Corporation Tax Act 2010 section 1007

Securities issued at premium representing new consideration

Section 1007 explains how the "principal secured" by a security is measured for distribution purposes when that security has been issued at a premium representing new consideration.

• When a company issues a security at a premium that represents new consideration, the premium amount is added to the principal when measuring how much of any distribution represents the principal secured.
• The test for whether a distribution exceeds a reasonable commercial return must also take into account a reasonable commercial return on the premium, not just on the principal alone.
• Both adjustments affect how paragraph E of the distribution rules in section 1000(1) is applied — the premium effectively becomes part of the invested capital for these purposes.
• This section is subject to a qualification in section 1008, which deals with situations where the consideration for the issue of a security exceeds the amount of the principal.

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