4U.K.The investing company is a qualifying investing company in relation to the relevant shares if the requirements of this Part are met as to—
(a)no material interest (see paragraph 5);
(b)no reciprocal arrangements (see paragraph 6);
(c)no control (see paragraph 8);
(d)non-financial activities (see paragraph 10);
(e)the shares being a chargeable asset (see paragraph 13); and
(f)no tax avoidance (see paragraph 14).
5U.K.The investing company must not, at any time during the qualification period relating to the shares, have a material interest in the issuing company.
6(1)The investing company must not subscribe for the relevant shares as part of any arrangements which provide for any other person to subscribe for shares in a related company.U.K.
(2)For this purpose—
(a)arrangements shall be disregarded to the extent that they provide for the issuing company to subscribe for shares in any of its qualifying subsidiaries, and
(b)“” means a company in which the investing company, or any other person who is a party to the arrangements, has a material interest.
(3)In sub-paragraph (2)(a) the reference to qualifying subsidiaries of the issuing company is not restricted to companies that were such subsidiaries at the time the arrangements were made.
7(1)For the purposes of paragraphs 5 and 6 a person has a material interest in a company if he (whether alone or together with any person connected with him) directly or indirectly possesses or is entitled to acquire more than 30% of—U.K.
(a)the ordinary share capital of the company or any subsidiary, or
(b)the voting power in the company or any subsidiary.
(2)For the purposes of sub-paragraph (1) “”, in relation to a company, means—
(a)all of the issued share capital (by whatever name called) of the company, other than capital comprising relevant preference shares, and
(b)all of the loan capital of the company that comprises debt which carries (directly or indirectly) any right to conversion into, or to the acquisition of, shares within paragraph (a) (or that would be within that paragraph if issued).
(3)For the purposes of sub-paragraph (2)(b) the loan capital of a company shall be treated as including any debt incurred by the company—
(a)for any money borrowed or capital assets acquired by the company,
(b)for any right to receive income created in favour of the company, or
(c)for consideration the value of which to the company was (at the time when the debt was incurred) substantially less than the amount of the debt (including any premium on it).
This is subject to sub-paragraph (4).
(4)For the purposes of sub-paragraph (3) a debt which—
(a)is incurred by a company or any subsidiary by overdrawing an account with a person carrying on the business of banking, and
(b)arises in the ordinary course of that business,
shall not be treated as loan capital of the company.
(5)For the purposes of sub-paragraph (1)—
(a)a person is treated as entitled to acquire anything which he is entitled to acquire at a future date or will at a future date be entitled to acquire, and
(b)there are attributed to a person any rights or powers of any other person who is an associate of his.
(6)For the purposes of this paragraph a company is a subsidiary of another company if it is a 51% subsidiary of that company.
8(1)The investing company must not, at any time during the qualification period relating to those shares, control the issuing company.U.K.
(2)For this purpose the question whether the investing company controls the issuing company shall be determined in accordance with [F1sections 450 and 451 of CTA 2010] with the following modifications.
(3)The first modification is that, in determining whether the investing company controls the issuing company, there shall be disregarded—
(a)its or any other person’s possession of, or entitlement to acquire, relevant preference shares of the issuing company; and
(b)its or any other person’s possession of, or entitlement to acquire, rights as a loan creditor of the issuing company.
(4)For the purposes of sub-paragraph (3) a person is a “loan creditor” of a company if the person is a creditor in respect of the loan capital of that company (within the meaning of paragraph 7(3)).
(5)The second modification is that in determining whether the conditions of [F2sections 450(2) to (4) of CTA 2010] are satisfied there shall be attributed to the investing company (to the extent that it would not otherwise be the case) any rights or powers in the issuing company, or any of its subsidiaries, that are held by—
(a)any person connected with the investing company; or
(b)any person who is—
(i)a director of the investing company, or of any company connected with that company, or
(ii)a relative of such a director.
For this purpose “relative” means [F3spouse or civil partner], parent or remoter forebear or child or remoter issue.
Textual Amendments
F1Words in Sch. 15 para. 8(2) substituted (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 315(2)(a) (with Sch. 2)
F2Words in Sch. 15 para. 8(5) substituted (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 315(2)(b) (with Sch. 2)
F3Words in Sch. 15 para. 8(5)(b)(ii) substituted (5.12.2005) by Tax and Civil Partnership Regulations 2005 (S.I. 2005/3229), regs. 1(1), 132
9(1)In paragraphs 7 (meaning of “material interest”) and 8 (the “no control” requirement) “” means shares which—U.K.
(a)do not for the time being carry voting rights;
(b)are issued wholly for new consideration;
(c)do not carry any right either to conversion into shares or securities of any other description or to the acquisition of any additional shares or securities; and
(d)do not carry any right to dividends other than dividends which—
(i)fall within sub-paragraph (2) or (3);
(ii)are not to any extent dependent on the results of the company’s business or any part of it or on the value of any of the company’s assets; and
(iii)together with any sum paid on a redemption, represent no more than a reasonable commercial return on the consideration for which the shares were issued.
In paragraph (b) “new consideration” has the meaning given by [F4section 1115 of CTA 2010].
(2)Dividends fall within this sub-paragraph if they are of a fixed amount or at a fixed rate per cent of the nominal value of the shares.
This includes dividends where the amount or rate may be changed to another fixed amount or fixed rate in a manner determined under the terms of issue of the shares.
(3)Dividends fall within this sub-paragraph if they are of a rate per cent of the nominal value of the shares and the rate fluctuates in accordance with—
(a)a standard published rate of interest,
(b)a rate of tax,
(c)the retail prices index, or any similar general index of prices which is published by the government, or by an agent of the government, of the country or territory in whose currency the shares are denominated, or
(d)a published index of prices of shares quoted in the official list of a recognised stock exchange.
(4)For the purposes of sub-paragraph (1)(d)(ii) dividends shall not be treated as being to any extent dependent on the results of the company’s business (or any part of it) or on the value of any of the company’s assets by reason only of the fact that the amount or rate of the dividends—
(a)reduces in the event of the results of the business (or part) improving or the value of any of the company’s assets increasing, or
(b)increases in the event of the results of the business (or part) deteriorating or the value of any of the company’s assets diminishing.
(5)Dividends are not prevented from falling within sub-paragraph (2) or (3) by the fact that the shares carry no rights at all to dividends for a period or periods determined under the terms of issue of the shares.
Textual Amendments
F4Words in Sch. 15 para. 9(1) substituted (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), s. 1184(1), Sch. 1 para. 315(3) (with Sch. 2)
10(1)Throughout the qualification period relating to the relevant shares the investing company must fall within sub-paragraph (2) or (3).U.K.
(2)The company falls within this sub-paragraph at any time when it—
(a)is a single company, and
(b)disregarding any incidental purposes, exists wholly for the purpose of carrying on one or more non-financial trades.
(3)The company falls within this sub-paragraph at any time when—
(a)it is a group company,
(b)the group is a non-financial trading group, and
(c)sub-paragraph (4) applies.
(4)This sub-paragraph applies where the company—
(a)disregarding any incidental purposes, exists wholly for the purpose of carrying on one or more—
(i)non-financial trades, or
(ii)businesses other than trades; or
(b)is the parent company of the group.
(5)For the purposes of determining whether the company falls within sub-paragraph (2)(b) or (4)(a), the purposes for which the company exists shall be disregarded to the extent that they consist in the carrying on of the following activities—
(a)in the case of a single company, the holding and managing of property used by the company for one or more non-financial trades carried on by it,
(b)in the case of a group company, any activities within paragraph 12(3)(a) or (b), and
(c)in any case, the holding of shares to which investment relief is attributable, unless the holding of such shares amounts to a substantial part of the company’s business.
(6)In this paragraph “incidental purposes” means purposes having no significant effect (other than in relation to incidental matters) on the extent of the company’s activities.
11(1)A trade is a “non-financial trade" if—U.K.
(a)it is conducted on a commercial basis and with a view to the realisation of profits, and
(b)it does not consist wholly or as to a substantial part in the carrying on of financial activities.
(2)For this purpose “financial activities” includes—
(a)banking, or money-lending, carried on by a bank, building society or other person;
(b)debt-factoring, finance-leasing or hire-purchase financing;
(c)insurance;
(d)dealing in shares, securities, currency, debts or other assets of a financial nature; and
(e)dealing in commodity or financial futures or options.
12(1)A group is a “non-financial trading group" unless the business of the group consists wholly or as to a substantial part in the carrying on of one or more of the following—U.K.
(a)trades other than non-financial trades;
(b)businesses which are not trades.
(2)The business of the group means what would be the business of the group if the activities of the group companies taken together were regarded as one business.
(3)For this purpose activities of a group company shall be disregarded to the extent that they consist in—
(a)the holding of shares in or securities of, or the making of loans to, another group company;
(b)the holding and managing of property used by a group company for the purposes of one or more non-financial trades carried on by a group company; or
(c)the holding of shares to which investment relief is attributable, unless the holding of such shares amounts to a substantial part of the company’s business.
13(1)The investing company is not a qualifying investing company in relation to the relevant shares unless the shares are a chargeable asset of the company immediately after they are issued to it.U.K.
(2)For this purpose an asset is a chargeable asset of that company at any time if, on a disposal at that time, a gain accruing to the company would be a chargeable gain.
(3)In this paragraph “asset” has the same meaning as in the 1992 Act.
14U.K.The relevant shares must be subscribed for by the investing company for commercial reasons, and not as part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax.