Income Tax Bill

House of Commons

Session 2006 - 07
Internet Publications
Other Bills before Parliament

Income Tax Bill

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

(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
5
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
10
(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—
15
(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
20
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.
25
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
30
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.
313
Interpretation of Chapter
35
(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).
(2)
References in this Chapter to the issue of any securities, in relation to any
40
security consisting in a liability in respect of an unsecured loan, have effect as
references to the making of the loan.

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

(3)
References in sections 303 to 309 to a trade are to be read without regard to the
definition of “trade” in section 989 (see also section 300(4)).
(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
(5)
For the purposes of this Chapter, section 993 (meaning of “connected persons”)
applies as if references to “control” in that section were to be read in accordance
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—
10
(a)
any person’s possession of, or entitlement to acquire, fixed-rate
preference shares in the company that do not carry voting rights, and
(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—
15
(a)
were issued wholly for new consideration,
(b)
do not carry any right either to conversion into shares or securities of
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—
20
(i)
are of a fixed amount or at a fixed rate per cent of the nominal
value of the shares, and
(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,
25

and in paragraph (a) “new consideration” has the meaning given by section 254
of ICTA.
Chapter 5
Powers: winding up and mergers of VCTs
Winding up
30
314
Power to treat VCT-in-liquidation as VCT
(1)
Regulations may make provision for tax enactments specified by the
regulations to have effect as if—
(a)
a VCT-in-liquidation that is not a VCT were, or were during any
prescribed period of its winding up, a VCT,
35
(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,

were withdrawn at a prescribed time (and not at the time when it is
actually withdrawn).
40
(2)
In this section “prescribed” means specified by, or determined under,
regulations.

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

315
Power to treat conditions for VCT approval as met with respect to VCT-in-
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-
5
liquidation.
(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.
10
(3)
Regulations may, for purposes of tax enactments specified by the regulations,
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
15
provision made under subsection (1).
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
20
(including, in particular, distributions in the course of dissolving it or
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.
25
(2)
Provision under subsection (1) may be made so as to apply in relation to
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.
30
317
Power to facilitate disposal to VCT by VCT-in-liquidation
(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.
(2)
The provision that may be made under subsection (1) for such a case is—
35
(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,
(b)
provision for the shares or securities acquired to be treated, at times
40
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
acquisition of the shares or securities from the VCT-in-liquidation and
45
either—

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

(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
course of its winding up or dissolution to a person who is one
of its members,
5

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.
(3)
Provision under subsection (1) may be made so as to apply in relation to shares
or securities acquired from a VCT-in-liquidation—
10
(a)
at any time during its winding up, or
(b)
during periods of its winding up specified by, or determined under,
regulations.
(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).
15
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
relation to—
(a)
a company for whose winding up an application has been made to a
20
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
(b)
a company that has been a VCT-in-liquidation but no longer is a VCT-
in-liquidation because it has been wound up.
25
(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
references to, or to the commencement or ending of, the extension period for a
company to which subsection (1) applies.
30
(3)
In this section—
“the extension period”—
(a)
in relation to a company to which subsection (1)(a) applies,
means the period beginning with the making of the application
and ending with the earlier of its final determination and the
35
company becoming a company that is being wound up, and
(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.
40
319
Sections 314 to 318: supplementary
(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,
45
regulations.

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

(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
5
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
10
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
15
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
20
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—
25
(a)
in cases, and
(b)
subject to conditions (including conditions requiring approvals to be
obtained),

specified by the regulations.
322
Provision that may be made by regulations under section 321
30
(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
purposes of tax enactments specified by regulations.
35
(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
Schedule 5C to TCGA 1992 (VCTs: deferred charge on re-investment).
40
(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

Income Tax Bill
Part 6 — Venture capital trusts
Chapter 5 — Powers: winding up and mergers of VCTs
175

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.
(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
5
held by the successor company, as meeting requirements of Chapter 4
(provisions for determining whether shares or securities held by a VCT form
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
10
before, during or after the merger) in connection with the merger.
(8)
Provision authorising disclosure for tax purposes connected with the merger—
(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
15
by or on behalf of any of the merging companies or the successor
company.
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—
20
(a)
shares in one of the merging companies (“company A”) are issued to
members of the other merging company or companies, and
(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—
25
(i)
in exchange for their shares in that other company, or
(ii)
by way of consideration for a transfer to company A of the
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—
30
(a)
shares in a company (“company B”) that is not one of the merging
companies are issued to members of the merging companies, and
(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
35
(ii)
by way of consideration for a transfer to company B of the
whole or part of the business of that company.
(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
40
(b)
in relation to a merger such as is described in subsection (2), means the
company that performs the role of company B.