Corporation Tax Act 2009 section 931J

Schemes involving manipulation of controlled company rules

Section 931J is an anti-avoidance rule that prevents companies from exploiting the controlled company exemption by deliberately acquiring control of a foreign company in order to receive tax-exempt dividends paid out of profits that were earned before that control existed.

• This rule targets schemes where a main purpose is to secure dividend exemption under the controlled companies exempt class by manipulating when control is acquired
• A dividend caught by this rule is one paid out of "pre-control profits" — profits that arose at a time when the paying company was not yet controlled by the recipient
• The rule only removes exemption under the controlled companies class; if a dividend qualifies for exemption under a different exempt class, that exemption is unaffected
• Where only part of a dividend relates to pre-control profits, that dividend is split into two separate dividends — one taxable and one potentially exempt — for corporation tax and double taxation relief purposes