CTM34560 - Residence: dual resident companies: definition: investing company

Companies engaged in ordinary trading activities are generally excluded from the scope of the legislation. This is done by defining a dual resident investing company rather than by attempting to define what is meant by a 'company engaged in ordinary trading activities'.

In general a company is a dual resident investing company unless it is a trading company. ‘Trading company’ means a company the business of which consists wholly or mainly in the carrying on of a trade or trades, (ICTA88/S413 (3)(c)). The effect is that all dual resident companies, which are investment companies within ICTA88/S130 or whose business does not consist wholly or mainly of trading, are dual resident investing companies. However, a trading company, which is a dual resident company, will also be a dual resident investing company if:

• it is not a trading company throughout an accounting period (for example, if its trade diminishes during an accounting period to such an extent that the company could no longer be regarded as a trading company) ICTA88/S404 (5), or
• although it is a trading company within the ICTA88/S413 (3)(c) definition, it carries on activities of the type listed in ICTA88/S404 (6).

Section 404 (6) extends the definition of a dual resident investing company to include certain trading companies whose functions or activities are similar to those of dual resident companies that are not trading companies. It treats as a dual resident investing company any trading dual resident company which:

• carries on a trade, which means its main function consists of any or all of a number of financial activities. This brings the group financial services company or group banker within the scope of the legislation. It does not include a company carrying on a non 'financial' trade which borrows to finance its trade or holds investments as an incident in its trade, for example an insurance company (ICTA88/S404 (6)(a)); or
• is not caught under Section 404 (6)(a), but which carries on any or all of those financial activities to an extent which does not appear to be justified by its trade or for a purpose which does not appear to be appropriate to that trade.

This catches the company which carries on a trade such as providing management services but at the same time has considerable borrowings which:

• have been used to invest in subsidiary companies (ICTA88/S404 (6)(b)); or
• has issued bills of exchange or deep discount securities where the amount of the company's total charges (including the elements of discount) exceeds the profits of the accounting period and the 'payment' of those charges constitutes the main activity or one of the main activities of the company, notwithstanding its actual trade (ICTA88/S404 (6)(c)).