Depreciatory intra-group dividends: asset transaction test
There must be a transaction giving rise to distributable commercial profits, but which does not give rise to taxable profits. There are three types of such transactions listed in TCGA92/S31 (6)
- an intra-group disposal at no gain/no loss under TCGA92/S171 (1)
- an intra-group exchange of shares or debentures, or a reconstruction or amalgamation, which is treated as a reorganisation of share capital by TCGA92/S135 (3)
- a revaluation of an asset.
The third category of transaction, a revaluation, is unlikely to give rise to distributable profits under UK company law which allows only realised profits to be distributed. This category recognises that a drain out dividend scheme may involve a company resident in the UK but incorporated outside the UK.
Finance Act 2011 introduced a new Targeted Anti-Avoidance Rule for disposals of shares and securities by companies on or after 19 July 2011. See CG48500+.