Section 37: Changes in Company Ownership
Summary
1.This section introduces two changes to Part 14 of Corporation Tax Act 2010 (CTA 2010), amending section 688 and introducing a new section 724A. The amendment to section 688 changes the definition of a significant increase in the amount of a company’s capital. The new section 724A provides for the disregard of a change of ownership of a company (C) where it is acquired by a new company (N) or there is a scheme of reconstruction involving a share cancellation and, broadly, the shareholders and shares of N after the acquisition or scheme are the same as shareholders and shares in C before.
Details of the Section
2.Subsection (2) amends the definition in subsection (2) of section 688 of a significant increase in capital of a company.
3.Subsection (3) amends subsection (1) of section 723 to include a reference to section 724A.
4.Subsection (4) introduces a new section to Part 14. New section 724A disregards a change in parent company for the purposes of Chapters 2 to 6 of Part 14 if the conditions in subsections (1) to (8) of 724A are met.
5.New subsection 724A(1) provides that a change of ownership of a company (C) is disregarded where a new company (N) acquires all the issued shares of C. The subsection provides for particular conditions in relation to the acquisition of C by N which must be met for the section to apply. These include conditions relating to the voting power of C as well as entitlement to profits and assets of C available for distribution to equity holders. It also provides that the ‘continuity requirements’ must be met.
6.New subsection 724A(2) defines “the resulting ownership change”.
7.New subsection 724A(3) defines a “new” company.
8.New subsection 724A(4) sets out the continuity requirements which are, broadly, concerned that the acquisition of C by N has been by way of a share for share exchange. The first requirement, in subsection (4)(a), is that the consideration for the acquisition consists only of the issue of shares in N to the shareholders of C. The remaining requirements ((4)(b) to (e)) set out various tests requiring a comparison between shareholders in C immediately before the acquisition with N immediately after. These requirements include tests relating to the shareholders, the classes of shares, the proportion of shares held in each class and the proportion of shares of each class held by each shareholder.
9.New subsection 724A(5) provides that section 724A also applies to a scheme of reconstruction where all the shares in C are cancelled and shares in N issued. Section 724A applies if, as a result of the scheme, N holds all the issued share capital of C and only shares in N are issued to persons who were shareholders of C immediately prior to the cancellation.
10.New subsection 724A(6) modifies the basis on which the continuity requirements in section 724A(4) apply for schemes of reconstruction.
11.New subsection 724A(7) defines a “scheme of reconstruction” for the purposes of section 724A.
12.New subsection 724A(8) ensures that Chapter 6 of Part 5 (equity holders and profits or assets available for distribution) applies for the purposes of subsection (1)(b) and (c).
13.Subsection (5) includes a reference to a shareholder in section 726 (interpretation of Chapter).
14.Subsection (6) provides that the amendments in this section have effect in relation to any change of ownership which occurs on or after 1 April 2014.
Background Note
15.These changes have been introduced to bring the change in company ownership rules in Part 14 CTA 2010 in line with modern commercial practice.
16.The threshold for a significant increase in capital for companies with investment business has remained unchanged since 1995. The measure relaxes the threshold limit to reflect the general increase in investment business capital levels since that time.
17.There is also a new disregard from section 719, specifically allowing new holding companies to be inserted at the top of a group without triggering a change of ownership for the purposes of Chapters 2 to 6 of Part 14. There is an existing disregard at section 724 but it only covers the event of an insertion below the group parent.
