Section 21B Tax treatment of certain dividends

Source

Finance Act 2008 section 43.

(1)(a) In this section—

“profits”, in relation to a company for a period, means—

(i) where the profit and loss account, or income statement, of the company for that period is required to be laid before the annual general meeting of the company, the amount of profits, after taxation, as shown in that profit and loss account, or that income statement, and

(ii) in any other case, the amount of profits, after taxation, as shown in the profit and loss account, or income statement, of the company which is prepared in accordance with an accounting framework that, in the territory in which the company is incorporated, is generally accepted as presenting a fair view of the profit for that period;

“relevant territory” means—

(i) a Member State of the European Communities,

(ii) not being such a Member State, a territory with the government of which arrangements having the force of law by virtue of section 826(1) have been made,

(iii) not being a territory referred to in subparagraph (i) or (ii), a territory with the government of which arrangements have been made which on completion of the procedures set out in section 826(1) will have the force of law, or

(iv) not being a territory referred to in subparagraph (i), (ii) or (iii), a territory the government of which has ratified the Convention referred to in section 826(1C);

“trading profits”, in relation to a company for a period, means the aggregate of so much of the profits of the company for that period as are, on a just and reasonable basis, attributable to—

(i) the carrying on by the company of a trade, and

(ii) the amount of dividends received by the company which are treated as trading profits by virtue of this section, but does not include amounts attributable to profits, or to dividends received by a company which are paid out of profits, of an excepted trade (within the meaning of section 21A).

(b) For the purposes of this section—

(i) references to a company by which a dividend is paid apply only to a company, where throughout the period out of the profits of which the dividend was paid—

(I) the company was, by virtue of the law of a relevant territory, resident for the purposes of tax in such a relevant territory, and for this purpose “tax”, in relation to a relevant territory, means any tax imposed in the relevant territory which corresponds to corporation tax in the State, or

(II) the principal class of shares of the company or, where the company was a 75 per cent subsidiary of another company, the principal class of shares of that other company, was substantially and regularly traded on a stock exchange in the State, on one or more than one recognised stock exchanges in a relevant territory or territories or on such other stock exchange as may be approved of by the Minister for Finance for the purposes of Chapter 8A of Part 6,

(ii) so much of a dividend received by a company (in this subparagraph referred to as the “first-mentioned company”) which is paid by another company out of trading profits, or an amount treated by this section as trading profits, of the other company shall be treated as trading profits of the first-mentioned company,

(iii) subject to subparagraph (iv), the period out of the profits of which a dividend is paid by a company shall be—

(I) if the dividend is paid by the company for a specified period, that period,

(II) if the dividend is not paid for a specified period but is paid out of specified profits, the period in which those profits arise, or

(III) if the dividend is not paid by the company for a specified period nor out of specified profits, the last period for which accounts of the company were made up and which ended before the dividend became payable,

and

(iv) where, as respects a period identified in accordance with subparagraph (iii) or this subparagraph, the total dividend exceeds the profits available for distribution for that period, then so much of the dividend as is equal to the excess shall be treated as paid out of profits of the preceding period (other than profits of that period which were, or were treated for the purposes of this subparagraph as, previously distributed), and such period shall be treated as a period identified by subparagraph (iii) for the purposes of the further application of this subparagraph where required.

(c) For the purposes of paragraph (b)(i)(II), sections 412 to 418 shall apply as those sections would apply for the purposes of Chapter 5 of Part 12 if section 411(1)(c) were deleted.

Amendments

Finance Act 2010 section 50.

(2) For the purposes of this section—

(a) subject to paragraph (b), the amount of a dividend to be treated as paid out of trading profits of a company shall be—

(i) where the dividend is paid out of specified profits, so much of the dividend, as bears to the amount of that dividend the same proportion as the amount of trading profits of the company contained in the specified profits bears to the amount of those specified profits of the company, and

(ii) where the dividend is not paid out of specified profits so much of the dividend, as bears to the amount of that dividend the same proportion as the amount of trading profits of the company for the period out of which the dividend is paid bears to the total profits of the company for that period, and

(b) a dividend received by a company (in this paragraph referred to as the “receiving company”) within the charge to corporation tax in the State which is paid by a company (in this paragraph referred to as the “paying company”) out of the profits of a period shall be treated as paid out of trading profits of the paying company for that period if—

(i) not less than 75 per cent of the total profits of the paying company for the period are trading profits, and

(ii) the value at the end of the accounting period in which the dividend is received by the receiving company of assets (other than specified assets) used by the receiving company, and each company of which the receiving company is the parent company (within the meaning of section 626B), during that period for the purposes of the carrying on by those companies of a trade or trades is not less than 75 per cent of the value at the end of that period of the assets (other than specified assets) of those companies, and for this purpose an asset shall be treated as a specified asset if it consists of—

(I) shares of one of those companies held by another of those companies, or

(II) loans made by one of those companies to another of those companies.

(3) Subject to subsection (4), this section applies as respects an accounting period of a company where the company receives a dividend chargeable under Case III of Schedule D from another company and the dividend is paid by the other company out of trading profits of the other company.

(4)(a) This subsection applies to a dividend paid to a company (in this subsection referred to as the “first-mentioned company”) by another company and the first-mentioned company—

(i) does not own, directly or indirectly, either alone or together with a person who is connected (within the meaning of section 10) with the first-mentioned company, more than 5 per cent of the share capital of the other company, and

(ii) does not hold more than 5 per cent of the voting rights in the other company.

(b) Where the income of a company which is chargeable to tax under Case III of Schedule D includes a dividend, being a dividend to which this subsection applies, paid to the company by another company then the dividend shall be treated for the purposes of subsection (3) as a dividend paid by the other company out of trading profits of the other company.

(c) Where the income of a company which is income chargeable to tax under Case I of Schedule D would, but for this paragraph, include a dividend to which this subsection applies, then, except where otherwise expressly provided by the Corporation Tax Acts, corporation tax shall not be chargeable on the dividend, nor shall the dividend be taken into account in computing income for corporation tax.

(5) Where a company proves that this section applies as respects an accounting period of the company and makes a claim in that behalf, then subsection (3) of section 21A shall not apply to so much of any income of the company chargeable under Case III of Schedule D as consists of a dividend received by the company from another company if the dividend is paid by the other company out of trading profits of the other company.

(6) A claim by a company under this section as respects an accounting period of the company shall be included with the return under section 951 which falls to be made by the company for the accounting period.