Income Tax Bill

House of Commons

Session 2006 - 07
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Income Tax Bill

Income Tax Bill
Part 6 — Venture capital trusts
Chapter 4 — Qualifying holdings
170

(a)
the business consists wholly or as to a substantial part of activities
falling within any of paragraphs (a) to (k) of section 303(1), and
(b)
a controlling interest in the business is held by a person who also has a
controlling interest in the business carried on by the provider of the
services or facilities.
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(2)
Subsections (3) to (5) explain what is meant by a controlling interest in a
business for the purposes of subsection (1)(b).
(3)
In the case of a business carried on by a company, a person (“A”) has a
controlling interest in the business if—
(a)
A controls the company,
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(b)
the company is a close company and A or an associate of A, being a
director of the company, either—
(i)
is the beneficial owner of more than 30% of the ordinary share
capital of the company, or
(ii)
is able, directly or through the medium of other companies or
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by any other indirect means, to control more than 30% of that
share capital, or
(c)
at least half the business could, in accordance with section 344(2) of
ICTA (persons to whom company’s trade may be treated as belonging),
be regarded as belonging to A for the purposes of section 343 of that Act
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(company reconstructions without a change of ownership).
(4)
In any other case, a person has a controlling interest in a business if the person
is entitled to at least half the assets used for, or of the income arising from, the
business.
(5)
For the purposes of this section—
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(a)
any rights or powers of a person who is an associate of another are to
be attributed to that other person, and
(b)
“business” includes any trade, profession or vocation.
Supplementary
311
Power to amend Chapter
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The Treasury may by order amend this Chapter—
(a)
to make such modifications of sections 290, 291, 298 and 300, sections
303 to 310 and section 313(3) as they consider appropriate, and
(b)
to substitute different sums for the sums of money for the time being
specified in sections 287(2) and 297.
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312
Winding up of the relevant company
None of the requirements of this Chapter is to be regarded, at a time when the
relevant company is being wound up, as being, on that account, a requirement
that is not met in relation to that company if—
(a)
the requirements of this Chapter would be met in relation to that
40
company apart from the winding up, and
(b)
the winding up is for genuine 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.

Income Tax Bill
Part 6 — Venture capital trusts
Chapter 5 — Powers: winding up and mergers of VCTs
171

313
Interpretation of Chapter
(1)
In this Chapter —
“the investing company” has the meaning given by section 286(1),
“the relevant company” has the meaning given by section 286(1), and
“the relevant holding” has the meaning given by section 286(1).
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(2)
References in this Chapter to the issue of any securities, in relation to any
security consisting in a liability in respect of an unsecured loan, have effect as
references to the making of the loan.
(3)
References in sections 303 to 309 to a trade are to be read without regard to the
definition of “trade” in section 923 (see also section 300(4)).
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(4)
For the purposes of sections 296 and 310(3) and (4), the question whether a
person controls a company is to be determined in accordance with section
416(2) to (6) of ICTA with the modification given by subsection (6).
(5)
For the purposes of this Chapter, section 927 (meaning of “connected persons”)
applies as if references to “control” in that section were to be read in accordance
15
with section 416 of ICTA with the modification given by subsection (6).
(6)
The modification is that, in determining whether a person controls a company,
the following are to be ignored—
(a)
any person’s possession of, or entitlement to acquire, fixed-rate
preference shares in the company that do not carry voting rights, and
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(b)
any person’s possession of, or entitlement to acquire, rights as a loan
creditor of the company.
(7)
In subsection (6) “fixed-rate preference shares” means shares which—
(a)
were issued wholly for new consideration,
(b)
do not carry any right either to conversion into shares or securities of
25
any other description or to the acquisition of any additional shares or
securities, and
(c)
do not carry any right to dividends other than dividends which—
(i)
are of a fixed amount or at a fixed rate per cent of the nominal
value of the shares, and
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(ii)
together with any sum paid on redemption, represent no more
than a reasonable commercial return on the consideration for
which the shares were issued,

and in paragraph (a) “new consideration” has the meaning given by section 254
of ICTA.
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Chapter 5
Powers: winding up and mergers of VCTs
Winding up
314
Power to treat VCT-in-liquidation as VCT
(1)
Regulations may make provision for tax enactments specified by the
40
regulations to have effect as if—

Income Tax Bill
Part 6 — Venture capital trusts
Chapter 5 — Powers: winding up and mergers of VCTs
172

(a)
a VCT-in-liquidation that is not a VCT were, or were during any
prescribed period of its winding up, a VCT,
(b)
VCT approval withdrawn from a company—
(i)
at any time during the period when it is a VCT-in-liquidation, or
(ii)
at any time during a prescribed part of that period,
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were withdrawn at a prescribed time (and not at the time when it is
actually withdrawn).
(2)
In this section “prescribed” means specified by, or determined under,
regulations.
315
Power to treat conditions for VCT approval as met with respect to VCT-in-
10
liquidation
(1)
Regulations may make provision for conditions mentioned in section 274(2)
(conditions for approval as a VCT) to be treated for the purposes of section
274(1) as met, or as conditions that will be met, with respect to a VCT-in-
liquidation.
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(2)
Provision under subsection (1) may be made so as to apply in relation to a VCT-
in-liquidation—
(a)
throughout its winding up, or
(b)
during prescribed periods of its winding up.
(3)
Regulations may, for purposes of tax enactments specified by the regulations,
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make provision for VCT approval to be treated as having been withdrawn,
with effect from a time specified by or determined under the regulations, from
a VCT-in-liquidation from which the Commissioners for Her Majesty’s
Revenue and Customs would have power to withdraw such approval but for
provision made under subsection (1).
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316
Power to make provision about distributions by VCT-in-liquidation
(1)
Regulations may make provision for tax enactments specified by the
regulations—
(a)
to apply in relation to distributions from a VCT-in-liquidation
(including, in particular, distributions in the course of dissolving it or
30
winding it up),
(b)
not to apply in relation to such distributions,
(c)
to apply in relation to such distributions with modifications specified
by the regulations.
(2)
Provision under subsection (1) may be made so as to apply in relation to
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distributions from a VCT-in-liquidation made—
(a)
at any time during its winding up, or
(b)
during periods of its winding up specified by, or determined under,
regulations.
317
Power to facilitate disposal to VCT by VCT-in-liquidation
40
(1)
Regulations may make provision authorised by subsection (2) for cases where
shares in or securities of a company are acquired by a VCT from a VCT-in-
liquidation.

Income Tax Bill
Part 6 — Venture capital trusts
Chapter 5 — Powers: winding up and mergers of VCTs
173

(2)
The provision that may be made under subsection (1) for such a case is—
(a)
provision for conditions mentioned in section 274(2) (conditions for
approval as a VCT) to be treated for the purposes of section 274(1) as
met, or as conditions that will be met, with respect to the VCT in
relation to periods ending after the acquisition,
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(b)
provision for the shares or securities acquired to be treated, at times
after the acquisition when they are held by the VCT, as meeting the
requirements of Chapter 4 (provisions for determining whether shares
or securities form part of qualifying holdings), and
(c)
provision for shares in the VCT issued in connection with the
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acquisition of the shares or securities from the VCT-in-liquidation and
either—
(i)
issued to a person who is a member of the VCT-in-liquidation,
or
(ii)
issued to the VCT-in-liquidation and distributed by it in the
15
course of its winding up or dissolution to a person who is one
of its members,

to be treated, for the purposes of Schedule 5C to TCGA 1992 (VCTs:
deferred charge on re-investment), as representing shares in the VCT-
in-liquidation held by that person.
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(3)
Provision under subsection (1) may be made so as to apply in relation to shares
or securities acquired from a VCT-in-liquidation—
(a)
at any time during its winding up, or
(b)
during periods of its winding up specified by, or determined under,
regulations.
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(4)
In this section “securities” means any securities and includes any liability that
is a security in relation to a company because of section 285(2) (securities).
318
Power in respect of periods before and after winding up
(1)
Any power under sections 314 to 317 to make provision in relation to a VCT-
in-liquidation includes power to make corresponding or similar provision in
30
relation to—
(a)
a company for whose winding up an application has been made to a
court and which is not a VCT-in-liquidation but would be if, at the time
that the application was made, the court had ordered the company’s
winding up to commence at that time, or
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(b)
a company that has been a VCT-in-liquidation but no longer is a VCT-
in-liquidation because it has been wound up.
(2)
For the purposes of making provision in reliance on subsection (1), references
in sections 314 to 317 (however expressed) to a VCT-in-liquidation’s winding
up, or the commencement or ending of its winding up, may be taken to be
40
references to, or to the commencement or ending of, the extension period for a
company to which subsection (1) applies.
(3)
In this section—
“the extension period”—
(a)
in relation to a company to which subsection (1)(a) applies,
45
means the period beginning with the making of the application
and ending with the earlier of its final determination and the
company becoming a company that is being wound up, and

Income Tax Bill
Part 6 — Venture capital trusts
Chapter 5 — Powers: winding up and mergers of VCTs
174

(b)
in relation to a company to which subsection (1)(b) applies,
means the period between the end of the company’s winding
up and the company’s dissolution, and
“prescribed” means specified by, or determined under, regulations.
319
Sections 314 to 318: supplementary
5
(1)
Provision made by regulations under sections 314 to 318 applies in cases, and
subject to conditions, specified by regulations.
(2)
Such provision may (but need not) be made so as to have effect in a particular
case only for such period as may be specified by, or determined under,
regulations.
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(3)
References in sections 314 to 318 to things done by a VCT-in-liquidation
include things done by a liquidator of a VCT-in-liquidation.
320
Meaning of “VCT-in-liquidation”
(1)
In this Chapter “VCT-in-liquidation” means a company—
(a)
that is being wound up (whether or not under the law of a part of the
15
United Kingdom and whether under the law of one, or more than one,
territory),
(b)
that was a VCT immediately before the commencement of its winding
up, and
(c)
whose winding up is for genuine commercial reasons and is not part of
20
a scheme or arrangement the main purpose or one of the main purposes
of which is the avoidance of tax.
(2)
Regulations may, for purposes of this Chapter, make provision as to when a
company’s winding up is to be treated as commencing or ending in a case
where it is wound up otherwise than under the law of a part of the United
25
Kingdom or otherwise than under the law of a single territory.
Mergers
321
Power to facilitate mergers of VCTs
(1)
Regulations may make provision authorised by section 322 for cases where—
(a)
there is a merger of two or more companies each of which is a VCT
30
immediately before the merger begins to be effected, and
(b)
the merger is for genuine 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.
(2)
Provision made by regulations under subsection (1) applies—
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(a)
in cases, and
(b)
subject to conditions (including conditions requiring approvals to be
obtained),

specified by the regulations.