Corporation Tax Bill

House of Commons

Session 2009 - 10
Internet Publications
Other Bills before Parliament

Corporation Tax Bill

Corporation Tax Bill
Part 14 — Change in company ownership
Chapter 7 — Meaning of “change in the ownership of a company”
364

720
Section 719: supplementary
(1)
The following provisions apply for the purposes of section 719.
(2)
The circumstances at any two points in time with not more than 3 years
between may be compared, and a holder (“H”) at the later time may be
regarded as having acquired whatever H did not hold at the earlier time.
5

It does not matter what H has acquired or disposed of in between.
(3)
To allow for any issue of shares or other reorganisation of capital, the
comparison may be made in terms of percentage holdings of the total ordinary
share capital at the respective times, so that a person whose percentage holding
is greater at the later time may be regarded as having acquired a percentage
10
holding equal to the increase.
(4)
To decide if a person has acquired—
(a)
a holding of at least 5%, or
(b)
a holding which makes at least 5% when added to an existing holding,

acquisitions by, and holdings of, two or more persons who are connected
15
persons are to be added together as if they were acquisitions by, and holdings
of, one and the same person.
(5)
Any acquisition of shares under a will or on intestacy is left out of account.
(6)
Any gift of shares which is unsolicited and made without regard to the
provisions of this Part is left out of account.
20
721
When things other than ordinary share capital may be taken into account:
Chapters 2 to 5
(1)
This section applies for the purposes of Chapters 2 to 5 if conditions A and B
are met.
(2)
Condition A is that persons (whether company members or not) possess
25
extraordinary rights or powers under any document regulating a company.
(3)
Condition B is that because of that fact ownership of the ordinary share capital
may not be an appropriate test of whether there has been a major change in the
persons for whose benefit the relief may ultimately enure.
(4)
In determining whether there has been a change in the ownership of the
30
company for the purposes of Chapter 2, 3, 4 or 5, any of the following may be
taken into account instead of ordinary share capital—
(a)
holdings of all kinds of share capital,
(b)
holdings of any particular kind of share capital,
(c)
voting power, and
35
(d)
any other kind of special power.
722
When things other than ordinary share capital may be taken into account:
Chapter 6
(1)
This section applies for the purposes of Chapter 6 if conditions A and B are met.
(2)
Condition A is that persons (whether company members or not) possess
40
extraordinary rights or powers under any document regulating a company.

Corporation Tax Bill
Part 14 — Change in company ownership
Chapter 7 — Meaning of “change in the ownership of a company”
365

(3)
Condition B is that because of that fact ownership of the ordinary share capital
may not be an appropriate test of whether there has been a change in the
ownership of the company.
(4)
In determining whether there has been a change in the ownership of the
company for the purposes of Chapter 6, any of the following may be taken into
5
account instead of ordinary share capital—
(a)
holdings of all kinds of share capital,
(b)
holdings of any particular kind of share capital,
(c)
voting power, and
(d)
any other kind of special power.
10
Changes in indirect ownership
723
Changes in indirect ownership
(1)
This section applies if there is a change in the ownership of a company, other
than a change in ownership which is disregarded because of section 724.
(2)
The reference in subsection (1) to a change in the ownership of a company
15
includes a change in ownership occurring as a result of the application of this
section.
(3)
If condition A in section 719 is met, the person mentioned in that condition is
treated for the purposes of this Chapter as having acquired at the time of the
change in ownership any relevant assets owned by the company.
20
(4)
If condition B in section 719 is met but condition A is not, each of the persons
mentioned in condition B is treated for the purposes of this Chapter as having
acquired at the time of the change in ownership the appropriate fraction of any
relevant assets owned by the company.
(5)
In a case not falling within subsection (3) or (4), each of the persons mentioned
25
in condition C in section 719 (other than any person whose holding is
disregarded for the purposes of that condition) is treated for the purposes of
this Chapter as having acquired at the time of the change in ownership the
appropriate fraction of any relevant assets owned by the company.
(6)
In this section—
30
“the appropriate fraction”, in relation to one of two or more persons
mentioned in subsection (4) or (5), means—

where—
(a)
X is the percentage of the ordinary share capital acquired by
that person, and
35
(b)
Y is the percentage of that capital acquired by all those persons
taken together, and
“relevant assets”, in relation to a company, means—
(a)
any ordinary share capital of another company, and

Corporation Tax Bill
Part 14 — Change in company ownership
Chapter 7 — Meaning of “change in the ownership of a company”
366

(b)
any property or rights which under section 721 or 722 may be
taken into account instead of ordinary share capital of another
company.
Disregard of change in ownership
724
Disregard of change in company ownership
5
(1)
A change in the ownership of a company (“the subsidiary company”) is
disregarded for the purposes of Chapters 2 to 6 if —
(a)
immediately before the change in ownership, the subsidiary company
is a qualifying 75% subsidiary of another company (“the parent
company”), and
10
(b)
although there is a change in the direct ownership of the subsidiary
company, the subsidiary company continues after the change to be a
qualifying 75% subsidiary of the parent company.
(2)
For the purposes of this section, the subsidiary company is a qualifying 75%
subsidiary of the parent company if conditions A, B and C are met.
15
(3)
Condition A is that the subsidiary company is a 75% subsidiary of the parent
company.
(4)
Condition B is that the parent company would be beneficially entitled to at
least 75% of any profits available for distribution to equity holders of the
subsidiary company.
20
(5)
Condition C is that the parent company would be beneficially entitled to at
least 75% of any assets of the subsidiary company available for distribution to
its equity holders on a winding up.
(6)
Chapter 6 of Part 5 (equity holders and profits or assets available for
distribution) applies for the purposes of subsections (4) and (5) as it applies for
25
the purposes of section 151(4)(a) and (b).
Supplementary provision
725
Provision applying for the purposes of Chapters 2 to 5
(1)
This section applies for the purposes of Chapters 2 to 5.
(2)
If any of those Chapters has operated to restrict relief by reference to a change
30
in the ownership of a company taking place at any time, no transaction or
circumstances before that time may be taken into account in determining
whether there is any subsequent change in the ownership of the company.
(3)
The following provisions apply if—
(a)
any relevant assets are taken into account in determining that there has
35
been a change in the ownership of a company, and
(b)
the relevant assets were acquired—
(i)
in pursuance of a contract of sale or option or other contract, or
(ii)
by a person holding such a contract.
(4)
The time when the change in the ownership of the company took place is to be
40
determined as if the acquisition had been made—

Corporation Tax Bill
Part 14 — Change in company ownership
Chapter 8 — Supplementary provision
367

(a)
when the contract was made with the holder, or
(b)
when the benefit of it was assigned to the holder.
(5)
Accordingly, a person exercising an option to purchase shares is treated as
having purchased the shares when that person acquired the option.
(6)
In this section “relevant assets” means—
5
(a)
ordinary share capital, or
(b)
any property or rights which under section 721 or 722 may be taken into
account instead of ordinary share capital.
726
Interpretation of Chapter
In this Chapter—
10
“ownership” means beneficial ownership (and references to acquisition
are construed accordingly), and
“shares” includes stock.
Chapter 8
Supplementary provision
15
727
Extended time limit for assessment
If the operation of any provision in Chapters 2 to 6 depends on circumstances
or events at a time or times after (but not more than 3 years after) a change in
the ownership of a company, an assessment to give effect to that provision is
not out of time if made within 6 years from that time, or the latest of those
20
times.
728
Provision of information about ownership of shares etc
(1)
A person (“P”) in whose name any shares, stock or securities of a company are
registered must comply with the obligation in subsection (2) if required to do
so by notice given by an officer of Revenue and Customs for the purposes of
25
any provision of this Part.
(2)
The obligation is—
(a)
to state whether or not P is the beneficial owner of those shares, stock
or securities, and
(b)
if P is not the beneficial owner of any of those shares, stocks or
30
securities, to provide the name and address of the person on whose
behalf they are registered.
729
Meaning of “company with investment business”
In this Part “company with investment business” has the meaning given by
section 1218 of CTA 2009.
35
730
Meaning of “relevant non-trading debit”
(1)
This section applies for the purposes of sections 679 and 696.

Corporation Tax Bill
Part 15 — Transactions in securities
368

(2)
“Relevant non-trading debit” means a non-trading debit within subsection (3),
(4) or (5).
(3)
A non-trading debit is within this subsection if—
(a)
it is determined on an amortised cost basis of accounting,
(b)
section 407 or 409 of CTA 2009 (postponement until redemption of
5
debits for connected or close companies’ deeply discounted securities)
applies, and
(c)
were it not for those sections, the debit would have fallen to be brought
into account for the purposes of Part 5 of that Act (loan relationships)
for an accounting period ending before or with the change in
10
ownership mentioned in section 679 or 696.
(4)
A non-trading debit is within this subsection if—
(a)
it is determined on an amortised cost basis of accounting,
(b)
section 373 of CTA 2009 (late interest treated as not accruing until paid
in some cases) applies, and
15
(c)
were it not for that section, the debit would have fallen to be brought
into account for the purposes of Part 5 of that Act for an accounting
period ending before or with the change in ownership mentioned in
section 679 or 696.
(5)
A non-trading debit is within this subsection if—
20
(a)
it is not within subsection (3) or (4),
(b)
it is a debit in respect of a debtor relationship of the company
mentioned in section 679 or 696,
(c)
it is determined on an amortised cost basis of accounting, and
(d)
it relates to an amount that accrued before the change in ownership so
25
mentioned.
(6)
Expressions used both in this section and in Part 5 of CTA 2009 (loan
relationships) have the same meaning as in that Part.
Part 15
Transactions in securities
30
Introduction
731
Overview of Part
(1)
This Part makes provision for counteracting corporation tax advantages
obtained or obtainable by companies to which section 733 applies in respect of
a transaction or transactions in securities.
35
(2)
See section 746 (counteraction notices) for the way in which the corporation tax
advantages may be counteracted.
732
Meaning of “corporation tax advantage”
(1)
In this Part “corporation tax advantage” means—
(a)
a relief from corporation tax or increased relief from corporation tax,
40
(b)
a repayment of corporation tax or increased repayment of corporation
tax,

Corporation Tax Bill
Part 15 — Transactions in securities
369

(c)
the avoidance or reduction of a charge to corporation tax or an
assessment to corporation tax, or
(d)
the avoidance of a possible assessment to corporation tax.
(2)
For the purposes of subsection (1)(c) and (d) it does not matter whether the
avoidance or reduction is effected—
5
(a)
by receipts accruing in such a way that the recipient does not pay or
bear corporation tax on them, or
(b)
by a deduction in calculating profits or gains.
Company liable to counteraction of corporation tax advantage
733
Company liable to counteraction of corporation tax advantage
10
(1)
This section applies to a company in respect of a transaction in securities or two
or more such transactions if the company is in a position to obtain or has
obtained a corporation tax advantage—
(a)
in circumstances where any of the provisions specified in subsection (2)
applies in relation to the company, and
15
(b)
in consequence of—
(i)
the transaction, or
(ii)
the combined effect of the transactions.
(2)
The provisions are—
section 735 (abnormal dividends used for exemptions or reliefs
20
(circumstance A)),
section 736 (receipt of consideration representing company’s assets,
future receipts or trading stock (circumstance C)),
section 737 (receipt of consideration in connection with relevant company
distribution (circumstance D)), and
25
section 738 (receipt of assets of relevant company (circumstance E)).
(3)
For the purposes of this Part a corporation tax advantage is treated as obtained
or obtainable by a company in consequence of—
(a)
a transaction in securities, or
(b)
the combined effect of two or more such transactions,
30

if it is obtained or obtainable by the company in consequence of the combined
effect of the transaction or transactions and the liquidation of a company.
(4)
This section is subject to—
section 734 (exception where no tax avoidance object shown),
section 744(3) (disapplication of this section where company receiving
35
preliminary notification that this section may apply makes a statutory
declaration and the relevant officer of Revenue and Customs sees no
reason to take further action), and
section 745(5) (determination by tribunal that there is no prima facie case
that this section applies).
40
734
Exception where no tax avoidance object shown
(1)
Section 733 does not apply to a company in respect of a transaction in securities
or two or more such transactions if the company shows that the transaction or
transactions meet conditions A and B.

Corporation Tax Bill
Part 15 — Transactions in securities
370

(2)
Condition A is that the transaction or transactions are effected—
(a)
for genuine commercial reasons, or
(b)
in the ordinary course of making or managing investments.
(3)
Condition B is that enabling corporation tax advantages to be obtained is not
the main object or one of the main objects of the transaction or, as the case may
5
be, any of the transactions.
Circumstances in which corporation tax advantages obtained or obtainable
735
Abnormal dividends used for exemptions or reliefs (circumstance A)
(1)
This section applies in relation to a company if subsections (2) to (4) apply.
(2)
The company receives an abnormal amount by way of dividend (see section
10
740).
(3)
The receipt is in connection with—
(a)
the purchase of securities where the purchase is followed by the sale of
the same or other securities,
(b)
the sale of securities where the sale is followed by the purchase of the
15
same or other securities,
(c)
the distribution, transfer or realisation of assets of a company, or
(d)
the application of such assets in discharge of liabilities.
(4)
The amount so received is taken into account for the purposes of the
application of franked investment income for the purposes of regulations
20
made under section 32 of FA 1998 (unrelieved surplus advance corporation
tax).
736
Receipt of consideration representing company’s assets, future receipts or
trading stock (circumstance C)
(1)
This section applies in relation to a company (“A”) if subsections (2) to (4)
25
apply.
(2)
A receives consideration which—
(a)
is or represents the value of—
(i)
assets which are available for distribution by a company by way
of dividend, or
30
(ii)
assets which would have been so available apart from anything
done by the company,
(b)
is received in respect of future receipts of a company, or
(c)
is or represents the value of trading stock of a company.
(3)
The receipt is in consequence of a transaction whereby another person
35
subsequently receives, or has received, an abnormal amount by way of
dividend (see section 740).
(4)
The receipt of the consideration is such that A does not pay or bear corporation
tax on income in respect of it (apart from this Part).
(5)
The assets mentioned in subsection (2) do not include assets which are shown
40
to represent a return of sums paid by subscribers on the issue of securities,
despite the fact that under the law of the country in which the company is