Section 84.
1(1)This Schedule has effect for the modification of section 84 of this Act (" the principal section ") in its application to companies which have been overseas trade corporations, and to companies (being bodies corporate) which are members of a group of companies or are otherwise associated with other companies; and in this Schedule " relief" (unless the context otherwise requires) means relief under the principal section.
(2)For purposes of this Schedule, save as otherwise provided therein.—
(a)two companies shall be deemed to be members of a group of companies if one is the subsidiary of the other or both are subsidiaries of a third company ;
(b)a company shall be deemed to be a subsidiary of another if and so long as more than one-half of its ordinary share capital is owned by that other company, whether directly or through another body corporate or other bodies corporate, or partly directly and partly through another body corporate or other bodies corporate ;
(c)the interest of one company in another shall be deemed to be proportionate to the part of the ordinary share capital of the other owned as aforesaid by that company.
(3)References in this Schedule to a company apply (unless otherwise stated) only to companies resident in the United Kingdom, and in determining for purposes of this Schedule whether one company is a subsidiary of another, or what interest in a company another company has, the other company shall be treated as not being the owner—
(a)of any share capital which it owns directly or indirectly in a body corporate not resident in the United Kingdom ; or
(b)of any share capital which it owns indirectly, and which is owned directly by a body corporate for which a profit on the sale of the shares would be a trading receipt.
(4)References to ownership and to ordinary share capital in this Schedule shall be construed in accordance with section 42(3) of the [1938 c. 46.] Finance Act 1938 ; and, except in so far as sub-paragraph (3) provides otherwise, section 42(2) of that Act together with Part I of Schedule 4, shall apply for purposes of this Schedule as they applied for purposes of that section.
2(1)For purposes of the principal section a company which has at any time been an overseas trade corporation shall be treated as if it had never been an overseas trade corporation and, subject to sub-paragraph (2) below, as if it had been charged to income tax and profits tax, or corporation tax, and been given credit for foreign tax accordingly.
(2)Where a company is an overseas trade corporation in the year 1965-66, then—
(a)in respect of any amount taken into account by virtue of sub-paragraph (1) above as income in the base year there shall be treated as allowed credit for foreign tax equal to the income tax and profits tax treated by virtue of that sub-paragraph as charged in respect of it; and
(b)in arriving for any year of assessment at the adjusted aggregate amount in the related period of the unused credit for foreign tax, the unused credit for foreign tax in respect of the income from each overseas source of trading income shall be computed as if the foreign tax were 56J per cent.
3(1)Where a company claiming relief for any year of assessment is a member of a group of companies, and in claiming the relief elects that this paragraph shall have effect in relation to a member of the group specified in the claim, then for the purposes of that claim the provisions of the principal section shall be modified in accordance with this paragraph.
(2)There shall be added to the relief (before abatement) that may be given to the company—
(a)the appropriate fraction of the difference, if any, between—
(i)the amount of the relief (before abatement) available to the other member of the group ; and
(ii)the amount of the relief falling to be given to the other member, before abatement in respect of dividends paid without deduction of income tax ; and
(b)if in the year of assessment the other member has paid to the company any dividends without deduction of income tax, such fraction of the amount at (c)(ii) above as the amount of those dividends is of the total amount of the dividends paid by the other member in the year.
(3)There shall be added to the adjusted aggregate amount in the company's related period of the unused credit for foreign tax the appropriate fraction of the amount, if any, by which the corresponding amount for the other member exceeds the amount of the relief (before abatement) falling to be given to the other member.
(4)The provisions of the principal section for reducing the relief by reference to the income tax deducted or deductibile from dividends paid by the company claiming relief shall have effect subject to the following provisions:—
(a)there shall be treated as an amount of income tax .so deducted or deductible any amount by which the income tax deducted from dividends paid to it by the other member of the group (and not repaid to the company by virtue of section 62 of this Act) exceeds the appropriate fraction of the relief falling to be given to the other member in that year, before abatement in respect of dividends paid without deduction of income tax ; and
(b)there shall be taken into account in the case of the company as if it were its income charged to corporation tax, and as if it were its income so charged from overseas sources of trading income haying an unused credit for foreign tax, the appropriate fraction of the amounts respectively falling to be taken into account as such in the case of the other member of the group, and there shall on the like principles be set against income of the company the appropriate fraction of any loss incurred by the other member of the group in a trade carried on by it so far as that loss is not taken into account as reducing the income of the other member.
(5)In applying this paragraph to a company and another member of a group of companies, account shall be taken of the operation of sub-paragraphs (2) to (4) above in relation to the other member in determining what, if any, relief might be given to the other member (or, if the other member does not claim relief for the year of assessment, then of the operation which this sub-paragraph would have on a claim by it containing an election duly made under this paragraph in relation to such companies as may be specified in this behalf in the company's claim); and for this purpose any amount falling by virtue of sub-paragraph (4)(a) above to be treated as income tax deducted or deductible from dividends paid by the other member shall be apportioned rateably between those dividends.
(6)For the purposes of this paragraph " the appropriate fraction " in relation to a company and to another member of the same group of companies is the fraction proportionate to the interest of the company in that other member, but for this purpose the company shall be treated as not being the owner of any share capital which it owns directly or indirectly in a third company if the other member and the third company are also members together of any group of companies ; and, subject to sub-paragraph (5) above, " relief (before abatement)" means the full amount of the relief calculated in accordance with subsection (1) of the principal section apart from any reduction under the proviso to that subsection or under any later subsection, but references to relief before abatement in respect of dividends paid without deduction of income tax are references to the relief calculated apart only from any reduction under that proviso or in respect of dividends so paid.
4(1)Where arrangements entered into between any companies make provision for relating to one another the amounts of the dividends paid to them respectively by companies under their joint control, relief shall not be given for any year of assessment to a company paying dividends regulated by that provision or to a subsidiary of it, except on condition that for the purposes of that provision the dividends are treated as not exceeding the amount (before deduction of income tax) of those dividends less the relief given to the company paying them and less the appropriate fraction of the relief given to any company of which that company owns ordinary share capital, whether directly or through another body corporate or other bodies corporate.
(2)In this paragraph " company " includes a company not resident in the United Kingdom, and " appropriate fraction" in relation to a company paying dividends regulated by any such arrangements and to another company means the fraction proportionate to the interest of the company paying the dividends in that other company.