This section deals with the case where a tax credit, reduced in accordance with section 64, is in respect of a distribution to which section 178, which deals with dividends on offer at gross rates, applies, In other words, it deals with preference dividends. Section 178 provides that an obligation created before April 6th, 1976, to make a fixed rate distribution—for example, a preference dividend—will as from that date be satisfied by payment of such an amount as will, with the addition of the normal tax credit in force on that date, be equal to the gross distribution which the company were previously obliged to make. The section requires the company to make a supplementary payment equal to the amount by which the tax credit as reduced under section 64 falls short of the normal tax credit.
If I could perhaps use some non-technical language—under the old system, getting rid of dividends was good but under the new system the company would be discharging their obligations to pay if they paid a preference dividend which with the tax credit would equal the gross dividend.