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HMRC internal manual

International Manual

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Transfer pricing: legislation: rules: participation in the management, control or capital of a person

TIOPA10/S157 to S163

TIOPA10/S157 to S163 defines participation in the management, control or capital of a person for the purposes of this legislation and sets out rules that attribute rights and powers to a person when considering whether that person controls a company or partnership.

In this context, the term “person” includes a body of persons. So, for example, a partnership can control a company even if, individually, none of the partners control the partnership or company.

In the first instance, TIOPA10/S217 determines that control is defined by reference to CTA10/S1124 which considers matters such as voting power, power given by the Articles of Association and the actual ability of a person to direct the affairs of the company in the absence of the visible signs of such rights.

However, for the purposes of TIOPA10/Part 4, the rights and powers which should be attributed to a person are those which:

  • he is entitled to acquire at a future date or which he will at a future date become entitled to acquire;
  • belong to another person but which are required or may be required to be exercised on behalf of, under the direction of or for the benefit of the first mentioned person;
  • are exercisable by a person connected to the potential participant (broadly spouses and relatives or trustees and settlors).

It may be necessary to go through more than one level of attribution so that, for example, in attributing rights to an individual from a spouse it will also be necessary to apply the attribution rules to the spouse and then attribute the total rights and powers to the individual.

Having said this, these attribution rules need to be considered in relatively few cases. While the legislation prevents abuse where trusts are interposed in a control chain it does not reproduce ITA07/S993(4), with the result that persons are not connected simply by virtue of being members of the same partnership. The control rules in TIOPA10/S160 contain an important feature. This is the inclusion of a provision deeming a 40% participant in a joint venture to control that joint venture where there is one other participant who owns at least 40% of the venture.

Joint ventures

The participation rules set out above include, at TIOPA10/S160(3), a provision that a person holding interests, rights and powers representing at least 40% of the holdings, rights and powers in a body corporate or firm is a major participant in that enterprise.

A joint venture, for these purposes, is a company or partnership which is controlled by two persons, each of whom has at least a 40% interest in the venture. These rules only apply to transactions between at least one of the joint venture parties and the joint venture itself, not between the two joint venture parties themselves (unless they otherwise meet the participation conditions of TIOPA10/S157 onwards).