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. VCT
Paragraph 3(7) of Schedule 28B to 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. Paragraph 3(7)(a) includes as such activities:
“activities falling within paragraph 4(2)(a) to (f) below but not within sub-paragraph (8) below …”
Paragraph 4(2)(d) of that Schedule 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 paragraph 3(7) of Schedule 28B to ICTA subject to exceptions provided by paragraph 3(8)(b) for certain types of ship leasing:
“the letting of ships … in circumstances where the requirements in paragraphs (a) to (d) of paragraph 4(7) below are satisfied in relation to the company so letting them”
The reference in paragraph 3(8)(b) of Schedule 28B to ICTA to paragraphs (a) to (d) of paragraph 4(7) means that the exception for ship leasing from excluded activities does not extend to the part of paragraph 4(7) of that Schedule 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, the trade shall not thereby be treated as failing to comply with this paragraph if those lettings and any other activity of a kind falling within sub-paragraph (2)(a) to (f) 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 paragraph 4(7)(a) to (d) of Schedule 28B to ICTA even if the degree of failure was insubstantial.
The way in which sections 290(7), 303 and 305 of this Act interact changes the position.
The definition of “non-qualifying activities” in section 290(7) refers to “excluded activities”. Section 303 defines “excluded activities” (based on the list in paragraph 4(2) of Schedule 28B to ICTA) and also lists provisions that supplement the definitions.
One of these provisions is section 305 (excluded activities: leasing of ships), which provides a let-out for certain types of ship leasing. Section 305(7) extends the let-out in the same way as the latter part of paragraph 4(7) of Schedule 28B to ICTA.
The effect of this is that the definition of non-qualifying activities in section 290(7) of this Act includes all the circumstances in section 305 including those in section 305(7).