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HMRC internal manual

Corporate Finance Manual

Debt cap: groups affected: groups with stapled stock

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

‘Stapled’ entities at top of group

A number of groups have what are known as stapled securities at the top of their group structure. These are a combination of securities that trade together as one security on a stock exchange. Investors have to buy a stapled security in the group, which will comprise a share in one or more companies and possibly also units in one or more unit trusts. The shareholders of each company and unit trust are therefore the same; but in order to separate trading and investment activity, the shares of some group subsidiaries are held by the corporate entity while others are held by the unit trust. The consolidated accounts will include the combined activities and subsidiaries of these companies and unit trusts and the group operates as a single economic enterprise.

As the entities whose interests are ‘stapled’ together form, as a matter of economic and commercial reality, a single enterprise, TIOPA10/S342 treats them as part of a single worldwide group. Where a corporate entity or relevant non-corporate entity is stapled to another entity, the two entities are treated for the purposes of the debt cap rules as if they were one single corporate entity or relevant non-corporate entity.

TIOPA10/S342(3) defines when one entity is treated as stapled to another entity for the purposes of the debt cap rules. Shares or other interests in one entity are ‘stapled’ to shares or other interests in the other if the shares or other interests of the two entities are in practice always traded together. That is, shares in company A are stapled to shares in company B if a person buying or selling a share in company A has to buy or sell shares in company B. Dealing in them both at the same time need not be obligatory; it can simply be advantageous because of the nature of rights attaching to one or other share.