EGL76000 - Administration of EGL: application of group relief rules

The definition of a group for EGL purposes and the rules concerning joint ventures and group companies with significant minority shareholders require consideration of the amounts of profits or assets that are available for distribution to equity holders of a company. F(2)A23/S307 applies the corporation tax group relief rules in Chapter 6 of Part 5 CTA 2010. In particular, CTA10/S167 provides for indirect beneficial entitlement to be established through intermediate companies.

The group relief rules are modified as follows for EGL purposes –

Bank lending

Under CTA10/S159(1)(b), a person who is a loan creditor of a company in respect of a loan which is not a normal commercial loan (CTA10/S162) is an equity holder of the company. F(2)A23/S307(2)(b) modifies this rule so that a bank is not treated as a loan creditor of a company (and accordingly is not an equity holder) in respect of loans made to the company in the ordinary course of its business.

Arrangements to reduce entitlements

The group relief rules restrict the percentage entitlement to profits or assets if there are arrangements under which the entitlement could be reduced at a later date. It is arguable that an agreement to sell a company constitutes “arrangements” with the result that a company might leave the group before the actual sale. So, for the purposes of the EGL this rule is disregarded.

Options

CTA10/S173 and CTA10/S174 set out rules in respect of options over shares or securities. These are also to be disregarded for EGL purposes.