CTM18370 | Shadow ACT: definition of a group: arrangements

SI1999/358 Reg6 (4)

Even if a company satisfies these conditions, it is not to be treated as a 51 per cent subsidiary

• if arrangements are in existence by virtue of which any person has or could obtain, or any persons together have or could obtain, control of the subsidiary company, but not of the parent company,

• unless the parent company is beneficially entitled to more than 50 per cent available for distribution to equity holders of the subsidiary company, and

• unless the parent company would be beneficially entitled to more than 50 per cent of any assets of the subsidiary company available for distribution to its equity holders on a winding up.

'Arrangements' are defined as 'arrangements of any kind whether in writing or not, other than arrangements whose sole or main purpose is to reduce the amount of surplus shadow ACT available to be utilised by a company other than the subsidiary company in accordance with Reg13'.

The effect is that a group will not, for instance, be able to make use of the shadow ACT capacity of a company that it has arranged to sell. Nor will it be able to remove the need to take account of shadow ACT generated by a 51 per cent subsidiary by entering into arrangements under which another person could obtain if the sole or main purpose is to reduce the surplus shadow ACT in the group.

SI1999/358 Reg6 (7)

The provisions of ICTA88/SCH18 are to be used to determine whether the last two conditions are met. Their purpose is to ensure that the parent as well as holding directly or indirectly at least 51 per cent of the ordinary share capital also has economic ownership.