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PART III |
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THE ISSUING COMPANY |
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Introduction |
| | 15. The issuing company is a qualifying issuing company in relation to the relevant shares if the requirements of this Part are met as to-
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(a) unquoted status (see paragraph 16); |
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(b) independence (see paragraph 17); |
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(c) individual-owners (see paragraph 18); |
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(d) partnerships and joint ventures (see paragraph 19); |
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(e) qualifying subsidiaries (see paragraph 20); |
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(f) gross assets (see paragraph 22); and |
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(g) trading activities (see paragraph 23). |
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The "unquoted status" requirement |
| | 16. - (1) The unquoted status requirement is that, at the time the relevant shares are issued, none of the issuing company's shares, debentures or other securities is (and there are no arrangements in existence for any of them to be)-
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(a) listed on a recognised stock exchange, |
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(b) listed on a designated exchange in a country outside the United Kingdom, or |
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(c) dealt in outside the United Kingdom by such means as may be designated. |
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This is subject to sub-paragraph (3).
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(2) The unquoted status requirement applies whether or not the company is resident in the United Kingdom.
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(3) The unquoted status requirement is treated as not met if at the time the relevant shares are issued-
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(a) arrangements are in existence for the issuing company to become a subsidiary of another company ("the new company") by virtue of an exchange of shares, or shares and securities, in relation to which paragraph 83 (certain exchanges resulting in acquisition of share capital by new company) applies, and |
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(b) arrangements have been made with a view to any of the new company's shares, debentures or other securities being listed or dealt in as mentioned in paragraph (a), (b) or (c) of sub-paragraph (1). |
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(4) For the purposes of sub-paragraph (1) "designated" means designated by an order ("a designation order") made for the purposes of subsection (1B) of section 312 of the Taxes Act 1988 (definition of "unquoted company" for the purposes of EIS).
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(5) Where the issuing company meets the unquoted status requirement when the relevant shares are issued, it shall not cease to meet it by virtue of-
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(a) any designation order, or |
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(b) any order under section 841 of the Taxes Act 1988 (designation of exchange as "recognised stock exchange"), |
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made after that time.
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The independence requirement |
| | 17. - (1) The independence requirement is that-
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(a) the issuing company is not, at any time during the qualification period relating to the relevant shares- |
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(i) a 51% subsidiary of another company, or
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(ii) under the control of another company (or of another company and any other person connected with that other company), without being a 51% subsidiary of that other company, and
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(b) no arrangements are in existence at any time during that period by virtue of which the company could become such a subsidiary or fall under such control (whether during that period or otherwise). |
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(2) For the purposes of sub-paragraph (1)(b) arrangements with a view to such an exchange of shares, or shares and securities, as is mentioned in paragraph 83(1) (certain exchanges resulting in acquisition of share capital by new company) shall be disregarded.
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(3) In this paragraph "control" has the meaning given by section 840 of the Taxes Act 1988.
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The "individual-owners" requirement |
| | 18. - (1) The "individual-owners" requirement is that, throughout the qualification period relating to the relevant shares, at least 20% of the ordinary share capital of the issuing company is beneficially owned by one or more independent individuals.
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(2) For the purposes of sub-paragraph (1) "independent individual" means an individual who is not, at any time during that period when he holds ordinary shares in the issuing company-
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(a) a director or employee of- |
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(i) the investing company, or
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(ii) any company connected with that company, or
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(b) a relative of such a director or employee. |
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For this purpose "relative" means husband or wife, parent or remoter forebear or child or remoter issue.
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(3) Where part of the ordinary share capital of the issuing company forms part of the estate of a deceased person who immediately before his death-
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(a) was the beneficial owner of the shares in question, and |
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(b) was an independent individual for the purposes of sub-paragraph (1), |
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the shares in question shall, by virtue of this sub-paragraph, continue to be treated as beneficially owned by an independent individual for the purposes of sub-paragraph (1) until such time as they cease to form part of the deceased's estate.
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The partnerships and joint ventures requirement |
| | 19. - (1) The requirement as to partnerships and joint ventures is that neither the issuing company nor any of its qualifying subsidiaries is at any time during the qualification period relating to the relevant shares-
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(a) a member of a partnership falling within sub-paragraph (2), or |
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(b) a party to a joint venture falling within sub-paragraph (3). |
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(2) A partnership of which the issuing company, or any of its qualifying subsidiaries, is a member falls within this paragraph at any time when-
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(a) the relevant trade is being carried on, or to be carried on, by the partners in partnership, |
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(b) the other partners include at least one other company, and |
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(c) the same person (or persons) are the beneficial owner (or owners) of more than 75% of the issued share capital or the ordinary share capital of both- |
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(i) the issuing company, and
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(ii) at least one of the other partners.
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(3) A joint venture to which the issuing company, or any of its qualifying subsidiaries, is a party falls within this paragraph at any time when-
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(a) the relevant trade is being carried on, or to be carried on, by that party in its capacity as a party to the joint venture, |
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(b) the other parties include at least one other company, and |
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(c) the same person (or persons) are the beneficial owner (or owners) of more than 75% of the issued share capital or the ordinary share capital of both- |
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(i) the issuing company, and
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(ii) at least one of the other parties.
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(4) For the purposes of sub-paragraphs (2) and (3)-
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(a) "the relevant trade" means any trade by reference to which the trading activities requirement is met in respect of the issuing company in relation to the relevant shares; and |
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(b) there shall be attributed to any person any issued share capital or ordinary share capital held by any other person who is an associate of his. |
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The qualifying subsidiaries requirement |
| | 20. - (1) The issuing company is not a qualifying issuing company in relation to the relevant shares if, at any time during the qualification period relating to those shares, it has a subsidiary which is not a qualifying subsidiary.
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(2) For this purpose-
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(a) "subsidiary" means any company which the company controls, either on its own or together with any person connected with it; and |
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(b) the question whether a person controls a company shall be determined in accordance with section 416(2) to (6) of the Taxes Act 1988. |
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Meaning of "qualifying subsidiary" |
| | 21. - (1) A company ("the subsidiary") is a qualifying subsidiary of another company ("the relevant company") if the following conditions are met.
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(2) The conditions are that-
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(a) the relevant company or another of its subsidiaries possesses not less than 75% of the issued share capital of, and not less than 75% of the voting power in, the subsidiary; |
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(b) the relevant company or another of its subsidiaries would- |
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(i) in the event of a winding up of the subsidiary, or
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(ii) in any other circumstances,
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be beneficially entitled to receive not less than 75% of the assets of the subsidiary which would then be available for distribution to the shareholders of the subsidiary;
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(c) the relevant company or another of its subsidiaries is beneficially entitled to not less than 75% of any profits of the subsidiary which are available for distribution to the shareholders of the subsidiary; |
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(d) no person other than the relevant company or another of its subsidiaries has control of the subsidiary within the meaning of section 840 of the Taxes Act 1988; and |
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(e) no arrangements are in existence by virtue of which the conditions in paragraphs (a) to (d) would cease to be met. |
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(3) The subsidiary shall not be regarded as ceasing to be a company in relation to which the conditions in sub-paragraph (2) are met by reason only of-
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(a) anything done as a consequence of the subsidiary, or any other company, being in administration or receivership, or |
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(b) the subsidiary, or any other company, being wound up or dissolved without winding up, |
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if sub-paragraph (4) applies.
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(4) This paragraph applies where-
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(a) in a case within sub-paragraph (3)(a)- |
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(i) the making of the order within paragraph (a) or, as the case may be, (b) of paragraph 102(4) (administration orders and orders for appointment of receiver etc.), and
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(ii) everything done as a consequence of the company being in administration or receivership, or
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(b) in a case within sub-paragraph (3)(b), the winding up or dissolution, |
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is for commercial reasons and is not part of a scheme or arrangement the main purpose or one of the main purposes of which is the avoidance of tax.
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(5) The subsidiary shall not be regarded, at any time when arrangements are in existence for the disposal by the relevant company or (as the case may be) by another subsidiary of that company of all its interest in the subsidiary in question, as having ceased on that account to be a qualifying subsidiary if the disposal is to be for commercial reasons and not part of a scheme or arrangement the main purpose of which, or one of the main purposes of which, is the avoidance of tax.
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