835Y. Relief on certain disposals of shares or securities in a controlled foreign company

(1) In this section, ‘chargeable gain’ shall be construed in accordance with section 545.

(2) This section shall apply where a controlling company or a company connected with the controlling company (either of which is in this section referred to as a ‘disposing company’), disposes of shares or securities in a controlled foreign company or in a company connected with the controlled foreign company (either of which is in this section referred to as the ‘disposed company’) and a controlled foreign company charge has been made on a disposing company by reference to its interest in the disposed company.

(3) This subsection applies where—

(a) the disposing company is the only chargeable company in relation to the disposed company,

(b) the disposing company is not a chargeable company in relation to the disposed company and the chargeable company does not have any interest in the disposed company, or

(c) the disposing company is a chargeable company in relation to the disposed company and, in relation to that disposed company, there exists another chargeable company which does not have an interest in the disposed company.

(4) For the purpose of computing the chargeable gain accruing to the disposing company on a disposal of shares or securities referred to in subsection (2)—

(a) where subsection (3) applies, an amount shall be allowable as a deduction under section 552(1)(a) from the consideration for the disposal, being an amount determined by the formula—

A x (B/C)

where—

A is the amount of the controlled foreign company charge relating to the controlled foreign company,

B is the number of shares or securities in the disposed company disposed of by the disposing company, and

C is the total number of shares or securities in the disposed company owned by the disposing company immediately before the disposal,

or

(b) where subsection (3) does not apply, an amount shall be allowable as a deduction under section 552(1)(a) from the consideration for the disposal, being an amount determined by the formula—

D x (E/F)

where—

D is the amount of the controlled foreign company charge relating to the controlled foreign company,

E is the number of shares or securities in the controlled foreign company disposed of by the disposing company, and

F is the total number of shares or securities in the controlled foreign company.

(5) Where, before a disposal referred to in subsection (2)—

(a) a distribution is made by the controlled foreign company,

(b) the distribution is made out of the chargeable income which has been subject to the controlled foreign company charge referred to in subsection (2), and

(c) section 835X applies in relation to that distribution,

paragraphs (a) and (b) of subsection (4) shall apply as if the references to A and D, respectively, in the formulae in those paragraphs were a reference to the amount of the controlled foreign company charge relating to the controlled foreign company as reduced by the amount of the controlled foreign company charge which corresponds to the chargeable income represented by the distribution.

(6) Where an amount, representing all or part of a controlled foreign company charge, has been allowed as a deduction under subsection (4), no further deduction shall be given under this section in respect of—

(a) where the amount represents all of a controlled foreign company charge, the controlled foreign company charge, or

(b) where the amount represents part of a controlled foreign company charge, that part of the controlled foreign company charge.

(7) For the purposes of identifying the shares or securities disposed of, in so far as the shares or securities are of the same class, shares or securities acquired at an earlier time shall, for the purposes of this section, be deemed to have been disposed of before shares or securities acquired at a later time.