GREIT02115 - Conditions and Tests: maximum shareholding: definition of company and meaning of beneficially entitled

The definition of a holder of excessive rights (HoER) in regulation 1(2) SI 2006/2864 contains the terms ‘control’, ‘directly’, ‘indirectly’ and ‘beneficially entitled’. None of these are defined specifically for this purpose. The only term in the definition that is defined is ‘company’, and that is based on how the word is used in double tax treaties. HMRC will interpret the other terms consistently with that. Some examples are set out below. In them, C is UK-REIT and A is a company that may be a HoER.

Company

This is defined as taking the usual section 832(1) ICTA meaning (any body corporate or unincorporated association, but excluding a partnership, local authority or local authority association) and any entity that is treated as a body corporate for tax purposes under any of the UK double tax treaties.

Beneficially entitled

The usual meaning of beneficially entitled will generally apply – that is, the person who receives the dividend and has no legal obligation to pass it on to another person. For example, where A uses nominee N to hold their shares in C, C pays the dividend to N but N is required to pay that over to A. The person beneficially entitled to the dividend is therefore A, and not N.

If A owns 100% of the shares in company B, which in turn owns shares in C, B (rather than A) would be the person with direct beneficial entitlement to C’s shares or dividends. A would not generally be regarded as having indirect beneficial entitlement to C’s shares or dividends.

Although in some circumstances, a ‘conduit’ company P may not be regarded as the beneficial owner of income it receives from C (as was the case in Indofood International Finance Ltd v JP Morgan Chase Bank NA, London Branch [2006] EWCA Civ 158), it is unlikely to be the deciding factor in deciding whether the owners of P are HoERs on account of indirect entitlement to dividends. This is because it is more than likely that the owners of P would have indirect control of voting rights held via P, which would be taken into account in looking at whether the owners of P were HoERs on account of control of voting rights.