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Chapter CTM81124

Document Cited authorities 1 Cited in Related
Vincent
Published date16 April 2016
Record NumberCTM81124
CourtHM Revenue & Customs
IssuerHM Revenue & Customs

CTA10/PART 5/Ch6

Background to example 4

The background to the example is that Company X is the true economic parent of Company Z. Company Z is undertaking a five year investment programme expected to give rise to trade losses. So this creates the possibility that Company Z will be able to surrender group relief to Company X.

However Company X has no taxable profits, and is unlikely to have future taxable profits. If it were not for CTA10/PART 5/Ch6, a company with ample profits could group itself artificially with Company Z and purchase the relief for a fee. Assume that there is such a company, which has ample profits, and that it is called Company Y. After five years Company Z becomes profitable and starts paying dividends. Matters are arranged so that when Company Z pays dividends, Company X, which is the true parent, receives them.

Facts of example 4

Company X holds 100 £1 ordinary shares in Company Z.

The ordinary shares carry normal equity rights to share in profits.

Company Y holds 300 ordinary shares.

Company X has an option to acquire Company Y’s shares exercisable after five years.

Company Y is a 75% shareholder in Company Z (CTA10/S1119 and CTA10/S1154). This means Company Y and Company Z are members of a group within the terms of CTA10/S151(1).

For the accounting period for which Company Y is seeking group relief, profits are small or non-existent. But when, as expected after five years...

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