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HMRC internal manual

Company Taxation Manual

Close companies: extended meaning of distribution: groups

CTA2010/S1066 (formerly ICTA88/S418 (5) & (6))

Section 1066 (1) provides exclusion for transfers of assets between companies in a group relationship, similar to that in CTA2010/S1002 (2) and (3) and S1021 (1) (formerly ICTA88/S209 (5)) (see CTM80060).

Thus where the participator (or associate of a participator) is a company resident in the UK, the expense in CTM60520 is not to be treated as a distribution if:

  • the benefit arises on or in connection with the transfer of assets or liabilities by the company to the participator etc, or by the participator to the company, and
  • the company providing the benefit etc is a subsidiary of the participator receiving the benefit, or vice-versa, or both provider and recipient are subsidiaries of a third UK resident company.

For these purposes a company is a subsidiary of another if the other company owns more than one half of its ordinary share capital, either directory or indirectly. However a company is not to be treated for these purposes as owning share capital, either directly or indirectly:

  • in a company not resident in the UK, or
  • where the direct owner is a company for which a profit on the sale of the share capital would be a trading receipt.