What does section 37 of TIOPA 2010 deal with?

Section 37 of the Taxation (International and Other Provisions) Act 2010 addresses the tax treatment of payments made between companies where one company contributes towards the cost of a penalty imposed on another company under this part of the legislation. It ensures such payments are treated as tax-neutral for corporation tax purposes.

Are penalty-sharing payments between companies taxable under TIOPA 2010 section 37?

No. Provided the total payments received do not exceed the penalty amount, they are ignored when calculating the taxable profits of both the paying and receiving companies. The payments are not included as taxable income for the recipient nor allowed as a deduction for the payer, making them entirely tax-neutral.

Are penalty-sharing payments treated as distributions for corporation tax purposes?

No. Under section 37 of TIOPA 2010, payments made between companies to share the cost of a penalty are not classified as distributions. This means they do not attract the tax consequences that would normally apply to distributions between companies, such as dividend taxation or other distribution-related rules.

What conditions must be met for penalty-sharing payments to qualify for tax-neutral treatment under section 37?

The contributing companies must each be within the charge to corporation tax and must have an agreement with the penalised company. Additionally, the total amount received by the penalised company from all contributing companies must not exceed the total penalty amount imposed under the legislation.

Taxation (International and Other Provisions) Act 2010 section 37

Payments between companies in respect of penalties

Section 37 deals with the tax treatment of payments made between companies where one company helps another meet the cost of a penalty imposed under this part of the legislation.

Where a company liable to a penalty has an agreement with one or more other companies within the charge to corporation tax, payments may be made to help cover that penalty.
The total payments received must not exceed the amount of the penalty itself.
Any such payments are ignored when calculating the taxable profits of both the paying and receiving companies.
The payments are not treated as distributions for corporation tax purposes.

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