HM Revenue and Customs Brief 29/11
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Issued on 2 August 2011
Corporation Tax and the Substantial Shareholding Exemption:
joint ventures and entities without ordinary share capital
The purpose of this brief is to state HM Revenue &
Customs' (HMRCís) view of two related aspects of the Substantial
Shareholding Exemption that can cause uncertainty as to whether a
company is a 'trading company' or the holding company of a 'trading
group' or 'trading subgroup' (the remainder of this note will only
refer to a group for brevity).
The Substantial Shareholding Exemption in Schedule 7AC
Taxation of Chargeable Gains Act 1992 contains a special rule for
dealing with the activities of certain joint venture companies when
considering whether a group is a trading group.
The rule provides for an apportionment of the activities of a
company that falls within the definition of a 'joint venture company'
set out in paragraph 24 of the Schedule.
HMRC is aware that some groups and their advisers take the
view that the existence of this rule means that any investment in a
joint enterprise that does not fall within the definition of a 'joint
venture company' will necessarily be treated as a non-trading activity
when assessing whether a group is a 'trading group'.
HMRC does not agree with this analysis. Where a group has an
interest in a company that does not fall within the definition of a
'joint venture company' then whether that represents part of the
groupís overall trading activities or constitutes a separate investment
activity will be a question of fact and depend on the circumstances of
the case. Where, for example, the effective management of the joint
enterprise is closely integrated with that of the group and it conducts
a trade that is similar to or complements that of the wider group, then
that would suggest that groupís involvement in the enterprise does not
represent a separate non-trading activity.
Similarly, a group would not automatically be regarded as
having a non-trading investment activity because it has an interest in
an entity that does not have issued share capital (and therefore cannot
form part of a capital gains group for these purposes). For example, a
major UK-based retail group may open a large number of stores in
Laputa, using a wholly owned corporation that does not have share
capital (reflecting the local company law). The facts would suggest
that the venture is part and parcel of the general trading activity
when considering whether the overall group is a 'trading group' for the
purposes of the exemption.
The Capital Gains Manual will be updated to reflect the
contents of this brief.
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Article Published/Sorted/Amended on Scopulus 2011-08-04 14:25:12 in Tax Articles