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HMRC internal manual

Corporate Finance Manual

From
HM Revenue & Customs
Updated
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FA2010: risk transfer schemes: the group

The vast majority of risk transfer scheme require a group of companies so that the company that holds the relevant asset/liability that is being hedged is a different company from that which holds the liability/asset that performs the hedge. It can also be the case that the hedge, and in particular the ‘overhedge’ element of the hedge is split across different group companies. Consequently, it is crucial to the operation of the risk transfer provisions that schemes are viewed on a group basis.

CTA10/S937B sets out that where there is a group scheme (i.e. a scheme that involves more than one company as party to the scheme) then the ‘relevant group’ is Company A and any other company which is party to the scheme and is ‘associated with’ Company A.

The term ‘associated with’ is defined in a wide-ranging manner at CTA10/S937K.

‘Associated with’

A company is ‘associated with’ another company if any of the following 5 conditions are met:

Condition 1 - the ‘consolidation condition’

Company A and Company B are associated with each other if the financial results of both companies are required to be consolidated into accounts prepared under section 399 of the Companies Act 2006 or, if they are not to be consolidated into such accounts, then this is due to the exemption at section 399(3).

Condition 2 - connected companies

Company A and Company B are associated with each other if they are connected with each other as per the definition of connected used for loan relationship purposes (see CFM35000).

Condition 3 - major interest

Company A and Company B are associated with each other if one of those companies has a ‘major interest’ in the company. The meaning of ‘major interest’ is the same as that used for loan relationship purposes (see CFM35920).

Condition 4 - the ‘consolidation condition’ and a ‘major interest’

Company A and company B are associated with each other if company A and a third company meet the ‘consolidation condition’ (see condition 1 above) and that third company has a ‘major interest’ (see condition 3 above) in Company B.

Condition 5 - a ‘major interest’ and connection

Company A and Company B are associated with each other if Company A and a third company are ‘connected’ (see condition 2 above) and that third company has a ‘major interest’ in company B (see condition 3 above).