The Corporation Tax (Treatment of Unrelieved Surplus Advance Corporation Tax) Regulations 1999

Computation of shadow ACT

11.—(1) Where a company resident in the United Kingdom makes a relevant distribution, other than a relevant distribution to which paragraph (2) applies, shadow ACT shall, for the purposes of determining the amount of unrelieved surplus ACT that may be set against a company’s liability to corporation tax for an accounting period in accordance with regulation 14, be treated as having been paid by the company in accordance with the provisions of this regulation.

(2) This paragraph applies to a relevant distribution–

(a)which is a manufactured dividend to which paragraph 2(2) of Schedule 23A(1) applies, or

(b)which is made, otherwise than in the circumstances specified in paragraph (3), by a company that is a member of a group to another company within the group.

(3) The circumstances specified in this paragraph are where the company making the distribution–

(a)has received, in the accounting period in which the distribution is made, franked investment income of an amount sufficient to ensure that the amount of shadow ACT that, apart from paragraph (2)(b), would be treated as having been paid in respect of that distribution would have been less than it would have been had the company not received that amount of franked investment income;

(b)has elected in its tax return for the accounting period in which the distribution is made, or in an amendment to that tax return, that an amount of the franked distribution equal to the whole or a stated amount of that franked investment income (multiplied by nine-eighths) should not be excluded in computing its shadow ACT for that period; and

(c)has informed the company receiving the distribution that sub-paragraphs (a) and (b) of this paragraph apply in relation to the distribution, and of the amount of the distribution to which the election under sub-paragraph (b) applies.

(4) An election to which paragraph (3)(b) refers–

(a)shall be made not later than two years after the end of the accounting period in which the distribution is made, and

(b)shall be irrevocable.

(5) Where a relevant distribution to which paragraph (1) applies does not fall within an accounting period of the company making the distribution, it shall be treated, for all purposes of these Regulations, as falling within an accounting period that–

(a)begins–

(i)on the same date as the date on which the accounting period of the company’s immediate parent company in which the distribution falls begins or, if later

(ii)on the date immediately following the end of the last accounting period of the company making the distribution that precedes the date on which the distribution is made, and

(b)ends–

(i)on the same date as the date on which the accounting period of the company’s immediate parent company in which the distribution falls ends or, if earlier

(ii)on the date immediately before the beginning of an accounting period of the company making the distribution.

(6) For the purposes of paragraph (5), where the distribution referred to in that paragraph is made at a time when there is no accounting period of the company’s immediate parent company, that paragraph shall have effect as if for the references to the accounting period of the company’s immediate parent company there were substituted references to the accounting period of the immediate parent company of the company’s immediate parent company (and so on until the accounting period of an immediate parent company in which the distribution falls is found).

(7) Where a company ceases to be a member of a group, shadow ACT shall be computed in accordance with paragraph (1) in relation to the accounting period of the company in which it ceases to be a member of the group as if the part ending on the date on which the company ceases to be a member of the group, and the part after, were two separate accounting periods.

(8) Where there is a change of ownership of a company and the change–

(a)is not such as to cause the company to cease to be a member of a group, but

(b)occurs in circumstances where either regulation 16 or regulation 17 applies,

shadow ACT shall be computed in accordance with paragraph (1) in relation to the accounting period of the company in which the change occurs as if the part ending with the change, and the part after, were two separate accounting periods.

(9) Subject to paragraphs (10) to (12), for the financial year 1999 and any subsequent financial year, shadow ACT shall be treated as having been paid at the rate of 25 per cent. on an amount equal to the amount or value of the relevant distribution.

(10) Where in any accounting period a company receives franked investment income, subject to regulation 22(1), shadow ACT shall not be treated as having been paid by the company in respect of relevant distributions made by it in that period unless the amount of franked distributions made by it in that period exceeds the aggregate of–

(a)nine-eighths of the amount of franked investment income consisting of distributions made to the company in that period, and

(b)the amount of any surplus of franked investment income carried forward from the previous accounting period in accordance with paragraph (12).

(11) If in an accounting period there is such an excess, shadow ACT shall be treated as having been paid on an amount which, when the shadow ACT treated as having been paid thereon is added to it, is equal to the excess.

(12) Where a company has a surplus of franked investment income in any accounting period, the surplus shall be carried forward to the next accounting period for the purposes of paragraphs (3), (10) and (13).

(13) A company has a surplus of franked investment income in an accounting period for the purposes of paragraph (12) if an amount equal to the aggregate of nine-eighths of the franked investment income consisting of distributions made to the company in that period and the surplus of franked investment income carried forward from the previous accounting period in accordance with paragraph (12) exceeds the amount of the franked distributions made by it in that period; and the amount of that excess shall be regarded as the amount of the surplus of franked investment income for the purposes of paragraph (12).

(14) In the application of paragraphs (12) and (13) to a straddling accounting period of a company, or to the case where an accounting period of a company ends on 5th April 1999 and its next accounting period begins on 6th April 1999–

(a)there shall be ascertained the amount of surplus franked investment income in the accounting period ending or, in the case of a straddling accounting period, deemed by virtue of regulation 3(4) to end, on 5th April 1999;

(b)that amount shall be treated as carried forward to the accounting period beginning or, in the case of a straddling accounting period, deemed by virtue of regulation 3(4) to begin, on 6th April 1999 and shall be treated as mentioned in paragraph (10).