Finance (No. 2) Bill

House of Commons

Session 2010 - 11
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Finance (No. 2) Bill

Finance (No. 2) Bill
Schedule 3 — Company distributions
36

Schedule 3
Section 9

Company distributions
Meaning of “distribution” in the Corporation Tax Acts
1     (1)
Part 23 of CTA 2010 (company distributions) is amended as follows.
      (2)
In section 1002 (certain transfers between a company and its members not to
5
count as a distribution by virtue of paragraph B of section 1000(1)), in
subsection (2)(a), for “assets or” substitute “assets (other than cash) or of”.
      (3)
After section 1027 insert—
“1027A
Distributions following reduction of share capital
(1)
This section applies for the purpose of determining whether a
10
distribution is treated as a repayment of share capital for the
purposes of this Chapter.
(2)
A distribution made out of a reserve arising from a reduction of
share capital is to be treated as if it were made out of profits available
for distribution otherwise than by virtue of the reduction.
15
(3)
The reference in subsection (2) to share capital includes, in the case
of share capital issued at a premium representing new consideration,
the amount of the premium.
(4)
The reference in subsection (2) to a reduction of share capital is—
(a)
in the case of a limited company incorporated in a territory
20
outside the United Kingdom, to a reduction under any
provision of the law of that territory corresponding to
Chapter 10 of Part 17 of the Companies Act 2006, and
(b)
in the case of an unlimited company incorporated in a
territory outside the United Kingdom, to a reduction under
25
any provision of the law of that territory corresponding to
any rule of law of any part of the United Kingdom under
which an unlimited company may reduce its share capital.
(5)
This section does not apply for the purposes of any provision to the
extent that the provision relates to income tax.”
30
Meaning of “distribution” in Income Tax Acts
2
In section 989 of ITA 2007 (definitions for the purposes of the Income Tax
Acts), in the definition of “distribution”, after “Chapters 2 to 5 of Part 23 of
CTA 2010” insert “, disregarding section 1027A of that Act”.
Distributions subject to the charge to corporation tax on income
35
3     (1)
Part 9A of CTA 2009 (company distributions) is amended as follows.
      (2)
In section 931A (charge to tax), omit subsection (2) and for subsection (3)
substitute—
“(3)
A distribution is exempt for the purposes of this Part if it is exempt
under—
40
(a)
Chapter 2 (distributions received by small companies), or

Finance (No. 2) Bill
Schedule 3 — Company distributions
37

(b)
Chapter 3 (distributions received by companies that are not
small).”
      (3)
In section 931H (dividends derived from transactions not designed to reduce
tax)—
(a)
in the heading, for “Dividends” substitute “Distributions”,
5
(b)
in subsection (1)—
(i)
after “dividend” insert “or other distribution”, and
(ii)
for “paid” substitute “made”,
(c)
in subsection (2), for “dividend is paid” substitute “distribution is
made”,
10
(d)
in subsections (3) and (4)—
(i)
for “dividend” substitute “distribution”, and
(ii)
for “paid” substitute “made”, and
(e)
in subsection (5)—
(i)
for “dividend” substitute “distribution”,
15
(ii)
for “paid” (in both places) substitute “made”, and
(iii)
for “dividends” substitute “distributions”.
      (4)
After section 931R insert—
“Chargeable gains
931RA
Chargeable gains
20
The fact that a dividend or other distribution is exempt does not
prevent it from being taken into account in the calculation of
chargeable gains.”
Distributions giving rise to deemed disposals
4     (1)
TCGA 1992 is amended as follows.
25
      (2)
In section 22 (disposal where capital sums derived from assets), after
subsection (3), insert—
“(4)
Subsection (1) does not apply where a company receives, or becomes
entitled to receive—
(a)
a capital distribution within the meaning of section 122 (see
30
instead subsection (1) of that section), or
(b)
a distribution to which the charge to corporation tax on
income under Part 9A of CTA 2009 (company distributions)
applies or would apply were the distribution not exempt for
the purposes of that Part.”
35
      (3)
In section 122 (deemed disposal on receipt of certain distributions), after
subsection (5) insert—
“(6)
The reference in subsection (5)(b) to a distribution which in the hands
of the recipient constitutes income for the purposes of income tax
includes, where the recipient is a company, a distribution to which
40
the charge to corporation tax on income under Part 9A of CTA 2009
(company distributions) would apply were the distribution not
exempt for the purposes of that Part.”

Finance (No. 2) Bill
Schedule 3 — Company distributions
38

Commencement
5     (1)
The amendments made by this Schedule have effect in relation to
distributions made on or after 1 July 2009.
      (2)
An amendment corresponding to that made by paragraph 1, having effect in
relation to distributions made on or after 1 July 2009, is to be treated as
5
having been made in section 211 of ICTA.
Treatment of distributions of UK resident companies made before 1 July 2009
6     (1)
Section 1285 of CTA 2009 (UK company distributions exempt from
corporation tax) and section 208 of ICTA (which was the predecessor of
section 1285 of CTA 2009) are to be treated as always having had effect
10
(before their repeal) as if references in them to a distribution included a
distribution to which sub-paragraph (2) applies.
      (2)
This sub-paragraph applies to a distribution that—
(a)
falls within the meaning of Chapters 2 to 5 of Part 23 of CTA 2010, as
amended by paragraph 1, but
15
(b)
does not fall within that meaning disregarding that amendment.
      (3)
Section 22 of TCGA 1992 (disposal where capital sums derived from assets)
is to be treated as always having had effect as if subsection (1) of that section
did not apply where a company receives, or becomes entitled to receive—
(a)
a capital distribution within the meaning of section 122 of that Act
20
made before 1 July 2009, or
(b)
a distribution that is exempt from corporation tax under section 1285
of CTA 2009 or section 208 of ICTA, as modified by sub-paragraph
(1).
      (4)
Section 122 of that Act (deemed disposal on receipt of certain distributions)
25
is to be treated as always having had effect as if references in it to a capital
distribution did not include a distribution that is exempt from corporation
tax under section 1285 of CTA 2009 or section 208 of ICTA, as modified by
sub-paragraph (1).
Election to opt out of effect of Schedule in relation to a distribution made before 22 June 2010
30
7     (1)
If a company so elects, this Schedule has effect in relation to a relevant
distribution received by the company as if—
(a)
the amendments made by paragraphs 1 to 4 were of no effect, and
(b)
paragraphs 5(2) and 6 were of no effect.
      (2)
An election under this paragraph has effect only in relation to such
35
distributions as are specified in the election.
      (3)
In this paragraph “relevant distribution” means a distribution made before
22 June 2010.

Finance (No. 2) Bill
Schedule 4 — REITs: stock dividends
39

Schedule 4
Section 10

REITs: stock dividends
Amendment of TCGA 1992
1
After section 142 of TCGA 1992 (capital gains on stock dividends) insert—
“142A
REITs: chargeable gains on stock dividends
5
(1)
This section applies if share capital issued in lieu of a cash dividend
by—
(a)
a company UK REIT, or
(b)
the principal company of a group UK REIT,

is attributed as mentioned in section 550(2)(a), (c) or (d) of CTA 2010
10
(attribution of distributions).
(2)
The case shall not constitute a reorganisation of the company’s share
capital for the purposes of sections 126 to 128.
(3)
The person who acquires the share capital by means of its issue shall
(notwithstanding section 17(1)) be treated for the purposes of section
15
38(1)(a) as having acquired that asset for a consideration equal to the
cash equivalent of the share capital.
(4)
Section 414A(2) to (4) of ITTOIA 2005 (meaning of “share capital
issued in lieu of a cash dividend”) applies for the purposes of this
section as it applies for the purposes of Chapter 5 of Part 4 of that Act.
20
(5)
Section 412(1), (2), (4) and (5) of that Act (meaning of “cash
equivalent of share capital”) applies for the purposes of this section
as it applies in relation to share capital issued as mentioned in section
410(1)(a) of that Act.
(6)
In this section “company UK REIT” and “principal company of a
25
group UK REIT” are to be read in accordance with Part 12 of CTA
2010 (Real Estate Investment Trusts).”
Amendment of ITA 2007
2
In section 973 of ITA 2007 (REITs: income tax due in respect of distributions),
after subsection (3) insert—
30
“(3A)
In this section, section 974 and any regulations under this section,
“distribution” is to be read in accordance with section 554A of CTA
2010 (meaning of “distribution”).
(3B)
Section 599A of CTA 2010 (amount of distribution consisting of share
capital issued in lieu of cash dividend) applies for the purposes of
35
this section, section 974 and any regulations under this section as it
applies for the purposes of Part 12 of that Act (Real Estate Investment
Trusts).”
Amendment of CTA 2010
3
Part 12 of CTA 2010 (Real Estate Investment Trusts) is amended as follows.
40
4     (1)
Section 530 (condition as to distribution of profits) is amended as follows.

Finance (No. 2) Bill
Schedule 4 — REITs: stock dividends
40

      (2)
In subsection (1), omit paragraph (b) (but not the word “and” at the end of it).
      (3)
In subsection (4), omit paragraph (a) (including the word “and” at the end of
it).
      (4)
After subsection (6) insert—
“(6A)
In this section, references (however expressed) to a distribution are
5
to either or both of the following—
(a)
a dividend in cash, and
(b)
share capital issued in lieu of a cash dividend.
(6B)
Section 1051(2) to (4) (meaning of “share capital issued in lieu of a
cash dividend”) applies for the purposes of subsection (6A) as it
10
applies for the purposes of section 1049(1)(a).
(6C)
Subsection (6D) applies if—
(a)
(apart from that subsection) there would be a a failure to meet
the condition in this section in relation to an accounting
period, and
15
(b)
that failure would arise solely by reason of the operation, by
virtue of section 599A(2), of section 412(2) of ITTOIA 2005
(substitution of market value) in relation to any distributions
within subsection (6A)(b).
(6D)
Subsection (1) or (4) (as the case may be) is to have effect in relation
20
to that accounting period as if for the words “on or before” there
were substituted “before the end of the period of three months
beginning with”.”
5
In section 549 (distributions: supplementary), after subsection (2) insert—
“(2A)
Sections 409 to 414 of ITTOIA 2005 (stock dividend income from UK
25
resident companies) do not apply to relevant distributions received
by a shareholder.”
6
In section 550 (attribution of distributions), in subsection (2)(a), for
“payments” substitute “distributions”.
7
In section 553 (meaning of “holder of excessive rights”), in subsection (2)(a),
30
for “dividends” substitute “distributions”.
8
After section 554 (regulations: distributions to holders of excessive rights)
insert—
“554A
Meaning of “distribution”
(1)
In this Chapter, references (however expressed) to a distribution
35
include share capital issued in lieu of a cash dividend.
(2)
Section 1051(2) to (4) (meaning of “share capital issued in lieu of a
cash dividend”) applies for the purposes of this section as it applies
for the purposes of section 1049(1)(a).”
9     (1)
Section 564 (breach of condition as to distribution of profits) is amended as
40
follows.
      (2)
In subsection (5)(a), omit “by way of dividend”.

Finance (No. 2) Bill
Schedule 5 — Financing costs and income of group companies
41

      (3)
After subsection (9) insert—
“(10)
In this section and section 565, “distribution” is to be read in
accordance with section 530(6A) and (6B).”
10
After section 599 (calculation of profits) insert—
“599A
Amount of distribution consisting of share capital issued in lieu of
5
cash dividend
(1)
For the purposes of this Part, the amount of a distribution, so far as it
consists of share capital issued in lieu of a cash dividend, is the cash
equivalent of the share capital.
(2)
Section 412(1), (2), (4) and (5) of ITTOIA 2005 (meaning of “cash
10
equivalent of share capital”) applies for the purposes of this section
as it applies in relation to share capital issued as mentioned in section
410(1)(a) of that Act.”
11
In section 605 (property rental business: exclusion of business producing
listed income), after subsection (2) insert—
15
“(2A)
The reference in class 7 of the table in subsection (2) to dividends
from shares includes share capital issued in lieu of a cash dividend
(and the reference in subsection (1) to income is to be read
accordingly).
(2B)
Section 1051(2) to (4) (meaning of “share capital issued in lieu of a
20
cash dividend”) applies for the purposes of subsection (2A) as it
applies for the purposes of section 1049(1)(a).”
Commencement
12
The amendments made by this Schedule have effect in relation to
distributions made on or after the day on which this Act is passed.
25
Schedule 5
Section 11

Financing costs and income of group companies
Introduction
1
Part 7 of TIOPA 2010 (tax treatment of financing costs and income) is
amended as follows.
30
Amendment of Chapter 1 (introduction)
2
In section 260(9) (introduction), after “interpretative” insert “and
supplementary”.
Amendments of Chapter 2 (application of Part)
3     (1)
Section 262 (UK net debt of the worldwide group for period of account of
35
worldwide group) is amended as follows.
      (2)
In subsection (1)—

Finance (No. 2) Bill
Schedule 5 — Financing costs and income of group companies
42

(a)
for “The reference in section 261” substitute “A reference in this
Chapter”, and
(b)
after “relevant group company” insert “or a group securitisation
company”.
      (3)
In subsection (8), in paragraphs (a) and (b), after “relevant group company”
5
insert “or a group securitisation company”.
4
In section 263 (net debt of a company), for subsections (3) to (5) substitute—
“(3)
For the purposes of this section, a company’s “relevant liabilities” as
at any date are the amounts that are disclosed in the balance sheet of
the company as at that date in respect of—
10
(a)
borrowing (whether short term or long term and including
borrowing by way of overdraft),
(b)
liabilities in respect of finance leases,
(c)
arrangements not within paragraph (a) or (b) that—
(i)
are financial liabilities,
15
(ii)
produce for any person a return in relation to any
amount which is economically equivalent to interest,
and
(iii)
are not short term, or
(d)
such other matters as may be specified in regulations made
20
by the Commissioners.
(4)
For the purposes of this section, a company’s “relevant assets” as at
any date are the amounts that are disclosed in the balance sheet of the
company as at that date in respect of—
(a)
cash and cash equivalents,
25
(b)
lending (whether short term or long term and including
lending by way of overdraft),
(c)
net investments, or net cash investments, in finance leases,
(d)
securities issued by—
(i)
the government of the United Kingdom or any
30
territory outside the United Kingdom,
(ii)
any public or local authority in the United Kingdom
or any territory outside the United Kingdom, or
(iii)
any company or other body of persons,
(e)
arrangements not within paragraphs (b) to (d) that—
35
(i)
are financial assets,
(ii)
produce for the company a return in relation to any
amount which is economically equivalent to interest,
and
(iii)
are not short term, or
40
(f)
such other matters as may be specified in regulations made
by the Commissioners.
(5)
But an amount disclosed in the balance sheet of a company in respect
of—
(a)
the company’s share capital, or
45
(b)
shares or other equity interests in any other entity,

is not a “relevant liability” or a “relevant asset” for the purposes of
this section.