BLM80322 - Sale of lessor companies and similar arrangements: establishing change of ownership: consortia: identifying the principal company
CTA2010/S394/S397
This guidance applies to transactions where the relevant day falls on or after 9 December 2009.
A company carrying on a leasing business could be owned by a consortium. Special rules are needed to deal with this.
In a consortium situation a test to establish a 75% subsidiary relationship is not appropriate; no member of a consortium can hold 75% of the shares in a consortium company and so no company would be a principal company. To deal with this the legislation treats each member of the consortium as a principal company unless the consortium member is a 75% subsidiary of another company in which case that other company is the principal company (unless it is a 75% subsidiary of another company, in which case that other company is the principal company, and so on).
The concept of a ‘company owned by a consortium’ is defined in section 397 CTA 2010. A company is treated as owned by a consortium when it is:
- not a 75% subsidiary of any company; and
- 75% or more of its ordinary share capital is beneficially owned by two or more companies (a consortium); and
- none of those other companies owns less than 5% of that capital.
A lessor company could be owned by a company that is owned by a consortium. In this case the legislation looks up through the consortium company to the members of the consortium.
These principles are illustrated in the following examples.
Use this link to view example 1
In this example A Ltd is the lessor company and E Ltd and Z Ltd are principal companies of A Ltd.
Example 2
Where the consortium member is a member of a group the principal company will be the top company in a chain of 75% subsidiaries starting from the consortium member.
Use this link to view example 2
In this example A Ltd is the lessor company and E Ltd and Z Ltd are members of the consortium.
- E Ltd is a 75% subsidiary of B Ltd and so cannot be a principal company.
- B Ltd is a 75% subsidiary of C Ltd and so cannot be a principal company.
- C Ltd is not a 75% subsidiary of any other company and must therefore be a principal company.
- Z Ltd is a 75% subsidiary of Y Ltd and so cannot be a principal company.
- Y Ltd is not a 75% subsidiary of any other company and must therefore be a principal company.
The principal companies of A Ltd are C Ltd and Y Ltd.
Example 3
The test also accommodates situations where Company A is a 75% subsidiary of a holding company owned by the consortium. In this situation the test looks through to the consortium member.
Use this link to view example 3
In this example A Ltd is the lessor company. It is a 100% subsidiary of D Ltd which is is a holding company owned by a consortium. In these circumstances E Ltd and F Ltd are principal companies of A Ltd unless E Ltd F Ltd are 75% subsidiaries of another company.