Corporation Tax Act 2010

Distributions in respect of special securities U.K.

1015 Meaning of “special securities” U.K.

(1) Securities of a company are special securities for the purposes of paragraph F in section 1000(1) if they meet any of conditions A to E.

(2) Condition A is that the securities are issued as described in paragraph D in section 1000(1) (securities issued otherwise than for new consideration).

(3) Condition B is that—

(a) the securities—

(i) are convertible (directly or indirectly) into shares in the company, or

(ii) carry a right to receive shares in or securities of the company, and

(b) the securities are neither listed on a recognised stock exchange nor issued on terms which are reasonably comparable with the terms of issue of securities listed on a recognised stock exchange.

(4) Condition C is that under the securities the consideration given by the company for the use of the principal secured depends (to any extent) on the results of—

(a) the company's business, or

(b) any part of the company's business.

(5) Condition D is that the securities are connected with shares in the company (see section 1017(2)).

(6) Condition E is that the securities are equity notes—

(a) issued by the company (“the issuing company”), and

(b) held by a company which—

(i) is associated with the issuing company, or

(ii) is a funded company (see section 1017(3)).

1016 Meaning of “equity note” in section 1015 U.K.

(1) For the purposes of section 1015(6) a security is an equity note if any of the tests in subsection (2) is satisfied either—

(a) as regards the whole of the principal, or

(b) as regards any part of it.

(2) These are the tests.

• Test 1 The security's terms contain no particular date by which it is to be redeemed.

• Test 2 Under the security's terms the date for redemption, or the latest date for redemption, falls after the end of the permitted period.

• Test 3 Under the security's terms redemption is to occur after the end of the permitted period if a particular event occurs, and the event is one which (judged at the time of the security's issue) is certain or likely to occur.

• Test 4 The issuing company can secure—

  (a)

  that there is no particular date by which the security is to be redeemed, or

  (b)

  that the date for redemption falls after the end of the permitted period.

(3) In subsection (2) “the permitted period” means the period of 50 years beginning with the date of the security's issue.

1017 Section 1015: other interpretation U.K.

(1) For the purposes of section 1015(4) the consideration given by the company for the use of the principal secured is not treated as depending on the results of the company's business (or any part of it) merely because the terms of the security provide—

(a) for the consideration to be reduced if the results improve, or

(b) for the consideration to be increased if the results deteriorate.

(2) For the purposes of section 1015(5) securities are connected with shares in the company if—

(a) it is necessary or advantageous for a person who has, or disposes of or acquires, any of the securities also to have, or to dispose of or acquire, a proportionate holding of the shares, and

(b) that is a consequence of the nature of the rights attaching to the securities or shares and, in particular, any terms or conditions attaching to the right to transfer the securities or shares.

(3) For the purposes of section 1015(6) a company is a funded company if there are arrangements involving the company being put in funds (directly or indirectly) by—

(a) the issuing company, or

(b) a company associated with the issuing company.

(4) For the purposes of subsection (3) above and section 1015(6), a company is associated with the issuing company if—

(a) the issuing company is a 75% subsidiary of the other company,

(b) the other company is a 75% subsidiary of the issuing company, or

(c) both are 75% subsidiaries of a third company.

1018 The principal secured: special securities U.K.

(1) No amount is to be regarded for the purposes of paragraph F in section 1000(1) as representing the principal secured by a security so far as it exceeds any new consideration which has been received by the company for the issue of the security.

This is without prejudice to section 1117(6).

(2) Subsection (3) applies if—

(a) a security of a company is issued at a premium representing new consideration, and

(b) there is a distribution in respect of the security.

(3) The reference in paragraph F in section 1000(1) to however much of the distribution represents the principal secured by the security is to be read as a reference to the sum of—

(a) however much of the distribution represents the principal, and

(b) however much of it represents the premium.

1019 Relevant alternative finance return U.K.

(1) Relevant alternative finance return is not treated by virtue of section 1015(4) as being a distribution for the purposes of the Corporation Tax Acts.

(2) For corporation tax purposes “relevant alternative finance return” in subsection (1) means—

(a) anything that is alternative finance return for the purposes of Part 6 of CTA 2009 as a result of section 513 of that Act, or

(b) any part of the redemption payment under arrangements to which section 507 of CTA 2009 (investment bond arrangements) applies.

(3) For income tax purposes “relevant alternative finance return” in subsection (1) means—

(a) anything that is alternative finance return for the purposes of Part 10A of ITA 2007 as a result of section 564L of that Act, or

(b) any part of the redemption payment under arrangements to which section 564G of ITA 2007 (investment bond arrangements) applies.