ANNEX 1:: MINOR CHANGES IN THE LAW MADE BY THE BILL This change is in taxpayers’ favour in principle. But it is expected to have no practical effect as it is in line with current practice. EIS
Section 293(3B) of ICTA lists activities that must not form a substantial part of a group’s business if the parent company is to be regarded as the parent company of a trading group. Section 293(3B)(a) includes as such activities:
“activities falling within section 297(2)(a) to (g) but not within subsection (3C) below …”
Section 297(2)(e) of ICTA refers to the activity of:
“leasing (including letting ships on charter or other assets on hire) or…”
So leasing is an activity that is excluded in section 293(3B)(a) subject to exceptions provided by section 293(3C)(b) for certain types of ship leasing:
“the letting of ships … in circumstances where the requirements in paragraphs (a) to (d) of section 297(6) are satisfied in relation to the company so letting them”
The reference in section 293(3C)(b) of ICTA to paragraphs (a) to (d) of section 297(6) means that the let-out for ship leasing from excluded activities does not extend to the part of section 297(6) of ICTA which follows paragraphs (a) to (d):
“but where any of the requirements mentioned in paragraphs (a) to (d) above are not satisfied in relation to any lettings of such ships, the trade shall not thereby be treated as failing to comply with this section if those lettings and any other activity of a kind falling within subsection (2)(a) to (g) above do not, when taken together, amount to a substantial part of the trade.”
In principle therefore when determining whether a parent company and its group meet the trading requirement, a trade of leasing ships would be an excluded activity if it failed to meet the requirements of section 297(6)(a) to (d) of ICTA even if the degree of failure was insubstantial.
The way in which sections 181(8), 192 and 194 of this Act interact changes the position.
The definition of “non-qualifying activities” in section 181(8) refers to “excluded activities”. Section 192 defines “excluded activities” (based on the list in section 297(2) of ICTA) and also lists provisions that supplement the definitions.
One of these provisions is section 194 (excluded activities: leasing of ships), which provides a let-out for certain types of ship leasing. Section 194(7) extends the let-out in the same way as the latter part of section 297(6) of ICTA.
The effect of this is that the definition of “non-qualifying activities” in section 181(8) of this Act includes all the circumstances in section 194 including those in section 194(7).