CTM15350 - Distributions: general: out of assets in respect of shares
ICTA88/S209 (2) (b) catches 'any other distribution out of the
assets of the company in respect of the company'.
In practice, you should consider using it in those
circumstances where ICTA88/S209 (4) appears not to apply, for
example where:
- an asset has been transferred to an associate of a member rather than to a member,
or
- no asset has changed hands.
In some circumstances ICTA88/S209 (2) (b) does not apply to a
transfer of assets between companies (see
CTM15300).
ICTA88/S209 (2) (b) extends the meaning of distribution
to:
'subject to subsections (5) and (6) below, any other distribution out of assets of the company (whether in cash or otherwise) in respect of shares in the company, except so much of the distribution, if any, as represents repayment of capital on the shares or is, when it is made, equal in amount or value to any new consideration received by the company for the distribution'.
For definition of the various terms see
CTM15130.
A company might contend that a transfer is not 'in respect of
shares' if the transfer is to someone who has never been a member
of the company. ICTA88/S254 (12) provides that something is done in
respect of a share if:
- it is done to a person as being, or having been, the holder of a share, or
- it is done in pursuance of a right granted or offer made in respect of a share.
The Special Commissioners in the Noved case (SC3081/2005) held
that the words of ICTA88/S254 (12) impose sufficient but not
necessary conditions for something to be treated as done in respect
of shares.
Thus the exercise by a shareholder of a right to require a
payment to a third party, and the subsequent payment out of the
assets of the company to the third party, would be a payment in
respect of a share even though it is not made to the holder.
In the Noved case the Special Commissioners also decided:
- the transfer of assets at undervalue is capable of falling within both ICTA88/S209 (2) (b) and (4),
- cash transfers are within both (2) (b) and (4),
- a gift by a trading company to a charity by which it is owned is not necessarily a distribution within (2) (b),
- (2) (b) covers the following where they take place in respect of shares:
- a transfer of assets to a shareholder for a consideration in
assets of value less than the value of the assets transferred to
the company,
- any transfer of assets to a shareholder for a cash
consideration less than their value,
- any transfer of assets to a company by a shareholder for a cash consideration paid by the company of more than the value of the assets moving to the company.
However, in some cases a company may transfer an asset to an
associate of a member. In these circumstances you may be able to
establish that the transfer derived from the shareholding and was
made in respect of the shares of the member.
Where the company cannot show a payment was made for some
other reason it is likely the payment was made in respect of
shares.
If you meet resistance to this argument in a case where the
company made the payment or transfer to an associate of a member
you should make a referral to CT&VAT (Technical) before listing
any appeal for hearing by the Commissioners.
If you find:
- any transfer of value from a company in circumstances such that the distributions legislation does not appear to apply, and
- the transfer of value is not taxed as employment income,
you should make a referral to CT&VAT (Technical). In appropriate circumstances you should notify the Inspector dealing with the shareholders (see CTM15570).
