Corporation Tax Act 2009

Chapter 13 U.K. European cross-border transfers of business

Modifications etc. (not altering text)

C1 Pt. 5 applied (with modifications) (with effect in accordance with s. 1184(1) of the amending Act) by Corporation Tax Act 2010 (c. 4), ss. 990(5), 1184(1) (with Sch. 2)

Introduction U.K.

421 Introduction to Chapter U.K.

(1) This Chapter applies if—

(a) condition A or B is met, and

(b) each of the companies mentioned in subsection (3)(a) or (4)(a) makes a claim under this section,

but see section 426 (tax avoidance etc) and section 429 (disapplication of Chapter where transparent entities involved).

(2) Sections 424 and 425 (reorganisations involving loan relationships) also apply if, in addition to the conditions in section 424(1)(a) and (b), condition C is met in relation to the transfer in the course of which the reorganisation in question occurs.

(3) Condition A is that—

(a) a company resident in one member State transfers to a company resident in another member State the whole or part of a business carried on in the United Kingdom,

(b) the transfer is wholly in exchange for shares or debentures issued by the transferee to the transferor, and

(c) immediately after the transfer the transferee is within the charge to corporation tax.

(4) Condition B is that—

(a) a company transfers part of its business to one or more companies,

(b) the transferor is resident in one member State,

(c) the part of the transferor's business which is transferred is carried on by the transferor in the United Kingdom,

(d) at least one transferee is resident in a member State other than that in which the transferor is resident (and each transferee is resident in a member State, but not necessarily the same one),

(e) the transferor continues to carry on a business after the transfer,

(f) immediately after the transfer each transferee is within the charge to corporation tax, and

(g) the transfer—

(i) is made in exchange for the issue of shares in or debentures of each transferee to each person holding shares in or debentures of the transferor, or

(ii) is not so made only because, and only so far as, a transferee is prevented from so issuing such shares or debentures by section 658 of the Companies Act 2006 (c. 46) (general rule against limited company acquiring own shares) or by a corresponding provision of the law of another member State preventing such an issue.

(5) Condition C is that—

(a) a UK resident company transfers part of its business to one or more companies,

(b) the part of the transferor's business which is transferred to the transferees was carried on immediately before the transfer in a member State other than the United Kingdom through a permanent establishment, and

(c) the conditions in subsection (4)(d), (e) and (g) are met.

(6) In this Chapter—

• “the transfer of business” means the transfer of business mentioned in subsection (3)(a), (4)(a) or (5)(a),

• “transferee” has the same meaning as in subsection (3), (4) or (5), and

• “the transferor” has the same meaning as in subsection (3), (4) or (5).

(7) For the meaning of “company” and “resident in a member State”, see section 430.

Transfers of loan relationships at notional carrying value U.K.

422 Transfer of loan relationship at notional carrying value U.K.

(1) This section applies if in the course of the transfer of business the transferor transfers an asset or liability representing a loan relationship to a transferee.

(2) For the purpose of determining the credits and debits to be brought into account in respect of the loan relationship for the purposes of this Part, the transferor and the transferee are treated as having entered into the transfer of that asset or liability for consideration of an amount equal to the notional carrying value of the asset or liability.

(3) For the purposes of this section—

F1 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(b) “notional carrying value”, in relation to an asset or liability, means the amount which would have been [F2 its tax-adjusted carrying value based on] the accounts of the transferor if a period of account had ended immediately before the date when the transferor ceased to be a party to the loan relationship.

(4) This section is subject to section 423 (transferor using fair value accounting).

Textual Amendments

F1 S. 422(3)(a) omitted (with effect in accordance with Sch. 7 Pt. 6 of the amending Act) by virtue of Finance (No. 2) Act 2015 (c. 33), Sch. 7 para. 41(a)

F2 Words in s. 422(3)(b) substituted (with effect in accordance with Sch. 7 Pt. 6 of the amending Act) by Finance (No. 2) Act 2015 (c. 33), Sch. 7 para. 41(b)

423 Transferor using fair value accounting U.K.

(1) This section applies instead of section 422 if, in a case where that section would otherwise apply, the transferor is regarded for the purposes of this section as using fair value accounting in respect of the loan relationship (see subsection (4)).

(2) The amount which is to be brought into account by the transferor in respect of the transfer of the asset or liability mentioned in section 422(1) (“the transferor's amount”) is—

(a) if an asset is to be brought into account, its fair value as at the date when the transferee becomes a party to the loan relationship, or the fair value of the rights under or interest in it as at that date, and

(b) if a liability is to be brought into account, its fair value as at that date.

(3) For any accounting period in which the transferee is a party to the loan relationship, for the purpose of determining the credits and debits to be brought into account in respect of it for the purposes of this Part, the transferee is treated as if it had acquired the asset or liability representing the relationship for consideration of an amount equal to the transferor's amount.

(4) The transferor is regarded for the purposes of this section as using fair value accounting in respect of the loan relationship only if the credits and debits to be brought into account for the purposes of this Part as respects the relationship are determined on that basis.

(5) It does not matter for the purposes of subsection (4) if the transferor does not otherwise use fair value accounting in respect of the loan relationship.

424 Reorganisations involving loan relationships U.K.

(1) This section applies if—

(a) sections 127 to 130 of TCGA 1992 (reorganisations: equation of original shares and new holding)—

(i) apply in relation to a reorganisation, or

(ii) would so apply but for section 116(5) of that Act (which disapplies those sections where the original shares or the new holding consists of or includes a qualifying corporate bond),

(b) the original shares consist of or include an asset representing a loan relationship, and

(c) either—

(i) section 422 or 423 applies as a result of condition B in section 421 being met in relation to the transfer in the course of which the reorganisation occurs, or

(ii) condition C in section 421 is met in relation to that transfer.

(2) For the purposes of this Part such debits and credits are to be brought into account as would be brought into account if the reorganisation were a disposal of the asset representing the loan relationship for consideration of an amount equal to its notional carrying value.

(3) For the purposes of this section, the notional carrying value of that asset is the amount which would have been [F3 its tax-adjusted carrying value based on] the accounts of the original holder if a period of account had ended immediately before the date when the reorganisation occurred.

(4) In this section—

• F4 ...

• “original holder” means a person holding the original shares immediately before the reorganisation,

• “original shares” has the meaning given by section 126(1) of TCGA 1992 (application of sections 126 to 131 of that Act), and

• “reorganisation” includes anything to which sections 127 to 130 of that Act apply as if it were a reorganisation.

(5) This section is subject to—

(a) section 425 (original holder using fair value accounting), and

(b) section 429 (disapplication of Chapter where transparent entities involved).

Textual Amendments

F3 Words in s. 424(3) substituted (with effect in accordance with Sch. 7 Pt. 6 of the amending Act) by Finance (No. 2) Act 2015 (c. 33), Sch. 7 para. 42(2)

F4 Words in s. 424(4) omitted (with effect in accordance with Sch. 7 Pt. 6 of the amending Act) by virtue of Finance (No. 2) Act 2015 (c. 33), Sch. 7 para. 42(3)

425 Original holder using fair value accounting U.K.

(1) This section applies instead of section 424 if, in a case where that section would otherwise apply, the original holder is regarded for the purposes of this section as using fair value accounting in respect of the loan relationship constituting or included in the original shares.

(2) The amount which is to be brought into account by the original holder in respect of the reorganisation (“the disposal amount”) is the fair value of the asset representing the loan relationship as at the date when the reorganisation occurred, or of the rights under or interest in that relationship as at that date.

(3) For any accounting period in which a successor creditor company is a party to the loan relationship, for the purpose of determining the credits and debits to be brought into account in respect of the relationship for the purposes of this Part, the successor creditor company is treated as if it had acquired the asset representing the loan relationship for consideration of an amount equal to the disposal amount.

(4) Subsections (4) and (5) of section 423 apply for the purposes of this section as they apply for the purposes of that section, but taking the references in that section to the transferor as references to the original holder.

(5) In this section—

• “successor creditor company” means a company in relation to which the loan relationship constituting or included in the original shares is a creditor relationship immediately after the reorganisation, and

• “original holder” and “original shares” have the same meaning as in section 424.

(6) This section is subject to section 429 (disapplication of Chapter where transparent entities involved).

Exception for tax avoidance cases U.K.

426 Tax avoidance etc U.K.

(1) This Chapter does not apply in relation to the transfer of business if—

(a) the transfer of business is not effected for genuine commercial reasons, or

(b) the transfer of business forms part of a scheme or arrangements of which the main purpose, or one of the main purposes, is avoiding liability to corporation tax, capital gains tax or income tax.

(2) But subsection (1) does not prevent this Chapter from applying if before the transfer of business—

(a) the companies mentioned in section 421(3)(a), (4)(a) or (5)(a) have applied to the Commissioners for Her Majesty's Revenue and Customs, and

(b) the Commissioners have notified them that they are satisfied that subsection will not have that effect.

427 Procedure on application for clearance U.K.

(1) This section applies in relation to an application under section 426(2).

(2) The application must be in writing and must contain particulars of the operations which are to be effected.

(3) The Commissioners for Her Majesty's Revenue and Customs may by notice require the applicant to provide further particulars for the purpose of enabling them to make their decision.

(4) Such a notice may only be given within 30 days of the receipt of the application or of any further particulars previously required under subsection (3).

(5) If such a notice is not complied with within 30 days or such longer period as the Commissioners for Her Majesty's Revenue and Customs may allow, they need not proceed further on the application.

Modifications etc. (not altering text)

C2 S. 427 applied (with modifications) (with effect in accordance with s. 381(1) of the amending Act) by Taxation (International and Other Provisions) Act 2010 (c. 8), ss. 117(6), 119(5), 381(1) (with Sch. 9 paras. 1-9, 22)

428 Decision on application for clearance U.K.

(1) The Commissioners for Her Majesty's Revenue and Customs must notify their decision on an application under section 426(2) to the applicant—

(a) within 30 days of receiving the application, or

(b) if they give a notice under section 427(3), within 30 days of the notice being complied with.

(2) If the Commissioners for Her Majesty's Revenue and Customs—

(a) notify the applicant that they are not satisfied as mentioned in section 426(2)(b), or

(b) do not notify their decision to the applicant within the time required by subsection (1),

the applicant may within 30 days of the notification or of that time require them to transmit the application to the tribunal, together with any notice given and further particulars provided under section 427(3).

(3) In that case any notification by the tribunal has effect for the purposes of section 426(2)(b) as if it were a notification by the Commissioners for Her Majesty's Revenue and Customs.

(4) If any particulars provided under section 427 do not fully and accurately disclose all facts and considerations material for the decision—

(a) of the Commissioners for Her Majesty's Revenue and Customs, or

(b) of the tribunal,

any resulting notification by the Commissioners for Her Majesty's Revenue and Customs or the tribunal is void.

Modifications etc. (not altering text)

C3 S. 428 applied (with modifications) (with effect in accordance with s. 381(1) of the amending Act) by Taxation (International and Other Provisions) Act 2010 (c. 8), ss. 117(6), 119(5), 381(1) (with Sch. 9 paras. 1-9, 22)

Transparent entities U.K.

429 Disapplication of Chapter where transparent entities involved U.K.

(1) This Chapter does not apply in relation to the transfer of business if the transferor is a transparent entity.

(2) If any transferee is a transparent entity, sections 424 and 425 (reorganisations involving loan relationships) do not apply.

(3) In this section “transparent entity” means a company which is resident in a member State other than the United Kingdom and does not have an ordinary share capital.

(4) For the meaning of “resident in a member State”, see section 430.

Interpretation U.K.

430 Interpretation U.K.

(1) In this Chapter “company” means any entity listed as a company in [F5 Part A of Annex I] to the Mergers Directive.

(2) For the purposes of this Chapter, a company is resident in a member State if—

(a) it is within a charge to tax under the law of the State as being resident for that purpose, and

(b) it is not regarded, for the purpose of any double taxation relief arrangements to which the State is a party, as resident in a territory not within a member State.

Textual Amendments

F5 Words in s. 430(1) substituted (1.7.2011) by The Corporation Tax (Implementation of the Mergers Directive) Regulations 2011 (S.I. 2011/1431), regs. 1(2), 4(2)