Section 29: Sale of Lessors: Consortium Relationships
Summary
1.Section 29 makes a number of changes to the operation of the rules determining whether a company is owned by a consortium as set out in Chapters 3 and 4 of Part 9 of the Corporation Tax Act (CTA) 2010 (formerly Schedule 10 to the Finance Act (FA) 2006). The effect of the change is that an indirect 75 per cent subsidiary of a company owned by a consortium will be treated as “a company owned by a consortium”. This change is achieved by removing the requirement that the lessor company be a direct 90 per cent subsidiary of the company owned by the consortium.
Details of the Section
2.Subsection (4) removes subsections (5) and (6) of section 398 and makes a consequential amendment to the heading. These subsections prevent a lessor company that is an indirect 75 per cent subsidiary of a company owned by a consortium from being treated as a company owned by a consortium.
3.Subsection (8) makes changes to the table of definitions in Schedule 4 to CTA 2010 to omit the entry relating to “qualifying 90 per cent subsidiary”.
4.Subsection (9) provides that these changes have effect where the relevant day, the day on which there is a qualifying change in ownership, is on or after 9 December 2009.
5.Subsection (10) ensures that corresponding amendments are made to Schedule 10 to FA 2006.
Background Note
6.Changes to Chapters 3 and 4 of Part 9 of CTA 2010 (formerly Schedule 10 to FA 2006) will ensure that legislation dealing with a lessor company owned by a consortium will trigger the appropriate charge and relief.
7.Schedule 10 was introduced in response to a well-established pattern of avoidance involving the sale of a lessor company to a loss-making concern as it was about to turn tax profitable. The effect of the legislation is triggered when there is a change in the ownership of the lessor company. When the lessor company is owned by a consortium, a change in a member’s interest in the lessor company triggers a proportionate charge.
8.Schedule 10 defines "a company owned by a consortium" in line with definitions used for the purpose of group relief. The group relief provisions permit members of a consortium to access group relief from a trading company owned directly by the members and where shares in the trading company are held by a holding company that is owned by the members of the consortium. The group relief provisions do not permit access to group relief when the trading company is owned indirectly by a holding company that is owned by the consortium members. Schedule 10 copies this approach and it is therefore possible to prevent a company from being treated as “a company owned by a consortium” for the purposes of Schedule 10 by inserting an intermediate holding company between the lessor company and the company owned by the consortium.
9.The insertion of the intermediate holding company does not trigger a Schedule 10 charge because there is no change of economic ownership, but, as a consequence of the restructuring the lessor company is taken outside the definition of a company owned by a consortium. A subsequent change in ownership would fail to trigger a Schedule 10 charge.
10.This section changes the way the definition of a company owned by a consortium operates to include a company that is a direct or indirect 75 per cent subsidiary of a company owned by a consortium. As a consequence, a Schedule 10 charge will be triggered when there is a change in the economic ownership of a lessor company owned by a consortium.