EGL64200 - Election to treat a joint venture or group company with significant minority shareholders as transparent: conditions for making an election

F(2)A23/S300 provides for an election to treat a joint venture company or a group company with at least one significant minority shareholder as being transparent for EGL purposes with the result that they are treated in a similar way to a partnership.

There are conditions for making an election to ensure that the affected parties give their consent.

The election applies to a joint venture company as defined in F(2)A23/S292 (see EGL51000) and to a group company with one or more significant minority shareholders. It is only available where there is no participant or shareholder holding a less than 10% interest in the relevant company.  Holdings by companies in the same group are aggregated for this purpose, F(2)A23/S300(4) – (6).

The 10% interest condition is determined on the basis of a shareholders holding of ordinary share capital, of their beneficial interest in the profits of a company which does not have such capital.

The election must be made by the company that is to be treated as transparent giving notice to HMRC.  It should specify the date from which it is to take effect which can be up to one year before the date the notice is given, F(2)A23/S300(2).

The election can only be made where each shareholder with the relevant 10% interest has given its consent.  Where more than one company in a group together holds a greater than a 10% interest then each should give consent. 

The election by the company should confirm that each shareholder has provided their consent.  It is not a requirement that each shareholder provides this as part of the notice, but inclusion is recommended.

An election has effect until it is revoked by either the company or HMRC or when the company has a new shareholder.  Where a new shareholder joins then it is possible for it to consent to the making of a new election so that the company continues to be treated as transparent.

A revocation by the company may specify the date from which it takes effect which can be up to one year from the date the notice of revocation is given. 

Examples of the circumstances that would lead to HMRC revoke an election would be where a shareholder in the company has failed to include its share of the exceptional generation receipts of the company in any calculation of its liability to the levy, persistently fails to make payments of the levy to HMRC when they fall due, or does not engage with HMRC in respect of the tax.