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HMRC internal manual

International Manual

HM Revenue & Customs
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Distribution exemption: Anti-avoidance legislation: diversion of trade income

CTA09/S931Q: Schemes involving diversion of trade income

CTA09/S931Q applies where there is a scheme (INTM651040) by which a company for which a distribution would represent a trade receipt diverts the distribution to a connected company.

This section therefore counters schemes (such as have been seen in the context of DTR avoidance) whereby a bank undertakes certain transactions that would otherwise have given rise to taxable distributions through investment company subsidiaries.

A distribution will fall within S931Q if:

  • There is a scheme between the recipient and another relevant person that is designed to obtain CTA09/Part 9A exemption because the distribution is received by the recipient; and
  • it is reasonable to assume that if the distribution had been received by a person connected to the recipient, it would have been a trade receipt.

When considering whether it is reasonable to assume that the distribution would have been a trade receipt, it must be assumed that the trading company carried out whatever transactions were necessary to give rise to the receipt.

Where it applies, S931Q prevents a distribution from falling into any exempt class and so it becomes taxable income. It does not change its character and become trade income. S931Q complements TIOPA10/S45(1) and (2), which deal with the DTR consequences of such schemes.