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HMRC internal manual

Corporate Finance Manual

Debt cap: groups affected: meaning of 'corporate entity'

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

Ultimate parent must be either a corporate or relevant non-corporate entity

To be the ultimate parent of a worldwide group, TIOPA10/S339 provides that an entity must be either a corporate entity or a relevant non-corporate entity.

The meaning of corporate entity for the purposes the debt cap is given byTIOPA10/S340. It includes any company or other body corporate incorporated under the laws of the UK or any other country or territory and any other entity that meets each of two conditions.

The two conditions are that:

  1. the persons who have an interest in the entity hold shares in the entity, or interests corresponding to shares; and
  2. the amount of profits to which each person who has an interest in the entity is entitled depends on decision that is taken by the entity or members of the entity, and is taken after the period in which the profits arise.

The definition is drawn wider than simply entities that are bodies corporate under UK law, as the meaning of ‘body corporate’ in other jurisdictions may be very different from that in the UK. If the entity is not a body corporate under the law of another country or territory then the conditions in TIOPA10/S340(2) and (3) provide a set of criteria against which any overseas entity can be judged, without needing to consider complex legal points.

Although not directly relevant for determining whether an entity is a body corporate for the debt cap you may like to consider the criteria that are taken into account when considering whether an entity is to be treated as opaque or transparent for UK tax purposes and are based on the matters considered to be important by the Court of Appeal in the case of Memec plc v CIR (70TC77) (see INTM180010).