Finance Act 1984

2 (1) Subject to sub-paragraph (2) below, a controlled foreign company pursues an acceptable distribution policy in respect of a particular accounting period if, and only if—

(a) a dividend which is not paid out of specified profits is paid for that accounting period or for some other period which, in whole or in part, falls within that accounting period : and

(b) the dividend is paid during, or not more than eighteen months after the expiry of, the period for which it is paid or at such later time as the Board may in any particular case allow; and

(c) the proportion of the dividend or, if there is more than one, of the aggregate of those dividends which is paid to persons resident in the United Kingdom represents at least 50 per cent. of the company's available profits for the accounting period referred to in paragraph (a) above or, where sub-paragraph (4) or sub-paragraph (5) below applies, of the appropriate portion of those profits ;

and for the purposes of this sub-paragraph a dividend which is not paid for a specified period shall be treated as paid for the period or periods the profits of which are, in relation to the dividend, the relevant profits for the purposes of section 506 of the Taxes Act (computation of underlying tax on dividends).

(2) In the case of a controlled foreign company which is not a trading company, sub-paragraph (1) above shall have effect with the substitution of 90 per cent. for 50 per cent.

(3) For the purposes of this Part of this Schedule, a dividend represents those profits of the controlled foreign company in question which in relation to that dividend are the relevant profits for the purposes of section 506 of the Taxes Act and, accordingly, where those profits are the profits of a period which falls partly within and partly outside an accounting period of that company, the necessary apportionment shall be made to determine what proportion of those profits is attributable to that accounting period.

(4) This sub-paragraph applies where—

(a) throughout the accounting period in question all the issued shares of the controlled foreign company are of a single class, and

(b) at the end of that accounting period some of those shares are held by persons resident outside the United Kingdom, and

(c) at no time during that accounting period does any person have an interest in the company other than an interest derived from the issued shares of the company,

and in a case where this sub-paragraph applies the appropriate portion for the purposes of sub-paragraph (1)(c) above is the fraction of which the denominator is the total number of the issued shares of the company at the end of the accounting period in question and, subject to sub-paragraph (8) below, the numerator is the number of those issued shares by virtue of which persons resident in the United Kingdom have interests in the company at that time.

(5) This sub-paragraph applies where—

(a) throughout the accounting period in question there are only two classes of issued shares of the controlled foreign company and, of those classes, one (in this paragraph referred to as " non-voting shares ") consists of non-voting fixed-rate preference shares and the other (in this paragraph referred to as " voting shares ") consists of shares which carry the right to vote in all circumstances at general meetings of the company, and

(b) at the end of that accounting period some of the issued shares of the company are held by persons resident outside the United Kingdom, and

(c) at no time during that accounting period does any person have an interest in the company other than an interest derived from non-voting shares or voting shares,

and in a case where this sub-paragraph applies the appropriate portion of the profits referred to in sub-paragraph (1)(c) above is the amount determined in accordance with sub-paragraph (6) below.

(6) The amount referred to in sub-paragraph (5) above is that given by the formula—

where—

• P is the amount of any dividend falling within paragraphs (a) and (b) of sub-paragraph (1) above which is paid in respect of the non-voting shares or, if there is more than one such dividend, of the aggregate of them;

• Q is, subject to sub-paragraph (8) below, the number of the nonvoting shares by virtue of which persons resident in the United Kingdom have interests in the company at the end of the accounting period in question;

• R is the total number at that time of the issued non-voting shares;

• X is the available profits for the accounting period in question ;

• Y is, subject to sub-paragraph (8) below, the number of voting shares by virtue of which persons resident in the United Kingdom have interests in the company at the end of that accounting period ; and

• Z is the total number at that time of the issued voting shares.

(7) For the purposes of sub-paragraph (5)(a) above, non-voting fixed-rate preference shares are shares—

(a) which are fixed-rate preference shares as defined in paragraph 1 of Schedule 12 to the [1973 c. 51.] Finance Act 1973 ; and

(b) which either carry no right to vote at a general meeting of the company or carry such a right which is contingent upon the non-payment of a dividend on the shares and which has not in fact become exercisable at any time prior to the payment of a dividend for the accounting period in question.

(8) In any case where the immediate interests held by persons resident in the United Kingdom who have indirect interests in a controlled foreign company at the end of a particular accounting period do not reflect the proportion of the shares or, as the case may be, shares of a particular class in the company by virtue of which they have those interests (as in a case where they hold, directly or indirectly, part of the shares in a company which itself holds, directly or indirectly, some or all of the shares in the controlled foreign company) the number of those shares shall be treated as reduced for the purposes of sub-paragraph (4) or, as the case may be, sub-paragraph (6) above to such number as may be appropriate having regard to—

(a) the immediate interests held by the persons resident in the United Kingdom; and

(b) any intermediate shareholdings between those interests and the shares in the controlled foreign company.

(9) The definition of " profits " in section 82(6)(b) of this Act does not apply to any reference in this paragraph to specified profits or to relevant profits for the purposes of section 506 of the Taxes Act