© 2025 by Michael Firth KC, Gray's Inn Tax Chambers
Contact: michael.firth@taxbar.com
SHAREHOLDER LEVEL: DEEMED CONTROL
General
- Section 450 enormously widens the notion of control
"[10] It will be seen that although this definition starts in subsection (2) with a concept of control which reflects its meaning in ordinary speech ("a person shall be taken to have control of a company if he exercises, or is able to exercise or is entitled to acquire, direct or indirect control over the company's affairs"), that fairly simple notion is enormously widened by subsequent subsections. Subsection (4) deems the person in question to already have interests which have not yet vested and subsection (5) attributes to him the rights or powers of his nominees. Subsection (6) goes much further in providing that for the purposes of deciding whether a person falls within the definition in (2) (or the definition of joint control in (3)) any person may have attributed to him the rights or powers of any associate or of any company which he or his associates or both have control. The full breadth of this extension can be seen from the definition of "associate" in section 417(3):..." (IRC v. Newfields Developments Limited [2001] UKHL 27, Lord Hoffmann)
- May result in attribution of rights over which, in real life, person has no control
"[11] ... The effect of these cumulative definitions is that for the purpose of deciding whether a person "shall be taken to have control of a company" under section 416(2), it may be necessary to attribute to him the rights and powers of persons over whom he may in real life have little or no power of control. Plainly the intention of the legislature was to spread the net very wide." (IRC v. Newfields Developments Limited [2001] UKHL 27, Lord Hoffmann)
- Multiple persons may have control
"[150] It is clear from Newfields and Kellogg that the provisions that follow what is now s450(2), including s450(3), both significantly widen the concept of control and should not be regarded as cutting down the scope of s450(2). It is also clear that different people can be regarded as each having control at the same time." (PGPG Limited v. HMRC [2017] UKFTT 782 (TC), Judge Falk)
- Purpose is to avoid detailed factual enquiries
"[19]...If real control were to be the test, the opening words of section 416(2) would be enough. The purpose of the extended definition appears to be to make it unnecessary for the revenue to have to make detailed factual inquiries." (IRC v. Newfields Developments Limited [2001] UKHL 27, Lord Hoffmann)
Entitled to acquire
- Legal entitlement required
"[153] ...I think Mr Mantle was right not to seek to argue that the expression “entitled to acquire” in s450(2)(c) and (3) means anything less than a legal entitlement..." (PGPG Limited v. HMRC [2017] UKFTT 782 (TC), Judge Falk)
- Contract to acquire a majority of the shares giving rise to entitlement
"[156] I therefore conclude that Mr Barnes was connected with SMCL in March 2014 both in his capacity as a loan creditor (on the basis that he had control in that capacity under s450(3)(d)) and as a person entitled to acquire control at a shareholder level within s450(2)(c) and (3)." (PGPG Limited v. HMRC [2017] UKFTT 782 (TC), Judge Falk)
Attribution: general
- Attribution is of rights and powers, not control per se
"(4) There may also be attributed to a person all the rights and powers—
(a) of any company of which the person has, or the person and associates of the person have, control,
(b) of any two or more companies within paragraph (a),
(c) of any associate of the person, or
(d) of any two or more associates of the person.
(5) The rights and powers which may be attributed under subsection (4)—
(a) include those attributed to a company or associate under subsection (3), but
(b) do not include those attributed to an associate under subsection (4)." (CTA 2010, s.451)
- No double counting of a right or power
Logically the same right or power cannot be taken into account more than once to build control
- Condition for attribution is whether or not it result in person(s) under consideration being treated as in control
"[29] In my opinion, if the concluding words were not there, one would have no difficulty in inferring from subsections (2) and (3) that the conditions for attribution are whether or not it resulted in the person or persons under consideration being treated as being in control. Once one has rejected the notion of a discretion, there can be no other intelligible construction. The question is whether this conclusion is displaced by the concluding words or whether those words serve some other purpose." (IRC v. Newfields Developments Limited [2001] UKHL 27, Lord Hoffmann)
- Close companies: if multiple groups of persons have control, test if a group of 5 or fewer do
"[32] In my opinion, therefore, the concluding words of subsection (6) do not form part of the definition of "control" which is applied by section 13(4) and other sections. They are a special qualification of that definition for the specific purpose of deciding whether one limb of the definition of a close company is satisfied. The concluding words take effect only when one has applied the general definition of control in section 416(2) or (3) as extended by the preceding part of the subsection and found that it can yield groups of participators of varying numbers who can each be treated as being in control. The concluding words then require one to make only such attributions as will result in the company being treated as under the control of five or fewer participators. But this qualification has no relevance to any case in which the general definition of control, as set out in the rest of section 416(2) to (6), is sufficient to answer the statutory question." (IRC v. Newfields Developments Limited [2001] UKHL 27, Lord Hoffmann)
Attribution of controlled company's powers
- Rights and powers of company controlled by person/person + associates may be attributed to that person
"(4) There may also be attributed to a person all the rights and powers—
(a) of any company of which the person has, or the person and associates of the person have, control,
(b) of any two or more companies within paragraph (a),
(c) of any associate of the person, or
(d) of any two or more associates of the person.
(5) The rights and powers which may be attributed under subsection (4)—
(a) include those attributed to a company or associate under subsection (3), but
(b) do not include those attributed to an associate under subsection (4).
(6) Such attributions are to be made under subsection (4) as will result in a company being treated as under the control of 5 or fewer participators if it can be so treated." (CTA 2010, s.451)
- Query whether one attributes powers of a company controlled by 2 persons together but not controlled by either person alone
"[31] HHL are, however, in my view on stronger ground in the argument that the Commissioner was wrong to conclude that section 416(6) could be relied on by HMRC. In essence, the issue comes down to whether the word "person" in that subsection can, as the Special Commissioner held and as HMRC contend, be read as extending to "persons". At first blush, as Mr Baldry contends, the answer should be that it does, as the singular normally includes the plural – see section 6 of the Interpretation Act 1978. However, there appears to me to be considerable force in the point that section 416(6) is concerned with each separate person who falls, or is claimed to fall, within section 416(2) or (3). The notion that subsections (4), (5) and (6) are all directed to the position and rights of an individual person appears to me to be consistent with the language of those subsections, when read together with the two preceding subsections, and also to be consistent with their purpose. However, for reasons I will explain in paragraphs 33 and 34 below, it is unnecessary to resolve that issue, and I think it would be better to leave it open for determination on facts which do require it to be resolved." (Kellogg Brown& Root Holdings (UK) Ltd v. HMRC [2010] EWCA Civ 118)
The argument was that persons together who had control of a holding company did not control subsidiaries
"[14] [The taxpayer] contends thirdly, that even if the shareholders in Halliburton Company and HIG are such a group having control of the Halliburton Company and HIG they did not have control of HHL (a second-tier subsidiary of Halliburton Company) and HHUKL (a first-tier subsidiary of HIG) within s 416(2) because they did not have direct or indirect control over the affairs of the appellant and HHUKL. Mr Baldry contends that either the shareholders have indirect control of those companies or control by virtue of the attribution in s 416(6). Mr Ghosh contends that person in s 416(6) is singular in contrast to the reference in sub-s (3) to persons. And even if it does include persons they do not together have control even with their associates because fellow shareholders are not associates as defined in s 417(3)." (Kellogg Brown & Root Holdings (UK) Ltd v. HMRC [2008] STC (SCD) 928, Judge Avery Jones)
Nevertheless the shareholders of Holdco did have indirect control of the subsidiaries
See above.
Attribution of associate's powers
Loan creditor control
- Not positing a solvent winding up
"[145] Mr Lall submitted that s 450(3)(d) should be read as positing a solvent winding up in which assets were available to shareholders, such that Mr Barnes would not receive the greater part of the assets, or that the reference to “assets” should be read as net assets, after allowing for liabilities. I do not think that this is correct. It is clear that loan creditors are to be taken into account as participators for the purposes of that paragraph. The “assets” available for distribution among the participators must be those assets that are in fact available for distribution not only to shareholders but to other participators, including loan creditors (but not other creditors who are not loan creditors and therefore not participators). In other words, it would be necessary to look at the company’s assets that would be available for distribution to those persons who fall within the definition of participators, having first taken account of any amounts that other creditors would receive on a winding up (because such amounts would not correspond to assets available for distribution among the participators)." (PGPG Limited v. HMRC [2017] UKFTT 782 (TC), Judge Falk)
- Assets must be more than twice the value of sole loan
"[146] The only circumstance in which, on this basis, Mr Barnes would not receive a majority of the assets available on a winding up of SMCL in or before March 2014 would be if the total value of the assets available to participators was more than twice the amount he had lent, since Dr Smart as sole shareholder would then be entitled to the majority of the assets available to participators. Given the short time after the business had been taken over from Westover, and its uncertain and financially difficult position at the time (as evidenced by the correspondence with PGPH in March 2014, for example the reference to starting to pay the rent deposit as cash flow permitted) I have concluded that it is more likely than not that Mr Barnes would indeed have received the majority of the assets available to participators if SMCL had been wound up." (PGPG Limited v. HMRC [2017] UKFTT 782 (TC), Judge Falk)