Income Tax Bill

House of Commons

Session 2006 - 07
Internet Publications
Other Bills before Parliament

Income Tax Bill

Income Tax Bill
Schedule 1 — Minor and consequential amendments
Part 1 — Income and Corporation Taxes Act 1988
498

(b)
has ceased to meet any of those requirements at a time which
is not more than 3 years before that date and has not since
that time been an excluded company, an investment
company or a trading company.
(3)
Condition B is that the company either—
5
(a)
has met each of the requirements mentioned in condition A
for a continuous period of 6 years ending on that date or at
that time, or
(b)
has met each of those requirements for a shorter continuous
period ending on that date or at that time and has not before
10
the beginning of that period been an excluded company, an
investment company or a trading company.
(4)
Condition C is that the company—
(a)
met the gross assets requirement (see section 576G) both
immediately before and immediately after the issue of the
15
shares in respect of which the relief is claimed under this
Chapter, and
(b)
met the unquoted status requirement (see section 576H) at
the relevant time within the meaning of that section.
(5)
Condition D is that the company has carried on its business wholly
20
or mainly in the United Kingdom throughout the period—
(a)
beginning with the incorporation of the company or, if later,
12 months before the shares in question were issued, and
(b)
ending with the date of the disposal.”
121
After section 576A insert —
25
“Qualifying trading companies: the requirements
576B
The trading requirement
(1)
The trading requirement is—
(a)
that the company, disregarding any incidental purposes,
exists wholly for the purpose of carrying on one or more
30
qualifying trades, or
(b)
that the company is a parent company and that the business
of the group does not consist wholly or as to a substantial part
in the carrying on of non-qualifying activities.
(2)
If the company intends that one or more other companies should
35
become its qualifying subsidiaries with a view to their carrying on
one or more qualifying trades—
(a)
the company is treated as a parent company for the purposes
of subsection (1)(b), and
(b)
the reference in subsection (1)(b) to the group includes the
40
company and any existing or future company that will be its
qualifying subsidiary after the intention in question is carried
into effect.

This subsection does not apply at any time after the abandonment of
that intention.
45

Income Tax Bill
Schedule 1 — Minor and consequential amendments
Part 1 — Income and Corporation Taxes Act 1988
499

(3)
For the purpose of subsection (1)(b) 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.
(4)
For the purpose of determining the business of a group, activities are
disregarded to the extent that they are activities carried on by a
5
mainly trading subsidiary otherwise than for its main purpose.
(5)
For the purposes of determining the business of a group, activities of
a group company are disregarded to the extent that they consist in—
(a)
the holding of shares in or securities of a qualifying
subsidiary of the parent company,
10
(b)
the making of loans to another group company,
(c)
the holding and managing of property used by a group
company for the purpose of one or more qualifying trades
carried on by a group company, or
(d)
the holding and managing of property used by a group
15
company for the purpose of research and development from
which it is intended—
(i)
that a qualifying trade to be carried on by a group
company will be derived, or
(ii)
that a qualifying trade carried on or to be carried on
20
by a group company will benefit.
(6)
Any reference in subsection (5)(d)(i) or (ii) to a group company
includes a reference to any existing or future company which will be
a group company at any future time.
(7)
In this section—
25
“excluded activities” has the meaning given by section 192 of
ITA 2007 read with sections 193 to 199 of that Act,
“group” means a parent company and all its qualifying
subsidiaries,
“group company”, in relation to a group, means the parent
30
company or any of its qualifying subsidiaries,
“incidental purposes” means purposes having no significant
effect (other than in relation to incidental matters) on the
extent of the activities of the company in question,
“mainly trading subsidiary” means a subsidiary which, apart
35
from incidental purposes, exists wholly for the purpose of
carrying on one or more qualifying trades, and any reference
to the main purpose of such a subsidiary is to be read
accordingly,
“non-qualifying activities” means—
40
(a)
excluded activities, and
(b)
activities (other than research and development)
carried on otherwise than in the course of a trade,
“parent company” means a company that has one or more
qualifying subsidiaries,
45
“qualifying subsidiary” is to be read in accordance with section
191 of ITA 2007,
“qualifying trade” has the meaning given by section 189 of that
Act,

Income Tax Bill
Schedule 1 — Minor and consequential amendments
Part 1 — Income and Corporation Taxes Act 1988
500

“research and development” has the meaning given by section
837A.
(8)
In sections 189(1)(b) and 194(4)(c) of ITA 2007 (as applied by
subsection (7) for the purposes of the definitions of “excluded
activities” and “qualifying trade”) “period B” means the continuous
5
period that is relevant for the purposes of section 576A.”
122
After section 576B insert—
“576C
Ceasing to meet the trading requirement because of administration or
receivership
(1)
A company is not regarded as ceasing to meet the trading
10
requirement by reason only of anything done in consequence of the
company or any of its subsidiaries being in administration or
receivership.

This has effect subject to subsections (2) and (3).
(2)
Subsection (1) applies only if—
15
(a)
the entry into administration or receivership, and
(b)
everything done as a result of the company concerned being
in administration or receivership,

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
20
is the avoidance of tax.
(3)
A company ceases to meet the trading requirement if before the time
that is relevant for the purposes of section 576A(2)—
(a)
a resolution is passed, or an order is made, for the winding up
of the company or any of its subsidiaries (or, in the case of a
25
winding up otherwise than under the Insolvency Act 1986 or
the Insolvency (Northern Ireland) Order 1989, any other act
is done for the like purpose), or
(b)
the company or any of its subsidiaries is dissolved without
winding up.
30

This is subject to subsection (4).
(4)
Subsection (3) does not apply if —
(a)
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, and
35
(b)
the company continues, during the winding up, to be a
trading company.
(5)
References in this section to a company being “in administration” or
“in receivership” are to be read in accordance with section 252 of ITA
2007.”
40
123
After section 576C insert—
“576D
The control and independence requirement
(1)
The control element of the requirement is that—
(a)
the company must not control (whether on its own or
together with any person connected with it) any company
45
which is not a qualifying subsidiary of the company, and

Income Tax Bill
Schedule 1 — Minor and consequential amendments
Part 1 — Income and Corporation Taxes Act 1988
501

(b)
no arrangements must be in existence by virtue of which the
company could fail to meet paragraph (a) (whether at a time
during the continuous period that is relevant for the
purposes of section 576A(3) or otherwise).
(2)
The independence element of the requirement is that—
5
(a)
the company must not—
(i)
be a 51% subsidiary of another company, or
(ii)
be under the control of another company (or of
another company and any other person connected
with that other company), without being a 51%
10
subsidiary of that other company, and
(b)
no arrangements must be in existence by virtue of which the
company could fail to meet paragraph (a) (whether at a time
during the continuous period that is relevant for the
purposes of section 576A(3) or otherwise).
15
(3)
This section is subject to section 576J(3).
(4)
In this section—
“arrangements” includes any scheme, agreement or
understanding, whether or not legally enforceable,
“control” is to be read as follows—
20
(a)
in subsection (1)(a), in accordance with section 416(2)
to (6),
(b)
in subsection (2)(a), in accordance with section 840,
“qualifying subsidiary” is to be read in accordance with section
191 of ITA 2007.”
25
124
After section 576D insert—
“576E
The qualifying subsidiaries requirement
(1)
The qualifying subsidiaries requirement is that any subsidiary that
the company has must be a qualifying subsidiary of the company.
(2)
In this section “qualifying subsidiary” is to be read in accordance
30
with section 191 of ITA 2007.”
125
After section 576E insert—
“576F
The property managing subsidiaries requirement
(1)
The property managing subsidiaries requirement is that any
property managing subsidiary that the company has must be a
35
qualifying 90% subsidiary of the company.
(2)
In this section—
“property managing subsidiary” has the meaning given by
section 188(2) of ITA 2007,
“qualifying 90% subsidiary” has the meaning given by section
40
190 of that Act.”
126
After section 576F insert—