CTM03750 - Corporation Tax: small companies: attribution of rights and powers of associates

When you are deciding who controls a company, you should take into account not only those rights which a person possesses (or is entitled to acquire) and those of nominees (which must be attributed - see CTM03740), but also the rights of certain others which you may attribute to that person under ICTA88/S416 (6).

You may attribute the rights of:

• associates (see CTM60150), and
• any companies which the person controls or the person and associates together control.

In both cases, the attributable rights will be inclusive of any rights of their nominees which must be attributed to the associate or company under ICTA88/S416 (5) - see CTM03740. However, you must not include the rights of 'associates of associates', that is those attributed to an associate under Section 416 (6).

There is no discretion in Section 416 (6), but rather all possible combinations are to be gone through (that is, you may make all the attributions, some only of the attributions and no attributions at all); if on any combination a person or group of persons meet the tests in Section 416 (2) and (3), then they are to be taken as having control.

This interpretation of Section 416 (6) was confirmed by the House of Lords' judgment in Regina v Commissioners of Inland Revenue ex parte Newfields Developments Ltd, in May 2001.

For Accounting Periods commencing after 1 April 2008 the circumstances where a business partner is treated as an associate for associated companies' purposes are limited to those where “relevant tax planning arrangements have at any time had effect in relation to the taxpayer company” (ICTA88/S.13(4) & (4A)). Such arrangements must

• involve both the person whose control position is being reviewed and the business partner, and
• obtain a reduction in corporation tax for the taxpayer company by using the small companies' rate provisions

The attribution of the rights of associates is limited in certain cases by ESCC9 (see CTM03760). However, even where ESCC9 applies, you may in practice always attribute to a person the rights and powers of the following:

• that person's spouse and minor children,
• that person's business partners, (For Accounting Periods commencing after 1 April 2008 business partners are associated only where relevant tax planning arrangements have had effect),
• the trustee or trustees of a settlement where that person is the settlor, or the settlor's spouse or minor child.

Example

Neither B nor C is an associate of Mr F or Mrs F.

Mr F controls Company F. Under Section 416 (6) you may attribute to him the rights of his wife and he can then be taken to control Company C. You should therefore treat the two companies as associated whether or not there is substantial commercial interdependence between them (see CTM03770).

Where a person is interested in any shares of the company which are subject to any trust or are part of the estate of a deceased person, you may also attribute to that person the rights and powers of:

• the trustees of that trust or the personal representatives of the deceased, and
• (if the person is a company) any other company interested in those shares.