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Finance Act 1966

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Three year surplus: subsidiary retaining part of distributable profits

4(1)Where throughout a period consisting of the whole or a part of the three financial years 1966, 1967 and 1968 a company is a member of a group of companies and is the beneficial owner of part of the ordinary share capital of another member of the group (in this paragraph called " the appropriate part"), and—

(a)the amount of the dividends on ordinary share capital paid by that member to the company in the period is less than

(b)the appropriate part of that member's distributable profits arising in the period, after deducting the amount required to meet dividends which are not on ordinary share capital and which are paid by that member in the period,

the distributable profits of the company to be taken into account as franked investment income or group income under paragraph (b)(i) of the said section 85(6) shall not include the dividends at (a) above but shall include a sum equal to that at (b) above.

(2)For the purpose of arriving under this paragraph at a member's distributable profits arising in any period—

(a)the distributable profits of any financial year which falls wholly or partly within the period shall be ascertained on the principles set out in subsection (6)(b) of the said section 85 for ascertaining the distributable profits for the three financial years, and shall be so ascertained whether or not the member is entitled to relief by reference to a three year surplus,

(b)if part only of the financial year falls within the period, the distributable profits of that financial year shall be apportioned on a time basis according to the respective lengths of its parts which do and do not fall within the period, and

(c)where the member itself is the beneficial owner of part of the ordinary share capital of a company which is another member of the group, or which is the member's subsidiary company, account shall be taken under paragraphs (a) and (b) above of the amendment of the said subsection (6)(b) made by sub-paragraph (1) of this paragraph, attributing under paragraph (a) above to the whole of any financial year any amount included by virtue of that amendment in that member's franked investment income or group income as the appropriate part of that other company's distributable profits of that financial year, or of any part of that financial year.

(3)Sub-paragraph (1) above shall not apply if the other member has a notional surplus which is a three year surplus which is reduced under paragraph 1 of this Schedule.

(4)In this paragraph " ordinary share capital" has the same meaning as in section 42(3) of the Finance Act 1938 and if the appropriate part of the other member's ordinary share capital is different in different periods in the three financial years this paragraph shall apply to those periods separately.

(5)For the purposes of this paragraph—

(a)any dividend paid (in the sense of section 89(4) of the Finance Act 1965) in the first five days of April 1969 shall be regarded as paid on 31st March 1969,

(b)any dividend paid (in that sense) in the first five days of April 1966 shall be left out of account.

(6)Where a three year surplus falls to be ascertained under subsection (7) of section 85 of the Finance Act 1965 (winding up of company) for references in this paragraph to the three financial years there shall be substituted references to the period mentioned in that subsection.

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