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HMRC internal manual

International Manual

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Distribution exemption: Exemption for all other companies: controlled companies

CTA09/S931E: distributions from controlled companies

A distribution falls into an exempt class if it is paid by a company that is controlled by the recipient. The definition of control in ICTA88/S755D applies, but with the modification that S755D(6)(c) and (d) must be disregarded.

Subsections 6)(c) and (d) set out some of the circumstances in which the rights and powers of connected UK resident companies are attributed to a company for the purpose of establishing control. In their absence it is necessary to consider only the rights and powers of the recipient company when determining whether it exercises control over the paying company, including any which it is or may become entitled to acquire.

This does not however prevent a company from controlling another company by virtue of an indirect shareholding. For example if Company A holds 80% voting rights in Company B, which in turn holds 70% of the voting rights in Company C, it follows that A indirectly controls C. The treatment of distributions in respect of indirect control relationships will therefore reflect the treatment of distributions where the control relationship is direct.

Control may be exercised by voting rights or by virtue of the other rights set out in ICTA88/S755D(1A), namely rights to income or rights to assets in the event of a sale of the company’s share capital or its liquidation. It is possible for different companies to meet the control requirements in respect of another company at the same time meaning more than one company can be in control.

Further guidance on the CFC control rules may be found at INTM254370. This guidance should be read with the modifications necessary to reflect the fact that ICTA88/S755D(6)(b) and (c) do not apply for CTA09/Part 9A purposes, as mentioned above.

See INTM654020 regarding an anti-avoidance rule that applies to avoidance schemes in which profits accrue outside the scope of CFC control rules, but a distribution is paid after control is established (CTA09/S931J).