ETASSUM52040 - Enterprise Management Incentives (EMI): Qualifying companies: Qualifying subsidiaries

Paragraphs 10 & 11, Schedule 5 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA)

A company that has one or more subsidiaries does not qualify for EMI unless each subsidiary is a qualifying subsidiary. A subsidiary means a company which the company controls, either on its own or together with any person connected with it. Subsidiary companies include dormant companies.

Control for the purposes of paragraph 10, Schedule 5 ITEPA means the power of one company, directly or indirectly, to ensure that the affairs of another company whose shares are subject to EMI option arem conducted in accordance with that company’s wishes. This may be through share ownership, voting power, income or assets, (sections 450 and 451 Corporation Tax Act 2010).

A subsidiary is only a qualifying subsidiary if the company whose shares are subject to EMI options holds, directly or indirectly, more than 50% of the ordinary share capital of the subsidiary.

No other person must be able to control the subsidiary, with control in this context (paragraph 11, Schedule 5 ITEPA) having the same meaning as it has for the independence requirement (sections 719 ITEPA and 995 Income Tax Act 2007). There must be no arrangements in existence by virtue of which any person could obtain control of it.

If a subsidiary is being wound up, disposed of or is in administration or receivership, the company will not be treated as failing the qualifying subsidiaries test as a result of something that is done as a consequence of the winding up, disposal or going into administration or receivership. This only applies if the transaction is done for commercial purposes and is not part of a scheme or arrangement the purpose (or one of the main purposes) of which is to avoid tax.

See ETASSUM52050 if a company has subsidiaries that manage property.