Corporation Tax Preliminary Citation, commencement and effect 1 1 These Regulations may be cited as the Real Estate Investment Trusts (Financial Statements of Group Real Estate Investment Trusts) Regulations 2006, and shall come into force on 1st January 2007. 2 These Regulations have effect in relation to accounting periods beginning on and after 1st January 2007. Interpretation 2 1 In these Regulations— a a reference to Part 4 is a reference to Part 4 of the Finance Act 2006, b a reference to a section (without more) is a reference to that section of the Finance Act 2006, c a reference to Schedule 17 is a reference to Schedule 17 to the Finance Act 2006, and d a reference to paragraph 31 (however expressed) is a reference to paragraph 31 of Schedule 17. 2 In these Regulations— “financing costs” has the meaning given by section 115(4); “G (property rental business)” has the meaning given by paragraph 2(b) of Schedule 17; “G (residual)” has the meaning given by paragraph 2(c) of Schedule 17; “the Joint Ventures Regulations ” means the Real Estate Investment Trusts (Joint Ventures) Regulations 2006 ; “open-ended investment company” has the meaning given by section 17(4)(e) of the Finance ( No. 2) Act 2005 ; “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 ; “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 member of the group, or 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. Financial statements for G (property rental business) in respect of its UK business Contents of the financial statement 12 1 In accordance with paragraph 31(4), a financial statement for G (property rental business) in respect of its UK business must specify profits calculated in accordance with section 120 in relation to each member of the group. 2 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) in respect of its UK business must exclude that percentage of income, expenses, gains, losses, assets and liabilities of the member. 3 The financial statement must also show the following amounts separately— a capital allowances, and b financing costs. Further provisions 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 . Paul Gray Mike Hanson Two of the Commissioners for Her Majesty’s Revenue and Customs 1st November 2006