Finance Act 1967

Company distributions: transfers between companies and their members or participators

3 (1) Schedule 11 to the [1965 c. 25.] Finance Act 1965 (which defines company distributions for the purposes of Part IV of that Act) shall have effect, and be deemed always to have had effect, subject to the amendments specified in sub-paragraphs (2) and (3) below.

(2) At the end of paragraph 1(2) of that Schedule (which relates to the transfer of assets and liabilities between companies and their members) there shall be inserted the following proviso:—

“Provided that, where the company and the member receiving the benefit are both resident in the United Kingdom and either the former is a subsidiary of the latter or both are subsidiaries of a third company also so resident (the question whether one body is another's subsidiary being determined as if for the purposes of section 48(3) of this Act, subject to the modification that a body shall be treated as not being the owner of any share capital which it owns directly if a profit on the sale of the shares would be treated as a trading receipt of that body), the said amount shall not be treated as a distribution.”

(3) After the proviso to paragraph 9(2) of that Schedule (which relates to the provision by close companies of benefits for participators) there shall be inserted the following additional proviso:—

“And provided also that where—

(a) the company and the participator are both resident in the United Kingdom and one is a subsidiary of the other or both are subsidiaries of a third company also so resident (the question whether one body is another's subsidiary being determined as if for the purposes of section 48(3) of this Act, subject to the modification that a body shall be treated as not being the owner of any share capital which it owns directly if a profit on the sale of the shares would be treated as a trading receipt of that body), and

(b) the benefit to the participator arises on or in connection with a transfer of assets or liabilities by the company to him or to the company by him,

the said amount shall not be treated as a distribution.”

(4) If any amount would, but for sub-paragraph (2) or (3) above, be treated as, or as part of, a distribution made in or after the year 1966-67 and would as so treated constitute also the net amount of a relevant distribution within the meaning of section 65 of the [1965 c. 25.] Finance Act 1965 (dividend stripping) then, for the purposes of corporation tax in respect of any chargeable gains, that amount shall be treated as if it were a capital distribution (within the meaning of Part III of the Finance Act 1965) received in respect of the holding.

(5) Sub-paragraphs (2) and (3) above shall not affect the meaning of 'distribution' for the purposes of paragraphs 5, 6(1) and 7 of Schedule 17 to the Finance Act 1965 (dividend stripping: relation of distributions to profits), except so far as the said sub-paragraphs (2) and (3) relieve the company from liability to account for income tax otherwise falling under paragraph 5(1) of the said Schedule 17 to be included in a distribution.

(6) There shall be made all such adjustments by way of discharge or repayment of tax as are necessary to give effect to the preceding provisions of this paragraph.