Taxes Consolidation Act 1997 section 415

Meaning of "the notional winding up"

Section 415 defines the concept of the "notional winding up" used to determine whether a parent company holds a 75% beneficial entitlement to the net assets of a subsidiary for the purposes of group relief under section 412.

• The 75% net assets test is applied by reference to a hypothetical winding up of the subsidiary in which the net assets available to equity holders are taken to equal the excess of balance sheet assets over non-equity liabilities at the end of the relevant accounting period — or €100 if there is no such excess or no balance sheet to that date.
• All assets to which an equity holder would be entitled on the notional winding up are included in the calculation, even amounts that would not ordinarily be treated as a distribution of assets.
• An anti-avoidance rule prevents a parent company from artificially inflating the subsidiary's assets — and thereby manufacturing a 75% entitlement — by subscribing for additional shares and then receiving back the subscription proceeds as a loan from the subsidiary.
• Where such a circular arrangement exists, both the total assets of the subsidiary and the parent company's share of those assets on the notional winding up are reduced by the amount returned as a loan.