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HMRC internal manual

International Manual

Distribution exemption: Exemption for small companies: deductions

Deduction can prevent exemption

CTA09/S931B(c) provides that for small companies a distribution cannot be an exempt distribution if a deduction is allowed to a resident of another territory in respect of that distribution. There is an identical rule for companies that are not small at CTA09/S931D(c).

The concept of deduction for the purposes of CTA09/Part 9A is a broad concept. The rules deny exemption in respect of a distribution where the payment of the distribution has the effect of reducing the tax payable by any company under the laws of a foreign territory. The concept of deduction is not limited to those deductions allowed under the laws of a foreign territory in arriving at a figure of net profits for tax purposes.