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HMRC internal manual

Corporate Finance Manual

Debt cap: groups affected; meaning of a group

International Accounting Standards

The meaning of group in TIOPA10/PT7 is taken from International Accounting Standards(TIOPA10/S338(1)). IAS 21.8 and IAS 27.4 define a group as a parent and all its subsidiaries. The meaning of both parent and subsidiary is also taken from IAS (TIOPA10/S351(1)). IAS 27.4 defines parent as an entity that has one or more subsidiaries. IAS 27.4 and IAS 28.2 define a subsidiary as an entity, including an unincorporated entity such as a partnership, that is controlled by another entity (known as the parent).

Control under IAS means the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In broad terms, this is a question of ownership or the ability to influence more than half of the voting power.

The use of IAS definitions means that in the majority of cases if the results of an entity are required to be included in the consolidated financial statements of the group under IAS, then it is to be included in the group for the purposes of the debt cap. It also means that in the majority of cases the worldwide group will be the group of companies whose results are included in the consolidated accounts of the group headed by the ultimate parent.

Partnerships and unincorporated entities

Partnerships and other unincorporated bodies are capable of being part of a group under the IAS definition and so will form part of the worldwide group for the purposes of the debt cap. However, under the provisions inTIOPA10/S339, they cannot be the ultimate parent of a worldwide group unless they are relevant non-corporate entities (see CFM90300).