Income and Corporation Taxes Act 1988

Close companies

10 (1) Where a deep discount security issued by a close company is at any time beneficially owned by—

(a) a participator in the company;

(b) an associate of such a participator; or

(c) a company of which such a participator has control,

paragraph 5(1) and (2) above shall apply to any linked income element with the addition, after the words “the accounting period”, of the words “in which the security is redeemed”.

(2) In sub-paragraph (1) above “linked income element” means the income element in respect of the security in question for any income period in which the security is at any time beneficially owned by a person mentioned in that sub-paragraph.

(3) Any amount which a close company is allowed, by virtue of paragraph 5(1) above, to deduct from its total profits for any accounting period shall be treated for the purposes of section 423 as if it were interest paid by the company in that period.

(4) In this paragraph—

• “associate” has the meaning given in section 417(3) and (4);

• “control” shall be construed in accordance with section 416(2) to (6); and

• “participator” means a person who is, in relation to a company, a participator for the purposes of Part XI (by virtue of section 417) other than a person who is a participator for those purposes by virtue only of his holding a deep discount security issued by the company.

(5) In determining whether a person who carries on a business of banking is a participator in a company for the purposes of this paragraph, there shall be disregarded any securities of the company acquired by him in the ordinary course of his business.