A purchase of own shares will be treated as an income distribution unless the conditions for capital treatment are met. This document discusses these rules in detail, together with the conditions to be fulfilled; conditions A or B, and minimum period of ownership of shares; the substantial reduction test and the connection test for it to qualify for capital treatment.

Points discussed within this guidance note:

> Period of ownership

In considering company buyback of shares, or company purchase of own shares, there are specified rules relating to matching of shares when there have been several acquisitions of shares of the same class.

> The substantial reduction test

This note details what the substantial reduction test is, and how this applies to fulfll Condition A of a company purchase of own shares including that the fraction after the buy back must not exceed 75% of the fraction before the buy back.

> Entitlement to profits

> Associates

> Groups

> The connection test

> Advance clearance procedure and reporting

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