Income Tax Bill

House of Commons

Session 2006 - 07
Internet Publications
Other Bills before Parliament

Income Tax Bill

Income Tax Bill
Schedule 2 — Transitionals and savings
Part 8 — Venture capital trusts
664

(a)
would otherwise fall to be determined in accordance with section
278, and
(b)
is a question whether, in a case where a company (“company A”)
holds investments in a company (“company B”) immediately before
6 April 2007, the 15% holding condition is met if there is an addition
5
to the holding on or after that date.
      (2)
Any such question is to be determined in accordance with—
(a)
section 842AA(11)(c) of ICTA, and
(b)
section 842(3) and (4) of that Act as applied by that provision,

until such time as company A ceases to hold investments in company B.
10
      (3)
Except in a case to which sub-paragraph (2) applies, section 278(5) applies in
relation to investments issued before 17 April 2002 with the following
modifications—
(a)
the insertion after “reconstruction”, in the first place where it occurs,
of “or amalgamation”, and
15
(b)
the omission of the words from “In this subsection” to the end.
Conditions relating to qualifying holdings and eligible shares: supplementary
66
Section 280(3) does not apply in relation to shares issued before 17 April
2002.
Interpretation of Chapter 3
20
67
Section 285 applies with the omission of subsections (4) to (6) for the
purposes of determining whether, at any time before 6 April 2007, the
conditions mentioned in section 274(2) are, will be or were met with respect
to a company.
The maximum qualifying investment requirement
25
68
For the purpose of determining whether shares or securities are to be
regarded as comprised in a company’s qualifying holdings, section 287(3)(b)
does not apply in relation to shares or securities issued before 6 April 2007.
The no guaranteed loan requirement
69
For the purpose of determining whether shares or securities are to be
30
regarded as comprised in a company’s qualifying holdings, section 288 does
not apply in relation to shares or securities acquired by a company by means
of the investment of—
(a)
money raised by the issue before 2 July 1997 of shares in or securities
of the investing company, or
35
(b)
money derived from the investment by that company of any such
money.
The proportion of eligible shares requirement
70    (1)
If at any time the requirement of section 289—
(a)
would be met in relation to a relevant holding and a company if none
40
of the old investments were held by the investing company at that
time, but

Income Tax Bill
Schedule 2 — Transitionals and savings
Part 8 — Venture capital trusts
665

(b)
would not otherwise be met,

that section applies in relation to that holding as if the old investments were
not held by the investing company at that time.
      (2)
In sub-paragraph (1) “old investments” means shares in or securities of the
relevant company acquired by means of the investment of—
5
(a)
money raised by the issue before 2 July 1997 of shares in or securities
of the investing company, or
(b)
money derived from the investment by that company of any such
money.
The trading requirement
10
71
For the purpose of determining whether shares or securities are to be
regarded as comprised in a company’s qualifying holdings, section 290
applies in relation to shares or securities issued before 6 April 2007 with the
following modifications—
(a)
the omission of subsections (2) and (6), and
15
(b)
in subsection (5)(d), the omission of sub-paragraph (ii) and the “or”
immediately before it.
The carrying on of a qualifying activity requirement
72    (1)
For the purpose of determining whether shares or securities are to be
regarded as comprised in a company’s qualifying holdings, section 291
20
applies in relation to shares or securities issued before 6 April 2007 with the
omission of subsection (8).
      (2)
For the purpose of determining whether shares or securities are to be
regarded as comprised in a company’s qualifying holdings, section 291
applies in relation to shares or securities issued before 17 March 2004 with
25
the following modifications—
(a)
in subsection (1), the substitution for “a qualifying company
(whether or not the same such company at every such time)” of “the
qualifying company”,
(b)
in subsection (3), the substitution for “was intended to be carried on”
30
of “it intended to carry on” and the omission of “by a qualifying
company”,
(c)
in subsection (4)(a), the substitution for “a qualifying company” of
“the qualifying company”,
(d)
in subsection (4)(b), the substitution for “at all times since the end of
35
that period, a qualifying company (whether or not the same such
company at every such time) has” of “the qualifying company has at
all times since the end of that period”, and
(e)
the omission of subsection (6).
Ceasing to meet the requirement because of administration or receivership
40
73
For the purpose of determining whether shares or securities are to be
regarded as comprised in a company’s qualifying holdings, section 292(1)
applies in relation to shares or securities issued before 17 March 2004 with
the omission of “merely”.

Income Tax Bill
Schedule 2 — Transitionals and savings
Part 8 — Venture capital trusts
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The use of the money raised requirement
74
For the purpose of determining whether shares or securities are to be
regarded as comprised in a company’s qualifying holdings, section 293
applies in relation to shares or securities issued before 17 March 2004 with
the following modifications—
5
(a)
in subsection (2), the substitution for “has been or is intended to be
employed” of “is money which the qualifying company has
employed or intends to employ”, and
(b)
in subsection (5)(b), the substitution for “a qualifying company” of
“the qualifying company”.
10
The relevant company to carry on the relevant qualifying activity requirement
75    (1)
For the purpose of determining whether shares or securities are to be
regarded as comprised in a company’s qualifying holdings, section 294
applies in relation to shares or securities issued before 6 April 2007 with the
following modifications—
15
(a)
in subsections (1) and (6) the substitution for “relevant qualifying
activity” of “qualifying activity”,
(b)
in subsection (1) the substitution for “section 293” of “section 291”,
and
(c)
the omission of subsection (7).
20
      (2)
For the purpose of determining whether shares or securities are to be
regarded as comprised in a company’s qualifying holdings, Chapter 4 of
Part 6 of this Act applies in relation to shares or securities issued before 17
March 2004 with the substitution for section 294 of—
“294
Further requirements as to the money raised by the investment in
25
question
(1)
If—
(a)
the relevant company is a parent company, and
(b)
the business of the group does not consist wholly or as to a
substantial part in the carrying on of non-qualifying
30
activities,

the requirements of this section are not met unless one or more of the
following conditions is met.
(2)
Condition A is that the trader company meets the requirement of
section 290(1)(a).
35
(3)
Condition B is that the trader company would meet that requirement
if its purposes were ignored so far as they consist in the carrying on
of activities in section 290(5).
(4)
Condition C is that the trader company is a qualifying 90% company
and—
40
(a)
apart from incidental purposes, it exists wholly for the
purposes of carrying on activities such as those in section
290(5)(c) and (d), or
(b)
it has no profits for the purposes of corporation tax and no
part of its business consists in the making of investments.
45
(5)
In this section—

Income Tax Bill
Schedule 2 — Transitionals and savings
Part 8 — Venture capital trusts
667

“the business of the group” has the same meaning as it has for
the purposes of subsection (1)(b) of section 290,
“incidental purposes” and “non-qualifying activities” have the
same meaning as in that section,
“the trader company” means the company (whether the
5
relevant company or a qualifying subsidiary of the relevant
company) carrying on the qualifying activity which meets the
requirement of section 291.”
The gross assets requirement
76    (1)
For the purpose of determining whether shares or securities are to be
10
regarded as comprised in a company’s qualifying holdings, section 297
applies in relation to shares or securities issued on or after 6 April 1998 and
before 6 April 2006 with the substitution in subsections (1) and (2)—
(a)
of “£15 million” for “£7 million”, and
(b)
of “£16 million” for “£8 million”.
15
      (2)
For the purposes of sub-paragraph (1) any shares or securities acquired by a
company at any time by means of the investment of—
(a)
money raised by the issue before 6 April 2006 of shares in or
securities of the investing company, or
(b)
money derived from the investment by that company of any such
20
money,

are treated as having been issued before 6 April 2006.
      (3)
For the purpose of determining whether shares or securities are to be
regarded as comprised in a company’s qualifying holdings, section 297
applies in relation to shares or securities issued before 6 April 1998 with the
25
substitution in subsections (1) and (2)—
(a)
of “£10 million” for “£7 million”, and
(b)
of “£11 million” for “£8 million”.
The property managing subsidiaries requirement
77
For the purpose of determining whether shares or securities are to be
30
regarded as comprised in a company’s qualifying holdings, section 299 does
not apply in relation to shares or securities issued before 17 March 2004.
Meaning of “qualifying trade”
78
For the purpose of determining whether shares or securities are to be
regarded as comprised in a company’s qualifying holdings, section 300
35
applies in relation to shares or securities issued before 6 April 2007 with the
following modifications—
(a)
in subsection (2), the omission of paragraph (b) and the “or”
immediately before it, and
(b)
the omission of subsection (3).
40
Meaning of “qualifying 90% subsidiary”
79
For the purpose of determining whether shares or securities are to be
regarded as comprised in a company’s qualifying holdings, section 301 does
not apply in relation to shares or securities issued before 17 March 2004.

Income Tax Bill
Schedule 2 — Transitionals and savings
Part 8 — Venture capital trusts
668

Meaning of “qualifying subsidiary”
80
For the purpose of determining whether shares or securities are to be
regarded as comprised in a company’s qualifying holdings, section 302
applies in relation to shares or securities issued before 17 March 2004 with
the following modifications—
5
(a)
the substitution for subsection (2)(a) of—
“(a)
the relevant company, or another of its subsidiaries,
possesses at least 75% of the issued capital of, and at
least 75% of the voting power in, the subsidiary,
(aa)
the relevant company, or another of its subsidiaries,
10
would in the event of a winding up of the subsidiary,
or in any other circumstances, be beneficially entitled
to receive at least 75% of the assets of the subsidiary
which would then be available for distribution for the
equity holders of the subsidiary,
15
(ab)
the relevant company, or another of its subsidiaries, is
beneficially entitled to at least 75% of any profits of
the subsidiary which are available for distribution for
the equity holders of the subsidiary,”,
(b)
in subsection (2)(c), the substitution for “either of the conditions in
20
paragraphs (a) and (b)” of “any of the conditions in paragraphs (a),
(aa), (ab) and (b)”,
(c)
in subsection (3), the omission of “or any other company” and the
substitution for paragraphs (a) and (b) of “is for genuine commercial
reasons, and not part of a scheme or arrangement the main purpose
25
or one of the main purposes of which is the avoidance of tax”,
(d)
the omission of subsection (4),
(e)
in subsection (5), the substitution for paragraphs (a) and (b) of “is to
be for genuine commercial reasons, and not part of a scheme or
arrangement the main purpose or one of the main purposes of which
30
is the avoidance of tax”,
(f)
after subsection (5) the insertion of—
“(6)
For the purposes of this section the persons who are equity
holders of a subsidiary, and the percentage of the assets of the
subsidiary to which an equity holder would be entitled, is to
35
be determined in accordance with paragraphs 1 and 3 of
Schedule 18 to ICTA, taking—
(a)
references in paragraph 3 to the first company as
references to the equity holder, and
(b)
references to a winding up as including references to
40
any other circumstances in which assets of the
subsidiary are available for distribution to its equity
holders.”
Meaning of “excluded activities”
81
For the purpose of determining whether shares or securities are to be
45
regarded as comprised in a company’s qualifying holdings at any time,
section 303(1)(g) to (k) (and accordingly sections 307 to 309) do not apply in
relation to shares or securities acquired by the company by means of the
investment of—

Income Tax Bill
Schedule 2 — Transitionals and savings
Part 8 — Venture capital trusts
669

(a)
money raised by the issue before 17 March 1998 of shares in or
securities of the investing company, or
(b)
money derived from the investment by that company of any such
money.
Excluded activities: wholesale and retail distribution
5
82
For the purpose of determining whether shares or securities are to be
regarded as comprised in a company’s qualifying holdings, section 304
applies in relation to shares or securities issued before 6 April 2007 with the
following modifications—
(a)
in subsection (5)(b), the insertion after “held” of “by the company”
10
and the substitution for “the trader” of “a vendor”, and
(b)
in subsection (6), the substitution for “of wholesale or retail
distribution”, in the first place where it occurs, of “carried on by any
person” and the substitution for “the trader”, in each place where it
occurs, of “that person”.
15
Excluded activities: leasing of ships
83    (1)
For the purpose of determining whether shares or securities are to be
regarded as comprised in a company’s qualifying holdings, section 305 as
applied by the definition of “non-qualifying activities” in section 290(8)
applies in relation to shares or securities issued before 6 April 2007 with the
20
omission of subsection (7).
      (2)
For the purpose of determining whether shares or securities are to be
regarded as comprised in a company’s qualifying holdings, section 305
applies in relation to shares or securities issued before 6 April 2004 with the
following modifications—
25
(a)
in subsection (1), the substitution for “offshore installations” of “oil
rigs”,
(b)
in subsection (2), the substitution for “offshore installation” of “oil
rig”,
(c)
in subsection (8), the insertion after “this section” of—
30
““oil rig” means any ship which is an offshore installation for the
purposes of the Mineral Workings (Offshore Installations) Act
1971,”.
Excluded activities: receipt of royalties and licence fees
84
For the purpose of determining whether shares or securities are to be
35
regarded as comprised in a company’s qualifying holdings, section 306
applies in relation to shares or securities issued before 6 April 2000 with the
substitution for subsections (2) to (6) of—
“(2)
If the requirement of subsection (3) or (4) is met, a trade is not to be
regarded as consisting in the carrying on of excluded activities
40
within section 303(1)(e) as a result only of its consisting to a
substantial extent in the receiving of royalties of licence fees.
(3)
The requirement of this subsection is that—
(a)
the company carrying on the trade is engaged in—
(i)
the production of films, or
45

Income Tax Bill
Schedule 2 — Transitionals and savings
Part 8 — Venture capital trusts
670

(ii)
the production of films and the distribution of films
produced by it since the issue of the relevant holding,
and
(b)
all royalties and licence fees received by it are in respect of—
(i)
films produced by it since the issue of the relevant
5
holding,
(ii)
sound recordings in relation to such films, or
(iii)
other products arising from such films.
(4)
The requirement of this subsection is that—
(a)
the company carrying on the trade is engaged in research and
10
development, and
(b)
all royalties and licence fees received by it are attributable to
research and development which it has carried out.”
Excluded activities: provision of services or facilities for another business
85    (1)
For the purpose of determining whether shares or securities are to be
15
regarded as comprised in a company’s qualifying holdings, section 310
applies in relation to shares or securities issued before 6 April 2007 with the
following modifications—
(a)
in subsections (1) to (4), the substitution of “trade” for “business”,
wherever it occurs, and
20
(b)
in subsection (5) the substitution for paragraph (b) of—
“(b)
“trade” includes business, profession or vocation
where what is carried on is carried on by a person
other than a company.”
      (2)
For the purpose of determining whether shares or securities are to be
25
regarded as comprised in a company’s qualifying holdings at any time,
section 310(1)(a) applies in relation to shares or securities acquired by the
company by means of the investment of—
(a)
money raised by the issue before 17 March 1998 of shares in or
securities of the investing company, or
30
(b)
money derived from the investment by that company of any such
money,

with the substitution for “paragraphs (a) to (k)” of “paragraphs (a) to (f)”.
Winding up of the relevant company
86
For the purpose of determining whether shares or securities are to be
35
regarded as comprised in a company’s qualifying holdings, section 312(b)
applies in relation to shares or securities issued before 17 March 2004 with
the substitution for “is not” of “not”.
Acquisitions for restructuring purposes etc
87
Sections 326 to 329 do not apply in relation to arrangements made, or rights
40
of conversion exercised, before 16 June 1999.
Power to facilitate company reorganisations
88
Section 330 does not apply in relation to exchanges of shares or securities
taking effect before 21 March 2000.