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HMRC internal manual

Corporate Finance Manual

Debt cap: income from EEA group companies: payer is a relevant associate of recipient

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

Definition of ‘relevant associate’


TIOPA10/S300 sets out the criteria for the payer to be a relevant associate of the recipient at the time when the payment is received.

The payer has to be one of the following to be a relevant associate:

  • a parent of the recipient
  • a 75% subsidiary of the recipient, or
  • a 75% subsidiary of a parent of the recipient.

‘Parent’ has the meaning for TIOPA10/PT7 that is has for international accounting standards (TIOPA10/S351). A ‘parent’ is as defined in IAS 27: Consolidated and Separate Financial Statements (IAS 27). Under this standard a company is a parent company if it controls its subsidiary. This occurs when it owns more than half of the voting rights in the subsidiary, or, if it holds less than half, by such arrangements conferring the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

This means that a company could be a ‘parent’ company with less than 50% of the voting rights in a subsidiary. However, it must still have effective control of the subsidiary. Examples of this could be:

  • a statute or agreement to govern the financial and operating policies of the other enterprise
  • the power to appoint or remove the majority of the board of directors, or
  • the ability to appoint directors who can cast a majority of votes at board meetings.

The parent need not be the immediate parent. It could be the immediate parent’s parent company; as long as it can exercise control as defined in IAS 27.

The term ‘75% subsidiary’ has the meaning given by CTA10/S1154. This means that at least 75% of the ordinary share capital in the subsidiary is owned directly or indirectly by the other company. Unlike the definition of ‘relevant subsidiary’ at TIOPA10/S345(6), a company that is beneficially entitled to 75% or more of distributable profits or assets in a winding-up, but does not own 75% or more of the ordinary share capital of the other company, does not have a ‘subsidiary’ for TIOPA10/S300 purposes.