Avoidance of tax liability by non distribution of dividends
(1)
Where the Commissioner is of the opinion that a company has
not distributed to its shareholders as dividends within a reasonable period, not
exceeding twelve months, after the end of its accounting period that part of its
income for that period which could be so distributed without prejudice to the
requirements of the company’s business, he may direct that that part of the
income of the company shall be treated for the purposes of this Act as having
been distributed as a dividend to the shareholders in accordance with their
respective interests and shall be deemed to have been paid on a date twelve
months after the end of that accounting period.(2)
The Commissioner may direct that a charge be made
upon a company in respect of adjustments to the liability of a shareholder as a
result of a direction under subsection (1):Provided that -
- (i) if a charge is made, the company shall be entitled to recover from the shareholder the amount of tax attributable to the adjustment made in respect of that shareholder; and
- (ii) where an adjustment is made under this section relating to the distributable profits of a company and those profits are subsequently distributed, the proportionate share therein of a shareholder shall be excluded in computing the total income of that shareholder.
(3)
(Deleted by 8 of 1978, s.9)(4)
A company may at any time before making a distribution
of a dividend to its shareholders inquire of the Commissioner whether the
distribution would be regarded by him as sufficient for the purpose of subsection
(1), and the Commissioner, after calling on the company for any information that
he may reasonably require, shall advise the company whether or not he proposes
to take action under this section.(5)
Where under this section part of the income of a
company is treated as having been distributed and divided to its shareholders and
in consequence thereof, another company is treated as having received a
dividend, then for the purpose of applying the provisions of subsection (1) to the
other company, the dividend which it is treated as having received shall be
deemed to be part of the income of the other company available for distribution
by the other company to its shareholders as dividends.
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