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Revenue & Customs Brief 29/11 outlines HMRC’s view of two related aspects of the substantial shareholding exemption in TCGA 1992, Sch 7AC that can cause uncertainty as to whether a company is a ‘trading company’ or the holding company of a ‘trading group’ or ‘trading subgroup’.
Schedule 7AC contains a special rule for dealing with the activities of certain joint venture companies when considering whether a group is a trading group. The rule provides for an apportionment of the activities of a company that falls within the definition of a ‘joint venture company’ set out in Sch 7AC para 24.
HMRC do not agree with the analysis of some groups that para 24 means any investment in a joint enterprise that does not fall within the definition of a ‘joint venture company’ will necessarily be treated as a non-trading activity when assessing whether a group is a ‘trading group’.
The department says:
‘Where a group has an interest in a company that does not fall within the definition of a “joint venture company” then whether that represents part of the group’s overall trading activities or constitutes a separate investment activity will be a question of fact and depend on the circumstances of the case. Where, for example, the effective management of the joint enterprise is closely integrated with that of the group and it conducts a trade that is similar to or complements that of the wider group, then that would suggest that group’s involvement in the enterprise does not represent a separate non-trading activity.
‘Similarly, a group would not automatically be regarded as having a non-trading investment activity because it has an interest in an entity that does not have issued share capital (and therefore cannot form part of a capital gains group for these purposes). For example, a major UK-based retail group may open a large number of stores in Laputa, using a wholly owned corporation that does not have share capital (reflecting the local company law). The facts would suggest that the venture is part and parcel of the general trading activity when considering whether the overall group is a “trading group” for the purposes of the exemption.’
The Capital Gains Manual will be updated to reflect the taxman's view.
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