CTM36810 - Particular topics: transactions in securities: counteraction

Counteraction under the legislation at CTM36805 may only be taken by or under the direction of AAG.

Compliance officers should refer to the instructions at CTM36815 - CTM36875 to identify income tax or corporation tax advantages which may be caught by the legislation and bring cases to the attention of:

AAG will initiate enquiries and where appropriate seek a contract settlement of liability arising under this avoidance legislation. If formal procedures are used AAG will be responsible for the issue of a notice to the person under ITA07/S695 or ICTA88/S703(3). They will advise what adjustments are to be made to cancel the income tax or corporation advantage and what assessments etc are to be made in accordance with the terms of the notice.

Changes to tax legislation affect what tax advantages may be obtained from transactions in securities. The introduction of 75% taper relief for gains on disposal of business assets held for 2 years or more available from 2003 made it attractive for the shareholders of a trading company to receive its distributable profits as capital receipts rather than as dividends chargeable to income tax. See CTM36875 for signs of this avoidance.

Income tax advantages obtained by individuals or trusts will involve transactions in securities that enable consideration that could be received and charged to IT to be received as a chargeable gain or otherwise not charged to income tax. Reliefs and capital losses brought forward may be available for set off.

A corporation tax advantage obtained by a company can involve transactions whereby an offshore subsidiary of a UK group receives an ‘abnormal dividend ‘ and consideration is received by an onshore UK group member in non-taxable form. The consideration may otherwise have been paid up as dividends from a low tax regime offshore subsidiary to a UK group member liable under Case V with insufficient foreign tax credit to cover.