EGL54000 - Introduction to joint ventures and group companies with minority investors: election for group company with significant minority shareholders to pay its EGL liability

F(2)A23/S290 applies where the generating undertaking is a group and a member of that group has a significant minority shareholder. It allows the group to elect for that company to be individually liable for its share of the group’s overall EGL liability which will include the liability of any subsidiary of the company involved.

This rule is to make it easier for corporate groups to ensure that the costs of the EGL are borne by the companies whose activities have given rise to those costs, in situations where that could have significant commercial implications. For example, a company that operates a generating station could be owned 80% by X Ltd and 20% by Y Ltd and the electricity output is supplied to the owners in the same proportions. The company is in the same group as X Ltd because the 75% ownership condition is met and the whole of the generation would normally be included in calculating the EGL liability of the X group. However commercially it is Y Ltd that will be benefitting from any exceptional generation receipts from its 20% of the output. This matter could be resolved through contractual arrangements between X Ltd and Y Ltd but F(2)A23/S290 provides an alternative.

The election may be made where a group member has one or more significant minority shareholders and an amount of the group’s EGL liability is attributable to that group company on a fair and reasonable basis.

An election for this treatment is to be made by the lead company of the group and should specify the relevant amount of EGL. It must be made no later than nine months following the end of the relevant qualifying period, which will correspond to the date that payment of EGL by the lead company is due (reflecting that company’s corporation tax accounting period).

The attribution should be made on a fair and reasonable basis and, where relevant, should take into account any surrender of shortfall amounts under F(2)A23/S298.

An election will have no effect where the group company is already subject to an election for transparency under F(2)A23/S300 that has not been withdrawn. Similarly, an election under F(2)A23/S290 will cease to have any practical effect where a transparency election is made subsequently.

The making of an election does not prevent HMRC from collecting the amount of EGL liability involved from another member of the group in the event of non-payment.