Taxes Consolidation Act 1997 section 416

Limited right to profits or assets

Section 416 provides an anti-avoidance rule that prevents manipulation of equity holder percentages for group relief purposes where an equity holder's rights to profits or assets are limited by reference to a specified amount.

• The section applies where any equity holder holds shares or securities whose rights to dividends, interest, or assets on a winding up are wholly or partly limited by reference to a specified amount — for example, entitlement to dividends up to €5,000 only, or to assets up to €10,000 on a winding up.
• Where the section applies, the percentage of profits and the percentage of assets to which a company is entitled must be calculated as if all such limited rights had been waived — that is, as if those restrictions simply did not exist.
• If the percentage of profits calculated after waiving the limitations is lower than the percentage calculated without applying this section, the lower figure is used for the 75% group relief test under section 412.
• The same rule applies to the notional winding up assets test: if waiving the limitations produces a lower percentage of assets, that lower figure is used for the 75% assets test.