Corporation Tax Act 2009 (c. 4)

[F1 Part 9A U.K. Company distributions

Textual Amendments

F1 Pt. 9A inserted (with effect in accordance with Sch. 14 para. 31 of the amending Act) by Finance Act 2009 (c. 10), Sch. 14 para. 1 (with Sch. 14 para. 32)

Modifications etc. (not altering text)

C1 Pt. 9A modified (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), ss. 787, 795, 1184(1) (with Sch. 2)

Chapter 3 U.K. Exemption of distributions received by companies that are not small

931D Exemption from charge to tax U.K.

A dividend or other distribution of a company that is received in an accounting period of the recipient in which the recipient is not a small company is exempt if—

(a) the distribution falls into an exempt class (see sections 931E to 931Q),

(b) the distribution is not of a kind mentioned in [F2 paragraph E or F in section 1000(1) of CTA 2010] (certain non-dividend distributions), and

(c) no deduction is allowed to a resident of any territory outside the United Kingdom under the law of that territory in respect of the distribution.

Textual Amendments

F2 Words in s. 931D(b) substituted (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 660 (with Sch. 2)

Exempt classes U.K.

931E Distributions from controlled companies U.K.

(1) A dividend or other distribution falls into an exempt class if condition A or B is met.

(2) Condition A is that the recipient controls the payer.

(3) Condition B is that—

(a) the recipient is one of two persons who, taken together, control the payer,

(b) the recipient is a person in whose case the 40% test in section 755D(3) of ICTA is satisfied, and

(c) the other is a person in whose case the 40% test in section 755D(4) of ICTA is satisfied.

(4) Section 755D of ICTA (meaning of “control” etc) applies for the purposes of this section.

(5) As so applied, that section has effect with the omission of subsection (6)(c) and (d).

931F Distributions in respect of non-redeemable ordinary shares U.K.

A dividend or other distribution falls into an exempt class if it is made in respect of a share that—

(a) is an ordinary share, and

(b) is not redeemable.

931G Distributions in respect of portfolio holdings U.K.

(1) A dividend or other distribution falls into an exempt class if the recipient—

(a) holds less than 10% of the issued share capital of the payer,

(b) is entitled to less than 10% of the profits available for distribution to holders of the issued share capital of the payer, and

(c) would be entitled on a winding up to less than 10% of the assets of the company available for distribution to holders of the issued share capital of the payer.

(2) Where the payer has more than one class of share, references in subsection (1) to the issued share capital of the payer are to issued share capital of the same class as the share in respect of which the distribution is made.

(3) For the purposes of this section shares are not of the same class if the amounts paid up on them (otherwise than by way of premium) are different.

931H [F3 Distributions] derived from transactions not designed to reduce tax U.K.

(1) A dividend [F4 or other distribution] falls into an exempt class if it is [F5 made ] in respect of relevant profits.

(2) In this section “relevant profits” means any profits available for distribution at the time that the [F6 distribution is made], other than profits that reflect the results of a transaction, or of one or more of a series of transactions, where—

(a) the transaction or series of transactions achieve a reduction (other than a negligible reduction) in United Kingdom tax, and

(b) the purpose or one of the main purposes of that transaction or series of transactions is to achieve that reduction.

(3) A [F7 distribution] that falls into an exempt class otherwise than by virtue of this section is for the purposes of this section treated, so far as possible, as [F8 made] in respect of relevant profits.

(4) Any other [F9 distribution] is for the purposes of this section treated, so far as possible, as [F10 made] in respect of profits other than relevant profits.

(5) Where by virtue of subsection (4) part of a [F11 distribution] is treated as [F12 made] in respect of relevant profits and part is treated as [F12 made] in respect of profits other than relevant profits, the two parts are treated for the purposes of this Part and [F13 Part 2 of TIOPA 2010] (double taxation relief) as separate [F14 distributions].

Textual Amendments

F3 Word in s. 931H heading substituted (with effect in accordance with Sch. 3 paras. 5, 7 of the amending Act) by Finance (No. 3) Act 2010 (c. 33), Sch. 3 para. 3(3)(a)

F4 Words in s. 931H(1) inserted (with effect in accordance with Sch. 3 paras. 5, 7 of the amending Act) by Finance (No. 3) Act 2010 (c. 33), Sch. 3 para. 3(3)(b)(i)

F5 Word in s. 931H(1) substituted (with effect in accordance with Sch. 3 paras. 5, 7 of the amending Act) by Finance (No. 3) Act 2010 (c. 33), Sch. 3 para. 3(3)(b)(ii)

F6 Words in s. 931H(2) substituted (with effect in accordance with Sch. 3 paras. 5, 7 of the amending Act) by Finance (No. 3) Act 2010 (c. 33), Sch. 3 para. 3(3)(c)

F7 Word in s. 931H(3) substituted (with effect in accordance with Sch. 3 paras. 5, 7 of the amending Act) by Finance (No. 3) Act 2010 (c. 33), Sch. 3 para. 3(3)(d)(i)

F8 Word in s. 931H(3) substituted (with effect in accordance with Sch. 3 paras. 5, 7 of the amending Act) by Finance (No. 3) Act 2010 (c. 33), Sch. 3 para. 3(3)(d)(ii)

F9 Word in s. 931H(4) substituted (with effect in accordance with Sch. 3 paras. 5, 7 of the amending Act) by Finance (No. 3) Act 2010 (c. 33), Sch. 3 para. 3(3)(d)(i)

F10 Word in s. 931H(4) substituted (with effect in accordance with Sch. 3 paras. 5, 7 of the amending Act) by Finance (No. 3) Act 2010 (c. 33), Sch. 3 para. 3(3)(d)(ii)

F11 Word in s. 931H(5) substituted (with effect in accordance with Sch. 3 paras. 5, 7 of the amending Act) by Finance (No. 3) Act 2010 (c. 33), Sch. 3 para. 3(3)(e)(i)

F12 Word in s. 931H(5) substituted (with effect in accordance with Sch. 3 paras. 5, 7 of the amending Act) by Finance (No. 3) Act 2010 (c. 33), Sch. 3 para. 3(3)(e)(ii)

F13 Words in s. 931H(5) substituted (with effect in accordance with s. 381(1) of the amending Act) by Taxation (International and Other Provisions) Act 2010 (c. 8), s. 381(1), Sch. 8 para. 99 (with Sch. 9 paras. 1-9, 22)

F14 Word in s. 931H(5) substituted (with effect in accordance with Sch. 3 paras. 5, 7 of the amending Act) by Finance (No. 3) Act 2010 (c. 33), Sch. 3 para. 3(3)(e)(iii)

931I Dividends in respect of shares accounted for as liabilities U.K.

A dividend falls into an exempt class if the dividend is paid in respect of a share to which, at the time of the payment, section 521C (shares accounted for as liabilities treated as loan relationships) does not apply only because the condition in subsection (1)(f) of that section is not met.

Exempt classes: anti-avoidance U.K.

931J Schemes involving manipulation of controlled company rules U.K.

(1) This section applies to a dividend that would, apart from this section, fall into an exempt class by virtue of section 931E.

(2) The dividend does not fall into an exempt class by virtue of that section if—

(a) the dividend is paid as part of a scheme the main purpose, or one of the main purposes, of which is to secure that dividends of the payer received by the recipient fall into an exempt class by virtue of that section, and

(b) the following condition is met.

(3) The condition is that the dividend is paid in respect of pre-control profits.

(4) A dividend that falls into an exempt class otherwise than by virtue of section 931E is for the purposes of this section treated, so far as possible, as paid in respect of profits other than pre-control profits.

(5) Any other dividend is for the purposes of this section treated, so far as possible, as paid in respect of pre-control profits.

(6) In this section “pre-control profits” means any profits available for distribution at the time the dividend is paid that arose at a time when neither condition A nor condition B in section 931E was met.

(7) Where—

(a) the condition in subsection (2)(a) is met, and

(b) by virtue of subsection (5) part of a dividend is treated as paid in respect of pre-control profits and part is treated as paid in respect of profits other than pre-control profits,

the two parts are treated for the purposes of this Part and [F15 Part 2 of TIOPA 2010] (double taxation relief) as separate dividends.

Textual Amendments

F15 Words in s. 931J(7) substituted (with effect in accordance with s. 381(1) of the amending Act) by Taxation (International and Other Provisions) Act 2010 (c. 8), s. 381(1), Sch. 8 para. 100 (with Sch. 9 paras. 1-9, 22)

931K Schemes involving quasi-preference or quasi-redeemable shares U.K.

(1) This section applies to a dividend or other distribution that would, apart from this section, fall into an exempt class by virtue of section 931F.

(2) The distribution does not fall into an exempt class by virtue of that section if—

(a) the distribution is made as part of a scheme the main purpose, or one of the main purposes, of which is to secure that distributions of the payer received by the recipient fall into an exempt class by virtue of that section, and

(b) the following condition is met.

(3) The condition is that the distribution is made in respect of a share that—

(a) would not be an ordinary share, or

(b) would be redeemable,

were the rights under the scheme of each relevant person to be attached to the share.

931L Schemes involving manipulation of portfolio holdings rule U.K.

(1) This section applies to a dividend or other distribution that would, apart from this section, fall into an exempt class by virtue of section 931G.

(2) The distribution does not fall into an exempt class by virtue of that section if—

(a) the distribution is made as part of a scheme the main purpose, or one of the main purposes, of which is to secure that distributions of the payer received by the recipient fall into an exempt class by virtue of that section, and

(b) the following condition is met.

(3) The condition is that the distribution would not fall into an exempt class by virtue of section 931G if the reference in subsection (1) of that section to the recipient were to all relevant persons taken together.

931M Schemes in the nature of loan relationships U.K.

(1) This section applies to a dividend or other distribution that does not fall into an exempt class by virtue of section 931E but would, apart from this section, fall into an exempt class otherwise than by virtue of that section.

(2) The distribution does not fall into an exempt class if—

(a) the distribution is made as part of a tax advantage scheme, and

(b) conditions A to C are met.

(3) Condition A is that the distribution constitutes part of a return in relation to an amount that is produced by the scheme for a relevant person, or two or more relevant persons taken together.

(4) Condition B is that the return is economically equivalent to interest.

(5) For this purpose a return produced for a person or persons by a scheme in relation to an amount is “economically equivalent to interest” if (and only if)—

(a) it is reasonable to assume that it is a return by reference to the time value of that amount of money,

(b) it is at a rate reasonably comparable to a commercial rate of interest, and

(c) at the time the scheme is entered into by the person or any of the persons, there is no practical likelihood that it will cease to be produced in accordance with the scheme.

(6) Condition C is that there is a connection between the payer and the recipient for the accounting period of the payer in which the distribution is made.

(7) Section 466 (companies connected for an accounting period) applies for the purposes of subsection (6) as if that subsection were a provision of Part 5 to which that section is applied (but this does not affect the application of section 1316(1) (meaning of connected persons) for the purposes of any other provision of this Part).

931N Schemes involving distributions for which deductions are given U.K.

(1) This section applies to a dividend or other distribution that would, apart from this section, fall into an exempt class.

(2) The distribution does not fall into an exempt class if—

(a) the distribution is made as part of a tax advantage scheme, and

(b) the following condition is met.

(3) The condition is that a deduction is allowed to a resident of any territory outside the United Kingdom under the law of that territory in respect of an amount determined by reference to the distribution.

931O Schemes involving payments for distributions U.K.

(1) This section applies to a dividend or other distribution that would, apart from this section, fall into an exempt class.

(2) The distribution does not fall into an exempt class if—

(a) the distribution is made as part of a tax advantage scheme, and

(b) the following condition is met.

(3) The condition is that the scheme includes a payment, or the giving up of a right to income, by a relevant person where—

(a) the payment is made, or the right to income is given up, under a liability incurred for consideration in money or money's worth all or any of which consists of, or of the right to receive, the distribution, and

(b) in the case of a payment, the conditions in subsections (2) and (4) to (7) of section 1301 (restriction of deductions for annual payments) apply to the payment.

931P Schemes involving payments not on arm's length terms U.K.

(1) This section applies to a dividend or other distribution that would, apart from this section, fall into an exempt class.

(2) The distribution does not fall into an exempt class if—

(a) the distribution is made as part of a tax advantage scheme, and

(b) the following condition is met.

(3) The condition is that—

(a) the scheme includes a payment or receipt, or the giving up of a right to income, by a relevant person in respect of goods or services, and

(b) the amount of the payment or receipt, or the amount of income given up, differs from the amount the relevant person would have paid, received or given up in respect of those goods or services had the distribution not been made.

(4) This section does not apply to a scheme that consists of a transaction or series of transactions in relation to which [F16 Part 4 of TIOPA 2010] (provision not at arms length between parties under common control) applies.

Textual Amendments

F16 Words in s. 931P(4) substituted (with effect in accordance with s. 381(1) of the amending Act) by Taxation (International and Other Provisions) Act 2010 (c. 8), s. 381(1), Sch. 8 para. 148 (with Sch. 9 paras. 1-9, 22)

931Q Schemes involving diversion of trade income U.K.

(1) This section applies to a dividend or other distribution that would, apart from this section, fall into an exempt class.

(2) The distribution does not fall into an exempt class if—

(a) the distribution is made as part of a scheme entered into by the recipient and another relevant person (“C”),

(b) if C had received the distribution, it would be reasonable to assume that the distribution would be dealt with under Part 3 (trading income), and

(c) the main purpose, or one of the main purposes, of the scheme is to produce the result that the distribution is dealt with under this Part because it is received by the recipient.

(3) For the purposes of subsection (2)(b) it is to be assumed that, in the case of any relevant transaction to which a relevant person other than C is a party, C were that party to that transaction.

(4) In this section “relevant transaction” means any of the transactions giving rise to the distribution.]