Finance Act 1982

60 Limitation on meaning of " distribution " for corporation tax

(1) Any interest or other distribution which—

(a) is paid out of the assets of a company (in this section referred to as " the borrower ") on or after the relevant day to another company which is within the charge to corporation tax, and

(b) which is so paid in respect of securities of the borrower which fall within any of sub-paragraphs (i) to (iii) and (v) of paragraph (d) of subsection (2) of section 233 of the Taxes Act (meaning of " distribution "),

shall not be a distribution for the purposes of the Corporation Tax Acts unless the application of this subsection is excluded by subsection (2), subsection (3) or subsection (4) below.

(2) Subsection (1) above does not apply in a case where the consideration given by the borrower for the use of the principal secured represents more than a reasonable commercial return for the use of that principal; but, where this subsection does apply, nothing in section 23 3 (2) (a) of the Taxes Act shall operate so as to treat as a distribution for the purposes of the Corporation Tax Acts so much of the interest or other distribution as represents a reasonable commercial return for the use of that principal.

(3) Subsection (1) above does not apply in the case of any interest or other distribution which is paid in respect of a security of the borrower falling within section 233(2)(d)(iii) of the Taxes Act if—

(a) the principal secured does not exceed £100,000 ; and

(b) the borrower is under an obligation to repay the principal and interest before the expiry of the period of five years beginning on the date on which the principal was paid to the borrower ; and

(c) that obligation either was entered into before 9th March 1982 or was entered into before 1st July 1982 pursuant to negotiations which were in progress on 9th March 1982 ; and

(d) where the period for repayment of either principal or interest is extended on or after 9th March 1982 (but paragraph (b) above still applies), the interest or other distribution is paid within the period which was applicable immediately before that date ;

and for the purposes of paragraph (c) above negotiations shall not be regarded as having been in progress on 9th March 1982 unless, before that date, the borrower had applied to the lender for a loan and had supplied the lender with any documents required by him to support the application.

(4) Subsection (1) above does not apply in a case where the company to which the interest or other distribution is paid is entitled under any enactment, other than section 239 of the Taxes Act (U.K. company distributions not chargeable to corporation tax), to an exemption from tax in respect of that interest or distribution.

(5) In subsection (1)(a) above " the relevant day " means—

(a) in the case of any interest or other distribution which is payable before 1st April 1983 pursuant to an obligation entered into before 9th March 1982, 1st April 1983 ; and

(b) in any other case, 9th March 1982.

(6) This section shall be construed as if it were included in Part X of the Taxes Act.