Corporation Tax: loss-buying: groups of companies
The CTA10/S719 definition of change in ownership only relates to the direct ownership of a company. It does not look further to see if there has been a change in ultimate ownership, so CTA10/S723 contains additional rules for groups of companies.
These rules are designed to ensure that the change in ownership condition is satisfied for:
- sub-subsidiaries, etc
whenever there is a change in ownership of a parent company under CTA10/S719.
The rules work by treating a person or persons who acquire:
- shares of the parent,
- the powers or rights to which CTA10/S721 applies,
as if they had also acquired all that company’s shareholding rights and powers for CTA10/S719 purposes.
If a subsidiary has a subsidiary of its own, the same process is applied to its shareholding rights and powers in that sub-subsidiary. If this sub-subsidiary has its own subsidiaries the same process is applied again, and so on.
- A is the 100 per cent parent of B and C.
- B owns 70 per cent of the shares in D and A owns the other 30 per cent.
- D has substantial trading losses brought forward which are wanted by the X group who will however not be able to use them unless a major change is made to D’s trade.
- X buys A’s 100 per cent shareholding in B and A’s 30 per cent shareholding in D.
There is no direct change of ownership in D. Yet there is a change in ownership of D for the purpose of CTA10/S719 because CTA10/S723 deems X to acquire B’s 70 per cent holding in D.
75 per cent subsidiaries
The rules also limit the scope of CTA10/S719 where there is no change in the ultimate ownership of a company within a group.
Under CTA10/S724, changes in the direct ownership of a company are disregarded if the company concerned was a 75 per cent subsidiary of the same ‘parent’ company immediately before and after a change in (direct) ownership under CTA10/S719 - ’75 per cent subsidiary’ is defined at CTA10/S1154.
CTA10/S724 does not apply where a company is inserted between an existing company and its shareholders.
CTA10/S724 only covers share changes in companies that continue to be 75 per cent subsidiaries in real economic terms. So for the purposes of CTA10/S719 a 75 per cent subsidiary is only treated as such if the ‘parent’ company would be beneficially entitled to:
- at least 75 per cent of the profits available for distribution to equity holders of the subsidiary company,
- at least 75 per cent of assets of the subsidiary company available for distribution on a winding-up.