Corporation Tax Act 2010 Explanatory Notes

Section 170: Shares or securities with limited rights

682.This section requires an alternative calculation if an equity holder’s rights (either to profits or to assets in a winding up) are restricted. It is based on paragraph 4 of Schedule 18 to ICTA.

683.Subsection (1) introduces the section. The calculation is made at the “relevant time” (see section 169(2)).

684.Subsection (2) requires a calculation of the “alternative proportion” on the assumption that all the restricted rights are waived. So, if those rights belong to the company in question, its proportion is reduced. But if the rights belong to other equity holders its proportion is increased.

685.Subsection (3) substitutes the alternative proportion for the proportion worked out using the basic rules, but only if the alternative proportion is smaller.

686.Subsection (5) makes clear that any sort of restriction of the rights of an equity holder is to be taken into account for the purposes of the section.

687.Subsection (6) draws attention to the fact that restrictions based on profits or assets referable to a trade carried on in the United Kingdom by a non-UK resident company are dealt with in sections 179 to 182 and not in this section.

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