Chapter 7: Meaning of “change in the ownership of a company”
Overview
2229.This Chapter defines “change in the ownership of a company” for the purposes of this Part. It applies both for the purposes of Chapters 2 to 5 (restriction of corporation tax reliefs) and for the purposes of Chapter 6 (recovery of unpaid corporation tax).
2230.This Chapter is based on section 769 of ICTA. Section 769 of ICTA does not expressly mention section 768E of that Act, but the references in section 769 of ICTA to sections 768B and 768C of that Act include by implication references to section 768E of that Act.
Section 719: Meaning of “change in the ownership of a company”
2231.This section gives the basic definition of “change in the ownership of a company” for the purposes of this Part of the Act. It is based on section 769 of ICTA.
2232.Section 769(1)(a) of ICTA is satisfied “if a single person acquires more than half the ordinary share capital of the company”. This raises the question: is this a reference to acquiring:
An additional holding (A);
The existing holding (X);
The total holding after the acquisition (T = A + X); or
T, but only if X<50%?
2233.Section 769(1)(a) of ICTA cannot be read as referring to the acquisition of X. Otherwise, a person who held more than 50% of the ordinary share capital and did not acquire any more shares would “acquire more than half the ordinary share capital”. As a matter of normal English usage, “acquires” cannot imply that.
2234.Section 769(1)(a) of ICTA cannot be read as referring to the acquisition of T, whether or not X<50%. According to Bramwell et al.(5):
“If one person owns 50 per cent. of a company’s shares and then buys 1 per cent. more, he does not thereby “acquire more than half” of the shares – he acquires 1 per cent. [Section 769(1)(b) and (c) of ICTA] refers to any number of persons acquiring holdings of shares that together amount to more than half of the ordinary shares in a company, but [section 769 (1)(c)] makes it clear that acquired holdings must be distinguished from existing holdings.”
2235.Bramwell et al. are correct on this point, because:
There is no indication that “acquire” has to have a different scope in section 769(1)(a) and (c) of ICTA;
Since Parliament has not said “acquires a total of more than half the ordinary share capital” it is not legitimate for any such words to be read in; and
Section 769(2)(b) of ICTA says “… may be regarded as having acquired a percentage holding equal to the increase” (emphasis added).
2236.The acquisition of “more than half the ordinary share capital” in section 769(1)(a) of ICTA is therefore a reference to the acquisition of the additional holding, A. Accordingly, to sharpen the drafting, subsection (2) expressly refers to the acquisition of “a holding of more than half the ordinary share capital”.
2237.Section 769(1)(c) of ICTA says “less that 5 per cent”.Subsection (5) corrects this typo.
Section 720: Section 719: supplementary
2238.This interpretative sectionis based on section 769 of ICTA.
2239.The meaning of “connected” in subsection (4) is given by section 1122, which is applied “for the purposes of this Act” by section 1176(1). Unlike section 769(2)(c) of ICTA, therefore, subsection (4) does not specifically apply the definition of “connected persons” in section 839 of that Act.
2240.Section 769(2)(d) of ICTA has the expression “under the will or on the intestacy of a deceased person”. The words “of a deceased person” add nothing and so subsection (5) compresses that expression to “under a will or on intestacy”.
Section 721: When things other than ordinary share capital may be taken into account: Chapters 2 to 5
2241.This section allows other interests in a company, such as voting power attaching to shares, to be taken into account in determining whether there has been a change in ownership. It applies in cases when applying the “ordinary share capital” test in section 719 would give anomalous results. It is based on section 769 of ICTA.
2242.Section 769(3) of ICTA uses the expression “under the articles of association or under any other document regulating the company”. Subsection (2) compresses this to “under any document regulating the company”.
2243.Section 769(3) of ICTA uses the old-fashioned term “enure”. In response to representations, the term “enure” was retained in section 723(1) of ITA (transfer of assets abroad: charge where power to enjoy income: enjoyment conditions). It has therefore also been retained in subsection (3).
2244.Section 769(3) of ICTA uses the expression “all kinds of share capital, including preference shares”. Subsection (4)(a) compresses this to “all kinds of share capital”.
Section 722: When things other than ordinary share capital may be taken into account: Chapter 6
2245.In cases when applying the “ordinary share capital” test in section 719 would give anomalous results, this section allows other interests in a company, such as voting power attaching to shares, to be taken into account in determining whether there has been a change in ownership. It is based on section 769 of ICTA.
Section 723: Changes in indirect ownership
2246.This section extends the basic rule about changes in company ownership in section 719. It is based on section 769 of ICTA.
2247.The basic rule in section 719 only relates to the direct ownership of a company. It does not capture a change in the ultimate ownership of a company, so this section contains additional rules for groups of companies.
Section 724: Disregard of change in company ownership
2248.This section excludes certain changes in company ownership from the scope of Chapters 2 to 6. It is based on section 769 of ICTA.
Section 725: Provision applying for the purposes of Chapters 2 to 5
2249.This supplementary section is based on section 769 of ICTA.
2250.Subsection (2) is a “tie-breaker” provision, to deal with shareholdings being acquired piecemeal.
2251.Subsections (3) to (6) explain how the three-year maximum in section 720(2)is to be applied in cases involving (for example) options or contracts for future delivery.
Section 726: Interpretation of Chapter
2252.This interpretative section is based on section 769 of ICTA.
Bramwell et al. Taxation of Companies and Company Reconstructions (Thomson, Sweet & Maxwell, November 2002) paragraph A 9.2.7 footnote 3.