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 5 — Demergers
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(2)
Condition M is that the distribution (“the original distribution”) must be
followed by one or more other distributions (“further distributions”) falling
within section 1076(a) or 1077(1)(a)(ii) which—
(a)
are exempt distributions, and
(b)
comply with subsection (3).
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(3)
To comply with this subsection a further distribution must result in members
of the holding company of the group (or, if more than one, the largest group)
to which the distributing company belonged at the time of the original
distribution becoming members of—
(a)
the transferee company or each transferee company to which a trade
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was transferred by the distributing company,
(b)
the subsidiary or each subsidiary whose shares were transferred by the
distributing company, or
(c)
a company (other than the holding company) of which the company or
companies mentioned in paragraph (a) or (b) are 75% subsidiaries.
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Chargeable payments
1086
Chargeable payments connected with exempt distributions
(1)
This section applies if a chargeable payment is made within 5 years after an
exempt distribution.
(2)
The amount or value of the payment is chargeable—
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(a)
to income tax, or
(b)
to corporation tax under the charge to corporation tax on income.
(3)
An amount charged to income tax under subsection (2) is treated for income
tax purposes as an amount of income.
(4)
Income tax under subsection (2) is charged on the full amount or value of the
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payment made in the tax year.
(5)
The person liable for any income tax charged under subsection (2) is the person
receiving or entitled to the payment.
(6)
References in this section and sections 1087 to 1094 to a payment include—
(a)
the assumption of a liability, and
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(b)
any other transfer of money’s worth.
1087
Chargeable payments not deductible in calculating profits
If a chargeable payment is made within 5 years after an exempt distribution,
the chargeable payment is treated as a distribution for the purposes of section
1305 of CTA 2009 (no deduction for distributions in calculation of a company’s
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profits).
1088
Meaning of “chargeable payment”
(1)
In this Chapter “a chargeable payment” means any payment which—
(a)
meets each of conditions A to D in this section, or
(b)
is a chargeable payment by virtue of section 1089.
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Corporation Tax Bill
Part 23 — Company distributions
Chapter 5 — Demergers
531

(2)
Condition A is that the payment is made by a company concerned in an exempt
distribution and is made (directly or indirectly)—
(a)
to a member of that company, or
(b)
to a member of any other company concerned in the exempt
distribution.
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(3)
Condition B is that the payment is made—
(a)
in connection with the shares in the company making the payment,
(b)
in connection with the shares in any other company concerned in the
exempt distribution, or
(c)
in connection with any transaction affecting the shares mentioned in
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paragraph (a) or (b).
(4)
Condition C is that the payment—
(a)
is not made for genuine commercial reasons, or
(b)
forms part of a tax avoidance scheme.
(5)
Condition D is that the payment—
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(a)
is not a distribution or an exempt distribution, and
(b)
is not made to a company that belongs to the same group as the
company making the payment.
(6)
In this section and section 1089—
“tax avoidance scheme” means a scheme or arrangement the main
20
purpose or one of the main purposes of which is the avoidance of tax,
and
“tax” includes stamp duty and stamp duty land tax.
(7)
This section is to be read with section 1089.
1089
Meaning of “chargeable payment”: unquoted companies
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(1)
This section applies if a company concerned in an exempt distribution is an
unquoted company and a person makes a payment (to any person) in
pursuance of a scheme or arrangement made—
(a)
with the unquoted company, or
(b)
if the unquoted company—
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(i)
is under the control of 5 or fewer persons (its “main
participators”), and
(ii)
is not excepted by subsection (6),

with any of the unquoted company’s main participators.
(2)
The payment is a chargeable payment if it meets each of conditions B1 to D1.
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(3)
Condition B1 is that the payment is made—
(a)
in connection with the shares in the company (if it is a company)
making the payment,
(b)
in connection with the shares in any company concerned in the exempt
distribution, or
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(c)
in connection with any transaction affecting the shares mentioned in
paragraph (a) or (b).
(4)
Condition C1 is that the payment—
(a)
is not made for genuine commercial reasons, or

Corporation Tax Bill
Part 23 — Company distributions
Chapter 5 — Demergers
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(b)
forms part of a tax avoidance scheme.
(5)
Condition D1 is that the payment (if made by a company)—
(a)
is not a distribution or an exempt distribution, and
(b)
is not made to a company that belongs to the same group as that
company.
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(6)
The unquoted company is excepted for the purposes of subsection (1)(b)(ii) if—
(a)
it is under the control of (and only of) a company, and
(b)
that company is not under the control of 5 or fewer persons.
1090
Meaning of “company concerned in an exempt distribution”
(1)
For the purposes of this Chapter the companies concerned in an exempt
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distribution are—
(a)
any relevant company (as defined in section 1080), and
(b)
any other company which was connected with any relevant company
for the whole or any part of the affected period.
(2)
In this section “the affected period” means the period—
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(a)
beginning with the exempt distribution, and
(b)
ending with the making of the payment in question.
(3)
For the purposes of this section, if a company (“A”) is connected with another
company (“B”) in the affected period, A is also connected in that period with
any company with which B is connected (with or without the help of this
20
subsection) in that period.
Advance clearance
1091
Advance clearance of distributions
(1)
Before a distribution is made, the distributing company may apply under this
section to the Commissioners for Her Majesty’s Revenue and Customs (“the
25
Commissioners”).
(2)
If, before the distribution is made, the Commissioners notify that company that
they are satisfied that it will be an exempt distribution, the distribution is
treated as an exempt distribution.
1092
Advance clearance of payments
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(1)
If—
(a)
a person intending to make a payment applies under this section to the
Commissioners, and
(b)
before the payment is made the Commissioners notify the person that
they are satisfied that the payment meets the conditions set out in
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subsection (2),

the payment is not treated as a chargeable payment.
(2)
The conditions are that the payment—
(a)
will be made for genuine commercial reasons, and
(b)
will not form part of a scheme or arrangement the main purpose or one
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of the main purposes of which is the avoidance of tax.

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Part 23 — Company distributions
Chapter 5 — Demergers
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(3)
In subsection (2) “tax” includes stamp duty and stamp duty land tax.
(4)
A company which—
(a)
becomes connected with another company, or
(b)
ceases to be connected with another company,

may make an application under subsection (1) with respect to any payments
5
that may be made by it at any time after becoming or ceasing to be connected
with the company in question (whether or not there is any present intention to
make any payments).
(5)
If the Commissioners give a notification on an application made by virtue of
subsection (4), no payment to which the notification relates is to be treated as a
10
chargeable payment merely because the company is or has been connected
with the other company.
1093
Requirements relating to applications for clearance
(1)
Any application under section 1091 or 1092—
(a)
must be in writing, and
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(b)
must contain particulars of the relevant transactions.
(2)
The Commissioners may by notice require a person making an application
under section 1091 or 1092 to provide further particulars for the purpose of
enabling them to make their decision.
(3)
The power under subsection (2) must be exercised within 30 days of the receipt
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of—
(a)
the application, or
(b)
any further particulars previously required under subsection (2).
(4)
If a notice under subsection (2) is not complied with within 30 days, or any
longer period that the Commissioners may allow, the Commissioners need not
25
proceed further on the application.
1094
Decision of the Commissioners or tribunal
(1)
The Commissioners must notify their decision to the person making the
application under section 1091 or 1092—
(a)
within 30 days of receiving the application, or
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(b)
if they give a notice under section 1093(2), within 30 days of when the
notice is complied with.
(2)
Subsection (3) applies if the Commissioners—
(a)
(in the case of an application under section 1091) notify the applicant
that they are not satisfied that the distribution will be an exempt
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distribution,
(b)
(in the case of an application under section 1092) notify the applicant
that they are not satisfied that a payment meets the conditions set out
in section 1092(2), or
(c)
(in either case) do not notify their decision to the applicant within the
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time required by subsection (1).
(3)
The applicant may require the Commissioners to transmit the application,
together with any notice given and further particulars provided under section
1093(2), to the tribunal.

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Part 23 — Company distributions
Chapter 5 — Demergers
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(4)
In that event, any notification by the tribunal has effect for the purposes of this
section as if it were a decision of the Commissioners.
(5)
The right under subsection (3) must be exercised within 30 days of—
(a)
the notification of the Commissioners’ decision, or
(b)
the time by which the Commissioners are required to notify their
5
decision to the applicant.
(6)
If any particulars provided under section 1093 in relation to an application
under section 1091 do not fully and accurately disclose all facts and
circumstances material for the decision of the Commissioners or tribunal, any
resulting notification that the Commissioners are satisfied, or that the tribunal
10
is satisfied, that the distribution will be an exempt distribution is void.
(7)
If any particulars provided under section 1093 in relation to an application
under section 1092 do not fully and accurately disclose all facts and
circumstances material for the decision of the Commissioners or tribunal, any
resulting notification that the Commissioners are satisfied, or that the tribunal
15
is satisfied, that the payment in question meets the conditions set out in section
1092(2) is void.
Information and returns
1095
Exempt distributions: returns
(1)
A company which makes an exempt distribution must make a return to an
20
officer of Revenue and Customs.
(2)
The return must give details of—
(a)
the distribution, and
(b)
the circumstances by reason of which it is exempt.
(3)
The return must be made within 30 days after the distribution.
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1096
Chargeable payments etc: returns
(1)
A person must make a return to an officer of Revenue and Customs if—
(a)
the person makes a chargeable payment within 5 years after the making
of an exempt distribution, and
(b)
the chargeable payment consists of a transfer of money’s worth.
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(2)
The return under subsection (1) must give details of—
(a)
the transaction effecting the transfer,
(b)
the name and address of each recipient,
(c)
the value of what is transferred to each recipient, and
(d)
any payment of money which accompanies the transfer and is itself a
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chargeable payment.
(3)
A person must make a return to an officer of Revenue and Customs if, within
5 years after the making of an exempt distribution, the person makes a
payment or transfer of money’s worth which—
(a)
is made for genuine commercial reasons and does not form part of a
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scheme or arrangement the main purpose or one of the main purposes
of which is the avoidance of tax, but
(b)
would be a chargeable payment if that were not so.

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Part 23 — Company distributions
Chapter 5 — Demergers
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(4)
In subsection (3)(a) “tax” includes stamp duty and stamp duty land tax.
(5)
Subsection (3) does not apply if a notification under section 1092(5) (payment
not to be treated as a chargeable payment merely because of a connection
between two companies) has effect in relation to the payment or transfer.
(6)
In the case of a transfer, the return under subsection (3) must give the following
5
information—
(a)
details of the transaction which effects the transfer,
(b)
the name and address of each recipient,
(c)
the value of what is transferred to each recipient, and
(d)
a statement of the circumstances by reason of which the transfer is not
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a chargeable payment.
(7)
In the case of a payment, the return under subsection (3) must give the
following information—
(a)
the name and address of each recipient,
(b)
the amount of the payment made to each recipient, and
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(c)
a statement of the circumstances by reason of which the payment is not
a chargeable payment.
(8)
The return under subsection (1) or (3) must be made within 30 days after the
transfer or payment.
1097
Information about person for whom a payment is received
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(1)
An officer of Revenue and Customs may require any recipient of a chargeable
payment to state—
(a)
whether it is received by the recipient on behalf of another person, and
(b)
if so, that person’s name and address.
(2)
An officer of Revenue and Customs may require a person (“A”) on whose
25
behalf a chargeable payment is received to state—
(a)
whether there is another person (in addition to A) on whose behalf the
payment is received, and
(b)
if so, that person’s name and address.
Supplementary
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1098
Meaning of “unquoted company”
(1)
A company is an unquoted company for the purposes of this Chapter if none
of its shares is—
(a)
listed in the Official List of the Stock Exchange, and
(b)
dealt in on the Stock Exchange regularly or from time to time.
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(2)
But a company is not an unquoted company for the purposes of this Chapter if
it is under the control of (and only of) one or more companies which are not
unquoted companies for those purposes.
(3)
The reference in subsection (1) to shares does not include debenture stock, loan
stock, preferred shares or preferred stock.
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