INTM217050 - Controlled Foreign Companies: guidance relating to superseded legislation

The Public Quotation Condition: accounting periods ending on or before 6 December 2006

The Public Quotation Exemption

ICTA88/S748(1)(c)

No apportionment is due in respect of a controlled foreign company for any accounting period for which the public quotation condition is satisfied. The detailed terms of the public quotation condition are set out in ICTA88/SCH25/Part III. In general terms, the test requires that shares of a controlled foreign company are listed and dealt on a recognised stock exchange situated in the company’s territory of residence and that a substantial proportion of its shares are held by members of the public. ICTA88/S415 provides a similar exclusion from the close company legislation.

Conditions to be satisfied

ICTA88/SCH25/PARA13(2) and PARA15(4)

A controlled foreign company satisfies the public quotation condition in an accounting period only if it meets all of the following requirements:

1. Shares in the company (other than shares carrying a fixed rate of dividend - whether with or without a further right to participate in the company’s profits) carrying at least 35% of the voting power in the company have been allotted unconditionally to, or acquired unconditionally by, the public, and are beneficially held by the public throughout the accounting period.
   
   
2. Within the period of 12 months ending at the end of the accounting period the shares have been dealt in on a recognised stock exchange situated in the territory in which the company is resident.
   
   
3. The shares have been listed in the official list of such a recognised stock exchange within the period of 12 months ending at the end of the accounting period.
   
   
4. The condition set out in Voting power possessed by principal members is satisfied, (although in practice this condition will apply only in very restricted circumstances and will rarely need to be considered).

The term 'share' in (a)-(c) above includes stock.

Shares held by public

ICTA88/SCH25/PARA14(2)

Shares in a controlled foreign company are deemed to be beneficially held by the public for the purposes of ICTA88/SCH25/PARA13(2) if they are held by any person other than -

5. a person connected or associated with the company; or
   
   
6. a principal member of the company

Similarly, shares are regarded as allotted unconditionally to, or acquired unconditionally by the public unless they have been unconditionally allocated to, or acquired by persons within (a) and (b) above.

Shares to be treated as held by any person include shares held by nominees for him, if the rights and powers attached to the shares could be attributed to him in accordance with ICTA88/S416(5).

Voting power possessed by principal members

ICTA88/SCH25/PARA14(1) and PARA15(2) and (3)

The public quotation condition is not fulfilled with respect to an accounting period of a controlled foreign company if at any time during that period the proportion of the aggregate voting power in the company possessed by the company’s principal members exceeds 85%.

A person is a principal member of a company if -

• where there are 5 or fewer persons each possessing more than 5% of the voting power in the company - he is one of those persons
  
  
• where there are more than 5 persons each possessing more than 5% of the voting power in the company

The voting power which any person (including a principal member) possesses, will include any voting power attributable to him under ICTA88/S416(5) and (6) (nominees, controlled companies and associates).

Recognised Stock Exchange

'Recognised stock exchange' is defined in ICTA88/S841 as The Stock Exchange and any stock exchange outside the United Kingdom designated as a recognised stock exchange by the Board of HM Revenue & Customs. The Stock Exchange incorporates the London and provincial exchanges in the United Kingdom, and exchanges in the Republic of Ireland.

List of Stock Exchanges designated as "recognised stock exchanges" by Order of the Board under Section 841(1)(b) ICTA 1988 as at December 2006 ; and date of recognition.

Any stock exchange in the following countries which is a stock exchange within the meaning of the law of the particular country relating to stock exchanges (or as specified below)