PART VI COMPANY DISTRIBUTIONS, TAX CREDITS ETC

CHAPTER III MATTERS WHICH ARE NOT DISTRIBUTIONS FOR THE PURPOSES OF THE CORPORATION TAX ACTS

Demergers

214 Chargeable payments connected with exempt distributions.

(1)

M1If within five years after the making of an exempt distribution there is a chargeable payment—

(a)

the amount or value of the payment shall be treated as income F1. . . ;

F2(ab)

that income shall be chargeable to tax;

(b)

F3. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(c)

the payment shall be regarded as a distribution for the purposes of F4section 1305(1) of CTA 2009 (denial of deduction for distributions); and

(d)

the payment shall not (if it otherwise would) be treated as a repayment of capital for the purposes of section 210 or 211.

F5(1A)

Income tax chargeable by virtue of subsection (1) shall be charged on the full amount or value of the payment made in the year of assessment; and the person liable for any tax so charged is the person receiving or entitled to the payment.

F6(1B)

So far as relating to corporation tax, the charge to tax under subsection (1) has effect as an application of the charge to corporation tax on income.

(2)

M2In this section “a chargeable payment” means any payment made otherwise than for bona fide commercial reasons or forming part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax (including F7stamp duty or stamp duty land tax), being a payment which—

(a)

a company concerned in an exempt distribution makes directly or indirectly to a member of that company or of any other company concerned in that distribution; and

(b)

is made in connection with, or with any transaction affecting, the shares in that or any such company; and

(c)

is not a distribution or exempt distribution or made to another company which belongs to the same group as the company making the payment.

(3)

Where a company concerned in an exempt distribution is an unquoted company subsection (2)(a) above shall have effect as if any reference to the making of a payment by, or to a member of, a company concerned in the exempt distribution included a reference to the making of a payment by or to any other person in pursuance of a scheme or arrangements made with the unquoted company or, if the unquoted company is—

(a)

under the control of five or fewer persons; and

(b)

not under the control of (and only of) a company which is not itself under the control of five or fewer persons,

with any of the persons mentioned in paragraph (a) above.

(4)

References in this section to a company concerned in an exempt distribution are to any relevant company and to any other company which was connected with any such company for the whole or any part of the period beginning with the exempt distribution and ending with the making of the payment which is in question under this section.

(5)

For the purposes of subsection (4) above and this subsection a company shall be deemed to have been connected in the period referred to in that subsection with each company to which a company connected with it was connected in that period.

(6)

References in this section to a payment include references to a transfer of money’s worth including the assumption of a liability.