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ESC C16 for company

ESC C16 for company

Company X holds 33.3% of Company Z's Ordinary share capital.

Company Z was granted clearance under ESC C16 in relation to its winding up and made a capital distribution of £21000 to Company X following the receipt of HMRC clearance.

Is it possbile for the company to treat the sum received as a dividend rather than a capital distribution or is the capital distribution treatment binding on all relevant shareholders?
Steve Glover


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03rd Nov 2006 13:25

It is a common misconception that ESC C16 treats distributions as capital - it does not.

It may be pedantic, but the real effect of ESC C16 is to treat any relevant distributions as if they were made in the course of a winding up. Therefore, once granted, all distributions will be so treated and therefore as capital. The end result may be the same, but the wording is important.

The key point is that one of the conditions is that "the shareholders will pay any CGT liability (or CT in the case of a corporate shareholder) in respect of any amount distributed to them in cash or otherwise as if the distributions had been made during a winding-up "

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02nd Nov 2006 14:24

I would have thought no
Bearing in mind that for C16 to apply, the company and all its shareholders must make certain assurances, I can't see that what you're proposing is possible.

One of the assurances by the shareholders is that "the shareholders will pay any CGT (or CT in case of a corporate shareholder) in respect of any amount distributed to them..."

It looks like this particular company is trying to get out of paying the CT on the gain.

If C16 was granted, presumably, this company made the relevant assurances? It can't back out now without scuppering the C16 clearance for everyone else.

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