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Meaning of “qualifying subsidiary” | |
11 (1) A company (“the subsidiary”) is a qualifying subsidiary of a company (“the | |
holding company”) if the following conditions are met. | |
(2) The conditions are— | |
(a) that the holding company possesses not less than 75% of the issued | 5 |
share capital of, and not less than 75% of the voting power in, the | |
subsidiary; | |
(b) that the holding company would— | |
(i) in the event of a winding up of the subsidiary, or | |
(ii) in any other circumstances, | 10 |
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; | |
(c) that the holding company is beneficially entitled to not less than 75% | |
of any profits of the subsidiary which are available for distribution to | 15 |
the shareholders of the subsidiary; | |
(d) that no person other than the holding company has control of the | |
subsidiary; and | |
(e) that no arrangements are in existence by virtue of which the | |
conditions in paragraphs (a) to (d) would cease to be met. | 20 |
(3) In sub-paragraph (2) any reference to the holding company is to be read as | |
a reference to— | |
(a) the holding company by itself, | |
(b) the holding company and one or more other subsidiaries of the | |
holding company, or | 25 |
(c) one or more other subsidiaries of the holding company. | |
(4) Sub-paragraph (5) applies at a time when the subsidiary or another | |
company is being wound up. | |
(5) The subsidiary is not to be regarded as having ceased, on account of the | |
winding up, to be a company in relation to which the conditions in sub- | 30 |
paragraph (2) are met if— | |
(a) the conditions in that sub-paragraph would be met apart from the | |
winding up, and | |
(b) the winding up is for commercial reasons and is not part of a scheme | |
or arrangement the main purpose (or one of the main purposes) of | 35 |
which is the avoidance of tax. | |
(6) Sub-paragraph (7) applies at a time when arrangements are in existence for | |
the disposal by— | |
(a) the holding company, or | |
(b) another subsidiary of the holding company, | 40 |
of all of its interest in the subsidiary. | |
(7) The subsidiary is not to be regarded as having ceased, on account of those | |
arrangements, to be a company in relation to which the conditions in sub- | |
paragraph (2) are met if the disposal is to be for commercial reasons and is | |
not to be part of a scheme or arrangement the main purpose (or one of the | 45 |
main purposes) of which is the avoidance of tax. | |
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The gross assets requirement | |
12 (1) The gross assets requirement in the case of a single company is that the value | |
of the company’s gross assets does not exceed £30 million. | |
(2) The gross assets requirement in the case of a parent company is that the | |
value of the group assets does not exceed £30 million. | 5 |
(3) The “value of the group assets” means the aggregate of the values of the | |
gross assets of each of the members of the group, disregarding any that | |
consist in rights against, or shares in or securities of, another member of the | |
group. | |
The trading activities requirement: single company | 10 |
13 (1) The trading activities requirement in the case of a single company is that the | |
company— | |
(a) disregarding any purposes within sub-paragraph (2), exists wholly | |
for the purpose of carrying on one or more qualifying trades, and | |
(b) is carrying on a qualifying trade or preparing to do so. | 15 |
(2) The purposes referred to in sub-paragraph (1)(a) are— | |
(a) the holding and managing of property used by the company for one | |
or more qualifying trades carried on by it, and | |
(b) any purposes having no significant effect (other than in relation to | |
incidental matters) on the extent of the company’s activities. | 20 |
(3) This paragraph is supplemented by paragraph 15 (meaning of “qualifying | |
trade”) read with paragraphs 16 to 23 (excluded activities). | |
The trading activities requirement: parent company | |
14 (1) The trading activities requirement in the case of a parent company is that— | |
(a) at least one group company— | 25 |
(i) disregarding any purposes within sub-paragraph (4), exists | |
wholly for the purpose of carrying on one or more qualifying | |
trades, and | |
(ii) is carrying on a qualifying trade or preparing to do so, and | |
(b) the business of the group does not consist (either wholly or as to a | 30 |
substantial part) in the carrying on of non-qualifying activities | |
(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 the purpose of determining the business of a group, activities of a group | 35 |
company are to 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 qualifying trades carried on by a group | 40 |
company, or | |
(c) incidental activities of a company which meets the trading activities | |
requirement for a single company (see paragraph 13). | |
(4) The purposes referred to in sub-paragraph (1)(a)(i) are— | |
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(a) the carrying on of any activities within sub-paragraph (3), and | |
(b) any purposes having no significant effect (other than in relation to | |
incidental matters) on the extent of the company’s activities. | |
(5) In this paragraph— | |
(a) “group company” means any member of the group; | 5 |
(b) “incidental activities” means activities carried on in pursuance of | |
purposes having no significant effect (other than in relation to | |
incidental matters) on the extent of the company’s activities; | |
(c) “non-qualifying activities” means— | |
(i) excluded activities, or | 10 |
(ii) activities carried on otherwise than in the course of a trade. | |
(6) This paragraph is supplemented by paragraph 15 (meaning of “qualifying | |
trade”) read with paragraphs 16 to 23 (excluded activities). | |
Meaning of “qualifying trade” | |
15 (1) A trade is a qualifying trade if— | 15 |
(a) it is carried on wholly or mainly in the United Kingdom, | |
(b) it is conducted on a commercial basis and with a view to the | |
realisation of profits, and | |
(c) it does not consist (either wholly or as to a substantial part) in the | |
carrying on of excluded activities. | 20 |
(2) The carrying on of activities of research and development from which it is | |
intended that a connected qualifying trade will be derived or benefit counts | |
as the carrying on of a qualifying trade. | |
(3) But preparing to carry on such activities does not count as preparing to carry | |
on a qualifying trade. | 25 |
(4) In sub-paragraph (2) “connected qualifying trade” means a qualifying trade | |
carried on— | |
(a) by the company carrying on the activities of research and | |
development, or | |
(b) if that company is a member of a group, by any other member of the | 30 |
group. | |
Excluded activities | |
16 The following are excluded activities— | |
(a) dealing in land, in commodities or futures or in shares, securities or | |
other financial instruments; | 35 |
(b) dealing in goods otherwise than in the course of an ordinary trade of | |
wholesale or retail distribution (see also paragraph 17); | |
(c) banking, insurance, money-lending, debt-factoring, hire-purchase | |
financing or other financial activities; | |
(d) leasing, including letting ships on charter or other assets on hire (see | 40 |
also paragraph 18); | |
(e) receiving royalties or licence fees (see also paragraph 19); | |
(f) providing legal or accountancy services; | |
(g) property development (see also paragraph 20); | |
(h) farming or market gardening; | 45 |
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(i) holding, managing or occupying woodlands, any other forestry | |
activities or timber production; | |
(j) operating or managing hotels or comparable establishments, or | |
managing property used as a hotel or comparable establishment (see | |
also paragraph 21); | 5 |
(k) operating or managing nursing homes or residential care homes, or | |
managing property used as a nursing home or residential care home | |
(see also paragraph 22); | |
(l) any activities which are excluded activities under paragraph 23. | |
Excluded activities: wholesale and retail distribution | 10 |
17 (1) This paragraph supplements paragraph 16(b). | |
(2) A trade of wholesale distribution is one in which the goods are offered for | |
sale and sold to persons— | |
(a) for resale by them, or | |
(b) for processing and resale by them, | 15 |
to members of the general public for their use or consumption. | |
(3) A trade of retail distribution is one in which the goods are offered for sale | |
and sold to members of the general public for their use or consumption. | |
(4) A trade is not an ordinary trade of wholesale or retail distribution if— | |
(a) it consists, to a substantial extent— | 20 |
(i) in dealing in goods of a kind which are collected or held as an | |
investment, or | |
(ii) in that activity and any other excluded activity taken | |
together, and | |
(b) a substantial proportion of those goods are held by the company for | 25 |
a period which is significantly longer than the period for which a | |
vendor would reasonably be expected to hold them while | |
endeavouring to dispose of them at their market value. | |
(5) In determining whether a trade carried on by any person (“P”) is an ordinary | |
trade of wholesale or retail distribution, consideration must be given to the | 30 |
extent to which it has the following features— | |
(a) the goods are bought by P in quantities larger than those in which P | |
sells them; | |
(b) the goods are bought and sold by P in different markets; | |
(c) P employs staff and incurs expenses in the trade in addition— | 35 |
(i) to the cost of the goods, and | |
(ii) in the case of a trade carried on by a company, to any | |
remuneration paid to any person connected with it; | |
(d) there are purchases or sales from or to persons who are connected | |
with P; | 40 |
(e) purchases are matched with forward sales or vice versa; | |
(f) the goods are held by P for longer than is normal for goods of the | |
kind in question; | |
(g) the trade is carried on otherwise than at a place or places commonly | |
used for wholesale or retail trade; | 45 |
(h) P does not take physical possession of the goods. | |
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(6) The features in sub-paragraph (5)(a) to (c) are indications that the trade is | |
such an ordinary trade. | |
(7) Those in sub-paragraph (5)(d) to (h) are indications to the contrary. | |
Excluded activities: leasing of certain ships | |
18 (1) This paragraph supplements paragraph 16(d) so far as it relates to the | 5 |
leasing of ships other than oil rigs or pleasure craft. | |
(2) In the following provisions “ship” accordingly means a ship other than an | |
oil rig or a pleasure craft. | |
(3) If the requirements of sub-paragraph (4) are met, a trade is not to be | |
regarded as consisting in the carrying on of excluded activities within | 10 |
paragraph 16(d) as a result only of its consisting in the letting of ships on | |
charter. | |
(4) The requirements of this sub-paragraph are that— | |
(a) every ship let on charter by the company carrying on the trade is | |
beneficially owned by the company; | 15 |
(b) every ship beneficially owned by the company is registered in the | |
United Kingdom; | |
(c) the company is solely responsible for arranging the marketing of the | |
services of its ships; and | |
(d) the conditions mentioned in sub-paragraph (5) are satisfied in | 20 |
relation to every letting of a ship on charter by the company. | |
(5) The conditions are that— | |
(a) the letting is for a period not exceeding 12 months and no provision | |
is made at any time (in the charterparty or otherwise) for extending | |
it beyond that period otherwise than at the option of the charterer; | 25 |
(b) during the period of the letting there is no provision in force (as a | |
result of being contained in the charterparty or otherwise) for the | |
grant of a new letting to end, otherwise than at the option of the | |
charterer, more than 12 months after that provision is made; | |
(c) the letting is by way of a bargain made at arm’s length between the | 30 |
company and a person who is not connected with it; | |
(d) under the terms of the charter the company is responsible as | |
principal— | |
(i) for taking, throughout the period of the charter, management | |
decisions in relation to the ship, other than those of a kind | 35 |
generally regarded by persons engaged in trade of the kind | |
in question as matters of husbandry, and | |
(ii) for defraying all expenses in connection with the ship | |
throughout that period, or substantially all such expenses, | |
other than those directly incidental to a particular voyage or | 40 |
to the employment of the ship during that period; and | |
(e) no arrangements exist as a result of which a person other than the | |
company may be appointed to be responsible for the matters | |
mentioned in paragraph (d) on behalf of the company. | |
(6) If in the case of a letting by the company carrying on the trade (“the letting | 45 |
company”) the charterer is also a company and— | |
(a) the charterer is a qualifying subsidiary of the letting company, or | |
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(b) the letting company is a qualifying subsidiary of the charterer, or | |
(c) both companies are qualifying subsidiaries of a third company, | |
sub-paragraph (5) has effect with the omission of paragraph (c). | |
(7) Where any of the requirements in sub-paragraph (4) is not met in relation to | |
any lettings, the trade is not, as a result, to be treated as consisting in the | 5 |
carrying on of excluded activities if those lettings and any other excluded | |
activities do not, taken together, amount to a substantial part of the trade. | |
(8) In this paragraph— | |
“oil rig” means any ship which is an offshore installation for the | |
purposes of the Mineral Workings (Offshore Installations) Act 1971 | 10 |
(c. 61); and | |
“pleasure craft” means any ship of a kind primarily used for sport or | |
recreation. | |
Excluded activities: receipt of royalties or licence fees | |
19 (1) This paragraph supplements paragraph 16(e) (receipt of royalties or licence | 15 |
fees). | |
(2) If the requirement of sub-paragraph (3) is met, a trade is not to be regarded | |
as consisting in the carrying of excluded activities within paragraph 16(e) as | |
a result only of its consisting to a substantial extent in the receiving of | |
royalties or licence fees. | 20 |
(3) The requirement of this sub-paragraph is that the royalties or licence fees (or | |
all of them except for a part that is not substantial in terms of value) are | |
attributable to the exploitation of relevant intangible assets. | |
(4) For this purpose a “relevant intangible asset” is an intangible asset the | |
whole or greater part of which (in terms of value) has been created— | 25 |
(a) by the company carrying on the trade, or | |
(b) by a company which, for the whole of the period during which it | |
created the asset, was— | |
(i) the parent company of the company carrying on the trade, or | |
(ii) a qualifying subsidiary of that parent company. | 30 |
(5) In the case of an intangible asset which is intellectual property, any reference | |
in sub-paragraph (4) to the creation of the asset by a company is to its | |
creation in circumstances in which the right to exploit it vests in the | |
company (either alone or jointly with others). | |
(6) In sub-paragraph (5) “intellectual property” means— | 35 |
(a) any patent, trade mark, registered design, copyright, design right, | |
performer’s right or plant breeder’s right; or | |
(b) any rights under the law of a country or territory outside the United | |
Kingdom which correspond or are similar to those falling within | |
paragraph (a). | 40 |
(7) In this paragraph “intangible asset” means any asset which falls to be treated | |
as an intangible asset in accordance with generally accepted accounting | |
practice. | |
Excluded activities: property development | |
20 (1) This paragraph supplements paragraph 16(g). | 45 |
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(2) “Property development” means the development of land— | |
(a) by a company which has, or at any time has had, an interest in the | |
land, and | |
(b) with the sole or main object of realising a gain from the disposal of | |
an interest in the land when it is developed. | 5 |
(3) For this purpose “interest in land” means— | |
(a) any estate, interest or right in or over land, including any right | |
affecting the use or disposition of land, or | |
(b) any right to obtain such an estate, interest or right from another | |
which is conditional on the other’s ability to grant it. | 10 |
(4) References in this paragraph to an interest in land do not, however, | |
include— | |
(a) the interest of a creditor (other than a creditor in respect of a | |
rentcharge) whose debt is secured by way of mortgage, an | |
agreement for a mortgage or a charge of any kind over land, or | 15 |
(b) in the case of land in Scotland, the interest of a creditor in a charge or | |
security of any kind over land. | |
Excluded activities: hotels and comparable establishments | |
21 (1) This paragraph supplements paragraph 16(j). | |
(2) A “comparable establishment” means a guest house, hostel or other | 20 |
establishment offering overnight accommodation. | |
(3) An establishment offers overnight accommodation if the main purpose of | |
maintaining it is the provision of facilities for such accommodation (with or | |
without catering services). | |
(4) The activities of a person are not to be taken to fall within paragraph 16(j) | 25 |
unless that person has an estate or interest in, or is in occupation of, the hotel | |
or comparable establishment in question. | |
Excluded activities: nursing homes and residential care homes | |
22 (1) This paragraph supplements paragraph 16(k). | |
(2) “Nursing home” means an establishment that exists wholly or mainly for the | 30 |
provision of nursing care— | |
(a) for persons suffering from sickness, injury or infirmity, or | |
(b) for women who are pregnant or have given birth to children. | |
(3) “Residential care home” means an establishment that exists wholly or | |
mainly for the provision of residential accommodation, together with board | 35 |
and personal care, for persons in need of personal care by reason of— | |
(a) old age, | |
(b) mental or physical disability, | |
(c) past or present dependence on alcohol or drugs, | |
(d) any past illness, or | 40 |
(e) past or present mental disorder. | |
(4) The activities of a person are not to be taken to fall within paragraph 16(k) | |
unless that person has an estate or interest in, or is in occupation of, the | |
nursing home or residential care home in question. | |
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