The Shadow ACT system came into force after the abolition of ACT in 1999. It represented a virtual continuation of the ACT system. Shadow ACT could be offset in the same way as ACT on corporation tax liabilities. The rules are to be amended to extend the definition of ‘group’ in the legislation to include parent companies resident in the EEA. This will have the effect of extending, upwards, the possibility of making distributions to EEA parented companies without incurring Shadow ACT on those distributions.

The purpose of this change is to attempt to make the rules EU law compliant (and a tacit acceptance that the old ones were not). Crucially, however, the changes do not appear to have an impact on the distribution of profits received from the EU/EEA. Shadow ACT is incurred even though those profits have already been subject to tax in their jurisdiction of origin. Without further amendment, therefore, the Shadow ACT rules will continue the discrimination which existed under the old ACT system.