Introduction Equity holders Overview Section 165: Proportion of profits available for distribution to which company is entitled
661.This section sets out how to apply the tests in this Part that are based on an entitlement to a distribution of profits. It is based on paragraph 2 of Schedule 18 to ICTA.
662.The tests in this Part, based on an entitlement to a distribution of profits, are in sections 143(3)(b), 144(3)(b) and 151(4)(a). The tests are also applied, by cross-reference, in, for example, the rules about small profits relief (see section 33(7)).
663.Subsection (1) sets the scope of the section and introduces company A (the parent) and company B (the subsidiary).
664.Subsection (2) is the basic rule: the proportion of the profits to which company A is entitled is based on what it would get if all company B’s profits of an accounting period were distributed to its equity holders. If there are no profits in that accounting period a notional profit of £100 is assumed.
665.Subsection (3) clarifies the position in the case where some of company B’s profits are in fact distributed. The section is still concerned with the whole of its profits.
666.Subsection (4) requires that company B’s profits are calculated in accordance with United Kingdom tax rules, wherever it is resident.
667.Subsection (5) makes clear that the section is not concerned with any payments that are repayments of capital.
668.Subsection (6) includes in company A’s entitlement any payment which it gets as an equity holder even if the payment would not otherwise count as a distribution.