In Ghelanis Superstore & Cash & Carry Ltd v HMRC [2013] TC03251 the first tier tribunal concluded that the test as to whether two companies are associated can be decided by taking any of the possible minimum controlling combinations that might exist for each company and not just by taking the combination that comprised the fewest individuals.
A company is required to consider whether it is associated with another company in order to determine its rate of corporation tax for the upper and lower limit of profits. One company is associated with another if both are under common control and this is determined by considering how many participators may exert control over the company's affairs in terms of voting rights, interest in share capital and rights on winding up, where relevant by considering the rights of loan creditors.
Companies may be controlled by a number of individuals, if so then provided that the group is the same group for each company the two are associated.
In Ghelanis, each shareholder’s interest in each company was as follows:
|
Shareholder |
A Ltd |
E Ltd |
|
A |
25% |
17% |
|
B |
25% |
33% |
|
C |
25% |
33% |
|
D |
25% |
17% |
This produced the following minimum controlling combinations (also known as irreducible groups) for the purposes of determining control under s416 ICTA 1988 (now s450 CTA 2010):
|
A Ltd |
E Ltd |
|
A, B & C |
|
|
A, B & D |
A, B & D |
|
A, C & D |
A, C & D |
|
B, C & D |
|
|
B & C |
The taxpayer argued that E Ltd was controlled by B & C because it was the controlling combination with the fewest shareholders so that this was the minimum controlling combination and meant that all other combinations could be ignored. HMRC argued that there were separate controlling combinations in each company and it could take which ever combination it liked. The First Tier Tax tribunal agreed with HMRC.
Comment
This outcome was broadly in line with what might be expected given discussions in the various stages of the appeal in Ex Parte Newfields Developments [2001] UKHL 27. However, this point has not we think, been tested before. This legislation may produce a number of different controlling combinations and where there is a choice of controlling combination, the tribunal confirms that HMRC may chose which one to use.
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Associated company tests
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