Statement of Practice 3 (1993)
Published 13 January 1993
© Crown copyright 1993
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Introduction
1. This statement supersedes Statement of Practice 5 (1980). Some features of the earlier statement have been omitted or revised but this does not indicate a more restrictive approach on the part of HM Revenue and Customs (HMRC).
2. This statement gives general guidance on how HMRC interpret ‘arrangements’ in the following provisions of Income and Corporation Taxes Act (ICTA) 1988:
- Section 240(11)(a) - surrender of advance Corporation Tax to a subsidiary company
- Section 247(1A)(b) - group income elections in certain consortium cases
- Section 410(1) and (2) - group and consortium reliefs ‘
- option arrangements’ in paragraph 5B(1) of Schedule 18 - group and consortium reliefs
Extra-Statutory Concession C10
3. Certain types of ‘arrangements’ or ‘option arrangements’ relating to groups and consortia which fall within the above legislation are in practice excluded from its scope by Extra-Statutory Concession (ESC) C10, as revised January 1993.
General
4. This Statement of Practice gives general guidance in conjunction with ESC C10. Comprehensive guidance cannot be given about what constitutes ‘arrangements’ or ‘option arrangements’, nor about precisely when they come into existence. Particular cases depend on the particular relevant facts.
5. As regards ‘option arrangements’ the Commissioners for HMRC’s view is that if an agreement provides for the creation of specified option rights exercisable at some future time ‘option arrangements’ come into existence when the agreement was entered into.
Disposal of shares or securities in a company
6. Where a holder of shares or securities in a company is preparing to dispose of them, straightforward negotiations for the disposal will not give rise to the existence of ‘arrangements’ before the point at which an offer is accepted subject to contract or on a similar conditional basis. Equally, unless there are exceptional features, an offer made to the public at large of shares or a business will not at that stage bring ‘arrangements’ into existence.
7. If a disposal requires the approval of shareholders, operations leading towards disposal will not give rise to the existence of ‘arrangements’ before that approval is given or until the directors become aware that it will be given.
8. If following negotiations with potential purchasers a holder of shares or securities concentrates on a particular potential purchaser this will not of itself be regarded as bringing ‘arrangements’ into existence. But ‘arrangements’ might exist if there were an understanding between the parties in the character of an option. For example, an offer, whether formally made or not, might be allowed to remain open for an appreciable period so that the potential purchaser was allowed to choose the moment to create a bargain.
Company reconstructions
9. The approval of shareholders for a company reconstruction may be required under company law or to comply with the rules of a stock exchange. ‘Arrangements’ will not come into existence before approval is given or until the directors become aware that it will be given.
Enforceability
10. ‘Arrangements’, though not ‘option arrangements’, may exist between parties even though they are not enforceable.