BPR 242: Venture Capital Company Investment in Qualifying Companies

This ruling determines –
- Whether or not the investee is a “controlled group company” and that the shares purchased by the Applicant and Co-Investor is “equity shares”; and
- The meaning of “hotel keeper” and the allowances that a hotel keeper may claim.
The Applicant and Co-Investor intends to invest in qualifying companies that will carry on the business of hotel keepers. They will each appoint a company (manager) to operate and manage their respective hotels. The manager will guarantee certain profit targets per annum.
The Applicant intends to exit this investment on or before the 5^th year of the investment. The Co-Applicants will sell their respective hotels and distribute the proceeds to their shareholders.
The ruling held that each share of the Co-Applicants will constitute an “equity share” and therefore a “qualifying share” and that neither of the Co-Applicants will constitute a “controlled group company” for so long as they do not hold more than 70% of the total equity shares, irrespective of the fact that the Applicant may invest more than 70% of the aggregate share capital in each of the Co-Applicants in monetary terms.
The Applicant and Co-Investor can then get a deduction for the funds invested in the Co-Applicants in terms of the venture capital company regime.