ExpertHard2 marksMultiple Choice
ACCA · Question 14 · Corporation tax liabilities
Section A
Alpha Ltd owns 80% of Beta Ltd. Beta Ltd owns 80% of Gamma Ltd. All companies are UK resident.
Do Alpha Ltd and Gamma Ltd form a Capital Gains Group?
Section A
Alpha Ltd owns 80% of Beta Ltd. Beta Ltd owns 80% of Gamma Ltd. All companies are UK resident.
Do Alpha Ltd and Gamma Ltd form a Capital Gains Group?
Answer options:
A.
Yes, because there is a direct 80% holding at each level.
B.
Yes, because Beta Ltd is a 75% subsidiary of Alpha Ltd, Gamma Ltd is a 75% subsidiary of Beta Ltd, and Alpha Ltd has an effective interest of more than 50% in Gamma Ltd.
C.
No, because Alpha Ltd's effective interest in Gamma Ltd is less than 75%.
D.
No, because capital gains groups only apply to 100% subsidiaries.
How to approach this question
Apply the two tests for a capital gains group: 1) Is there a 75% direct holding at each level? (Yes, 80% > 75%). 2) Is the principal company's effective interest > 50%? (80% x 80% = 64% > 50%).
Full Answer
B.Yes, because Beta Ltd is a 75% subsidiary of Alpha Ltd, Gamma Ltd is a 75% subsidiary of Beta Ltd, and Alpha Ltd has an effective interest of more than 50% in Gamma Ltd.✓ Correct
To form a Capital Gains Group, two conditions must be met: 1) Each subsidiary must be a 75% direct subsidiary of another company in the group. (Beta is 80% of Alpha; Gamma is 80% of Beta. Both meet the 75% test). 2) The principal company (Alpha) must have an effective interest of more than 50% in the subsidiary. Alpha's effective interest in Gamma is 80% x 80% = 64%. Since 64% is greater than 50%, Gamma is in the capital gains group.
Common mistakes
Assuming the effective interest must also be 75%.
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