Chapter 2 of Part 9A of CTA
8.Chapter 2 gives the conditions for a distribution received by a small company to be exempt. The definition of a small company for this purpose is given in Chapter 4 of Part 9A (section 931S).
9.Section 931B makes a distribution received by a small company exempt subject to the following conditions:
the company paying the distribution must be resident of the UK or a “qualifying territory”, which is a term defined in section 931C. The company must not be resident in more than one jurisdiction;
the distribution must not be an amount of interest that is treated as a distribution in accordance with section 209(2)(d) or (e) of ICTA. In practice this will mainly refer to interest paid at more than a commercial rate (section 209(2)(d)). Paragraph 14 of the Schedule ensures that wherever possible excessive rates of interest will be dealt with by transfer pricing rules;
the distribution must not be a dividend that qualifies for a foreign tax deduction; and
the distribution must not be made as part of a tax advantage scheme, as defined in section 931U.
10.Section 931C(1) defines a qualifying territory for the purpose of section 931B as a territory with which the UK has a double taxation treaty that includes a non-discrimination provision in a standard form.
11.‘Non-discrimination provision’ is defined in subsections (4) and (5) in terms that follow Articles 24 and 3 of the OECD Model Convention on Income and on Capital. Subsection (3) gives conditions about the meaning of the term “resident” for the purpose of section 931B in terms that follow Article 4(1) of the Model Convention, which defines what is meant by “resident of a Contracting State”.
12.Subsection (2) allows HM Treasury by regulations to provide that a territory is a qualifying territory even if it does not satisfy subsection (1), or that it is not a qualifying territory even if it does satisfy that subsection. Subsection (6) provides amongst other things that the regulations may make different provision for different types of company. Any such regulations will be subject to affirmative resolution procedure (see paragraph 28 of the Schedule).
