Income Tax (Earnings and Pensions) Act 2003

467 Meaning of “dependent subsidiary”

(1) For the purposes of this Chapter a company which is a 51% subsidiary is a “dependent subsidiary” throughout a period of account of the company unless all of the following conditions are met—

(a) the conditions relating to the company in subsections (2) and (3),

(b) the condition relating to a directors' certificate in subsection (4), and

(c) the condition relating to an auditors' report in subsection (5).

(2) The first condition relating to the company is that the whole or substantially the whole of the company’s business during the period of account (taken as a whole) is carried on with persons who are not members of the same group as the company.

(3) The second condition relating to the company is that during that period either—

(a) there is no increase in the value of the company as a result of intra-group transactions, or

(b) any such increase in value does not exceed 5% of the value of the company at the beginning of the period (or a proportionately greater or smaller percentage in the case of a period which is longer or shorter than a year).

(4) The condition relating to a directors' certificate is that the directors of the principal company of the group give to the Inland Revenue, not later than 2 years after the end of the period of account, a certificate that in their opinion the conditions in subsections (2) and (3) are satisfied in relation to that period.

(5) The condition relating to an auditors' report is that there is attached to that certificate a report addressed to those directors by the auditors of the subsidiary and stating that the auditors—

(a) have enquired into the state of affairs of the company with particular reference to the conditions in subsections (2) and (3), and

(b) are not aware of anything to indicate that the opinion expressed by the directors in their certificate is unreasonable in all the circumstances.

(6) For the purposes of subsection (2) business carried on with a 51% subsidiary of the company is to be treated as carried on with a person who is not a member of the same group as the company.

(7) But subsection (6) does not apply if the whole or substantially the whole of the business of that or any other 51% subsidiary of the company during the period of account (taken as a whole) is carried on with members of the group other than the company and its 51% subsidiaries.

(8) In this section—

• “group” means a principal company and all its 51% subsidiaries,

• “intra-group transactions” means transactions between companies which are members of the same group on terms which are not such as might be expected to be agreed between persons acting at arm’s length (other than any payment for group relief within the meaning given in section 402(6) of ICTA),

• “period of account”, in relation to a company, means the period for which it makes up its accounts, and

• “principal company” means a company of which another company is a 51% subsidiary and which is not itself a 51% subsidiary of another company.