GREIT13030 - Joint ventures: Joint Venture Look-Through Notice: Tax- exempt business and other conditions
Venturing company
In deciding whether it meets various regime conditions, the venturing company must take account of a portion of the assets, income etc of the joint venture company. The same definitions of property rental business, assets involved, method of valuation etc apply as for a single company UK-REIT meeting the conditions on its own account (see GREIT01020 and GREIT02020).
Tax-exempt business Condition 4
The venturing company must include a relevant portion of the
profits of the property rental business of the joint venture
company in applying the 90% distribution test in section 107 FA
2006. The relevant portion is by reference to the venturing
company’s level of beneficial interest in the joint venture
company (regulation 6(1) SI 2006/2866).
For example, venturing company V has 40% of the shares in
joint venture company. The income of V’s tax-exempt business
for year to 31 December 2008 is 1,000 and of J’s property
rental business is 500. To meet the 90% distribution requirement, V
must distribute at least 1,080 (= 90% of (1,000 + 40% x 500) by 31
December 2009 (the CTSA filing for V).
Balance of Business Conditions 1 and 2
The venturing company must include a relevant portion of the
income of the property rental business of the joint venture company
in deciding whether it has met the 75/25 income test in section
108(2) FA 2006. The relevant portion is by reference to the
venturing company’s level of entitlement to profits from the
joint venture company (regulation 6(2) SI 2006/2866).
The venturing company must include a relevant portion of the
value of the assets involved in the property rental business of the
joint venture company in deciding whether it has met the 75/25
asset test in section 108(3) FA 2006. The relevant portion is by
reference to the venturing company’s level of entitlement to
assets of the joint venture company (regulation 6(3) SI 2006/2866).
For example, venturing company V has 40% of the shares in the
joint venture company. The fair value of the assets involved in
V’s tax-exempt business for year at 1 January 2009 is 12,000
and of in its residual business is 2,000. The fair value of the
assets involved in J’s property rental business is 8,000, and
in its residual business 7,500. For the 75/25 test, the fair value
of the tax-exempt business assets is 15,200 (= 12,000 + 40% of
8,000) and of the other activities 5,000 (= 2,000 + 40% of 7,500).
The condition is therefore met as the ratio is 75.2%.
Venturing group
Where the principal company of a Group REIT and a joint venture company give notice for ‘look-through’ treatment to apply, the joint venture company is treated in the same way as a company that becomes a 75%/ effective 51% subsidiary of the group for the purposes of the above conditions. The consequences are set out in regulation 13 SI 2006/2866.
