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Income Tax (Earnings and Pensions) Bill


Income Tax (Earnings and Pensions) Bill
Schedule 5 — Enterprise management incentives
Part 6 — Company reorganisations

    455

 

Part 6

Company reorganisations

Company reorganisations: introduction

  39      (1)      This Part applies in connection with company reorganisations.

          (2)      For the purposes of this Part there is a “company reorganisation” where a

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company (“the acquiring company”)—

              (a)             obtains control of a company whose shares are subject to an

outstanding qualifying option—

                    (i)                   as a result of making a general offer to acquire the whole of

the issued share capital of that company which is made on a

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condition such that, if it is met, the person making the offer

will have control of the company, or

                    (ii)                  as a result of making a general offer to acquire all the shares

in the company which are of the same class as those to which

the option relates;

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              (b)             obtains control of such a company as a result of a compromise or

arrangement sanctioned by the court under—

                    (i)                   section 425 of the Companies Act 1985 (c. 6) (power to

compromise with creditors and members), or

                    (ii)                  Article 418 of the Companies (Northern Ireland) Order 1986

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(corresponding provision for Northern Ireland);

              (c)             becomes bound or entitled under—

                    (i)                   sections 428 to 430 of that Act (power to acquire shares of

shareholders dissenting from schemes or contract approved

by majority), or

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                    (ii)                  Articles 421 to 423 of that Order (corresponding provision for

Northern Ireland),

                              to acquire shares of the same class as shares that are subject to an

outstanding qualifying option; or

              (d)             obtains all the shares of a company whose shares are subject to an

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outstanding qualifying option as a result of a qualifying exchange of

shares (see paragraph 40).

          (3)      In sub-paragraph (2) “outstanding qualifying option” means a qualifying

option that has yet to be exercised.

Meaning of “qualifying exchange of shares”

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  40      (1)      For the purposes of the EMI code there is a “qualifying exchange of shares”

where—

              (a)             arrangements are made in accordance with which a company (“the

new company”) acquires all the shares (“old shares”) in another

company (“the old company”), and

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              (b)             the following conditions are met.

          (2)      The conditions are that—

              (a)             the consideration for the old shares consists wholly of the issue of

shares (“new shares”) in the new company;

 

 

Income Tax (Earnings and Pensions) Bill
Schedule 5 — Enterprise management incentives
Part 6 — Company reorganisations

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              (b)             new shares are issued in consideration of old shares only at times

when there are no issued shares in the new company other than—

                    (i)                   subscriber shares, and

                    (ii)                  new shares previously issued in consideration of old shares;

              (c)             the consideration for new shares of each description consists wholly

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of old shares of the corresponding description;

              (d)             new shares of each description are issued to holders of old shares of

the corresponding description in respect of, and in proportion to,

their holdings; and

              (e)             by virtue of the CGT capital reorganisation provisions, the exchange

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of shares is not treated as involving a disposal of the old shares or an

acquisition of the new shares.

          (3)      For the purposes of this paragraph old shares and new shares are of a

corresponding description if, on the assumption that they were shares in the

same company, they would be of the same class and carry the same rights.

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          (4)      In this paragraph—

              (a)             references to “shares”, except in the expression “subscriber shares”,

include securities; and

              (b)             “the CGT capital reorganisation provisions” means section 127 of

TCGA 1992, as applied by section 135(3) of that Act (exchange of

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securities).

Grant of replacement option

  41      (1)      This paragraph applies if both of the following conditions are met in

connection with a company reorganisation.

          (2)      The first condition is that the holder of a qualifying option, by agreement

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with the acquiring company, releases the holder’s rights under that option

(“the old option”) in consideration of the granting to him of rights (“the new

option”) which are equivalent but relate to shares in the acquiring company.

          (3)      The second condition is that the requirements of the following paragraphs

are met—

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               paragraph 42 (period within which replacement option must be

granted), and

               paragraph 43 (further requirements to be met as to replacement

option).

          (4)      If this paragraph applies, the new option is to be treated for the purposes of

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the EMI code as a “replacement option”.

          (5)      Except where the contrary is indicated—

              (a)             references in the EMI code to a qualifying option include a

replacement option, and

              (b)             a replacement option is to be treated for the purposes of the EMI code

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as if it had been granted on the date on which the old option was

granted.

          (6)      For the purposes of any of paragraphs 5 to 7 or section 536(1)(e), the total

value of the shares in the acquiring company that are subject to the

replacement option is to be taken to be equal to—

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Income Tax (Earnings and Pensions) Bill
Schedule 5 — Enterprise management incentives
Part 6 — Company reorganisations

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              (a)             the total value (as calculated in accordance with paragraph 5(6) to

(8)) of the shares that were subject to the old option immediately

before the release of rights under that option, or

              (b)             if the replacement option has been partially exercised, the proportion

of that total value which corresponds to the proportion which the

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number of shares that remain subject to the option bears to the

number of shares that were subject to it at the time when it was

granted as a new option (see sub-paragraph (2) above).

          (7)      In the EMI code references to “the old option” or “the new option” are to be

construed in accordance with this paragraph.

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Period within which replacement option must be granted

  42      (1)      To qualify as a replacement option the new option must be granted within

the required period (see sub-paragraphs (2) to (4)).

          (2)      If the company reorganisation falls within paragraph 39(2)(a), the required

period is the period of 6 months after the date on which—

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              (a)             the person making the offer has obtained control of the company,

and

              (b)             any condition subject to which the offer is made is met.

          (3)      If the company reorganisation falls within paragraph 39(2)(b) or (d), the

required period is the period of 6 months after the date on which the

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acquiring company obtains control of the company whose shares are subject

to the old option.

          (4)      If the company reorganisation falls within paragraph 39(2)(c), the required

period is the period during which the acquiring company remains bound or

entitled as mentioned in that provision.

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Further requirements to be met as to replacement option

  43      (1)      For the new option to qualify as a replacement option the following

requirements must also be met.

          (2)      The new option must be granted to the holder of the old option by reason of

the holder’s employment—

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              (a)             with the acquiring company, or

              (b)             if that company is a parent company, with that company or another

member of the group.

          (3)      The requirements of—

              (a)             paragraph 4 (purpose of granting option),

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              (b)             paragraph 7 (maximum value of options in respect of relevant

company) (as it has effect under sub-paragraph (4)), and

              (c)             Part 5 (requirements as to options),

           must be met in relation to the new option at the time of the release of rights

under the old option (“the relevant time”).

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          (4)      For the purposes of paragraph 7 (as applied by sub-paragraph (3)(b)) the

total value of the shares in the acquiring company that are subject to the new

option is to be taken to be equal to the total value (as calculated in

accordance with paragraph 5(6) to (8)) of the shares that were subject to the

old option immediately before the relevant time.

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Income Tax (Earnings and Pensions) Bill
Schedule 5 — Enterprise management incentives
Part 7 — Notification of option to Inland Revenue

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          (5)      In addition to the requirements mentioned in sub-paragraph (3)—

              (a)             the independence requirement and the trading activities

requirement must be met in relation to the acquiring company at the

relevant time, and

              (b)             the individual to whom the new option is granted must be an eligible

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employee in relation to the acquiring company at that time.

          (6)      The total market value, immediately before the relevant time, of the shares

which were subject to the old option must be equal to the total market value,

immediately after the grant of the new option, of the shares in respect of

which that option is granted.

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          (7)      The total amount payable by the employee for the acquisition of the shares

under the new option must be equal to the total amount that would have

been payable for the acquisition of shares under the old option.

Part 7

Notification of option to Inland Revenue

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Notice of option to be given to Inland Revenue

  44      (1)      For a share option to be a qualifying option, notice of the option must be

given to the Inland Revenue within 92 days after the date of the grant of the

option.

          (2)      The notice must—

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              (a)             be given by the employer company, and

              (b)             be in a form required or authorised by the Inland Revenue.

          (3)      The notice must contain, or be supported by, such information as the Inland

Revenue may require for the purpose of determining whether the

requirements of this Schedule are met.

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          (4)      The notice must also contain a declaration within each of sub-paragraphs (5)

and (6).

          (5)      A declaration within this sub-paragraph is a declaration by a director, or the

secretary, of the employer company—

              (a)             that in the opinion of that person the requirements of this Schedule

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are met in relation to the option, and

              (b)             that the information provided is, to the best of that person’s

knowledge, correct and complete.

          (6)      A declaration within this sub-paragraph is a declaration by the individual to

whom the option has been granted that the individual meets the

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requirement of paragraph 26 (commitment of working time) in relation to

the option.

          (7)      Any reference in this Part of this Schedule to the requirements (or any of the

requirements) of this Schedule being met in relation to a share option is a

reference to the requirements or requirement being met in relation to it at the

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appropriate time.

Correction of notice by Inland Revenue

  45      (1)      The Inland Revenue may amend a notice given under paragraph 44 so as to

correct obvious errors or omissions in the notice.

 

 

Income Tax (Earnings and Pensions) Bill
Schedule 5 — Enterprise management incentives
Part 7 — Notification of option to Inland Revenue

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          (2)      A correction under this paragraph must be made by a notice given to the

employer company.

          (3)      No correction may be made under this paragraph more than 9 months after

the day on which the notice under paragraph 44 was given to the Inland

Revenue.

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          (4)      A correction under this paragraph is of no effect if the employer company,

within 3 months after the date of issue of the notice of correction, gives notice

to the Inland Revenue rejecting the correction.

Notice of enquiry

  46      (1)      This paragraph applies where notice of a share option is given under

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paragraph 44.

          (2)      The Inland Revenue may enquire into the option if they give notice to the

employer company of their intention to do so in accordance with this

paragraph.

          (3)      The Inland Revenue may enquire into whether the requirement of

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paragraph 26 (commitment of working time) is met in relation to the option

by the individual to whom it has been granted if they give that individual

notice of their intention to do so in accordance with this paragraph.

          (4)      The Inland Revenue must give a copy of a notice under sub-paragraph (3) to

the employer company.

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          (5)      Unless given by virtue of sub-paragraph (6), a notice of enquiry may not be

given more than 12 months after the end of the period of 92 days mentioned

in paragraph 44(1) (the period within which a notice under that paragraph

must be given).

          (6)      A notice of enquiry may be given at any time if the Inland Revenue discover

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that any of the information provided in or in connection with the notice

under paragraph 44 was false or misleading in a material respect.

          (7)      An option that has been the subject of one notice of enquiry under sub-

paragraph (2) or (3) may not be the subject of another notice under that sub-

paragraph, unless the notice is given by virtue of sub-paragraph (6).

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          (8)      In this paragraph a “notice of enquiry” means a notice given under sub-

paragraph (2) or (3).

Completion of enquiry: closure notices

  47      (1)      An enquiry under paragraph 46(2) is completed when the Inland Revenue

give the employer company a notice—

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              (a)             informing the company that they have completed their enquiry, and

              (b)             stating their decision as to whether the requirements of this Schedule

are met in relation to the option.

          (2)      If the Inland Revenue conclude that the requirements of this Schedule are

not so met, they must also give notice of that decision to the person to whom

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the option has been granted.

          (3)      An enquiry under paragraph 46(3) is completed when the Inland Revenue

give the individual concerned and the employer company a notice—

              (a)             informing the recipients that they have completed their enquiry, and

 

 

Income Tax (Earnings and Pensions) Bill
Schedule 5 — Enterprise management incentives
Part 7 — Notification of option to Inland Revenue

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              (b)             stating their decision as to whether the requirement of paragraph 26

(commitment of working time) is met by that individual in relation

to the option.

          (4)      References in the EMI code to a “closure notice” are to a notice under sub-

paragraph (1) or (3).

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          (5)      A closure notice takes effect when it is issued.

Completion of enquiry: application for closure notice to be given

  48      (1)      An application may be made under this paragraph for a direction requiring

the Inland Revenue to give a closure notice within a specified period.

          (2)      The application may be made—

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              (a)             by the employer company, or

              (b)             in a case within paragraph 46(3), by the individual concerned.

          (3)      The application must be made—

              (a)             to the General Commissioners, or

              (b)             if the applicant so elects (in accordance with section 46(1) of TMA

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1970), to the Special Commissioners.

          (4)      The Commissioners hearing the application must hear and determine it in

the same way as an appeal.

          (5)      Those Commissioners must give a direction unless they are satisfied that the

Inland Revenue have reasonable grounds for not giving a closure notice

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within a specified period.

Effect of enquiry

  49      (1)      If the Inland Revenue do not give a notice of enquiry, the requirements of

this Schedule are taken to be met in relation to the option.

          (2)      If the Inland Revenue do give a notice of enquiry, their decision stated in the

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closure notice is conclusive as to whether the requirements of this Schedule

are met in relation to the option.

          (3)      But this is subject—

              (a)             if their decision is that the requirements are not met, to the outcome

of any appeal against that decision under paragraph 50;

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              (b)             if their decision is that the requirements are met, to the outcome of

any subsequent enquiry under paragraph 46(6) (enquiry arising

from discovery of false or misleading information).

          (4)      This paragraph does not affect the provisions of sections 532 to 539 (which

relate to disqualifying events).

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Appeals

  50      (1)      The employer company may appeal against a decision of the Inland

Revenue—

              (a)             that notice of the grant of the option was not given in accordance

with paragraph 44, or

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              (b)             that the requirements of this Schedule are not met in relation to the

option.

 

 

Income Tax (Earnings and Pensions) Bill
Schedule 5 — Enterprise management incentives
Part 8 — Supplementary provisions

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          (2)      An individual may appeal against a decision of the Inland Revenue that the

individual does not meet the requirement of paragraph 26 (commitment of

working time).

          (3)      Notice of the appeal must be given to the Inland Revenue within 30 days

after the date when the closure notice is given to the appellant.

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          (4)      The appeal lies—

              (a)             to the General Commissioners, or

              (b)             if the employer company or individual so elects (in accordance with

section 46(1) of TMA 1970), to the Special Commissioners.

Part 8

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Supplementary provisions

Power to require information

  51      (1)      The Inland Revenue may by notice require a person to provide them with

information—

              (a)             which they reasonably require for the performance of their functions

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under the EMI code, and

              (b)             which the person to whom the notice is addressed has or can

reasonably obtain.

          (2)      The power conferred by this paragraph extends, in particular, to information

to enable the Inland Revenue—

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              (a)             to decide whether a share option is a qualifying option, or

              (b)             to determine the liability to tax, including capital gains tax, of any

person who has been granted a qualifying option.

          (3)      The notice must require the information to be provided within a specified

period, which must not end earlier than 3 months after the date when the

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notice is given.

Annual returns

  52      (1)      A company whose shares are subject to a qualifying option at any time

during a tax year must deliver a return to the Inland Revenue.

          (2)      The return must—

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              (a)             contain such information as the Inland Revenue may require, and

              (b)             be made before 7th July in the tax year following that to which it

relates.

Compliance with time limits

  53      (1)      For the purposes of this Part and Part 7 a person is not to be regarded as

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having failed to do anything required to be done within a particular period

of time if—

              (a)             the person had a reasonable excuse for not doing it within that

period, and

              (b)             if the excuse ceased to exist, the person did it without unreasonable

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delay after the excuse ceased to exist.

 

 

 
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