Income and Corporation Taxes Act 1988

247 Dividends etc. paid by one member of a group to another. U.K.

(1) M1 Where a company (“the receiving company”) receives dividends from another company (“the paying company”), both being bodies corporate resident in the United Kingdom, and the paying company is—

(a) a 51 per cent. subsidiary of the other or of a company so resident of which the other is a 51 per cent. subsidiary; or

[F1 (b) a trading or holding company which does not fall within subsection (1A) below and which is owned by a consortium the members of which include the receiving company,]

then, subject to the following provisions of this section, the receiving company and the paying company may jointly elect that this subsection shall apply to the dividends received from the paying company by the receiving company (“the election dividends”).

[F2 (1A) A company falls within this subsection if—

(a) it is a 75 per cent. subsidiary of any other company, or

(b) arrangements of any kind (whether in writing or not) are in existence by virtue of which it could become such a subsidiary.]

(2) So long as an election under subsection (1) above is in force the election dividends shall be excluded from sections 14(1) and 231 and are accordingly not included in references to franked payments made by the paying company or the franked investment income of the receiving company but are in the Corporation Tax Acts referred to as “group income” of the receiving company.

(3) Where an election under subsection (1) above is in force the paying company may by notice to the collector state that it does not wish the election to have effect in relation to any amount of dividends specified in the notice and the Corporation Tax Acts shall then have effect in relation to that amount as if there had been no such election.

(4) M2 Where a company (“the recipient company”) receives from another company (“the payer company”), both being bodies corporate resident in the United Kingdom, any payments which are [F3 deductible payments in relation to the payer company for the purposes of corporation tax] and either—

(a) the conditions in subsection (1)(a) or (b) above would be satisfied in relation to the companies if the payments were dividends, or

(b) the recipient company is a 51 per cent. subsidiary of the payer company,

then, subject to the following provisions of this section, the recipient company and the payer company may jointly elect that this subsection shall apply to any such payments received from the payer company by the recipient company, and so long as the election is in force those payments may be made without deduction of income tax and neither section 349 nor section 350 shall apply thereto.

[F4 (4A) The reference in subsection (4) above to a payment which is a deductible payment in relation to a company for the purposes of corporation tax is a reference to any payment which is—

(a) a charge on income of that company for those purposes; or

(b) a payment of interest in relation to which a debit falls to be brought into account in the case of that company for the purposes of Chapter II of Part IV of the Finance Act 1996 (loan relationships).]

(5) M3 Subsections (1) to (4) above shall not apply to dividends or other payments received by a company on any investments, if a profit on the sale of those investments would be treated as a trading receipt of that company, and shall not apply to a dividend in any case where, if those subsections do not apply to it, the receiving company will, or would but for section 235 or 237, be entitled by virtue of any exemption to claim payment of the tax credit to which it is entitled in respect of the dividend.

[F5 (5A) Subsections (1) to (3) above shall not apply to foreign income dividends; and “foreign income dividends” shall be construed in accordance with Chapter VA of Part VI.]

(6) M4 Where—

(a) the paying company purports by virtue of an election under subsection (1) above to pay any dividends without paying advance corporation tax, or

(b) the payer company purports by virtue of an election under subsection (4) above to make any payment without deduction of income tax,

and advance corporation tax ought to have been paid or income tax ought to have been deducted, as the case may be, the inspector may make such assessments, adjustments or set-offs as may be required for securing that the resulting liabilities to tax (including interest on unpaid tax) of the paying or payer company and the receiving or recipient company are, so far as possible, the same as they would have been if the advance corporation tax had been duly paid or the income tax had been duly deducted.

(7) Where tax assessed under subsection (6) above on the paying or payer company is not paid by that company before the expiry of the period of three months from the date on which that tax is payable, that tax shall, without prejudice to the right to recover it from that company, be recoverable from the receiving or recipient company.

(8) M5 In determining for the purposes of this section whether one body corporate is a 51 per cent. subsidiary of another, that other shall be treated as not being the owner—

(a) of any share capital which it owns directly or indirectly in a body corporate not resident in the United Kingdom, or

(b) of any share capital which it owns indirectly, and which is owned directly by a body corporate for which a profit on the sale of the shares would be a trading receipt.

[F6 (8A) Notwithstanding that at any time a company (“the subsidiary company”) is a 51 per cent. subsidiary of another company (“the parent company”) it shall not be treated at that time as such a subsidiary for the purposes of this section unless, additionally, at that time—

(a) the parent company would be beneficially entitled to more than 50 per cent. of any profits available for distribution to equity holders of the subsidiary company; and

(b) the parent company would be beneficially entitled to more than 50 per cent. of any assets of the subsidiary company available for distribution to its equity holders on a winding-up.]

(9) M6 For the purposes of this section—

(a) “trading or holding company” means a trading company or a company the business of which consists wholly or mainly in the holding of shares or securities of trading companies which are its 90 per cent. subsidiaries;

(b) “trading company” means a company whose business consists wholly or mainly of the carrying on of a trade or trades; and

[F7 (c) a company is owned by a consortium if 75 per cent. or more of the ordinary share capital of the company is beneficially owned between them by companies resident in the United Kingdom of which none—

(i) beneficially owns less than 5 per cent. of that capital,

(ii) would be beneficially entitled to less than 5 per cent. of any profits available for distribution to equity holders of the company, or

(iii) would be beneficially entitled to less than 5 per cent. of any assets of the company available for distribution to its equity holders on a winding-up,

and those companies are called the members of the consortium.]

[F7 (9A) Schedule 18 shall apply for the purposes of subsections (8A) and (9)(c) above as it applies for the purposes of section 413(7).]

(10) M7 References in this section to dividends or payments received by a company apply to any received by another person on behalf of or in trust for the company, but not to any received by the company on behalf of or in trust for another person, and references to “group income” shall be construed accordingly.

Textual Amendments

F1 1989 s.99(2)in relation to dividends etc. paid on or after 27July 1989.Previously

“(b) a trading or holding company owned by a consortium the members of which include the receiving company,”.

F2 1989 s.99(3).

F3 Words in s. 247(4) substituted (with effect in accordance with s. 105(1) of the amending act) by Finance Act 1996 (c. 8), Sch. 14 para. 13(1) (with Sch. 15)

F4 S. 247(4A) inserted (with effect in accordance with s. 105(1) of the amending act) by Finance Act 1996 (c. 8), Sch. 14 para. 13(2) (with Sch. 15)

F5 S. 247(5A) inserted (3.5.1994) by Finance Act 1994 (c. 9), Sch. 16 para. 13

F6 1989 s.99(4)in relation to dividends etc. paid on or after 27July 1989.

F7 1989 s.99(5)(6)in relation to dividends etc. paid on or after 27July 1989.Previously

“(c) a company is owned by a consortium if three-quarters or more of the ordinary share capital of the company is beneficially owned between them by companies resident in the United Kingdom of which none beneficially owns less than one-twentieth of that capital, and those companies are called the members of the consortium.”

in subs. (9)(c).

Marginal Citations

M1 Source—1970 s.256(1); 1972 Sch.15 Pt.II

M2 Source—1970 s.256(2)

M3 Source—1973 s.24

M4 Source—1970 s.256(4), (4A); 1972 Sch.15 Pt.II

M5 Source—1970 s.256(5)

M6 Source—1970 s.256(6)

M7 Source—1970 s.256(7)