188体育

The ADP exemption was abolished in FA09 for accounting periods of CFCs beginning on or after 1 July 2009. This guidance only applies to APs ending on or before 30 June 2009

ICTA88/SCH25/PARA2A

Relevant profits is a term borrowed from ICTA88/S799. Prior to FA00, there was no statutory definition of the term 鈥榬elevant profits鈥�. Its meaning was taken largely from Bowater Paper Corporation Ltd v Murgatroyd (46TC37) in which it was held that the term referred not to profits adjusted for tax purposes but to the commercial profits shown in a company鈥檚 accounts as available for distribution. From 31 March 2001, ICTA88/S799 contains a statutory definition of the term 鈥榬elevant profits鈥� which will apply for dividends paid under an ADP on or after that date. Whether profits are available for distribution will continue to depend on accounting practice and company law in the appropriate jurisdiction and not the United Kingdom.

Example

A is a controlled foreign company.

Year to 31 December year 1

A is carrying on exempt activities. It has relevant profits of 拢400,000, out of which it pays dividends to the United Kingdom of 拢200,000.

Year to 31 December year 2

A is not subject to a lower level of taxation. It has relevant profits of 拢50,000, which are entirely paid up in dividends to the United Kingdom during the year.

Year to 31 December year 3

A is subject to a lower level of taxation and, following a change of business, fails the exempt activities test. It has net chargeable profits of 拢210,000 and relevant profits of 拢25,000.

To meet an acceptable distribution policy for year 3 the company must pay dividends to the United Kingdom of 拢189,000 (90% of 拢210,000) within 18 months of the year end.

This is satisfied as follows:

拢25,000	is paid out of the profits of year 3. This satisfies the distribution condition for that year enabling it to turn to previous years鈥� profits.
拢50,000	Dividends paid out of the profits of year 2. Since no apportionment is due for year 2 the company is entitled to include dividends paid for that accounting period towards an acceptable distribution policy of a later year. The distribution condition is then satisfied for this year and the company can turn to the previous year.
拢114,000	of the dividends paid for year 1. No apportionment is due for this year and the company can include the dividends paid for this year in satisfying an acceptable distribution for year 3. The balance of 拢86,000 paid for year 1 is available to meet acceptable distributions of year 4 onwards if the distribution condition in subsequent years is met. The 拢200,000 retained is also available to meet an acceptable distribution policy for a subsequent year.
拢189,000	Total - to meet ADP for year 3