tool: Meaning of control
To avoid confusion, it should be made clear that
the actual legislation does not refer to whether parties are
"related". The legislation refers to whether a party is “directly
or indirectly participating in the management, control or capital of
the other [party]”. We think "related" is a little more
Control of partnerships
person (ie, any legal entity) controls a partnership if that person has
the right to a share
of more than one-half of the assets, or of more than one-half of the
income, of the partnership.
Control of companies
Section 840 of the Taxes Act 1988 says "control", in relation to a body
corporate, means the power of a person to secure-
(a) by means of the holding of shares or the possession of voting power
in or in relation to that or any other body corporate; or
(b) by virtue of any powers conferred by the articles of association or
other document regulating that or any other body corporate,
that the affairs of the first-mentioned body corporate are conducted in
accordance with the wishes of that person.
In practice, this means that control of a company arises from voting
power of more
There are special rules aimed at joint ventures that mean in some
circumstances as little as 40% control can be
The control need not be direct. For instance,
if Company A owns Company B, which in turn owns Company C, then A and C
are related (as, of course, are A&B and B&C).
In determining whether a person (ie, any legal entity) controls a
company or a partnership, that person is
attributed with certain rights and powers, including those of any
persons that are “connected” with that person.
For this purpose,
individuals are connected with their spouse, brother, sister, ancestor
and lineal descendant. Trusts are connected with the settlor of
the trust and any persons connected with the settlor.
instance, assume Frank owns 30% of Company A, and his father and
sister own 9% each. Frank's wife used to own 9%, but she
transferred them into a trust of which the beneficiaries are their
children. Frank is deemed to have 57% voting power, so
he and Company A are related.
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particular taxpayer. Therefore, although the guidance in this
should give a good indication of the likely position under the transfer
pricing rules, taxpayers should obtain professional advice to verify
the position, or carry out their own analysis.
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