Income and Corporation Taxes Act 1988

Requirements as to company’s business U.K.

3 (1) The requirements of this paragraph are as follows.

(2) The relevant company must be one of the following, that is to say—

(a) a company which exists wholly for the purpose of carrying on one or more qualifying trades or which so exists apart from purposes capable of having no significant effect (other than in relation to incidental matters) on the extent of the company’s activities; [F1 or

(aa) the parent company of a trading group.]

(3) Subject to sub-paragraph (4) below, the relevant company or a [F2 relevant qualifying subsidiary] of that company must, when the relevant holding was issued and at all times since, have been either—

(a) carrying on a qualifying trade wholly or mainly in the United Kingdom; or

(b) preparing to carry on a qualifying trade which at the time when the relevant holding was issued it intended to carry on wholly or mainly in the United Kingdom,

[F3 and for the purposes of this sub-paragraph a company is a relevant qualifying subsidiary of another company at any time when it would be a qualifying subsidiary of that company if “90" were substituted for “75" in every place where “75" occurs in paragraph 10(3) below.]

(4) The requirements of sub-paragraph (3) above shall not be capable of being satisfied by virtue of paragraph (b) of that sub-paragraph at any time after the end of the period of two years beginning with the issue of the relevant holding unless—

(a) the relevant company or the subsidiary in question began to carry on the intended trade before the end of that period, and

(b) that company or subsidiary has, at all times since the end of that period, been carrying on a qualifying trade wholly or mainly in the United Kingdom.

(5) The requirements of that sub-paragraph shall also be incapable of being so satisfied at any time after the abandonment, within the period mentioned in sub-paragraph (4) above, of the intention in question.

[F4 (6) For the purposes of this paragraph a company is the parent company of a trading group if—

(a) it has one or more subsidiaries;

(b) each of its subsidiaries is a qualifying subsidiary of the company; and

(c) the requirements of sub-paragraph (7) below are fulfilled by what would be the business of the company and its qualifying subsidiaries if all the activities, taken together, of the company and its qualifying subsidiaries were regarded as one business.

(7) A business fulfils the requirements of this sub-paragraph if neither the business nor a substantial part of it consists in, or in either of, the following, that is to say—

(a) activities falling within paragraph 4(2)(a) to (f) below but not within sub-paragraph (8) below; and

(b) activities carried on otherwise than in the course of a trade.

(8) The activities falling within this sub-paragraph are—

(a) the receiving of royalties or licence fees in circumstances where [F5 the requirement mentioned in paragraph 4(5) below is] satisfied in relation to the company receiving them;

(b) the letting of ships, other than oil rigs or pleasure craft, on charter in circumstances where the requirements mentioned in paragraphs (a) to (d) of paragraph 4(7) below are satisfied in relation to the company so letting them.

(9) Activities of a company or of any of its qualifying subsidiaries shall be disregarded for the purposes of sub-paragraphs (6) to (8) above to the extent that they consist in—

(a) the holding of shares in or securities of, or the making of loans to, one or more of the company’s qualifying subsidiaries; or

(b) the holding and managing of property used by the company or any of its qualifying 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 qualifying subsidiaries will be derived; or

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

(10) Activities of a qualifying subsidiary of a company shall also be disregarded for the purposes of sub-paragraphs (6) to (8) above to the extent that they consist in—

(a) the making of loans to the company; or

(b) in the case of a mainly trading subsidiary, activities carried on in pursuance of its insignificant purposes (within the meaning given by sub-paragraph (11) below).

(11) In sub-paragraph (10) above “mainly trading subsidiary” means a qualifying subsidiary which, apart from purposes (“its insignificant purposes”) which are capable of having no significant effect (other than in relation to incidental matters) on the extent of its activities, exists wholly for the purpose of carrying on one or more qualifying trades.]

Textual Amendments

F1 Sch. 28B para. 3(2)(aa) and preceding word substituted for para. 2(2)(b)(c) (with effect in accordance with Sch. 9 para. 6 of the amending Act) by Finance Act 1997 (c. 16), Sch. 9 para. 2(1)

F2 Words in Sch. 28B para. 3 substituted (with effect in accordance with s. 73(6) of the amending Act) by Finance Act 1998 (c. 36), s. 73(3)

F3 Words in Sch. 28B para. 3 inserted (with effect in accordance with s. 73(6) of the amending Act) by Finance Act 1998 (c. 36), s. 73(3)

F4 Sch. 28B para. 3(6)-(11) inserted (with effect in accordance with Sch. 9 para. 6 of the amending Act) by Finance Act 1997 (c. 16), Sch. 9 para. 2(2)

F5 Words in Sch. 28B para. 3(8)(a) substituted (with effect in accordance with Sch. 16 para. 1(2) of the amending Act) by Finance Act 2001 (c. 9), Sch. 16 para. 1(1)