Corporation Tax Bill

House of Commons

Session 2009 - 10
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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

167
Profits or assets available for distribution and entitlement: supplementary
(1)
References to profits or assets available for distribution to equity holders of a
company do not include references to any profits or assets available for
distribution to any equity holder otherwise than as an equity holder.
(2)
References to a company being beneficially entitled to profits or assets are
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references to the company being so entitled—
(a)
directly,
(b)
through another company or other companies, or
(c)
partly directly and partly through another company or other
companies.
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(3)
If a person is an equity holder in relation to shares or securities as a result of
section 159, that person (and no other) is to be treated as being beneficially
entitled to any distribution of profits or assets attributable to those shares or
securities.
168
Meaning of “the relevant accounting period”
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(1)
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, “the relevant accounting period” is the accounting period of
company B in which that time falls.
(2)
If company B is non-UK resident and is not within the charge to corporation
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tax, the relevant accounting period is to be determined using the assumption
in subsection (3).
(3)
The assumption is that company B became UK resident (and, therefore, within
the charge to corporation tax) at the time it became a 75% subsidiary (as
mentioned in section 136) ignoring section 151(4).
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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.
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(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
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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—
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(a)
to whom the profit distribution would be made, or
(b)
who would be entitled to participate in the notional winding
up, and

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

“the relevant time” means the time mentioned in subsection (1) when the
beneficial entitlement of company A is to be determined.
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
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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
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
10
be ignoring this section, then company A’s proportion is taken to be the
alternative proportion.
(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
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distribution is calculated, or
(b)
in any other way.
(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
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(1)
Section 172 applies if, at the relevant time, one or more of the participating
equity holders holds, as such, shares or securities—
(a)
which have rights within subsection (2), or
(b)
in relation to which arrangements within subsection (3) are in place.
(2)
The rights within this subsection are distribution rights of such a kind that if—
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(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
relevant time.
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(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
were to occur, at a time after the relevant accounting period,
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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
time are references to the proportion to which the equity holder would be
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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.

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

172
Company A’s proportion if shares etc have temporary rights
(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”.
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(2)
For the purposes of subsection (1)—
(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
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subsection (3) of that section.
(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.
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173
Cases in which option arrangements are in place
(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
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change in—
(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
(b)
the proportion of assets to which any of the participating equity holders
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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—
(a)
a right to acquire ordinary shares in company B (see section 160) or
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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
before the arrangements were put in place,
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(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—
(a)
is a right of an individual to acquire shares,
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(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.

Corporation Tax Bill
Part 5 — Group relief
Chapter 6 — Equity holders and profits or assets available for distribution
95

(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
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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
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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
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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.

For this purpose it does not matter if an option right cannot actually become
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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
would be at the relevant time if the state of affairs were to subsist at that
30
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.
Step 4
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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
alternative proportion.
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(3)
Subsection (2) is subject to sections 176 to 178 and 180.