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Tax treatment on overseas co. share buy back

Income or capital?

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Good morning all,

Here's the scenario.

Client owns 25% of the shares in a foreign company.

The other shareholders wanted to buy him out but they didn't have enough cash to do so. The foreign company has therefore purchased his shares for £1m.

Questions are therefore as follows:

1) Does the 'purchase of own shares' legislation apply in this scenario? If it doesn't could you point me in the direction of where the legislation mentions 'UK companies'.

2) If the share buy back rules are not in play is the only issue the Transaction in Securities rules. Rae vs Lazard tells us that for UK residents we need to follow the tax treatement of the local corparate law. Presumably this would apply in my case?

So in summary if the overseas authorities have treated this as a capital distribution then our client is well within his rights to do the same on his UK tax return. Is this analysis correct?

Happy to be corrected on any of the above and any help would be greatly appreciated.

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By chicken farmer
15th Mar 2019 10:31

You are correct in saying that there is no requirement in the POS legislation for the purchasing company to be UK resident. But as this legislation treats what would otherwise be a distribution as an 'exempt distribution', the question in my mind is whether ignoring the POS provisions, this would be a distribution anyway?

I am open to correction here but think that, for it to be a distribution within Chapter 2 Part 23 CTA 2010, the company would have to be within the scope of UK corporation tax . So if it isn't a distribution, you don't need it to be an exempt distribution.

Nevertheless I would seek clearance under the transactions in securities provisions.

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