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Finance Act 1960

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This is the original version (as it was originally enacted).

28Cancellation of tax advantages from certain transactions in securities

(1)Where—

(a)in any such circumstances as are mentioned in the next following subsection, and

(b)in consequence of a transaction in securities or of the combined effect of two or more such transactions,

a person is in a position to obtain, or has obtained, a tax advantage, then unless he shows that the transaction or transactions were carried out either for bona fide commercial reasons or in the ordinary course of making or managing investments, and that none of them had as their main object, or one of their main objects, to enable tax advantages to be obtained, this section shall apply to him in respect of that transaction or those transactions:

Provided that this section shall not apply to him if—

(i)the transaction or transactions in securities were carried out, and

(ii)any change in the nature of any activities carried on by a person, being a change necessary in order that the tax advantage should be obtainable, was effected,

before the fifth day of April, nineteen hundred and sixty.

(2)The circumstances mentioned in the foregoing subsection are that—

(a)in connection with the distribution of profits of a company, or in connection with the sale or purchase of securities being a sale or purchase followed by the purchase or sale of the same or other securities, the person in question, being entitled (by reason of any exemption from tax or by the setting off of losses against profits or income) to recover tax in respect of dividends received by him, receives an abnormal amount by way of dividend; or

(b)in connection with the distribution of profits of a company or any such sale or purchase as aforesaid the person in question becomes entitled, in respect of securities held or sold by him, to a deduction in computing profits or gains by reason of a fall in the value of the securities resulting from the payment of a dividend thereon or from any other dealing with any assets of a company; or

(c)the person in question receives, in consequence of a transaction whereby any other person—

(i)subsequently receives, or has received, an abnormal amount by way of dividend; or

(ii)subsequently becomes entitled, or has become entitled, to a deduction as mentioned in paragraph (b) of this subsection,

a consideration which either is, or represents the value of, assets which are (or apart from anything done by the company in question would have been) available for distribution by way of dividend, or is received in respect of future receipts of the company or is, or represents the value of, trading stock of the company, and the said person so receives the consideration that he does not pay or bear tax on it as income; or

(d)in connection with the distribution of profits of a company to which this paragraph applies, the person in question so receives as is mentioned in paragraph (c) of this subsection such a consideration as is therein mentioned. In this subsection—

(i)references to profits include references to income, reserves or other assets,

(ii)references to distribution include references to transfer or realisation (including application in discharge of liabilities), and

(iii)references to the receipt of consideration include references to the receipt of any money or money's worth,

but the assets mentioned in paragraph (c) of this subsection do not include assets which (while of a description which under the law of the country in which the company is incorporated is available for distribution by way of dividend) are shown to represent a return of sums paid by subscribers on the issue of securities: and the companies to which paragraph (d) of this subsection applies are—

(iv)any company under the control of not more than five persons, and

(v)any other company which does not satisfy the condition that its shares or stock or some class thereof (disregarding debenture stock, preferred shares or preferred stock), are authorised to be dealt in on a stock exchange in the United Kingdom, and are so dealt in (regularly or from time to time),

so however that the said paragraph (d) does not apply to a company under the control of one or more companies to which that paragraph does not apply; and subsections (2) and (3) of section two hundred and fifty-six of the Act of 1952 (which define for the purposes of that section the circumstances in which a company is to be deemed to be under the control of not more than five persons) shall apply for the purposes of this subsection as they apply for the purposes of that section.

(3)Where this section applies to a person in respect of any transaction or transactions, the tax advantage obtained or obtainable by him in consequence thereof shall be counteracted by such of the following adjustments, that is to say an assessment or additional assessment, the nullifying of a right to repayment or the requiring of the return of a repayment already made (the amount to be returned being chargeable under Case VI of Schedule D and recoverable accordingly), or the computation or recomputation of profits or gains, or liability to tax, on such basis as the Commissioners of Inland Revenue may specify by notice in writing served on him as being requisite for counteracting the tax advantage so obtained or obtainable.

(4)The Commissioners of Inland Revenue shall not give a notice under the foregoing subsection until they have notified the person in question that they have reason to believe that this section may apply to him in respect of a transaction or transactions specified in the notification; and if within thirty days of the issue of the notification the said person, being of opinion that this section does not apply to him as aforesaid, makes a statutory declaration to that effect stating the facts and circumstances upon which his opinion is based, and sends it to the Commissioners, then subject to the next following subsection this section shall not apply to him in respect of the transaction or transactions.

(5)If, when a statutory declaration has been sent to the Commissioners under the foregoing subsection, they see reason to take further action in the matter—

(a)the Commissioners shall send to the tribunal a certificate to that effect, together with the statutory declaration, and may also send therewith a counter-statement with reference to the matter;

(b)the tribunal shall take into consideration the declaration and the certificate, and the counter-statement, if any, and shall determine whether there is or is not a prima facie case for proceeding in the matter, and if they determine that there is no such case this section shall not apply to the person in question in respect of the transaction or transactions:

Provided that such a determination shall not affect the operation of this section in respect of transactions which include that transaction or some or all of those transactions and also include another transaction or other transactions.

(6)Any person to whom notice has been given under subsection (3) of this section may within thirty days by notice to the clerk to the Special Commissioners appeal to the Special Commissioners on the grounds that this section does not apply to him in respect of the transaction or transactions in question, or that the adjustments directed to be made are inappropriate; and if he or the Commissioners of Inland Revenue are dissatisfied with the determination of the Special Commissioners they may require the appeal to be re-heard by the tribunal.

(7)For the purposes of this section the tribunal shall consist of—

(a)a chairman, being either the chairman of the Board of Referees or a person appointed by the Lord Chancellor, for a specified period or in relation to a specified case, to act as chairman of the tribunal in the absence of the chairman of the Board of Referees on account of illness or for any other reason, and

(b)two or more persons appointed by the Lord Chancellor as having special knowledge of and experience in financial or commercial matters.

(8)The provisions of section two hundred and forty-seven of the Act of 1952 (appeals against directions as to undistributed income) as to the giving of notices, the application of provisions of that Act relating to appeals, and the powers and duties of the Special Commissioners, shall with the necessary modifications apply in relation to appeals under this section; and subsections (3) and (4) of the said section two hundred and forty-seven (re-hearings, statement of case on a point of law, etc.) shall apply in relation to appeals under this section and to the said tribunal as they apply in relation to appeals under that section and to the Board of Referees.

(9)Without prejudice to the generality of the foregoing subsection, on an appeal under this section the Special Commissioners or the tribunal shall have power to cancel or vary a notice under subsection (3) of this section or to vary or quash an assessment made in accordance with such a notice, but the bringing of an appeal or the statement of a case shall not affect the validity of a notice given or of any other thing done in pursuance of the said subsection (3) pending the determination of the proceedings.

(10)The following provisions shall have effect where in pursuance of this subsection a person furnishes to the Commissioners of Inland Revenue particulars of a transaction or transactions effected or to be effected by him, that is to say—

(a)if the Commissioners are of opinion that the particulars, or any further information furnished in pursuance of this paragraph, are not sufficient for the purposes of this subsection, they shall within thirty days of the receipt thereof notify to the said person what further information they require for those purposes, and unless that further information is furnished to the Commissioners within thirty days from the notification or such further time as the Commissioners may allow they shall not be required to proceed further under this subsection ;

(b)subject to the foregoing paragraph, the Commissioners shall within thirty days of the receipt of the particulars, or where that paragraph has effect of all further information required, notify the said person whether or not they are satisfied that the transaction or transactions as described in the particulars were or will be such that no notice under subsection (3) of this section ought to be given in respect of it or them,

and if the Commissioners notify him that they are so satisfied this section shall not apply to him in respect of that transaction or those transactions:

Provided that—

(i)if the particulars, and any further information given under this subsection with respect to any transaction or transactions are not such as to make full and accurate disclosure of all facts and considerations relating thereto which are material to be known to the Commissioners, any notification given by the Commissioners under this subsection shall be void;

(ii)in no event shall the giving of a notification under this subsection with respect to any transaction or transactions prevent this section applying to a person in respect of transactions which include that transaction or all or some of those transactions and also include another transaction or other transactions.

(11)For the purposes of subsection (2) of this section an amount received by way of dividend shall be treated as abnormal if the Commissioners of Inland Revenue, the Special Commissioners or the tribunal, as the case may be, are satisfied—

(a)in the case of a dividend at a fixed rate, that it substantially exceeds the amount which the recipient would have received if the dividend had accrued from day to day and he had been entitled only to so much of the dividend as accrued while he held the securities, so however that an amount shall not be treated as abnormal by virtue only of this paragraph if during the six months beginning with the purchase of the securities the recipient does not sell or otherwise dispose of, or acquire an option to sell, any of those securities or any securities similar (within the meaning of section twenty-three of the Finance Act, 1959) to those securities, or

(b)in any case, that it substantially exceeds a normal return on the price paid for the securities:

Provided that there shall be disregarded any amount received by a company by way of dividend from an associated company except in so far as the dividend is paid out of profits accumulated before the two companies became associated companies; and the Third Schedule to the Finance (No. 2) Act, 1955, shall with the necessary modifications apply for determining the extent to which a dividend was so paid.

(12)No other provision contained in this Act, or in any other of the Income Tax Acts, shall be construed as limiting the powers conferred by this section, but nothing in this section shall authorise the making of an assessment later than six years after the year to which the tax advantage relates.

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