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)).
