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 of ICTA contains various conditions that the issuing company must meet if it is to be a “qualifying company” in relation to an issue of shares. Section 293(8)(a) requires that throughout the relevant period the issuing company must not:
“control (whether on its own or together with any person connected with it) any company which is not a qualifying subsidiary …”
Despite the absence of explicit words to that effect, the context of section 293 of ICTA indicates that section 293(8)(a) is referring to a qualifying subsidiary of the issuing company.
The reference to relevant period in section 293(8)(a) of ICTA is also indicative of this interpretation.
Section 293(3) of ICTA defines “qualifying subsidiary” as follows (emphasis added):
“in relation to a company, means a subsidiary of a kind which that company may hold by virtue of section 308.”
This is in line with section 312(1) of ICTA, which defines a subsidiary as follows (emphasis added):
“in relation to any company, (except in the expression “51% subsidiary” or where otherwise defined) means a subsidiary of that company of a kind which that company may hold under section 308.”
Section 308 of ICTA is framed in terms of a qualifying company and a relevant period as it provides (emphasis added):
“A qualifying company may, in the relevant period, have…”
So although a qualifying subsidiary is defined as a subsidiary in relation to a company which is not identified, the reference to “the relevant period” in section 293(8) of ICTA links the qualifying subsidiary here to the company (the issuing company in the rewritten sections) which is a qualifying company if it meets the requirements in section 293 of ICTA.
There is a similar requirement in relation to “the relevant company”, the equivalent in this context to the issuing company in the venture capital trust (VCT) scheme. In paragraph 9(1)(a) of Schedule 28B to ICTA, the Schedule dealing with the meaning of qualifying holdings for VCTs, the wording is (emphasis added) that the relevant company must not be a company which:
“controls (whether on its own or together with any person connected with it) any company that is not a qualifying subsidiary of the relevant company.”
The form EIS 1 which contains the company statement, (required under section 306(3) of ICTA) interprets section 293(8)(b) of that Act to mean that the qualifying subsidiary is a qualifying subsidiary of the company.
This interpretation of section 293(8)(b) of ICTA, that the qualifying subsidiary is a qualifying subsidiary of the issuing company, is reflected in section 185(1)(a) of this Act.