Income and Corporation Taxes Act 1970

233 Matters to be treated as distributions

(1) The following provisions in this Part of this Act, together with sections 284 and 285 of this Act, shall subject to section 248(8) of this Act and to any other express exceptions, have effect with respect to the meaning in the Corporation Tax Acts of "distribution", and for determining the persons to whom certain distributions are to be treated as made, but references in the Corporation Tax Acts to distributions of a company shall not apply to distributions made in respect of share capital in a winding-up.

(2) In relation to any company " distribution " means—

(a) any dividend paid by the company, including a capital dividend;

(b) any other distribution out of assets of the company (whether in cash or otherwise) in respect of shares in the company, except so much of the distribution, if any, as represents a repayment of capital on the shares or is, when it is made, equal in amount or value to any new consideration given for the distribution;

(c) any redeemable share capital or any security issued by the company in respect of shares in the company otherwise than wholly for new consideration, or such part of any redeemable share capital or any security so issued as is not properly referable to new consideration ;

(d) any interest or other distribution out of assets of the company in respect of securities of the company (except so much, if any, of any such distribution as represents the principal thereby secured), where the securities are either—

(i) securities issued as mentioned in paragraph (c) above, but excluding securities issued before 6th April 1965 ; or

(ii) securities convertible directly or indirectly into shares in the company and not securities quoted on a recognised stock exchange nor issued on terms which are reasonably comparable with the terms of issue of securities so quoted ; or

(iii) securities under which the consideration given by the company for the use of the principal secured is to any extent dependent on the results of the company's business or any part of it, or under which the consideration so given represents more than a reasonable commercial return for the use of that principal; or

(iv) securities issued by the company and held by a company not resident in the United Kingdom, where the former is a 75 per cent. subsidiary of the latter or both are 75 per cent. subsidiaries of a third company; or

(v) securities which are connected with shares in the company, where " connected with " means that in consequence of the nature of the rights attaching to the securities or shares, and in particular of any terms or conditions attaching to the right to transfer the shares or securities, it is necessary or advantageous for a person who has, or disposes of or acquires, any of the securities also to have, or to dispose of or to acquire, a proportionate holding of the shares;

(e) any such amount as is required to be treated as a distribution by subsection (3) below, or by section 234 below.

(3) Where on a transfer of assets or liabilities by a company to its members or to a company by its members, the amount or value of the benefit received by a member (taken according to its market value) exceeds the amount or value (so taken) of any new consideration given by him, the company shall be treated as making a distribution to him of an amount equal to the difference:

Provided that, where the company and the member receiving the benefit are both resident in the United Kingdom and either the former is a subsidiary of the latter or both are subsidiaries of a third company also so resident, the said amount shall not be treated as a distribution.

(4) The question whether one body corporate is a subsidiary of another for the purpose of subsection (3) above shall be determined as a question whether it is a 51 per cent. subsidiary of that other, except that that other shall be treated as not being the owner—

(a) of any share capital which it owns directly in a body corporate if a profit on a sale of the shares would be treated as a trading receipt of its trade; 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; or

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