Clause 12

by inserting, immediately after subsection (4), the following subsection:“(4A) Any dividends debited to the account shall be treated as having been distributed to the shareholders of the company or any particular class of the shareholders in accordance with the proportion of their shareholdings in the company.”;

by deleting subsections (6) and (6A) and substituting the following subsections:“(6) Where an amount has been received by way of dividends from a company by a shareholder and the amount is exempt from tax under this section, if that shareholder is a company, any dividends paid by that company to its shareholders, to the extent that the Comptroller is satisfied that those dividends are paid out of that amount, shall be exempt from tax in the hands of those shareholders, and section 44 shall not apply to any such dividend or part thereof.(6A) Notwithstanding subsections (4) and (6) —

no dividend paid on any share of a preferential nature shall be exempt from tax in the hands of the shareholder;

any dividend paid on any share of a preferential nature shall be deemed as interest income of the shareholder if the dividend is paid by a company —

which has not been subjected to the provisions of section 44 in force immediately before 1st January 2003; or (ii)which before 1st January 2003 had been subjected to the provisions of section 44 in force immediately before that date and the dividend is paid on or after —

the 44A balance of the company becomes nil;

the company exercises the option referred to in section 44(6A); or

31st December 2007,whichever is the earliest; and (c)any dividend paid on any share of a preferential nature shall be deemed as interest expense of the company if the company so elects.”; and

by deleting the words “, including a dividend paid by a holding company under subsection (6),” in subsection (8)(b).