Income Tax (Trading and Other Income) Act 2005

442 Securities issued in accordance with qualifying earn-out right

(1) This section applies if a security is issued to a person in accordance with the terms of a qualifying earn-out right.

(2) The amount paid by the person to acquire the security is to be taken for the purposes of this Chapter to be the total of—

(a) the market value, immediately before the issue, of the right to be issued with the security in accordance with the terms of the qualifying earn-out right, and

(b) any amount payable for the issue in accordance with those terms.

(3) In this section “qualifying earn-out right” means a right that meets conditions A to C, or so much of a right as does so.

(4) Condition A is that the right constitutes the whole or part of the consideration for—

(a) the transfer by the person on whom the right is conferred of shares in or debentures of a company, or

(b) the transfer of the whole or part of—

(i) a business carried on by that person, or by that person and others in partnership, or

(ii) an interest in such a business.

(5) Condition B is that the right is either—

(a) a right to be issued with securities of another company, or

(b) a right which is capable of being discharged in accordance with its terms by the issue of such securities.

(6) Condition C is that the right is such that the value of the consideration mentioned in condition A is unascertainable at the time when the right is conferred.