Finance Act 1987

46 ACT on redeemable preference shares

(1) In section 16 of the [1975 c. 22.] Oil Taxation Act 1975 (oil extraction activities etc.: restriction on setting advance corporation tax against profits therefrom) in subsection (2), after the words "United Kingdom" there shall be inserted "or, where subsection (2A) below applies, in respect of any distribution consisting of a dividend on a redeemable preference share".

(2) At the end of subsection (2) of the said section 16 there shall be inserted the following subsections—

“(2A) Subject to subsection (2B) below, this subsection applies in relation to the payment of a dividend on redeemable preference shares if the dividend is paid on or after 17th March 1987 and—

(a) at the time the shares are issued, or

(b) at the time the dividend is paid,

the company paying the dividend is under the control of a company resident in the United Kingdom, and in this subsection "control" shall be construed in accordance with section 302 of the Taxes Act.

(2B) Subsection (2A) above does not apply if or to the extent that it is shown that the proceeds of the issue of the redeemable preference shares—

(a) were used to meet expenditure incurred by the company issuing them in carrying on oil extraction activities or in acquiring oil rights otherwise than from a connected person; or

(b) were appropriated to meeting expenditure to be so incurred by that company;

and section 533 of the Taxes Act (connected persons) applies for the purposes of this subsection.”

(3) At the end of the said section 16 there shall be added the following subsections—

“(4) For the purposes of subsections (2) to (2B) above, shares in a company are redeemable preference shares either if they are so described in the terms of their issue or if, however they are described, they fulfil the condition in paragraph (a) below and either or both of the conditions in paragraphs (b) and (c) below—

(a) that, as against other shares in the company, they carry a preferential entitlement to a dividend or to any assets in a winding up or both;

(b) that, by virtue of the terms of their issue, the exercise of a right by any person or the existence of any arrangements, they are liable to be redeemed, cancelled or repaid, in whole or in part;

(c) that, by virtue of any material arrangements, the holder has a right to require another person to acquire the shares or is obliged in any circumstances to dispose of them or another person has a right or is in any circumstances obliged to acquire them.

(5) For the purposes of paragraph (a) of subsection (4) above, shares are to be treated as carrying a preferential entitlement to a dividend as against other shares if, by virtue of any arrangements, there are circumstances in which a minimum dividend will be payable on those shares but not on others; and for the purposes of paragraph (c) of that subsection arrangements relating to shares are material arrangements if the company which issued the shares or a company associated with that company is a party to the arrangements.”