CTM06350 | Corporation Tax: loss-buying: groups of companies
From HM Revenue & Customs · Company Taxation Manual
Indirect ownership
The definition of change in ownership only relates to the direct ownership of a company. It does not look further to see if there has been a change in ultimate ownership, so contains additional rules for groups of companies. These rules are designed to ensure that the change in ownership condition is satisfied for subsidiaries, sub-subsidiaries and so forth whenever there is a change in ownership of a parent company under .
The rules work by treating a person or persons who acquire
shares of the parent, or
the powers or rights to which applies
as if they had also acquired all that company's shareholding rights and powers for purposes.
If a subsidiary has a subsidiary of its own, the same process is applied to its shareholding rights and powers in that sub-subsidiary. If this sub-subsidiary has its own subsidiaries the same process is applied again, and so on.
Example
A is the 100 per cent parent of B and C.
B owns 70 per cent of the shares in D and A owns the other 30 per cent.
D has substantial trading losses brought forward which are wanted by the X group who will not however be able to use them unless a major change is made to D's trade.
X buys A's 100 per cent shareholding in B and A's 30 per cent shareholding in D.
There is no direct change of ownership in D. Yet there is a change in ownership of D for the purpose of because deems X to acquire B’s 70 per cent holding in D.
does not apply where a new parent company has been inserted at the top of the group if this satisfies the conditions in , see ).
75 per cent subsidiaries
The rules also limit the scope of where there is no change in the ultimate ownership of a company within a group.
Under , changes in the direct ownership of a company are disregarded if the company concerned was a 75 per cent subsidiary of the same ‘parent’ company immediately before and after a change in (direct) ownership under - ’75 per cent subsidiary’ is defined at .
does not apply where a company is inserted between an existing company and its shareholders.
only covers share changes in companies that continue to be 75 per cent subsidiaries in real economic terms. So for the purposes of a 75 per cent subsidiary is only treated as such if the ‘parent’ company would be beneficially entitled to
at least 75 per cent of the profits available for distribution to equity holders of the subsidiary company, and
at least 75 per cent of assets of the subsidiary company available for distribution on a winding-up.