Corporation Tax Act 2009 section 931H

Distributions derived from transactions not designed to reduce tax

Section 931H provides a corporation tax exemption for dividends and other distributions that are paid out of profits not tainted by tax avoidance transactions, and explains how distributions are allocated between tainted and untainted profits.

• A dividend or distribution qualifies as exempt if it is paid out of "relevant profits" — meaning profits that do not arise from transactions designed to achieve a more than negligible reduction in UK tax
• Where a company holds profits derived from tax avoidance transactions, those must be distributed first (as taxable dividends) before the exemption becomes available for subsequent dividends from relevant profits
• If a single dividend is paid partly from relevant profits and partly from avoidance-tainted profits, the two portions are split and treated as separate distributions
• The non-exempt portion of a split distribution can qualify for double taxation relief under the relevant provisions