Corporation Tax Act 2009

Yn ddilys o 01/04/2009

Non-qualifying shares U.K.

526 Non-qualifying shares U.K.

(1) This section applies to the share held by the investing company if—

(a) it is a non-qualifying share (see subsection (2)),

(b) it does not fall to be treated for the accounting period in question as if it were rights under a creditor relationship of the company because of section 490 (holdings in OEICs, unit trusts and offshore funds treated as creditor relationship rights), and

(c) section 130 (traders receiving distributions etc) does not apply in relation to distributions in respect of the share.

(2) A share is a non-qualifying share for the purposes of this section if one or more of the following conditions is met—

(a) the increasing value condition,

(b) the redemption return condition, and

(c) the associated transactions condition.

(3) In this Chapter—

• “the increasing value condition” has the meaning given in section 527,

• “the redemption return condition” has the meaning given in section 529, and

• “the associated transactions condition” has the meaning given in section 532.

527 The increasing value condition U.K.

(1) The increasing value condition is that the assets of the issuing company are of such a nature that the fair value of the share—

(a) is likely to increase at a rate which represents a return on an investment of money at a commercial rate of interest, and

(b) is unlikely to deviate to a substantial extent from that rate of increase.

(2) Fluctuations in value resulting from changes in exchange rates are ignored for the purposes of subsection (1).

(3) The increasing value condition is not met if—

(a) the whole of the assets of the issuing company are income-producing (see subsection (4)), or

(b) substantially the whole of them are income-producing on the basis of a calculation of their fair value.

(4) The assets which are “income-producing” for the purposes of this section are—

(a) any share to which section 524 applies,

(b) any share as respects which the increasing value condition is met or would be met apart from subsection (3),

(c) any share as respects which the condition in section 529(1)(b) is met,

(d) any share as respects which the associated transactions condition is met,

(e) any asset of a description specified in any paragraph of section 494(1) (meaning of “qualifying investments”),

(f) rights under a creditor repo within the meaning of section 543,

(g) any share in a company—

(i) the whole of whose assets are assets within paragraphs (a) to (f), or

(ii) substantially the whole of whose assets are such assets on the basis of a calculation of their fair value.

(5) For the purposes of subsection (1), it is assumed that no transaction (or series of transactions) intended to prevent either of the conditions in subsection (1) from being met will be or has been entered into.

528 Regulations about income-producing assets U.K.

(1) The Treasury may by regulations amend section 527 for the purpose of adding to the assets which are income-producing for the purposes of that section.

(2) The regulations may provide that they have effect in relation to accounting periods ending on or after the day on which the regulations come into force.

529 The redemption return condition U.K.

(1) The redemption return condition is that the share—

(a) is redeemable (see subsection (2)),

(b) is designed to produce a return which equates, in substance, to the return on an investment of money at a commercial rate of interest, and

(c) is not an excepted share (see section 530).

(2) For the purposes of this section, a share is regarded as redeemable only if it meets condition A, B or C.

(3) Condition A is that it is redeemable as a result of its terms of issue (or any collateral arrangements)—

(a) requiring redemption,

(b) entitling the holder to require redemption, or

(c) entitling the issuing company to redeem.

(4) Condition B is that there are arrangements which will or might entitle the investing company to qualifying redemption amounts.

(5) In subsection (4) “qualifying redemption amounts” means amounts which, when taken together, are the same, or substantially the same, as an amount which might be payable on the redemption of the share.

(6) Condition C is that it is reasonable to assume that the investing company will or might become entitled to qualifying redemption amounts.

(7) For the purposes of this section—

(a) “arrangements” includes any agreement or understanding, and

(b) it does not matter whether or not the agreement or understanding—

(i) is legally enforceable, or

(ii) forms part of the share's terms of issue.

530 The redemption return condition: excepted shares U.K.

(1) A share is an “excepted share” for the purposes of section 529 if—

(a) it is a qualifying publicly issued share (see subsections (2) and (3)),

(b) it is a share which mirrors a public issue (see subsections (4) and (5)), or

(c) the investing company's purpose in acquiring the share is not an unallowable purpose (see section 531).

(2) A share is a “qualifying publicly issued share” for the purposes of this section if—

(a) it was issued by a company as part of an issue of shares to persons not connected with the company, and

(b) less than 10% of the shares in that issue are held by the investing company or persons connected with it.

(3) But a share is not a qualifying publicly issued share for those purposes if the investing company's purpose in acquiring the share is an unallowable purpose because of section 531(1)(a).

(4) The first case where shares (“the mirroring shares”) mirror a public issue is where—

(a) a company (“company A”) issues shares (“the public issue”) to persons not connected with the company,

(b) within 7 days of that issue, one or more other companies (“companies BB”) issue the mirroring shares to company A on the same terms as the public issue or substantially the same terms,

(c) company A and companies BB are associated companies (see subsection (6)), and

(d) the total nominal value of the mirroring shares does not exceed the nominal value of the public issue.

(5) The second case where shares (“the second-level mirroring shares”) mirror a public issue is where, in the circumstances of the first case—

(a) within 7 days of the public issue, one or more other companies (companies CC) issue the second-level mirroring shares to one or more of companies BB on the same terms as the public issue or substantially the same terms,

(b) company A, companies BB and companies CC are associated companies, and

(c) the total nominal value of the second-level mirroring shares does not exceed the nominal value of the public issue.

(6) For the purposes of this section companies are associated companies if they are members of the same group of companies for the purposes of Chapter 4 of Part 10 of ICTA (group relief) (see section 413(3)(a) of that Act).

531 The redemption return condition: unallowable purposes U.K.

(1) For the purposes of section 530, a share is acquired by the investing company for an unallowable purpose if—

(a) the purpose for which the company holds the share or one of the main purposes is to circumvent section 130 (traders receiving distributions etc), or

(b) the purpose for which it does so or one of the main purposes is any other purpose which is a tax avoidance purpose (see subsection (4)).

(2) The condition in subsection (1)(a) is taken to be met, in particular, if the investing company was an associated company of a bank at the time when the investing company acquired the share.

(3) But subsection (2) does not apply if the investing company shows that—

(a) immediately before that time, some or all of its business consisted of making and holding investments, and

(b) it acquired the share in the ordinary course of that business.

(4) In this section—

• “bank” has the meaning given by section 840A of ICTA, and

• “tax avoidance purpose”, in relation to a company, means any purpose which consists of securing a tax advantage (whether for the company or another person).

(5) Section 530(6) (when companies are associated) applies for the purposes of this section as it applies for the purposes of section 530.

532 The associated transactions condition U.K.

(1) The associated transactions condition is that there is a scheme or arrangement (whether or not the investing company is a party to it) under which the share and one or more associated transactions are together designed to produce a return for any one or more persons which equates, in substance, to the return on an investment of money at a commercial rate of interest.

(2) But the associated transactions condition is not met if—

(a) the increasing value condition is met as respects the share or would be apart from section 527(3) (exception for income-producing assets), or

(b) the redemption return condition is met as respects the share or would be apart from section 529(1)(c) (excepted shares).

(3) In this section “associated transaction” includes—

(a) entering into or acquiring rights or liabilities under any of the kinds of contract specified in subsection (4), and

(b) acquiring rights or receiving benefits in respect of other shares.

(4) The contracts referred to in subsection (3) are—

(a) a derivative contract,

(b) a contract which would be a derivative contract, apart from section 591(3),

(c) a contract having a similar effect to a contract within paragraph (a) or (b), or

(d) a contract of insurance or indemnity.

533 Power to change conditions for non-qualifying shares U.K.

(1) The Treasury may by regulations amend this Chapter so as to add, vary or remove conditions to be met for the purposes of section 526(2) (non-qualifying shares).

(2) If the Treasury add, vary or remove such a condition, they may also by regulations amend any of the enactments specified in subsection (3) so as to make provision for or in connection with taxation in the case of any asset or transaction which is or was mentioned in the condition.

(3) The enactments are—

(a) Part 5,

(b) this Part,

(c) Part 7 (derivative contracts),

(d) Chapters 1 to 3 of Part 6 of ICTA (company distributions), and

(e) Part 18 of ICTA (double taxation relief).

(4) Regulations under this section may make—

(a) different provision for different cases, and

(b) incidental, supplemental, consequential and transitional provision and savings.

(5) Regulations made under subsection (4)(b) may, in particular, include provision amending any enactment or any instrument made under an enactment.