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Distributions of a capital nature: unexpected points from the draft legislation

The draft legislation on company distributions addresses damaging uncertainty. But it also throws up a number of complications. What follows is a taste of some of the more unexpected points assuming familiarity with the basic proposals (see ‘Capital Distributions: where have we landed?’ Tax Journal dated 6 September):

Foreign law is still relevant

The draft legislation removes the requirement to test whether a distribution is of a capital nature which was interpreted as requiring an examination of the local corporate law (Rae v Lazard [1963] 1 WLR 555 HL). However local law remains relevant and will create uncertainty.

For example the income distribution code excludes amounts treated as ‘repayments of capital’ and it will be necessary to consider local law to determine whether this concept applies.

The draft legislation also requires local law to be compared with UK company law to...

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