Revenue Note for Guidance

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Revenue Note for Guidance

9 Subsidiaries

Summary

This section defines “51 per cent subsidiary”, “75 per cent subsidiary”, “90 per cent subsidiary” and “wholly-owned subsidiary” for the purposes of the Tax Acts. In addition, the section provides rules for determining for the purposes of these definitions the amount of share capital of one company which is owned by another company where that other company does not directly own the share capital of the first company. The section also defines what is meant by a series of companies.

Details

Subsidiaries

(1) A company is treated as —

  • a 51 per cent subsidiary of another company if more than 50 per cent of its ordinary share capital is owned directly or indirectly by that other company,
  • a 75 per cent subsidiary of another company if not less than 75 per cent of its ordinary share capital is owned directly or indirectly by that other company,
  • a 90 per cent subsidiary of another company if not less than 90 per cent of its ordinary share capital is directly owned by that other company,
  • a wholly-owned subsidiary of another company if 100 per cent of its ordinary share capital is directly owned by that other company.

Direct and indirect ownership

(2) “owned directly or indirectly” means —

  • direct ownership,
  • ownership through an intermediate company or intermediate companies, or

(3) Ownership is construed as beneficial ownership.

Determination of ownership of ordinary share capital

(4) The amount of ordinary share capital of one company owned by a second company through another company or companies or partly so owned is determined by the application of the following rules.

(5) Where company A directly owns ordinary share capital of company B and company B directly owns ordinary share capital of company C, then, company A is treated as owning ordinary share capital of company C through company B.

Where company C, in turn, directly owns ordinary share capital of company D, then, company A is treated as owning ordinary share capital of company D through companies B and C, and company B is treated as owning ordinary share capital of company D through company C. This look through procedure applies for any number of companies where the ordinary share capital is owned in a similar sequence.

(6)(a) A chain of companies having direct ownership of ordinary share capital in such a sequence form what is known as a “series” if there are 3 or more companies in the sequence. Any 3 or more companies which have direct ownership of ordinary share capital in such a sequence can form a series.

(6)(b) The first company in a series which owns ordinary share capital of another company in the series through the remaining companies in the series is known as “the first owner”. The company in which the first owner owns ordinary share capital through the remaining companies in the series is known as “the last owned company”. The intervening company or companies are known as an “intermediary” or “a chain of intermediaries”.

(6)(c) A company in a series which directly owns ordinary share capital of another company in the series is known as an “owner”.

(6)(d) Any 2 companies in a series where one company directly owns ordinary share capital in the other company (and not through other companies in the series) are referred to as being directly related to one another.

Example

6 companies are related by shareholdings as follows —

A directly owns shares in B,

B directly owns shares in C,

C directly owns shares in D,

D directly owns shares in E,

E directly owns shares in F.

ABCDE and F form a series as do ABCDE, ABCD, ABC, BCDEF, BCDE, BCD, CDEF, CDE and DEF.

ACDEF, ACDE, ACD, ADEF, ADF, etc are not a series.

In the series A to F, company A is the first owner, company F is the last owned company and companies B to E form a chain of intermediaries, each of the companies A to E is an owner, and company A is directly related to company B, and company B is directly related to company C, and so on through the series

(7) Where the first company in a series owns the whole of the ordinary share capital of the second company in the series and the second company is directly related to the first company (that is, the ordinary share capital is owned directly) and the second company owns the whole of the ordinary share capital of a third company in the series and the third company is directly related to the second company and so on right through the series, then, the first company is treated as owning through the intermediary – or chain of intermediaries – the whole of the ordinary share capital of the last company in the series.

(8) Where one company in a series owns a fraction of the ordinary share capital of the company to which it is directly related (that is, the ordinary share capital is owned directly) and every other company in the series owns the whole of the ordinary share capital of the company in the series to which it is directly related, then, the first company is treated as owning through the intermediary (if there is only one other company in the series), or chain of intermediaries (if there is more than one other company in the series), the same fraction of the ordinary share capital of the last company in the series.

Where each of 2 or more owners in a series owns a fraction of the ordinary share capital of the company in the series to which it is directly related (that is, the ordinary share capital is owned directly and not through other companies in the series) and every other owner in the series owns the whole of the ordinary share capital of the company to which it is directly related, then, the fractions owned by those 2 or more companies are multiplied and the resulting fraction is the fraction of the ordinary share capital of the last owned company which the first owner is treated as owning through the intermediary or chain of intermediaries.

(9)(b) Where every owner in a series owns a fraction of the ordinary share capital of the company to which it is directly related, the fractions owned by each owner are multiplied and the resulting fraction is the fraction of the ordinary share capital of the last owned company which the first owner is treated as owning through the intermediary or chain of intermediaries.

Example

In a series —

A owns 90 per cent of the ordinary share capital of B

B owns 90 per cent of the ordinary share capital of C

C owns 90 per cent of the ordinary share capital of D.

9

9

9

729

×

×

of D =

10

10

10

1,000

that is, A owns 72.9 per cent of D.

Therefore, D is a 51 per cent subsidiary of A but would not be a 75 per cent subsidiary of A.

If in the above example A owned directly the remaining 10 per cent of the ordinary share capital of D, A would then own in all 82.9 per cent of D and, thus, D would qualify as a 75 per cent subsidiary of A but not as a 90 per cent subsidiary of A.

Aggregation

(10) Where the first owner in any series owns a fraction of the ordinary share capital of the last owned company in the series through an intermediary (or chain of intermediaries) and also owns another fraction of that ordinary share capital either —

  • directly,
  • through an intermediary which is not a member of the series or through intermediaries which are not members of the series,
  • through a chain or chains of intermediaries of which one or more or all are not members of the series, or
  • (where the series consists of more than 3 companies) through an intermediary or intermediaries which is a member or are members of the series or through a chain or chains of intermediaries consisting of only some of the companies which make up the chain of intermediaries in the series,

then, the fractions are aggregated so as to determine the portion of the last owned company owned by the first owner.

Example

Companies A, B, C and D constitute a series. Company D is wholly owned by company C which in turn is owned three-fourths by company B and one-fourth by company A. Company B is wholly owned by company A.

Through companies B and C, company A owns three-fourths of company D. Through company C only, company A owns one-fourth of company D. The fractions are aggregated and as a result company A is treated as owning all the ordinary share capital of company D.

Relevant Date: Finance Act 2021