Income and Corporation Taxes Act 1988

2A (1) Paragraph 2 above shall have effect in accordance with this paragraph to determine whether a controlled foreign company F1 . . . pursues an acceptable distribution policy in respect of a particular accounting period (“the relevant accounting period”).

(2) Subject to sub-paragraph (4) below, where the distribution condition is satisfied in relation to the relevant accounting period, then, in addition to any dividend which falls within paragraph 2(1)(a) above apart from this paragraph—

(a) any dividend which is paid for the accounting period (“the preceding period”) [F2 immediately preceding] the relevant accounting period and [F3 which is not an excluded dividend] shall be treated as falling within that paragraph, and

(b) if the distribution condition is satisfied in relation to the preceding period, any dividend which is paid for the accounting period [F2 immediately preceding] the preceding period and [F3 which is not an excluded dividend] shall be treated as falling within that paragraph,

and so on; and in this sub-paragraph “dividend” means a dividend not paid out of specified profits.

(3) For the purposes of this paragraph, the distribution condition is satisfied in relation to any accounting period if—

(a) a dividend or dividends are paid for the period to persons resident in the United Kingdom,

(b) the amount or, as the case may be, aggregate amount of any dividends falling within paragraph (a) above is not less than—

(i) the relevant profits for that period, or

(ii) where paragraph 2(4) or (5) above applies (with the modifications of paragraph 2 made by sub-paragraph (5) below), the appropriate portion of those profits, and

(c) any dividends falling within that paragraph are paid not later than the time by which any dividend paid for the relevant accounting period is required by paragraph 2(1)(b) above to be paid;

or if there are no relevant profits for the period.

(4) Where, by reason only of the fact that a company pursued an acceptable distribution policy in respect of any accounting period (“the earlier period”) earlier than the relevant accounting period, [F4 no apportionment under section 747(3) fell to be made in respect of the earlier period], sub-paragraph (2) above shall apply to any dividend required to be taken into account for the purpose of showing that the company pursued an acceptable distribution policy in respect of the earlier period only to the extent (if any) to which that dividend was not required to be taken into account for that purpose.

(5) The modifications of paragraph 2 above referred to in sub-paragraph (3)(b) above are that—

(a) the references in sub-paragraphs (4) and (5) to the accounting period in question are to be read as references to the accounting period for which the dividend or dividends are paid,

(b) the references in those sub-paragraphs to sub-paragraph (1)(d) are to be read as references to sub-paragraph (3)(b) above, and

(c) the reference in the definition of “X” in sub-paragraph (6) to [F5 net chargeable profits] is to be read as a reference to relevant profits.

(6) F6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(7) F6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(8) For the purposes of this paragraph—

[F7 (aa) a dividend is an excluded dividend if it is paid, in whole or in part, out of the total profits from which (in accordance with section 747(6)(a)) the chargeable profits for an excluded period are derived,]

(a) a period is an excluded period if it is an accounting period in respect of which [F8 an apportionment under section 747(3) falls to be made], and

(b) relevant profits for any accounting period are the profits which would be the relevant profits of that period for the purposes of section 799 if a dividend were actually paid for that period.

Textual Amendments

F1 Words in Sch. 25 para. 2A(1) repealed (with effect in accordance with s. 182 of the repealing Act) by Finance Act 1996 (c. 8), Sch. 36 para. 4(3)(a), Sch. 41 Pt. 5(34), Note

F2 Words in Sch. 25 para. 2A(2)(a)(b) substituted (with effect in accordance with Sch. 17 para. 37 of the amending Act) by Finance Act 1998 (c. 36), Sch. 17 para. 27(2)(a); S.I. 1998/3173, art. 2

F3 Words in Sch. 25 para. 2A(2)(a)(b) substituted (with effect in accordance with Sch. 17 para. 37 of the amending Act) by Finance Act 1998 (c. 36), Sch. 17 para. 27(2)(b); S.I. 1998/3173, art. 2

F4 Words in Sch. 25 para. 2A(4) substituted (with effect in accordance with Sch. 17 para. 37 of the amending Act) by Finance Act 1998 (c. 36), Sch. 17 para. 27(3); S.I. 1998/3173, art. 2

F5 Words in Sch. 25 para. 2A(5)(c) substituted (with effect in accordance with s. 182 of the amending Act) by Finance Act 1996 (c. 8), Sch. 36 para. 4(3)(b)

F6 Sch. 25 para. 2A(6)(7) repealed (with effect in accordance with s. 182 of the repealing Act) by Finance Act 1996 (c. 8), Sch. 36 para. 4(3)(c), Sch. 41 Pt. 5(34), Note

F7 Sch. 25 para. 2A(8)(aa) inserted (with effect in accordance with Sch. 17 para. 37 of the amending Act) by Finance Act 1998 (c. 36), Sch. 17 para. 27(4); S.I. 1998/3173, art. 2

F8 Words in Sch. 25 para. 2A(8)(a) substituted (with effect in accordance with Sch. 17 para. 37 of the amending Act) by Finance Act 1998 (c. 36), Sch. 17 para. 27(5); S.I. 1998/3173, art. 2