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19 1973

FINANCE ACT, 1973

FIFTH SCHEDULE

Section 39 .

PART I

Disallowance of Trading Losses and Restriction of Capital Allowances

Change in ownership of company

1. For the purposes of section 39 there is a change in the ownership of a company—

(a) if a single person acquires more than half of the ordinary share capital of a company, or

(b) if two or more persons each acquire a holding of 5 per cent. or more of the ordinary share capital of the company and those holdings together amount to more than half of the ordinary share capital of the company, or

(c) if two or more persons each acquire a holding of the ordinary share capital of the company, and the holdings together amount to more than half of the ordinary share capital of the company, but disregarding a holding of less than 5 per cent. unless it is an addition to an existing holding and the two holdings together amount to 5 per cent. or more of the ordinary share capital of the company.

2. In applying paragraph 1—

(a) the circumstances at any two points of time with not more than three years between may be compared, and a holder at the later time may be regarded as having acquired whatever he did not hold at the earlier time, irrespective of what he has acquired or disposed of in between,

(b) so as to allow for any issue of shares or other re-organisation of capital, the comparison referred to in subparagraph (a) may be made in terms of percentage holdings of the total ordinary share capital at the respective times, so that a person whose percentage holding is greater at the later time may be regarded as having acquired a percentage holding equal to the increase,

(c) in deciding for the purposes of subparagraphs (b) and (c) of paragraph 1, whether any person has acquired a holding of at least 5 per cent. or a holding which makes at least 5 per cent. when added to an existing holding, acquisitions by, and holdings of, persons who are connected with each other shall be aggregated as if they were acquisitions by, and holdings of, one and the same person, and for the purposes of this subparagraph persons shall be regarded as connected with each other if they would be so regarded for the purposes of section 16 of the Finance (Miscellaneous Provisions) Act, 1968 ,

(d) any acquisition of shares under the will or on the intestacy of a deceased person and any gift of shares, if it is shown that the gift is unsolicited and made without regard to the provisions of section 39, shall be left out of account.

3. Where persons, whether members of the company or not, possess extraordinary rights or powers under the articles of association or under any other document regulating the company and, as a consequence, ownership of ordinary share capital may not be an appropriate test of whether there has been a major change in the persons

for whose benefit the losses or capital allowances may ultimately enure, then in considering whether there has been a change in ownership of the company for the purposes of section 39, holdings of all kinds of share capital, including preference shares, or of any particular category of share capital, or voting power or any other special kind of power, may be taken into account instead of ordinary share capital.

4. Where section 39 has operated to restrict relief by reference to a change in ownership taking place at any time, no transaction or circumstance before that time shall be taken into account in determining whether there is any subsequent change in ownership.

Groups of companies

5. (1) A change in the ownership of a company shall be disregarded for the purposes of section 39 if—

(a) immediately before the change, the company is the 75 per cent. subsidiary of another company, and

(b) that other company continues after the change, despite a change in the direct ownership of the first-mentioned company, to own that first-mentioned company as a 75 per cent. subsidiary.

(2) If there is a change in the ownership of a company which has a 75 per cent. subsidiary, whether owned directly or indirectly, then section 39 shall apply as if there had also been a change in the ownership of the said subsidiary unless under subparagraph (1) the change in ownership of the first-mentioned company is to be disregarded.

Provisions as to ownership

6. For the purposes of section 39 and this Schedule—

(a) references to ownership shall be construed as references to beneficial ownership, and references to acquisition shall be construed accordingly,

(b) the expression “ordinary share capital” has the meaning assigned to it by section 226 (2) (b) of the Income Tax Act, 1967 ,

(c) a company shall be deemed to be a 75 per cent. subsidiary of another company if and so long as not less than 75 per cent. of its ordinary share capital is owned by that other company, whether directly or through another company or other companies, or partly directly and partly through another company or other companies,

(d) the amount of ordinary share capital of one company owned by a second company through another company or other companies, or partly directly and partly through another company or other companies, shall be determined in accordance with the provisions of Part II of this Schedule,

(e) “share” includes “stock”.

Time of change in ownership

7. If any acquisition of ordinary share capital or other property or rights taken into account in determining that there has been a change in ownership of a company was made in pursuance of a contract of sale or option or other contract, or the acquisition was made by a person holding such a contract, and the contract was made on or after the 16th day of May, 1973, the time when the change in ownership took place shall be determined as if the acquisition had been made when the contract was made with the holder or when the benefit of it was assigned to him so that, in the case of a person exercising an option to purchase shares, he shall be regarded as having purchased the shares when he acquired the option.

Time allowed for making assessments

8. Where the operation of section 39 depends on circumstances or events at a time after the change in ownership, but not more than three years after, an assessment to give effect to the provisions of the said section 39 shall not be out of time if it is made—

(a) in case it is an assessment to income tax, within ten years from the end of the year of assessment within which that time or the latest of those times occurs, or

(b) in case it is an assessment to corporation profits tax, within ten years from the end of the accounting period within which that time or the latest of those times occurs.

Information

9. Any person in whose name any shares, or securities of a company are registered shall, if required by notice in writing by an inspector given for the purposes of section 39 state whether or not he is the beneficial owner of those shares or securities or any of them and, if he is not the beneficial owner of those shares or securities or any of them, shall furnish the name and address of the person or persons on whose behalf those shares or securities are registered in his name.

10. Schedule 15 to the Income Tax Act, 1967 , is hereby amended by the insertion in column 2 thereof of “Finance Act, 1973, Fifth Schedule, paragraph 9”.

PART II

Provisions for Determining the Amount of Capital held in a Company Through other Companies

1. Where, in the case of a number of companies, the first company directly owns ordinary share capital of the second and the second directly owns ordinary share capital of the third, then, for the purposes of this Schedule, the first company shall be deemed to own ordinary share capital of the third through the second, and, if the third directly owns ordinary share capital of a fourth, the first shall be deemed to own ordinary share capital of the fourth through the second and third, and the second shall be deemed to own ordinary share capital of the fourth through the third, and so on.

2. In this Part—

(a) any number of companies of which the first company directly owns ordinary share capital of the next and the next directly owns ordinary share capital of the next but one and so on, and, if there are more than three, any three or more of them, are referred to as a series;

(b) in any series—

(i) that company which owns ordinary share capital of another through the remainder is referred to as the first owner;

(ii) that other company the ordinary share capital of which is so owned is referred to as the last owned company;

(iii) the remainder, if one only, is referred to as an intermediary and, if more than one, are referred to as a chain of intermediaries;

(c) a company in a series which directly owns ordinary share capital of another company in the series is referred to as an owner;

(d) any two companies in a series of which one owns ordinary share capital of the other directly, and not through one or more of the other companies in the series, are referred to as being directly related to one another.

3. Where every owner in a series owns the whole of the ordinary share capital of the company to which it is directly related, the first owner shall be deemed to own through the intermediary or chain of intermediaries the whole of the ordinary share capital of the last owned company.

4. Where one of the owners in a series owns a fraction of the ordinary share capital of the company to which it is directly related, and every other owner in the series owns the whole of the ordinary share capital of the company to which it is directly related, the first owner shall be deemed to own that fraction of the ordinary share capital of the last owned company through the intermediary or chain of intermediaries.

5. Where—

(a) each of two or more of the owners in a series owns a fraction, and every other owner in the series owns the whole, of the ordinary share capital of the company to which it is directly related; or

(b) every owner in a series owns a fraction of the ordinary share capital of the company to which it is directly related;

the first owner shall be deemed to own through the intermediary or chain of intermediaries such fraction of the ordinary share capital of the last owned company as results from the multiplication of those fractions.

6. Where the first owner in any series owns a fraction of the ordinary share capital of the last owned body corporate in that series through the intermediary or chain of intermediaries in that series, and also owns another fraction or other fractions of the ordinary share capital of the last owned body corporate, either—

(a) directly, or

(b) through an intermediary or intermediaries which is not a member or are not members of that series, or

(c) through a chain or chains of intermediaries of which one or some or all is not a member or are not members of that series, or

(d) in a case where the series consists of more than three 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 some but not all of the companies of which the chain of intermediaries in the series consists,

then, for the purpose of ascertaining the amount of the ordinary share capital of the last owned company owned by the first owner, all those fractions shall be aggregated and the first owner shall be deemed to own the sum of those fractions.