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"the Joint Ventures Regulations" means the Real Estate Investment Trusts (Joint Ventures) Regulations 2006[2];

"open-ended investment company" has the meaning given by section 17(4)(e) of the Finance (No. 2) Act 2005[3];

"the principal company" is to be construed in accordance with section 134(2);

"significant influence" is to be construed in accordance with regulation 3(1);

"UK business" is to be construed in accordance with paragraph 3(3) of Schedule 17.

    (3) In these Regulations—

"for accounting purposes" means for the purposes of accounts drawn up in accordance with generally accepted accounting practice;

"fair value accounting" means a basis of accounting under which assets or liabilities are shown in the company's balance sheet at their fair value;

"generally accepted accounting practice" has the meaning given by section 50 of the Finance Act 2004[4];

"joint venture" and "venturer" have the same meaning as for accounting purposes.

Significant influence and profits available for distribution to equity holders
     3. —(1) For the purposes of these Regulations a member of a group has significant influence over another entity if—

(a) the member holds a percentage of the beneficial interest in the other entity, and

(b) the members of the group hold more than 20% of the beneficial interest in that other entity.

    (2) For the purposes of these Regulations percentages of beneficial interest in an entity must be determined by reference to entitlement to profits available for distribution to equity holders.

    (3) Profits available for distribution to equity holders do not include any profits or assets available to equity holders otherwise than as equity holders.

    (4) For the purpose of determining profits available for distribution to equity holders in relation to an entity other than a company these Regulations have effect as if—

(a) the entity were a company resident in the United Kingdom, and

(b) the rights of persons in the entity were shares in the company.

General

Scope of these Regulations
     4. —(1) These Regulations apply in respect of a group to which Part 4 applies in relation to an accounting period of the principal company.

    (2) In accordance with Schedule 17 the principal company must prepare—

(a) a financial statement for G (property rental business) for the accounting period (see paragraph 31(2)(a)),

(b) a financial statement for G (residual) for the accounting period (see paragraph 31(2)(c)), and

(c) a financial statement for G (property rental business) in respect of its UK business (see paragraph 31(2)(b)).

    (3) In these Regulations—

(a) regulations 5 to 11 make further provision relating to the content of—


(i) a financial statement for G (property rental business) for an accounting period, and

(ii) a financial statement for G (residual) for an accounting period;



(b) regulation 12 makes further provision relating to the content of a financial statement for G (property rental business) in respect of its UK business; and

(c) regulation 13 contains further provisions.



Financial statements for G (property rental business) and G (residual)

General
     5. —(1) In accordance with paragraph 31(3), a financial statement for G (property rental business) for an accounting period and a financial statement for G (residual) for an accounting period must specify—

(a) income (in the manner specified in paragraph 31(3)(a)),

(b) expenses (in the manner specified in paragraph 31(3)(b)),

(c) profits before tax (in the manner specified in paragraph 31(3)(c)), and

(d) assets valued (in the manner specified in paragraph 31(3)(d)).

    (2) The financial statement for G (property rental business) for an accounting period and the financial statement for G (residual) for an accounting period must exclude the following items—

(a) transactions between one member of the group and another member of the group;

(b) income and expenses payable between one member of the group and another member of the group;

(c) the value of holdings of one member of the group in another member of the group; and

(d) any balances held by one member of the group that relate to another member of the group.

    (3) In accordance with paragraph 31(5), where a non-member of the group holds a percentage of the beneficial interest in a member (other than the principal company), the financial statement for G (property rental business) for an accounting period and the financial statement for G (residual) for an accounting period must exclude that percentage of income, expenses, gains, losses, assets and liabilities of the member.

    (4) A reconciliation must be provided between—

(a) the financial statement for G (property rental business) for an accounting period and the financial statement for G (residual) for that accounting period, and

(b) the audited financial statements of the group for that accounting period (whether in the form of consolidated statements or of statements of individual members of the group).

    (5) The expenses must show the following amounts separately—

(a) financing costs, and

(b) all other expenses.

    (6) Financing costs—

(a) in the case of the financial statement for G (property rental business) for an accounting period, must include Financing Costs (external) (see regulation 6), and

(b) in the case of the financial statement for G (residual) for an accounting period, must include financing costs payable by a member of the group in respect of financing used in the business of G (residual).

Financing Costs (external)
     6. —(1) In the case of the financial statement for G (property rental business) for an accounting period, the amount of Financing Costs (external) is determined as follows—

Step 1

Determine the amount of the financing costs incurred in respect of the property rental business of G (property rental business) owed by group entities to non-group entities (the "outside financing costs").

Step 2

Determine the percentages of the outside financing costs incurred in respect of—

(a) the UK business of G (property rental business), and

(b) other matters.

The amount of Financing Costs (external) is the percentage of the outside financing costs incurred in respect of the UK business of G (property rental business).

    (2) If the outside financing costs are owed by a group entity (other than the principal company) and a non-group entity holds a percentage of the beneficial interest in that group entity, the outside financing costs must exclude that percentage of those costs.

    (3) For the purposes of paragraph (2), percentages of beneficial interest must be determined by reference to beneficial entitlement to profits available for distribution to equity holders.

    (4) In this regulation—

"group entity" means—

(a) a member of the group, or

(b) an entity which, under these Regulations, is treated as a member of the group for accounting purposes and for the purposes of the financial statements specified in regulation 4(2) (see regulations 9 to 11); and

"non-group entity" means an entity which is not a group entity.

Treatment of certain exceptional items
     7. —(1) This regulation applies to items which—

(a) arise from events or transactions that are outside the ordinary transactions of the group, and

(b) are not expected to recur regularly and frequently.

    (2) The financial statement for G (property rental business) for an accounting period and the financial statement for G (residual) for an accounting period must show the items to which this regulation applies.

    (3) For the purposes of paragraph 7 of Schedule 17 (which modifies section 108 (conditions for balance of business)), the items to which this regulation applies are excluded from—

(a) the amount of the income, expenses and profits accruing from any business, and

(b) the amount of the assets involved in any business.

Beneficial interests in entities other than group companies
     8. —(1) This regulation applies if—

(a) a member of a group holds a percentage of the beneficial interest in another entity, and

(b) that other entity is not a member of the group.

    (2) The member of the group must account for income received from that other entity—

(a) on the basis that the beneficial interest is held as an investment, and

(b) in accordance with generally accepted accounting practice.

    (3) The financial statement for G (residual) must—

(a) show the beneficial interest in that other entity as an asset of the member of the group, and

(b) account for that beneficial interest in accordance with fair value accounting.

    (4) The general rules in paragraphs (2) and (3) are subject to further provisions relating to—

(a) a joint venture (see regulation 9),

(b) an open-ended investment company (see regulation 10), and

(c) certain other non-corporate entities (see regulation 11).

Joint ventures
     9. —(1) This regulation applies if—

(a) a member of a group is a venturer in a joint venture,

(b) the joint venture is a company, and

(c) notice has been given in accordance with the Joint Ventures Regulations for those Regulations to apply to the joint venture.

    (2) For the purposes of the financial statements specified in regulation 4(2), the joint venture must be treated, for accounting purposes, as a member of the group.

Open-ended investment companies
     10. —(1) This regulation applies if a member of a group has significant influence over an open-ended investment company.

    (2) For the purposes of the financial statements specified in regulation 4(2), the open-ended investment company must be treated, for accounting purposes, as a member of the group.

Other non-corporate entities
     11. —(1) This regulation applies if a member of a group has significant influence over a non-corporate entity.

    (2) For the purposes of the financial statements specified in regulation 4(2), that other entity must be treated, for accounting purposes, as a member of the group.

Time by which financial statements must be supplied
     13. —(1) The financial statements specified in regulation 4(2) must be supplied with the company tax return for the relevant accounting period.

    (2) Accordingly, the filing date for those financial statements must be determined in accordance with paragraph 14 of Schedule 18 to the Finance Act 1998[5].


Paul Gray

Mike Hanson
Two of the Commissioners for Her Majesty's Revenue and Customs

1st November 2006

[2] S.I. 2006/2866.back

[3] 2005 c. 32.back

[4] 2004 c. 12; section 50 was amended by paragraphs 49 and 50 of Schedule 4 to the Finance Act 2005 (c. 7).back

[5] 1998 c. 36; sub-paragraph (2) of paragraph 14 was amended by Part 3(16) of Schedule 40 to the Finance Act 2002 (c. 23).back

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