Commentary

D9.114 The prescribed circumstances—Circumstance D

Corporate tax
Corporate tax | Commentary

D9.114 The prescribed circumstances—Circumstance D

Corporate tax | Commentary

D9.114 The prescribed circumstances—Circumstance D

These provisions apply for corporation tax purposes. For details of the income tax regime see D9.116A–D9.119.

It has been established that circumstance D catches a variety of transactions which would not be considered as dividend stripping or stock stripping.

Circumstance D applies where a company receives consideration (in money or money's worth) on which it does not pay or bear corporation tax on income, in connection with the distribution, transfer or realisation of assets of a relevant company (see below) or the application of such assets in discharge of liabilities. The consideration must:

  1.  

    (a)     be or represent the value of assets available for distribution by the company or would be so available but for anything done by the company; or

  2.  

    (b)     be received in respect of future receipts of the company; or

  3.  

    (c)     be or represent the value of trading stock of the company

The term 'assets' does not include assets which represent a return of sums paid on the issue of securities, even if the law of the relevant company requires such assets to be available for distribution1.

Companies to which circumstance D applies

The definition of a relevant company is in some respects similar to that of a close company but it is important to recognise the points of difference. However, the same tests of control in CTA 2010, ss 450–451 apply2. A relevant company is3:

  1.  

    (a)     one under the control of not more than five persons

  2.  

    (b)     any other company (including those whose share are traded

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