OT21102 - Corporation Tax Ring Fence and Supplementary Charge

Treatment of ACT: Associated Companies

It should be noted that the restriction under subsections ICTA88/s497(2)(a) and ICTA88/s497(2)(b) arises only in respect of distributions made to 'associated' companies, 'associated companies' being defined, for this purpose, in ICTA88/s502(3) where

one is a 51% subsidiary of the other

each is a 51% subsidiary of a third company, or

one is owned by a consortium of which the other is a member. Under ICTA88/s413(6)(a), a company is owned by a consortium if three-quarters or more of the ordinary share capital of the company is beneficially owned between them by companies of which none beneficially owns less then one-twentieth of that capital.

The maximum amount of ACT which can be set against CT is restricted by ICTA88/s239(2). Where ICTA88/s497 applies, the ICTA88/s239(2) restriction is still based on the company's profits, but excluding any ring fence profits ICTA88/s239(5).