ER changes concerning JVs and partnerships

[Galaxian]

I have been reviewing the recent changes to definition of trading company for ER purposes in FA 2015.

I have a case of a client that owns 50% of a company that that holds 50% of a Joint Venture development company. There are no trading activities carried on in the TopCo.

Prior to 18 March TopCo was deemed to be carrying on trading activities - see s165A(7) TCGA 1992 (assume the 75% condition is met). From 18 March s165A(7) has been removed from the legislation therefore holding the shares in the JV company is no longer deemed to be a trading activity. However, there might be an argument that that the holding is de facto part of the trading activities of the company depending on the facts (I cannot see how this can apply in my case - I would be interested in any views on this)

If my client held the shares directly in the JV company he would hold (50% x50%) 25% and there would be no problem with ER- there are commercial reasons why he is owning 25% indirectly through his company. Why should he now denied ER where there is no mischief (the same can be said for corporate partners where any direct stake in a partnership can qualify or ER)?

I can understand why the rules have been tightened in ManCo situations (where say 5 senior mangers have set up their own company [owning 20% each] to acquire 10% of their employers company - clearly a direct stake of 2% would not be sufficient to qualify for ER.

Why not introduce a requirement that at least 5% must be held indirectly? I fear that this is not an oversight in view of the removal of the deeming provision for corporate partner as well.

Additionally, it appears t s165A(6)(b) TCGA 1992 has been left intact, which suggests that my client's company could be deemed to be trading whilst preparing to acquire a qualifying JV company, but not post acquisition! This leads to an absurdity.

It appears that the activities carried on by the JV company are now treated as non trading activities, so it would be forlorn in my case to introduce some trading activities into TopCo as it would be likely that the JV element would exceed 20%. Have I misinterpreted this? Is it merely sufficient that TopCo is carrying on a trade in its own right or does this have to constitute at least 80% of the company's activities?