Finance Act 1986

18 For sub-paragraph (1) of paragraph 17 there shall be substituted the following sub-paragraphs—

“(1) A qualifying company may, in the relevant period, have one or more subsidiaries if—

(a) the conditions mentioned in sub-paragraph (1A) below are satisfied in respect of the subsidiary or (as the case may be) each subsidiary and, except as provided in subparagraph (1B) below, continue to be so satisfied until the end of the relevant period; and

(b) the subsidiary or (as the case may be) each subsidiary exists wholly, or substantially wholly, for the purpose of carrying on one or more qualifying trades or is a property managing, or dormant, subsidiary.

(1A) The conditions are—

(a) that the qualifying company, or another of its subsidiaries, possesses not less than 90 per cent, of the issued share capital of, and not less than 90 per cent, of the voting power in, the subsidiary;

(b) that the qualifying company, or another of its subsidiaries, would in the event of a winding up of the subsidiary or in any other circumstances be beneficially entitled to receive more than 90 per cent, of the assets of the subsidiary which would then be available for distribution to equity holders of the subsidiary;

(c) that the qualifying company or another of its subsidiaries is beneficially entitled to not less than 90 per cent, of any profits of the subsidiary which are available for distribution to equity holders of the subsidiary;

(d) that no person other than the qualifying company or another of its subsidiaries has control of the subsidiary within the meaning of section 534 of the Taxes Act; and

(e) that no arrangements are in existence by virtue of which the conditions in paragraphs (a) to (d) above could cease to be satisfied.

(1B) The conditions shall not be regarded as ceasing to be satisfied by reason only of the subsidiary or the qualifying company being wound up, or dissolved without winding up, if—

(a) it is shown that the winding up or dissolution is for bona fide commercial reasons and not part of a scheme or arrangement the main purpose, or one of the main purposes, of which is the avoidance of tax; and

(b) the net assets (if any) of the subsidiary or, as the case may be, the qualifying company are distributed to its members or dealt with as bona vacantia before the end of the relevant period, or in the case of a winding up, the end (if later) of three years from the commencement of the winding up.

(1C) The conditions shall not be regarded as ceasing to be satisfied by reason only of the disposal by the qualifying company or (as the case may be) by another subsidiary, within the relevant period, of all its interest in the subsidiary if it is shown that the disposal is for bona fide commercial reasons and not part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax.

(1D) For the purposes of this paragraph—

(a) a subsidiary of a qualifying company is a property managing subsidiary if it exists wholly, or substantially wholly, for the purpose of holding and managing property used by the qualifying company, or by any of its subsidiaries, for the purposes of—

(i) research and development from which it is intended that a qualifying trade to be carried on by the company or any of its subsidiaries will be derived; or

(ii) one or more qualifying trades so carried on;

(b) a subsidiary is a dormant subsidiary if it has no profits for the purposes of corporation tax and no part of its business consists in the making of investments; and

(c) the persons who are equity holders of a subsidiary and the percentage of the assets of a subsidiary to which an equity holder would be entitled shall be determined in accordance with paragraphs 1 and 3 of Schedule 12 to the [1973 c. 51.] Finance Act 1973, taking references in paragraph 3 to the first company as references to an equity holder and references to a winding up as including references to any other circumstances in which assets of the subsidiary are available for distribution to its equity holders.”.