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HMRC internal manual

International Manual

Controlled Foreign Companies: exemptions - Acceptable Distribution Policy ('ADP'): Dividends paid under avoidance schemes

The ADP exemption was abolished in FA09 for accounting periods of CFCs beginning on or after 1 July 2009. This guidance only applies to APs ending on or before 30 June 2009

ICTA88/SCH25/PARA2(1A)(a) and (b), Para 2B, Para 4(1A) (a) and (b) and Para 4B

A further restriction applies when a dividend is chargeable to United Kingdom tax under Case I of Schedule D or is chargeable under Case VI by virtue of the provisions applying to insurance income (ICTA88/S436,S439B or S441). In these circumstances a dividend cannot be taken into account for the purposes of an ADP if it is involved in a UK tax avoidance scheme. This applies to direct and indirect dividends.

A UK tax avoidance scheme means a scheme or arrangement (whether in writing or not), the purpose or one of the main purposes of which is to achieve a reduction in UK tax. UK tax is reduced if any company has either reduced or extinguished its liability to corporation tax (or tax chargeable as if it were corporation tax) or obtained or enhanced a relief to or repayment of such tax. The avoidance of a charge under the controlled foreign companies’ rules by following an ADP is not in itself a scheme or arrangement.