Words and Phrases - "dividend"

A payment received by the taxpayer that was stated to be made out of "paid-in capital and paid-in surplus" pursuant to the provisions of the Wisconsin Business Corporations Act was found to be a dividend for purposes of the Act. Mr. Davis stated (at p. 585) that:

As the funds distributed by Marine Capital Corporation admittedly represented nothing more than premiums paid into the treasury on the purchase of shares at prices in excess of their par value of $1 per share, the share capital was neither disturbed nor impaired by the distribution of these funds.

And (at p. 586) that:

There is no question but that the appellant received its proportionate share of the fund, it having been distributed on the basis of the number of shares of Marine Capital Corporation held by each shareholder. ...[T]herefore...the payment...was a dividend received by the appellant... . The accepted ordinary meaning is to be given to the word as it is used in the Income Tax Act. The Shorter Oxford Dictionary states that the word 'dividend' is derived from the Latin word dividendum and defines it as 'a sum of money to be divided among a number of persons; a portion or share of anything divided, especially the share that falls to each distributee'."

In order to minimize German corporate tax payable by its German subsidiary ("GmbH"), the taxpayer "Plc"), which was a UK company, formed a silent partnership (stille gesellschaft) with GmbH, which entitled it to annually receive most of the profits of Gmbh. In order for Plc to receive a UK foreign tax credit for local trade tax payable by subsidiaries of GmbH, it was necessary to conclude either that (1) the silent partnership was fiscally transparent, so that GmbH as the silent partner was to be treated for UK corporation tax purposes as entitled to a share of the dividends paid by the GmbH subsidiaries to GmbH (all of which, in turn, were paid to Plc), or (2) that the share of the profits of the silent partnership paid to Plc could be treated as dividends paid by GmbH to Plc.

After finding against Plc on the first issue, Peter Gibson LJ found that an extended definition of "dividend" in the Article of the UK-German Treaty respecting withholding tax (which included a participation in a silent partnership) did not extend to the relevant Article of that Treaty according the UK foreign tax credit. In the absence of the extended definition applying, Plc's share of GmbH's profits under the silent partnership did not qualify as a dividend under the ordinary meaning of that term (p. 262):

The ordinary meaning of 'dividend' is that it is a payment of a part of the profits for a period in respect of a share in a company (Esso Petroleum Co Ltd v Ministry of Defence [1989] BTC 500 at p. 502; [1990] Ch 163 at p.165)....To treat Plc's entitlement to a share of the profits of GmbH under the silent partnership as a dividend, when that payment was unrelated to shares in GmbH and the partnership is not a company, would be inconsistent with the ordinary meaning of 'dividend'.

The income which is typically earned by shares is dividends. A payment on shares that was of an unusual and unexpected kind, i.e., a voluntary payment by the company to avoid a possible complaint by the shareholders about the sale of part of the company's assets, was not income from those shares to the shareholders.