Finance Act 1927

31Amendment of 12 & 13 Geo. 5 c.17 s.21

(1)Subsection (1) of section twenty-one of the Finance Act, 1922, shall have effect as if at the end thereof there were added as a new paragraph the following:—

“For the purpose of this subsection any such sum as is hereinafter described shall be regarded as income available for distribution among the members of the company and not as having been applied or being applicable to the current requirements of the company's business or to such other requirements as may be necessary or advisable for the maintenance and development of that business, that is to say:—

(a)Any sum expended or applied, or intended to be expended or applied, out of the income of the company, otherwise than in pursuance of an obligation entered into by the company before the fourth day of August, nineteen hundred and fourteen—

(i)in or towards payment for the business, undertaking or property which the company was formed to acquire or which was the first business, undertaking or property of a substantial character in fact acquired by the company ; or

(ii)in redemption or repayment of any share or loan capital or debt (including any premium on such share or loan capital or debt) issued or incurred in or towards payment for any such business, undertaking or property, or issued or incurred for the purpose of raising money applied or to be applied in or towards payment therefor; or

(iii)in meeting any obligations of the company in respect of the acquisition of any such business, undertaking or property:

(b)Any sum expended or applied, or intended to be expended or applied, in pursuance or in consequence of any fictitious or artificial transaction:”

Provided that the addition to the said section twenty-one of the foregoing new paragraph shall not operate so as to make the said section apply as respects any company unless it appears to the Special Commissioners, not only that income of the company has been or is to be expended or applied for one or more of the purposes mentioned in the said paragraph, but also that the company has not in fact distributed a reasonable part of its actual income in such a manner as to render the amount distributed liable to be included in the statements to be made by the members of the company of their total income for the purposes of super tax.

(2)Subsection (1) of the said section twenty-one shall have effect as if after the words " apportioned among the members," there were inserted the words " and super-tax shall be assessed and charged under the " provisions of this section in respect of the sum so " apportioned after deducting in the case of each " member any amount which has been distributed to " him by the company in respect of the said year or " period in such manner that the amount distributed " falls to be included in the statement of total income " to be made by that member for the purposes of " super-tax.

(3)In subsection (6) of the said section twenty-one, for the words from the beginning thereof down to and including the words " beneficial owner of shares in the company " there shall be substituted the following :—

“This section shall apply to any company which is under the control of not more than five persons and which is not a subsidiary company or a company in which the public are substantially interested.

For the purpose of this subsection—

• A company shall be deemed to be a subsidiary company if, by reason of the beneficial ownership of shares therein, the control of the company is in the hands of a company not being a company to which the provisions of this section apply, or of two or more companies none of which is a company to which those provisions apply;

• A company shall be deemed to be a company in which the public are substantially interested if shares of the company (not being shares entitled to a fixed rate of dividend, whether with or without a further right to participate in profits) carrying not less than twenty-five per cent. of the voting power have been allotted unconditionally to, or acquired unconditionally by, and are at the end of the year or other period for which the accounts of the company have been made up as aforesaid beneficially held by, the public (not including a company to which the provisions of this section apply) and any such shares have in the course of such year or other period been the subject of dealings on a stock exchange in the United Kingdom and the shares have been quoted in the official list of such a stock exchange.

• The expression ' company' means a company within the meaning of the [8 Edw. 7. c. 69.] Companies (Consolidation) Act, 1908.”

(4)Where an order has been made or a resolution passed for the winding-up of a company to which the said section twenty-one applies, the income of the company for the period from the end of the last year or other period for which accounts of the company have been made up to the date of the order or resolution for winding up shall, for the purposes of the said section, be deemed to be income of that period available for distribution to the members of the company, and, as respects that period and the next preceding year or other preceding period or periods ending within that next preceding year for which accounts have been made up, the said section shall apply as if the words " within "a reasonable time " in subsection (1) of the said section were omitted therefrom.

(5)Any notice required under the provisions of the said section twenty-one to be served upon a company may, where the company is in liquidation, be served upon the liquidator of the company, and the liquidator shall be responsible for doing all matters or things required to be done by or on behalf of the company, and the liquidator shall be responsible for the due payment of any super-tax payable by or recoverable from the company under the provisions of the said section.

(6)The income apportioned to a member of a company for the period from the end of the last year or other period for which accounts have been made up to the date of the order or resolution for winding up shall, for the purposes of super-tax, be deemed to have been received by him on the date of that order or resolution.

(7)The following shall be substituted for paragraph 5 of the First Schedule to the Finance Act, 1922 :—

“5(a)Where the Special Commissioners have—

(i)issued a notice requiring any company to furnish them with particulars under paragraph 4 of this schedule as respects any year or other period; or

(ii)given a direction under subsection (1) of section twenty-one of this Act as respects any year or other period in relation to any company to which no such notice has been issued as respects that year or period;

the directors of the company, if they are of opinion that there has not been and will not be any avoidance of the payment of super-tax through failure to distribute to the members of the company a reasonable part of its income for that year or period, may make a statutory declaration to that effect stating the facts and circumstances upon which their opinion is based ;

(b)In any case where such a statutory declaration as aforesaid is sent to the Special Commissioners within twenty-eight days of the issue of such a notice or the giving of such a direction as aforesaid the Special Commissioners shall not, unless they see reason to the contrary, take any further action in the matter;

(c)If in any such case the Commissioners see reason to the contrary they shall send to the Board of Referees a certificate to that effect, together with the said statutory declaration, and shall at the same time transmit a copy of the certificate and of the statutory declaration to the Commissioners of Inland Revenue;

(d)The Commissioners of Inland Revenue may at any time within twenty-eight days after receiving the copy of the certificate and the copy of the statutory declaration submit to" the Board of Referees a counter-statement with reference to the matter;

(e)The Board of Referees shall in any such case take into consideration the declaration, and the certificate, and the counter-statement, if any, and shall determine whether there is or is not a prima facie case for proceeding in the matter;

(f)The determination of the Board of Referees under this paragraph shall be final and conclusive, and, where the Board of Referees determines that there is a prima, facie case for proceeding, the notice or direction aforesaid shall have effect as if it had been issued or given on the date on which notice of the determination of the Board is given to the company.”

(8)The following shall be substituted for paragraph 9 of the First Schedule to the Finance Act, 1922—

“9The income apportioned to a member of a company so far as assessable and chargeable to super-tax under section twenty-one of this Act shall for the purposes of that tax be deemed to have been received by him on the date to which the accounts of the company for the year or period were made up or, if an application in that behalf is made by the company to the Special Commissioners at any time within the period limited by this Schedule for giving notice of appeal against the direction to the Special Commissioners, on such date as those Commissioners determine to be just, having regard to the dates on which distributions of income have been made by the company, and so as to avoid, as far as possible, the inclusion for the purposes of super-tax for any year of income referable to more than one year.”