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HMRC internal manual

Corporate Finance Manual

Debt cap: groups affected: meaning of 'ultimate parent'

This guidance applies to worldwide group periods of account ending before or straddling 1 April 2017.

The ultimate parent of the worldwide group

TIOPA10/S339 provides that the ultimate parent of the worldwide group is the member of the group that is a corporate entity or a relevant non-corporate entity that is not a subsidiary of another member of the worldwide group and is not a collective investment scheme. A further exclusion was inserted by FA12 for periods of account of the worldwide group ending on or after 17 July 2012. A limited liability partnership, although a corporate entity, cannot be the ultimate parent of a group nor can a foreign entity that would be a partnership if formed under UK law. A group may contain a number of intermediate parent entities - these rules isolate the top parent entity within the group.

The definition works largely on the basis of what would be the top entity in a group required to produced consolidated accounts under IAS. Certain entities are, however, specifically excluded from being ultimate parents. These are:

  • the Crown
  • a Minister of the Crown
  • a government department
  • a Northern Ireland department
  • a foreign sovereign power.

These entities are bodies corporate, but are excluded from the definition of corporate entity and thereby from being an ultimate parent of a worldwide group by TIOPA10/S340(4).

Under TIOPA10/S338(2) where a group would otherwise contain more than one ultimate parent, then each of those ultimate parents together with its subsidiaries is to be treated as a separate group. Suppose, for example, a trust (which is not a relevant non-corporate entity) has a controlling interest in both A plc and B plc. The trust cannot be the ultimate parent of a group for debt cap purposes: thus A plc and its subsidiaries, and B plc and its subsidiaries, are treated as separate groups.

Sovereign wealth funds

The term ‘foreign sovereign power’ is not defined and therefore takes its ordinary meaning. This does not extend to sovereign wealth funds, or similar investment vehicles, set up by foreign sovereign powers. Such vehicles can be structured in different ways - they may be corporate entities, or they may not. Where a sovereign wealth fund holds a controlling interest in a particular group of companies, it is necessary to apply the definition in TIOPA10/S339 to decide whether it is, or is not, the ultimate parent. It is not automatically exempted.