(1)This section applies—
(a)where there is a disposal by a company of—
(i)a holding of redeemable preference shares of another company, or
(ii)a holding of shares, other than redeemable preference shares, of another company which has at all times consisted entirely of, or has at any time included, linked company shares, or
(b)where—
(i)there is a disposal by a company of a holding of shares of another company which is not a holding falling within paragraph (a) above,
(ii)the holding constituted or formed part of the new holding received by the company making the disposal on a reorganisation, and
(iii)but for section 127 that reorganisation (or in a case where the holding disposed of derives, in whole or in part, from assets which were original shares in relation to an earlier reorganisation, that reorganisation or any such earlier reorganisation) would have involved a disposal in relation to which section 182(1) would have applied or this section would have applied by virtue of paragraph (a) above,
if the 2 companies are linked companies immediately before the disposal.
(2)Where this section applies, any indexation allowance which, apart from this section, would be due on the disposal shall be reduced by such amount as appears to the inspector, or on appeal the Commissioners concerned, to be just and reasonable.
(3)For the purposes of this section, shares of a company are linked company shares where—
(a)immediately after their acquisition by the company making the disposal the 2 companies were linked companies,
(b)their acquisition by the company making the disposal was wholly or substantially financed by one or more linked company loans or linked company funded subscriptions (or by a combination of such loans and subscriptions), and
(c)the sole or main benefit which might have been expected to accrue from that acquisition was the obtaining of an indexation allowance on a disposal of the shares.
(4)In subsection (3) above—
“linked company loan” means a loan made to the company making the disposal by another company where immediately after the acquisition of the shares by the company making the disposal the 2 companies were linked companies, and
“linked company funded subscription” means a subscription for shares in the company making the disposal by another company where—
immediately after the acquisition of the shares by the company making the disposal those 2 companies were linked companies, and
the subscription was wholly or substantially financed, either directly or indirectly, by one or more linked company subscription-financing loans.
(5)In subsection (4) above “linked company subscription-financing loan” means a loan made by a company to the subscribing company or any other company where immediately after the acquisition of the shares by the company making the disposal—
(a)the company making the loan, and
(b)the subscribing company, and
(c)where the company to which the loan was made was not the subscribing company, that company,
were linked companies.