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 5 — Powers: winding up and mergers of VCTs
175

322
Provision that may be made by regulations under section 321
(1)
The provision that may be made under section 321(1) for a case where there is
a merger of two or more companies (“the merging companies”) is as follows.
(2)
Provision for the successor company, or any of the merging companies, to be
treated (whether at times before, during or after the merger) as a VCT for
5
purposes of tax enactments specified by regulations.
(3)
Provision for section 266 (loss of relief on disposal of VCT shares within 5 years
of their issue) not to apply in the case of disposals of shares in a merging
company made in the course of effecting the merger.
(4)
Provision for such disposals not to be chargeable events for the purposes of
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Schedule 5C to TCGA 1992 (VCTs: deferred charge on re-investment).
(5)
Provision for conditions mentioned in section 274(2) (conditions for approval
as a VCT) to be treated (whether at times before, during or after the merger) for
purposes of section 274(1) as met, or as conditions that will be met, with respect
to the successor company or any of the merging companies.
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(6)
Provision for shares in or securities of a company that are acquired (whether at
times before, during or after the merger) by the successor company from a
merging company to be treated, at times after the acquisition when they are
held by the successor company, as meeting requirements of Chapter 4
(provisions for determining whether shares or securities held by a VCT form
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part of its qualifying holdings).
(7)
Provision for tax enactments specified by regulations to apply, with or without
adaptations, in relation to the merger or transactions taking place (whether
before, during or after the merger) in connection with the merger.
(8)
Provision authorising disclosure for tax purposes connected with the merger—
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(a)
by Her Majesty’s Revenue and Customs,
(b)
to any of the merging companies or the successor company,
(c)
of any information provided to Her Majesty’s Revenue and Customs
by or on behalf of any of the merging companies or the successor
company.
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323
Meaning of “merger” and “successor company”
(1)
For the purposes of this Chapter there is a merger of two or more companies
(“the merging companies”) if—
(a)
shares in one of the merging companies (“company A”) are issued to
members of the other merging company or companies, and
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(b)
the shares issued to members of the other merging company or, in the
case of each of the other merging companies, the shares issued to
members of that other company, are issued—
(i)
in exchange for their shares in that other company, or
(ii)
by way of consideration for a transfer to company A of the
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whole or part of the business of that other company.
(2)
For the purposes of this Chapter there is also a merger of two or more
companies (“the merging companies”) if—
(a)
shares in a company (“company B”) that is not one of the merging
companies are issued to members of the merging companies, and
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Income Tax Bill
Part 6 — Venture capital trusts
Chapter 5 — Powers: winding up and mergers of VCTs
176

(b)
in the case of each of the merging companies, the shares issued to
members of that company are issued—
(i)
in exchange for their shares in that company, or
(ii)
by way of consideration for a transfer to company B of the
whole or part of the business of that company.
5
(3)
In this Chapter “the successor company”—
(a)
in relation to a merger such as is described in subsection (1), means the
company that performs the role of company A, and
(b)
in relation to a merger such as is described in subsection (2), means the
company that performs the role of company B.
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Supplementary
324
Regulations under Chapter
(1)
Regulations under this Chapter may—
(a)
contain such administrative provisions (including provision for
advance clearance and provision for the withdrawal of clearances) as
15
appear to the Treasury to be necessary or appropriate,
(b)
authorise the Commissioners for Her Majesty’s Revenue and Customs
to give notice to any person requiring that person to provide such
information, specified in the notice, as they may reasonably require in
order to determine whether any conditions imposed by regulations
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under this Chapter are met,
(c)
make different provision for different cases,
(d)
contain incidental, supplemental, consequential and transitional
provision and savings, and
(e)
include provision having retrospective effect.
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(2)
Without prejudice to any specific provision of this Chapter, a power conferred
by any provision of this Chapter to make regulations includes power to
provide for Her Majesty’s Revenue and Customs to exercise a discretion in
dealing with any matter.
325
Interpretation of Chapter
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In this Chapter—
“regulations” means regulations made by the Treasury, and
“tax enactments” means provisions of or made under—
(a)
the Tax Acts,
(b)
TCGA 1992 or any other enactment relating to capital gains tax,
35
or
(c)
TMA 1970.

Income Tax Bill
Part 6 — Venture capital trusts
Chapter 6 — Supplementary and general
177

Chapter 6
Supplementary and general
Acquisitions for restructuring purposes
326
Restructuring to which section 327 applies
(1)
Section 327 applies if—
5
(a)
arrangements are made for a company (“the new company”) to acquire
all the shares (“old shares”) in another company (“the old company”),
(b)
the acquisition provided for by the arrangements falls within
subsection (2), and
(c)
the Commissioners for Her Majesty’s Revenue and Customs have,
10
before any exchange of shares takes place under the arrangements,
given an approval notification.
(2)
An acquisition of shares falls within this subsection if—
(a)
the consideration for the old shares consists wholly of the issue of
shares (“new shares”) in the new company,
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(b)
new shares are issued in consideration of old shares only at times when
there are no issued shares in the new company other than subscriber
shares and new shares previously issued in consideration of old shares,
(c)
the consideration for new shares of each description consists wholly of
old shares of the corresponding description, and
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(d)
new shares of each description are issued to the holders of old shares of
the corresponding description in respect of, and in proportion to, their
holdings.
(3)
For the purposes of subsection (1)(c) an approval notification is one which, on
the application of either the old company or the new company, is given to the
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applicant company and states that the Commissioners for Her Majesty’s
Revenue and Customs are satisfied that the exchange of shares under the
arrangements—
(a)
will be effected for genuine commercial reasons, and
(b)
will not form part of any such scheme or arrangements as are
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mentioned in section 137(1) of TCGA 1992 (schemes with avoidance
purposes).
(4)
Nothing in section 327 treats any of the requirements of Chapter 4 as being met
in relation to any new shares unless the matching old shares were first issued
to the company holding them and have been held by that company from the
35
time when they were issued until they are acquired by the new company.
(5)
If, at any time after the arrangements first came into existence and before the
new company acquired all the old shares, the arrangements—
(a)
cease to be arrangements for the acquisition of all the old shares by the
new company, or
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(b)
cease to be arrangements for an acquisition falling within subsection
(2),

section 327 does not treat any requirement of Chapter 4 as being met, and
subsection (8) of that section does not apply, in the case of any new shares at
any time after the arrangements have so ceased.
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Income Tax Bill
Part 6 — Venture capital trusts
Chapter 6 — Supplementary and general
178

327
Certain requirements of Chapter 4 to be treated as met
(1)
If this section applies, subsections (2) to (8) have effect to determine the extent
to which, and the times for which, the requirements of the following provisions
of Chapter 4 are met in relation to the new shares—
section 287 (the maximum qualifying investment requirement),
5
section 289 (the proportion of eligible shares requirement),
section 290 (the trading requirement),
section 291 (the carrying on of a qualifying activity requirement),
section 293 (the use of money raised requirement),
section 294 (the relevant company to carry on the relevant qualifying
10
activity requirement),
section 296 (the control and independence requirement), and
section 297 (the gross assets requirement).
(2)
If the requirements of sections 290 and 291 were met in relation to the old
company and any old shares immediately before the beginning of the period
15
for giving effect to the arrangements, then (so far as it would not otherwise be
the case) those requirements are treated as being met in relation to the new
company and the matching new shares at all times which—
(a)
fall in that period, and
(b)
do not fall after a time when (apart from the arrangements) those
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requirements would have ceased by virtue of—
(i)
section 291(4) or (5), or
(ii)
any cessation of a trade by any company,

to be met in relation to the old company and the matching old shares.
(3)
For the purposes of section 291, the period of two years mentioned in
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subsection (4) of that section is treated, in the case of any new shares, as
expiring at the same time as it would have expired (or by virtue of this
subsection would have been treated as expiring) in the case of the matching old
shares.
(4)
Subject to subsection (5), if—
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(a)
there is an exchange under the arrangements of any new shares for any
old shares, and
(b)
those old shares are shares in relation to which the requirements of
sections 293, 294 and 297 were (or were treated as being) met to any
extent immediately before the exchange,
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those requirements are to be treated, at all times after that time, as met to the
same extent in relation to the matching new shares.
(5)
If there is a time following any exchange under the arrangements of any new
shares for any old shares when (apart from the arrangements) the requirement
of section 293 would have ceased under—
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(a)
subsection (1) of that section, or
(b)
this subsection,

to be met in relation to those old shares, that requirement ceases at that time to
be met in relation to the matching new shares.
(6)
For the purposes of section 287, any new shares acquired under the
45
arrangements are to be treated as representing an investment which—

Income Tax Bill
Part 6 — Venture capital trusts
Chapter 6 — Supplementary and general
179

(a)
raised the same amount of money as was raised (or, by virtue of this
subsection, is treated as having been raised) by the issue of the
matching old shares, and
(b)
raised that amount by an issue of shares in the new company made at
the time when the issue of the matching old shares took place (or, as the
5
case may be, is treated as having taken place).
(7)
In determining whether the requirements of section 296 are met in relation to
the old company or the new company at a time in the period for giving effect
to the arrangements, ignore both—
(a)
the arrangements themselves, and
10
(b)
any exchange of new shares for old shares that has already taken place
under the arrangements.
(8)
For the purposes of section 289, the value of the new shares, both—
(a)
immediately after the time of their acquisition, and
(b)
immediately after the time of any subsequent relevant event occurring
15
by virtue of the arrangements,

is to be taken to be the same as the value, when last valued in accordance with
that section, of the old shares for which they are exchanged.
328
Supplementary
(1)
Subject to subsection (2), references in sections 326 and 327 and this section,
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except in the expression “subscriber shares”, to shares in a company include
references to any securities of that company.
(2)
For the purposes of subsection (1) a relevant security of the old company is not
to be treated as a security of the old company if—
(a)
the arrangements do not provide for the acquisition of the security by
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the new company, or
(b)
such treatment prevents section 326(1)(b) from being met in connection
with the arrangements.
(3)
In subsection (2) “relevant security” means an instrument which is a security
for the purposes of Chapter 4 merely because of section 285(2).
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(4)
References in section 327 to the period for giving effect to the arrangements are
references to the period which—
(a)
begins with the time when the arrangements first came into existence,
and
(b)
ends with the time when the new company completes its acquisition
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under the arrangements of all the old shares.
(5)
For the purposes of sections 326 and 327 and this section—
(a)
old shares and new shares are of a corresponding description if, were
they shares in the same company, they would be of the same
description, and
40
(b)
old shares and new shares are matching shares in relation to each other
if the old shares are the shares for which the new shares are exchanged
under the arrangements.