Corporation Tax Bill

House of Commons

Session 2009 - 10
Internet Publications
Other Bills before Parliament

Corporation Tax Bill

Corporation Tax Bill
Part 5 — Group relief
Chapter 6 — Equity holders and profits or assets available for distribution
92

Company’s entitlement to profits or assets available for distribution: supplementary
169
Application and interpretation of sections 170 to 182
(1)
Sections 170 to 182 apply for the purpose of determining the proportion of
profits or assets to which company A would be beneficially entitled as
mentioned in section 165(2) or 166(2) at any time.
5
(2)
In those sections—
“arrangements” means arrangements of any kind (whether or not in
writing),
“company A’s proportion” means the proportion of profits or assets to
which company A would be beneficially entitled as mentioned in
10
section 165(2) or 166(2) at the relevant time,
“distribution rights” means rights in relation to dividends or interest or
assets on a winding up,
“the participating equity holders”, in relation to the determining of
company A’s proportion, means the equity holders of company B—
15
(a)
to whom the profit distribution would be made, or
(b)
who would be entitled to participate in the notional winding
up, and
“the relevant time” means the time mentioned in subsection (1) when the
beneficial entitlement of company A is to be determined.
20
170
Shares or securities with limited rights
(1)
This section applies if, at the relevant time, one or more of the participating
equity holders holds, as such, shares or securities with distribution rights that
are limited (wholly or partly) by reference to a specified amount or amounts.
(2)
Determine what company A’s proportion would be if all those distribution
25
rights were waived so far as they are so limited.

The result is referred to as “the alternative proportion”.
(3)
If the alternative proportion is less than what company A’s proportion would
be ignoring this section, then company A’s proportion is taken to be the
alternative proportion.
30
(4)
Subsection (3) is subject to sections 175, 176, 178 and 180.
(5)
For the purposes of subsection (1) a limitation on a right may operate—
(a)
by specifying the capital or amount of profits by reference to which a
distribution is calculated, or
(b)
in any other way.
35
(6)
But in a case to which section 180 applies (see section 179), limitations that are
covered by Case 1 in section 179 are ignored for the purposes of subsection (1).
171
Shares or securities with temporary rights
(1)
Section 172 applies if, at the relevant time, one or more of the participating
equity holders holds, as such, shares or securities—
40
(a)
which have rights within subsection (2), or
(b)
in relation to which arrangements within subsection (3) are in place.

Corporation Tax Bill
Part 5 — Group relief
Chapter 6 — Equity holders and profits or assets available for distribution
93

(2)
The rights within this subsection are distribution rights of such a kind that if—
(a)
the profit distribution were to be made, or
(b)
the notional winding up were to occur,

at a time after the relevant accounting period, the equity holder’s entitlement
at that time would be different from the equity holder’s entitlement at the
5
relevant time.
(3)
The arrangements within this subsection are arrangements of such a kind that
if—
(a)
effect were to be given to the arrangements, and
(b)
the profit distribution were to be made, or the notional winding up
10
were to occur, at a time after the relevant accounting period,

then, as a result of effect being given to the arrangements, the equity holder’s
entitlement at that time would be different from the equity holder’s
entitlement at the relevant time.
(4)
The references in subsections (2) and (3) to the equity holder’s entitlement at a
15
time are references to the proportion to which the equity holder would be
beneficially entitled (as the case may be)—
(a)
of profits on the profit distribution if it were made at that time, or
(b)
of assets on the notional winding up if it occurred at that time.
172
Company A’s proportion if shares etc have temporary rights
20
(1)
If this section applies, determine what company A’s proportion would be if the
rights of all participating equity holders at the relevant time were the same as
what they would be at the relevant future time.

The result is referred to as “the alternative proportion”.
(2)
For the purposes of subsection (1)—
25
(a)
“the relevant future time” means the time after the relevant accounting
period mentioned in subsection (2) or (3) of section 171 (as the case may
be), and
(b)
assume that effect is given to all arrangements (if any) within
subsection (3) of that section.
30
(3)
If the alternative proportion is less than what company A’s proportion would
be ignoring this section, then company A’s proportion is taken to be the
alternative proportion.
(4)
Subsection (3) is subject to sections 175, 177, 178 and 180.
173
Cases in which option arrangements are in place
35
(1)
Section 174 applies if option arrangements are in place at the relevant time.
(2)
“Option arrangements” means arrangements in relation to which conditions A
and B are met.
(3)
Condition A is that the effect of the arrangements is that there could be a
change in—
40
(a)
the proportion of profits to which any of the participating equity
holders would be beneficially entitled on the profit distribution if it
were made at a time after the relevant time, or

Corporation Tax Bill
Part 5 — Group relief
Chapter 6 — Equity holders and profits or assets available for distribution
94

(b)
the proportion of assets to which any of the participating equity holders
would be beneficially entitled on the notional winding up if it occurred
at a time after the relevant time.
(4)
Condition B is that, under the arrangements, the change could result from the
exercise of—
5
(a)
a right to acquire ordinary shares in company B (see section 160) or
securities in company B, or
(b)
a right to require a person to acquire such shares or securities.
(5)
For the purposes of subsection (4)—
(a)
it does not matter whether or not the shares or securities were issued
10
before the arrangements were put in place,
(b)
“right” does not include a right within subsection (6), and
(c)
“securities” does not include normal commercial loans (as defined by
section 162).
(6)
A right is within this subsection if it—
15
(a)
is a right of an individual to acquire shares,
(b)
was obtained because of the individual’s office or employment as a
director or employee of company B, and
(c)
was obtained in accordance with a share option scheme at a time when
the scheme was an approved share option scheme.
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(7)
In subsection (6)(c)—
“share option scheme” means—
(a)
an SAYE option scheme within the meaning of the SAYE code
(see section 516(4) of ITEPA 2003), or
(b)
a CSOP scheme within the meaning of the CSOP code (see
25
section 521(4) of ITEPA 2003), and
“approved” means—
(a)
in relation to an SAYE option scheme, approved under
Schedule 3 to ITEPA 2003, and
(b)
in relation to a CSOP scheme, approved under Schedule 4 to
30
ITEPA 2003.
174
Company A’s proportion if option arrangements in place
(1)
If this section applies, take the following steps.
Step 1

Identify all option rights under the option arrangements (or sets of
35
arrangements if more than one) which exist at the relevant time but which have
not become effective at or before that time.

“Option rights” means rights of the kind mentioned in section 173(4)(a) or (b),
and such a right becomes “effective” when the shares or securities to which it
relates are acquired as a result of its exercise.
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Step 2

Identify each possible state of affairs that could subsist at the relevant time if
the option rights identified at Step 1, or any of them or any combination of
them, became effective at that time.

Corporation Tax Bill
Part 5 — Group relief
Chapter 6 — Equity holders and profits or assets available for distribution
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For this purpose it does not matter if an option right cannot actually become
effective at or before the relevant time.
Step 3

Take each state of affairs identified at Step 2 and—
(a)
identify what the rights and duties of the participating equity holders
5
would be at the relevant time if the state of affairs were to subsist at that
time, and
(b)
determine what company A’s proportion would be if those rights and
duties were the rights and duties of the participating equity holders at
the relevant time.
10
Step 4

Identify the lowest proportion determined under paragraph (b) of Step 3.

That proportion is referred to as “the alternative proportion”.
(2)
If the alternative proportion is less than what company A’s proportion would
be ignoring this section, then company A’s proportion is taken to be the
15
alternative proportion.
(3)
Subsection (2) is subject to sections 176 to 178 and 180.
175
Cases in which both sections 170 and 172 apply
(1)
This section applies in a case in which sections 170 and 172 apply but section
174 does not.
20
(2)
Determine what company A’s proportion would be—
(a)
on the basis mentioned in section 170(2),
(b)
on the basis mentioned in section 172(1),
(c)
on those bases taken together, and
(d)
ignoring sections 170 and 172.
25
(3)
Company A’s proportion is taken to be the lowest proportion determined
under subsection (2).
176
Cases in which both sections 170 and 174 apply
(1)
This section applies in a case in which sections 170 and 174 apply but section
172 does not.
30
(2)
Determine what company A’s proportion would be—
(a)
on the basis mentioned in section 170(2),
(b)
on the basis mentioned at Step 4 in section 174,
(c)
on those bases taken together, and
(d)
ignoring sections 170 and 174.
35
(3)
Company A’s proportion is taken to be the lowest proportion determined
under subsection (2).
177
Cases in which both sections 172 and 174 apply
(1)
This section applies in a case in which sections 172 and 174 apply but section
170 does not.
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Corporation Tax Bill
Part 5 — Group relief
Chapter 6 — Equity holders and profits or assets available for distribution
96

(2)
Determine what company A’s proportion would be—
(a)
on the basis mentioned in section 172(1),
(b)
on the basis mentioned at Step 4 in section 174,
(c)
on those bases taken together, and
(d)
ignoring sections 172 and 174.
5
(3)
Company A’s proportion is taken to be the lowest proportion determined
under subsection (2).
178
Cases in which sections 170, 172 and 174 all apply
(1)
This section applies in a case in which sections 170, 172 and 174 all apply.
(2)
Determine what company A’s proportion would be—
10
(a)
on the basis mentioned in section 170(2),
(b)
on the basis mentioned in section 172(1),
(c)
on the basis mentioned at Step 4 in section 174,
(d)
on the bases mentioned in sections 170(2) and 172(1) taken together,
(e)
on the bases mentioned in section 170(2) and at Step 4 in section 174
15
taken together,
(f)
on the bases mentioned in section 172(1) and at Step 4 in section 174
taken together,
(g)
on the bases mentioned in section 170(2), section 172(1) and at Step 4 in
section 174 taken together, and
20
(h)
ignoring sections 170, 172 and 174.
(3)
Company A’s proportion is taken to be the lowest proportion determined
under subsection (2).
179
Cases in which surrendering or claimant company is non-UK resident
(1)
If the surrendering company or the claimant company is non-UK resident at
25
the relevant time, section 180 applies as mentioned in subsections (2) and (3) in
the cases set out in subsection (4).
(2)
Section 180 applies in the application of this Chapter for the purposes of
sections 143(3)(b) and (c) and 144(3)(b) and (c) if the non-UK resident company
is owned by the consortium at the relevant time.
30
(3)
Section 180 applies in the application of this Chapter for the purposes of section
151(4)(a) and (b) in determining if the non-UK resident company is a 75% or
90% subsidiary of another company at the relevant time.

But section 180 is not to be applied in determining if the EEA group condition
is met (see section 136) at the relevant time.
35
(4)
The cases in which section 180 applies are as follows.
Case 1

One or more of the participating equity holders holds, as such, shares or
securities with distribution rights that have effect (wholly or partly) by
reference to whether or not, or to what extent, the profits or assets distributed
40
are referable to company B’s UK trade (see section 182).

Corporation Tax Bill
Part 5 — Group relief
Chapter 6 — Equity holders and profits or assets available for distribution
97

Case 2

Section 174 applies and any of the proportions to be determined under
paragraph (b) of Step 3 in that section would differ according to whether or not,
or to what extent, the profits or assets distributed are referable to company B’s
UK trade.
5
180
Company A’s proportion if non-UK resident involved
(1)
If this section applies—
(a)
go to subsection (2) if the case is one in which none of sections 170, 172
and 174 applies, and
(b)
go to subsection (3) if the case is one in which any of sections 170, 172,
10
and 174 applies.
(2)
If the case is as mentioned in subsection (1)(a)—
(a)
determine what company A’s proportion would be using the
assumptions set out in section 181, and
(b)
if the proportion so determined (“the alternative proportion”) is less
15
than what company A’s proportion would be ignoring this section,
then company A’s proportion is taken to be the alternative proportion.
(3)
If the case is as mentioned in subsection (1)(b), take the following steps.
Step 1

Determine, in each way required by the applicable sections, what company A’s
20
proportion would be ignoring this section.

A proportion determined at this step is referred to as a “normal proportion”.
Step 2

Determine, in each way required by the applicable sections, what company A’s
proportion would be using the assumptions set out in section 181.
25

A proportion determined at this step is referred to as a “section 181
proportion”.
Step 3

If a section 181 proportion determined in a required way is less than the normal
proportion determined in that way, for the purposes of the applicable sections
30
use the section 181 proportion instead of the normal proportion.
(4)
In subsection (3) “the applicable sections” means any of sections 170, 172 and
174 that applies in the case mentioned in subsection (1)(b), together with
whichever (if any) of sections 175 to 178 that applies in that case.
181
Assumptions to be applied if non-UK resident company involved
35
(1)
The assumptions referred to in section 180 are as follows.
Assumption 1

The profit distribution or the distribution on the notional winding up is
confined to a distribution of the profits or assets referable to company B’s UK
trade (see section 182).
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Corporation Tax Bill
Part 5 — Group relief
Chapter 7 — Miscellaneous provisions and interpretation of Part
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Assumption 2

Section 165(2) (in the case of a profit distribution) is applied on the basis that the
amount of company B’s total profits referred to in that subsection does not
exceed the amount of those profits referable to its UK trade.
Assumption 3
5

Section 166(3) and (4) (in the case of a distribution on a notional winding up) is applied
on the basis that the amount of company B’s assets and liabilities referred to in
those subsections does not exceed the amount of those assets and liabilities
referable to its UK trade.
Assumption 4
10

None of the ordinary equity holders has a beneficial entitlement to the profits
or assets referable to company B’s UK trade that is greater than the proportion
of the distribution in question to which the equity holder would be beneficially
entitled—
(a)
if Assumptions 1 to 3 were ignored, and
15
(b)
if it would otherwise be less, the distribution were £100.
(2)
In subsection (1) “ordinary equity holder” means an equity holder whose
beneficial entitlement on the profit distribution or the distribution on the
notional winding up does not differ according to whether or not, or the extent
to which, the profits or assets distributed are referable to company B’s UK
20
trade.
182
Assets etc referable to UK trade
Profits, assets or liabilities of company B are referable to company B’s UK trade
so far as they—
(a)
are attributable to, or used for the purposes of, activities the income or
25
chargeable gains from which are or (if there were any) would be
brought into account in calculating company B’s total profits of any
accounting period, and
(b)
are not attributable to, or used for the purposes of, activities which are
double taxation exempt for any accounting period (see section 186).
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Chapter 7
Miscellaneous provisions and interpretation of Part
Miscellaneous
183
Payments for group relief
(1)
This section applies if—
35
(a)
the surrendering company and the claimant company have an
agreement between them in relation to losses and other amounts of the
surrendering company (“the agreed loss amounts”),
(b)
group relief is given to the claimant company in relation to the agreed
loss amounts, and
40