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HMRC internal manual

Company Taxation Manual

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HM Revenue & Customs
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Groups & consortia: groups - entitlement to profits or assets available for distribution: option, limited & varying rights: referable to UK trade of non-resident company

ICTA88/SCH18/PARA5F

FA00 introduced additional rules in ICTA88/SCH5F. They apply from 1 April 2000 for the purposes of:

  • determining 75% and 90% subsidiary relationships where a company either surrendering or claiming group relief (CTM80100 onwards) or consortium relief (CTM80500 onwards) is not resident in the UK, and
  • working out a consortium member’s share in a consortium (CTM80540 and CTM80545), where a company owned by the consortium (CTM80530) is not resident in the UK and either claims or surrenders consortium relief.

The rules apply in cases where:

  • any equity holder holds shares or securities with rights (to dividends, interest or assets on a winding up) which depend in any way on to the extent to which profits or assets distributed are referable to the trade of the UK permanent establishment of the non-resident company, or
  • ICTA88/SCH18/PARA5B option arrangements (CTM81090) exist and either or both of the percentages described in CTM81095, being:

    • a percentage of the profits of the non-resident company to which the equity holders would be entitled, or
    • a percentage of the assets of the non-resident company to which the equity holders would be entitled on a notional winding up,

would differ at any time according to the extent to which profits or assets distributed are referable to the trade of the UK permanent establishment of the non-resident company.

Profits or assets are referable to the trade of a UK permanent establishment only to the extent that:

  • they are used for or attributable to activities any profits from which are or would be within the charge to CT, and
  • are not used or attributable to activities any profits from which are or would be exempted from CT by a bilateral double tax agreement.
     
  • the percentage entitlement of an equity holder to profits or assets if these were distributed by reference to the non-resident company as an entity, and
  • the percentage entitlement of an equity holder to profits or assets if these were distributed by reference only to the UK permanent establishment of the non-resident company,

as part of the various Schedule 18 tests.

Seek advice from CTIAA (Technical) if you have difficulty in applying the provisions of Schedule 5F in any actual case.