Part 2 – Other amendments
59.Paragraph 3 includes exempt foreign distributions within franked investment income (FII) for the purpose of calculating entitlement to small companies’ relief. This treatment is consistent with that of UK distributions.
60.Paragraph 4 replaces the current exemption from corporation tax for foreign distributions received by charities and extends it to include all company distributions within Part 9A (i.e. all company distributions that are not of a capital nature). This replaces the exemption previously provided by section 1285 of CTA for UK distributions and by section 505(1)(iib) of ICTA for foreign distributions, which is repealed under sub-paragraph (3).
61.Paragraph 5 makes minor consequential amendments to some insurance anti-avoidance legislation.
62.Paragraph 6 has the effect that entitlement to a tax credit for the purposes of section 231 of ICTA applies whether or not the company making the qualifying distribution is resident in the United Kingdom.
63.Paragraphs 7 to 10 make changes to the rules giving underlying tax credit in respect of foreign dividend income. These rules are not necessary for any exempt foreign dividend and so are being simplified by the removal of the onshore pooling rules (sections 806A to 806K of ICTA).
64.Section 799 ICTA is amended in a way that affects the specification of profits for the purpose of calculating credit for underlying tax. In a case where a dividend is taxable because it is paid in respect of profits that are not “relevant profits” for the purposes of section 931H (dividends derived from profits not designed to reduce tax), those same profits are specified as the profits that form the basis of the underlying tax credit calculation.
65.Paragraphs 11 to 12 amend Schedule 23A to ICTA, which deals with manufactured dividends. Paragraph 11 amends paragraph 2 of Schedule 23A, which deals with manufactured UK dividends. Paragraph 12 amends paragraph 4 of Schedule 23A, which deals with manufactured overseas dividends.
66.The broad aim of the amendments is to align the tax treatment of manufactured dividends (whether payable in respect of UK or overseas equities) with their real equivalents. Similarly, the amendments aim to ensure that the payment of a manufactured dividend is deductible if and to the extent that the equivalent receipt is taxable.
67.In some cases exemption for the real dividend depends on the nature of the shares in respect of which it is payable. Paragraph 2 of Schedule 23A ensures that where a manufactured dividend is paid in respect of UK shares the payment is treated as made in respect of the shares in question. Paragraph 12 introduces new sub-paragraph (4A) of paragraph 4, which ensures that Part 9A will also apply to a manufactured overseas dividend as if it were paid in respect of the shares in question.
68.Paragraph 11 also introduces new subparagraph (3B) of paragraph 2 of Schedule 23A, to ensure that where exemption under Part 9A depends upon identity of the payer of the dividend, then the payer of a manufactured UK dividend shall be treated as the payer of the real dividend of which the manufactured payment is representative.
69.Paragraph 12 also introduces new subparagraph (4B) of paragraph 4 of Schedule 23A for the same purpose in relation to manufactured overseas dividends.
70.Paragraph 13 makes a consequential change to the offshore funds legislation to reflect the repeal of section 1285 (see paragraph 27) and its replacement by the rules in Chapters 2 and 3 of Part 9A.
71.Paragraph 14 makes the amendment necessary to ensure that transfer pricing rules take priority over section 209(2)(d), thereby limiting the scope of the denial of Part 9A exemption given in sections 931B and 931D.
72.Paragraphs 15 to 17 make consequential amendments to sections 85A and 89 of the Finance Act 1989. These sections contain detailed rules for the taxation of the profits of life assurance business on the I-E basis.
73.Paragraphs 18 and 22 extend the benefit of exemption under Part 9A rules to general insurance companies, including corporate members of Lloyd’s. In each case, distributions will be excluded from the calculation of insurance trade profits to the same extent as is provided for by the Part 9A rules.
74.Paragraph 19 makes a consequential change to Real Estate Investment Trust (REIT) rules.
75.Paragraphs 20, 21, 23, 24, 26, 29 and 30 make minor consequential changes to CTA.
76.Paragraph 25 extends exemption to receipts from the sale of foreign dividend coupons to the same extent as the dividend would itself be exempt according to the rules given in Part 9A.
77.Paragraph 27 removes the general exemption for UK distributions by omitting section 1285. UK distributions instead qualify for exemption under the rules in Part 9A unless they are taxed elsewhere.
78.Paragraph 28 provides that regulations made under section 931C are subject to affirmative resolution procedure.
