Corporation Tax Act 2010 section 1008

Consideration for issue of security exceeding amount of principal

Section 1008 deals with the situation where a company issues a security and the amount paid by the investor exceeds the principal amount secured by that security, and explains how this affects the distribution rules.

• When a company issues a security and the consideration received exceeds the principal secured, the principal is treated as increased to match the consideration actually paid
• This adjusted principal figure is used when applying the distribution test in paragraph E of section 1000, which looks at whether interest or other returns exceed a reasonable commercial return on the principal
• The separate rules in section 1007 about securities issued at a premium do not apply where this section applies
• This section is overridden in certain cases by section 1009 (securities linked to dividends on shares) and section 1012 (hedging arrangements)