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Corporation Tax Act 2010, Cross Heading: Distributions to certain shareholders is up to date with all changes known to be in force on or before 10 July 2024. There are changes that may be brought into force at a future date. Changes that have been made appear in the content and are referenced with annotations.
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(1)Subsection (3) applies if—
(a)a distribution is made to or in respect of a holder of excessive rights [F1that is not an excluded holder (both as] defined by section 553), and
(b)the distributor has not taken reasonable steps to prevent a distribution to or in respect of such a person from being made.
(2)“The distributor” means—
(a)in the case of a group UK REIT, the principal company of the group, and
(b)in the case of a company UK REIT, the company.
(3)The distributor is treated as receiving an amount of income calculated in accordance with section 552 (“the section 552 amount”).
(4)The section 552 amount is chargeable to corporation tax under the charge to corporation tax on income.
(5)It is treated—
(a)as arising in the accounting period in which the distribution was made, and
(b)as profits of residual business of the distributor.
[F2(6)Accordingly, it is charged to corporation tax at the main rate of corporation tax.]
F3(6). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(7)No loss, deficit, expense or allowance may be set off against the section 552 amount.
Textual Amendments
F1Words in s. 551(1)(a) substituted (22.2.2024) by Finance Act 2024 (c. 3), Sch. 7 para. 10(1)
F2S. 551(6) inserted (with effect in accordance with Sch. 1 para. 34 of the amending Act) by Finance Act 2021 (c. 26), Sch. 1 para. 25
F3S. 551(6) omitted (with effect in accordance with Sch. 1 para. 22 of the amending Act) by virtue of Finance Act 2014 (c. 26), Sch. 1 para. 14(5)
(1)For the purposes of section 551, the section 552 amount is calculated by taking 3 steps.
(2)Step 1: find the amount given by—
where—
DO is—
in the case of a group UK REIT, the amount of the group's UK profits (as defined by section 530(2)) distributed in respect of ordinary shares in the principal company, and
in the case of a company UK REIT, the amount of profits of property rental business of the company distributed in respect of ordinary shares in the company,
SO is—
the percentage of rights in respect of those shares held by the holder of excessive rights, or
if less, the percentage of rights held by the recipient of the distribution,
in respect of which the distribution is made,
BRT is the basic rate of income tax in force at the time the distribution is made, and
MCT is the [F4main rate of corporation tax] .
(3)Step 2: find the amount given by—
where—
DP is—
in the case of a group UK REIT, the amount of the group's UK profits (as defined by section 530(2)) distributed in respect of preference shares in the principal company, and
in the case of a company UK REIT, the amount of profits of property rental business of the company distributed in respect of preference shares in the company,
SP is—
the percentage of rights in respect of those shares held by the holder of excessive rights, or
if less, the percentage of rights held by the recipient of the distribution,
in respect of which the distribution is made, and
BRT and MCT have the same meaning as they have in subsection (2).
(4)Step 3: add together the amounts given by steps 1 and 2.
That amount is the section 552 amount.
Textual Amendments
F4Words in s. 552(2) substituted (with effect in accordance with Sch. 1 para. 22 of the amending Act) by Finance Act 2014 (c. 26), Sch. 1 para. 14(6)
(1)For the purposes of section 551 “holder of excessive rights” means a person who meets—
(a)condition A, and
(b)either condition B or C.
F6...
(2)Condition A is that the person—
(a)is beneficially entitled (directly or indirectly) to at least 10% of the [F7distributions] paid by the distributor,
(b)is beneficially entitled (directly or indirectly) to at least 10% of the distributor's share capital, or
(c)controls (directly or indirectly) at least 10% of the voting rights in the distributor.
(3)Condition B is that the person is a company.
(4)Condition C is that—
(a)the person is treated as a body corporate for tax purposes—
(i)in accordance with the law of a territory outside the United Kingdom with which arrangements have been entered into to provide relief from double taxation, or
(ii)in accordance with an international agreement containing such arrangements, and
(b)those arrangements have effect by virtue of an Order in Council under section 2 of TIOPA 2010.
[F8(4A)For the purposes of section 551, a holder of excessive rights is an “excluded holder” if—
(a)in accordance with double taxation arrangements (within the meaning of section 2(4) of TIOPA 2010), the holder is taxed at a particular rate, or not taxed at all, on distributions from a UK REIT, unless the sole reason for that treatment is the size of the holder’s interest in the UK REIT, or
(b)the holder is a person to whom a payment of a distribution must be made without deduction of income tax in accordance with regulation 7 of the Real Estate Investment Trusts (Assessment and Recovery of Tax) Regulations 2006 (S.I. 2006/2867) (gross payment of distributions).]
(5)In subsection (2) “the distributor” has the meaning given by section 551(2).
Textual Amendments
F5Words in s. 553 heading inserted (22.2.2024) by Finance Act 2024 (c. 3), Sch. 7 para. 10(2)(a)
F6Words in s. 553(1) omitted (22.2.2024) by virtue of Finance Act 2024 (c. 3), Sch. 7 para. 10(2)(b)
F7Word in s. 553(2)(a) substituted (with effect in accordance with Sch. 4 para. 12 of the amending Act) by Finance (No. 3) Act 2010 (c. 33), Sch. 4 para. 7
F8S. 553(4A) inserted (22.2.2024) by Finance Act 2024 (c. 3), Sch. 7 para. 10(2)(c)
(1)The Treasury may by regulations make provision of the kind mentioned in subsection (2) for cases where—
(a)the principal company of a group UK REIT, or
(b)a company UK REIT,
makes a distribution to or in respect of a holder of excessive rights (as defined by section 553).
(2)The provision referred to in subsection (1) is—
(a)provision that a charge does not arise, or is reduced, if the company takes or does not take action of a specified kind;
(b)a requirement for the company to provide the Commissioners for Her Majesty's Revenue and Customs with specified information relating to the distribution and the persons to or in respect of whom it is made.
(1)In this Chapter, references (however expressed) to a distribution include share capital issued in lieu of a cash dividend.
(2)Section 1051(2) to (4) (meaning of “share capital issued in lieu of a cash dividend”) applies for the purposes of this section as it applies for the purposes of section 1049(1)(a).]
Textual Amendments
F9S. 554A inserted (with effect in accordance with Sch. 4 para. 12 of the amending Act) by Finance (No. 3) Act 2010 (c. 33), Sch. 4 para. 8
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