This part of GOV.UK is being rebuilt – find out what beta means

HMRC internal manual

Corporate Finance Manual

Interest restriction: groups, periods and financial statements: the worldwide group: ultimate Parent

TIOPA10/S473

The identification of the ultimate parent is critical in determining the worldwide group.

An ultimate parent is a relevant entity which is not a consolidated subsidiary of another entity that is itself an ultimate parent.

More precisely it is a relevant entity that meets one of the two non-consolidated conditions.

  • The first consolidation condition will be met where the entity is a member of an IAS group and is not a consolidated subsidiary of an entity that is a relevant entity that meets the first non-consolidation condition.
  • The second consolidation condition will be met where the entity is not a member of an IAS group.

International accounting standards

An ultimate parent is determined by reference to international accounting standards (IAS).

Example

A Ltd is widely held and produces group accounts under IAS including its 100% subsidiary (B Ltd) and B Ltd’s 100% subsidiary (C Ltd) consolidated on a line-by-line basis. A Ltd is classified under IFRS10 as an investment entity and its accounts also show an entity (X Ltd) as an investment carried at fair value. X Ltd is owned 100% by C Ltd and C Ltd produces accounts consolidating X Ltd on a line-by-line basis.

A Ltd will be an ultimate parent because it is a relevant entity which is part of an IAS group and is not a consolidated subsidiary of another entity.

B Ltd and C Ltd cannot be ultimate parents because they are consolidated by A Ltd and so fail the first non-consolidation condition.

X Ltd is a member of an IAS group but is not a consolidated subsidiary of A Ltd because it is shown at fair value. It is consolidated in C Ltd’s accounts, but C Ltd cannot pass the first non-consolidation condition above, because it is a consolidated subsidiary of A Ltd. X Ltd therefore does pass the first non-consolidation condition and is capable of being an ultimate parent.

There are therefore two ultimate parents, in A Ltd and X Ltd, and so two worldwide groups.

Portfolio investments of insurance entities

  • An exception is made by TIOPA10/S453 for portfolio investments of insurance entities