The Corporation Tax (Treatment of Unrelieved Surplus Advance Corporation Tax) Regulations 1999

Restriction on franked investment income—arrangements to pass on value of franked investment income

8.—(1) This regulation applies in any case where–

(a) a person (“A”) who is a company is entitled to franked investment income;

(b) arrangements subsist such that another person (“B”) obtains, whether directly or indirectly, a payment representing any of the value of that franked investment income, in excess of the payment that would have been made in the circumstances specified in paragraph (2);

(c) the arrangements (whether or not made directly between A and B) were entered into for an unallowable purpose, and

(d) neither A nor B is a company whose final accounting period has been determined in accordance with regulation 4 or 5.

(2) The circumstances specified in this paragraph are where–

(a) the payment representing any of the value of that franked investment income was made under a transaction between persons at arm’s length both of whom were companies;

(b) neither company was or had been at any time a member of a group, and

(c) neither company was entitled to an amount of unrelieved surplus ACT as at 6th April 1999.

(3) This regulation does not apply if and to the extent that any provision of the Tax Acts has the effect of cancelling or reducing the tax advantage which would otherwise be obtained by virtue of the arrangements.

(4) Where this regulation applies, the franked investment income referred to in paragraph (1) shall not be regarded for the purposes of these Regulations as franked investment income.

(5) For the purposes of this regulation, the question whether any arrangements were entered into for an “unallowable purpose” shall be determined in accordance with paragraphs (6) and (7).

(6) Arrangements are entered into for an unallowable purpose if the purposes for which A is a party to the arrangements include the purpose of reducing the amount of shadow ACT treated as paid, in accordance with regulation 11, on relevant distributions made–

(a) by A, or

(b) where A is a member of a group, by any other company which is a member of that group,

at any time in, or after the end of, the accounting period in which the arrangements are entered into.

(7) In determining for the purposes of paragraph (6) whether a company could have used franked investment income for the purpose of reducing shadow ACT, the company shall be taken to use its actual franked investment income for that purpose before using the franked investment income in question.

(8) In this regulation–

“arrangements” means arrangements of any kind, whether in writing or not (and includes a series of arrangements, whether or not between the same parties);

“tax advantage” has the same meaning as in Chapter I of Part XVII of the Taxes Act.