company of a trading group.
1084
Cases where condition K does not apply
(1)
Condition K need not be met if the distributing company is a 75% subsidiary
of another company.
(2)
Condition K need not be met if—
30
(a)
there are two or more transferee companies each of which has
transferred to it—
(i)
a trade, or
(ii)
shares in a separate 75% subsidiary of the distributing
company, and
35
(b)
the distributing company is dissolved without there having been after
the distribution any net assets of the company available for distribution
on a winding up or otherwise.
1085
Conditions to be met if the distributing company is a 75% subsidiary
(1)
Condition L is that the group (or, if more than one, the largest group) to which
40
the distributing company belongs at the time of the distribution must be a
trading group.