C1Part XI Company Taxation
C2Chapter I Main Provisions
See Income and Corporation Taxes Act 1988 (c. 1, SIF 63:1), ss. 21(2), 59— Pt. XI Ch. 1 to have effect to the exclusion of those sections (persons chargeable under Schs. A and D).
Losses attributable to depreciatory transactions
C3280 Transactions in a group.
1
This section has effect as respects a disposal of shares in, or securities of, a company (in this section referred to as an “ultimate disposal") if the value of the shares or securities has been materially reduced by a depreciatory transaction effected on or after F231st March 1982; and for this purpose “depreciatory transaction” means—
a
any disposal of assets at other than market value by one member of a group of companies to another, or
b
F3unless the ultimate disposal occurred before 30th April 1969, any other transaction satisfying the conditions of subsection (2) below:
Provided that a transaction shall not be treated as a depreciatory transaction to the extent that it consists of a payment which is required to be or has been brought into account, for the purposes of corporation tax on chargeable gains, in computing a chargeable gain or allowable loss accruing to the person making the ultimate disposal.
2
The conditions referred to in subsection (1)(b) above are—
a
that the company, the shares in which, or securities of which, are the subject of the ultimate disposal, or any 75 per cent. subsidiary of that company, was a party to the transaction, and
b
that the parties to the transaction were or included two or more companies which at the time of the transaction were members of the same group of companies.
3
Without prejudice to the generality of subsection (1) above, the cancellation of any shares in or securities of one member of a group of companies under F4section 135 of the Companies Act 1985 shall, to the extent that immediately before the cancellation those shares or securities were the property of another member of the group, be taken to be a transaction fulfilling the conditions in subsection (2) above.
4
If the person making the ultimate disposal is, or has at any time been, a member of the group of companies referred to in subsection (1) or (2) above, any allowable loss accruing on the disposal shall be reduced to such extent as appears to the inspector, or on appeal the Commissioners concerned, to be just and reasonable having regard to the depreciatory transaction:
Provided that if the person making the ultimate disposal is not a member of the said group when he disposes of the shares or securities, no reduction of the loss shall be made by reference to a depreciatory transaction which took place when that person was not a member of the said group.
5
The inspector or the Commissioners shall make the decision under subsection (4) above on the footing that the allowable loss ought not to reflect any diminution in the value of the company’s assets which was attributable to a depreciatory transaction . . . F5, but allowance may be made for any other transaction on or after F231st March 1982 which has enhanced the value of the company’s assets and depreciated the value of the assets of any other member of the group.
6
If, under subsection (4) above, a reduction is made in an allowable loss, any chargeable gain accruing on a disposal of the shares or securities of any other company which was a party to the depreciatory transaction by reference to which the reduction was made, being a disposal not later than six years after the depreciatory transaction, shall be reduced to such extent as appears to the inspector, or on appeal to the Commissioners concerned, to be just and reasonable having regard to the effect of the depreciatory transaction on the value of those shares or securities at the time of their disposal:
Provided that the total amount of any one or more reductions in chargeable gains made by reference to a depreciatory transaction shall not exceed the amount of the reductions in allowable losses made by reference to that depreciatory transaction.
All such adjustments, whether by way of discharge or repayment of tax, or otherwise, as are required to give effect to the provisions of this subsection may be made at any time.
7
For the purposes of this section—
“securities” includes any loan stock or similar security whether secured or unsecured,
references to the disposal of assets include references to any method by which one company which is a member of a group appropriates the goodwill of another member of the group,
a “group of companies” may consist of companies some or all of which are not resident in the United Kingdom.
8
References in this section to the disposal of shares or securities include references to the occasion of the making of a claim under F6section 22(2) of the Capital Gains Tax Act 1979 that the value of shares or securities has become negligible, and references to a person making a disposal shall be construed accordingly.
C4281 Dividend stripping.
1
The provisions of this section apply where one company (in this section referred to as “the first company”) has a holding in another company (in this section referred to as “the second company”) and the following conditions are fulfilled—
a
that the holding amounts to, or is an ingredient in a holding amounting to, 10 per cent. of all holdings of the same class in the second company,
b
that the first company is not a dealing company in relation to the holding,
c
that a distribution is or has been made after 29th April 1969 to the first company in respect of the holding, and
d
that the effect of the distribution is that the value of the holding is or has been materially reduced.
2
Where this section applies in relation to a holding section 280 above shall apply in relation to any disposal of any shares or securities comprised in the holding, whether the disposal is by the first company or by any other company to which the holding is transferred by a transfer to which section 273 F7or 273A above applies, as if the distribution were a depreciatory transaction and, if the companies concerned are not members of a group of companies, as if they were:
Provided that the distribution shall not be treated as a depreciatory transaction to the extent that it consists of a payment which is required to be or has been brought into account, for the purposes of corporation tax on chargeable gains, in computing a chargeable gain or allowable loss accruing to the person making the ultimate disposal.
3
This section shall be construed as one with section 280 above.
4
For the purposes of this section a company is “a dealing company” in relation to a holding if a profit on the sale of the holding would be taken into account in computing the company’s trading profits.
5
References in this section to a holding in a company refer to a holding of shares or securities by virtue of which the holder may receive distributions made by the company, but so that—
a
a company’s holdings of different classes in another company shall be treated as separate holdings, and
b
holdings of shares or securities which differ in the entitlements or obligations they confer or impose shall be regarded as holdings of different classes.
6
For the purposes of subsection (1) above—
a
all a company’s holdings of the same class in another company are to be treated as ingredients constituting a single holding, and
b
a company’s holding of a particular class shall be treated as an ingredient in a holding amounting to 10 per cent. of all holdings of that class if the aggregate of that holding and other holdings of that class held by connected persons amounts to 10 per cent. of all holdings of that class,
and section F8839 of the Taxes Act 1988 (definition of connected persons) shall have effect in relation to paragraph (b) above as if, in subsection (7) of that section, after the words “or exercise control of" in each place where they occur there were inserted the words “or to acquire a holding in".
See Income and Corporation Taxes Act 1988 (c. 1, SIF:63:1), ss. 114–116— special rules for partnerships involving companies.