(1)This section applies where—
(a)two companies (“A” and “B”) are members of a group of companies; and
(b)A disposes of an asset to a person who is not a member of the group (“C”).
(2)Subject to subsections (3) and (4) below, A and B may, by notice in writing to an officer of the Board, jointly elect that, for the purposes of corporation tax on chargeable gains—
(a)the asset, or any part of it, shall be deemed to have been transferred by A to B immediately before the disposal to C;
(b)section 171(1) shall be deemed to have applied to that transfer; F2...
(c)the disposal of the asset or part to C shall be deemed to have been made by B[F3; and
(d)any incidental costs to A of making the actual disposal to C shall be deemed to be incidental costs to B of making the deemed disposal to C].
(3)No election may be made under subsection (2) above unless section 171(1) would have applied to an actual transfer of the asset or part from A to B.
[F4(3ZA)In a case where B—
(a)is not resident in the United Kingdom, but
(b)is carrying on a trade in the United Kingdom through a permanent establishment there,
the asset or part deemed to be transferred to B by A is to be treated for the purposes of subsections (2)(c) and (3) above as having been acquired by B for use by or for the purposes of the permanent establishment; but that shall not be taken to affect the question whether or not the asset or part is situated in the United Kingdom at any time.]
[F5(3A)Section 440(3) of the Taxes Act does not cause subsection (3) above to prevent the making of an election in a case where B is an insurance company; and in such a case the asset or part deemed to be transferred to B by A, and by B to C, is to be treated for the purposes of subsections (2)(c) and (3) above as not being part of B’s long-term insurance fund.
“Insurance company” and “long-term insurance fund” have the same meaning as in Chapter 1 of Part 12 of the Taxes Act (see section 431(2) of that Act).]
(4)An election under [F6subsection (2) above] must be made [F7on or before] the second anniversary of the end of the accounting period of A in which the disposal to C was made.
(5)Any payment by A to B, or by B to A, in pursuance of an agreement between them in connection with the election—
(a)shall not be taken into account in computing profits or losses of either company for corporation tax purposes, and
(b)shall not for any purposes of the Corporation Tax Acts be regarded as a distribution F8... ,
provided it does not exceed the amount of the chargeable gain or allowable loss that is treated, as a result of the disposal, as accruing to B.]
Textual Amendments
F1S. 171A inserted (with effect in accordance with s. 101(2) of the amending Act) by Finance Act 2000 (c. 17), s. 101(1)
F2Word in s. 171A(2) omitted (11.5.2001) by virtue of Finance Act 2001 (c. 9), s. 77(2) (with Sch. 3)
F3S. 171A(2)(d) and preceding word added (11.5.2001) by Finance Act 2001 (c. 9), s. 77(2) (with Sch. 3)
F4S. 171A(3ZA) inserted (with effect in accordance with s. 36(3) of the amending Act) by Finance (No. 2) Act 2005 (c. 22), s. 36(2)
F5S. 171A(3A) inserted (with effect in accordance with Sch. 33 para. 17(4) of the amending Act) by Finance Act 2003 (c. 14), Sch. 33 para. 17(2)
F6Word in s. 171A(4) substituted (with effect in accordance with Sch. 33 para. 17(4) of the amending Act) by Finance Act 2003 (c. 14), Sch. 33 para. 17(3)
F7Words in s. 171A(4) substituted (11.5.2001) by Finance Act 2001 (c. 9), s. 77(3) (with Sch. 3)
F8Words in s. 171A(5)(b) repealed (with effect in accordance with Sch. 11 Pt. 2(7) Note of the amending Act) by Finance (No. 2) Act 2005 (c. 22), Sch. 11 Pt. 2(7)
Modifications etc. (not altering text)
C1Ss. 170-181 modified (5.10.2004) by Energy Act 2004 (c. 20), s. 198(2), Sch. 9 para. 35(a) (with s. 38(2)); S.I. 2004/2575, art. 2(1), Sch. 1
C2S. 171A modified (19.7.2006) by Finance Act 2006 (c. 25), s. 136(2)(a)