Chapter 9: Application of this Part to groups of companies
Clause 774: Overview of Chapter
2072. This Chapter sets out the special rules that apply to companies that are grouped under the rules in Chapter 8 of this Part and this clause introduces them. It is new.
Clause 775: Transfers within a group
2073. This clause allows the transfer of intangible fixed assets on a tax-neutral basis between group members. It is based on paragraph 55 of Schedule 29 to FA 2002.
2074. Without this rule, intra-group transfers, being transactions between related parties, would be regarded as taking place at market value (under clause 845) and would trigger the normal realisation rules.
Clause 776: Meaning of tax-neutral transfer
2075. This clause defines a key term. It is based on paragraph 140 of Schedule 29 to FA 2002.
2076. Here and elsewhere in this Part the provisions refer to transfers that are tax-neutral rather than, as in the source legislation, transfers that are treated as tax-neutral. Since tax-neutral is a defined term, the abstractness of the source is not necessary.
Clause 777: Relief on realisation and reinvestment: application to group member
2077. This clause allows, subject to certain conditions, group members to be treated as the same company for reinvestment relief purposes. It is based on paragraph 56 of Schedule 29 to FA 2002.
2078. Subsection (3)(e) aligns the reference in this clause to a dual resident investing company with other such references in the source legislation (reproduced in this Part) by introducing a signpost to the provision defining that term.
Clause 778: Relief on reinvestment: acquisition of group company: introduction
2079. This clause, along with clause 779, extends reinvestment relief to reinvestment in shares in a company which owns assets within the intangible fixed assets regime. It is based on paragraph 57 of Schedule 29 to FA 2002.
Clause 779: Rules that apply to cases within section 778
2080. This clause is supplementary to the previous clause and provides reinvestment relief for reinvestment in shares in a company which owns assets within the intangible fixed assets regime. It is based on paragraph 57 of Schedule 29 to FA 2002.
Clause 780: Deemed realisation and reacquisition at market value
2081. This clause provides for a deemed realisation and reacquisition of an asset in certain cases where a company leaves a group following an earlier transfer to it of intangible fixed assets on a tax-neutral basis. It is based on paragraph 58 of Schedule 29 to FA 2002.
2082. It is the first of several clauses dealing with degrouping transactions which amount to disposals of the underlying intangible fixed asset by means of a disposal of the shares in the company to which it belongs. They are needed to ensure that such an indirect disposal of intangible fixed assets does not provide a tax advantage over a direct disposal.
2083. The broad effect of these provisions is to recognise a gain or loss deferred on an earlier tax-neutral disposal if the asset in question leaves the group otherwise than by a direct disposal of the asset. The rules achieve this by creating a deemed realisation and reacquisition of the asset by the company at market value immediately after the time it acquired the asset from another group company.
2084. Subsection (5)(d) gives a signpost to an exception to this rule where degrouping is part of a commercially motivated merger the purpose of which is not tax avoidance. Consistent with the approach elsewhere, bona fide in the source legislation is rewritten as genuine.
Clause 781: Character of credits and debits brought into account as a result of section 780
2085. This clause supplements the previous clause to determine how credits and debits are brought into account. It is based on paragraph 58 of Schedule 29 to FA 2002.
Clause 782: Certain transferees of businesses etc not treated as leaving group
2086. This clause disapplies clause 780 in the case of certain European cross-border transfers of business. It is based on paragraph 58 of Schedule 29 to FA 2002.
Clause 783: Associated companies leaving group at the same time
2087. This clause modifies the effect of clause 780 so that, when more than one company degroups at the same time, a degrouping charge arises only in circumstances that amount to a subsequent effective disposal of the intangible fixed asset. It is based on paragraph 59 of Schedule 29 to FA 2002.
2088. Subsection (4) is new and gives a signpost to an exception to this rule where degrouping is part of a commercially motivated merger the purpose of which is not tax avoidance. That exception may be relevant because clause 780 is subject to that exception and clause 783 merely modifies the effect of clause 780.
Clause 784: Groups with a relevant connection
2089. This clause defines the link between groups that must exist if the previous clause is to apply. It is based on paragraph 59 of Schedule 29 to FA 2002.
Clause 785: Principal company becoming member of another group
2090. This clause modifies the effect of clause 780 in cases where degrouping occurs only because the principal company becomes a member of another group: a degrouping charge then arises only in circumstances which amount to a subsequent effective disposal of the intangible fixed asset within six years. It is based on paragraph 60 of Schedule 29 to FA 2002.
Clause 786: Character of credits and debits brought into account as a result of section 785
2091. This clause supplements the previous clause to determine how credits and debits are brought into account. It is based on paragraph 60 of Schedule 29 to FA 2002.
Clause 787: Company ceasing to be member of group because of exempt distribution
2092. This clause disapplies the degrouping rules in clauses 780 and 785 for certain demergers unless there is a chargeable payment to members within five years of the related exempt distribution. It is based on paragraph 61 of Schedule 29 to FA 2002.
2093. Subsection (5) gives a signpost to the meaning of terms that are part of the general demergers tax rules.
Clause 788: Provisions supplementing sections 780 to 787
2094. This clause gives interpretative rules for the degrouping provisions. It is based on paragraphs 63 and 64 of Schedule 29 to FA 2002.
Clause 789: Merger carried out for genuine commercial reasons
2095. This clause disapplies the degrouping rules in clauses 780 to 787 in the case of company mergers where exploitation of the group rules is not the object. It is based on paragraph 62 of Schedule 29 to FA 2002.
2096. The definition of merger in paragraph 62 of Schedule 29 to FA 2002 is restructured to make it clearer. This involves relocating some of the detail of the definition in a separate clause (clause 790).
Clause 790: Provisions supplementing section 789
2097. This clause gives interpretative provisions to identify a merger for the purposes of the preceding clause. It is based on paragraph 62 of Schedule 29 to FA 2002.
Clause 791: Application of roll-over relief in relation to degrouping charge
2098. This clause allows reinvestment relief in cases where a company is treated as realising an intangible fixed asset under the degrouping rules. It is based on paragraph 65 of Schedule 29 to FA 2002.
2099. This is one of the two exceptions to the general rule in clause 763 that deemed realisations do not count for the purposes of the reinvestment rules. The other is dealt with in clause 794.
Clause 792: Reallocation of charge within group
2100. This clause provides, subject to certain conditions, for the transfer of a degrouping charge from the company leaving the group to another company in the group it is leaving. It is based on paragraph 66 of Schedule 29 to FA 2002.
2101. This transfer of charge may allow, for example, the charge to be sheltered by reliefs available elsewhere in the main group.
Clause 793: Further requirements about elections under section 792
2102. This clause sets out the conditions for, and the form of, the election required for the reallocation provided for in the previous clause. It is based on paragraph 66 of Schedule 29 to FA 2002.
Clause 794: Application of roll-over relief in relation to reallocated charge
2103. This clause allows reinvestment relief for the company to which a degrouping charge is transferred under clause 792. It is based on paragraph 67 of Schedule 29 to FA 2002.
2104. This is the second of the two exceptions to the general rule in clause 763 that deemed realisations do not count for the purposes of the reinvestment rules. The other is dealt with in clause 791.
Clause 795: Recovery of charge from another group company or controlling director
2105. This clause gives alternative rights of recovery if any corporation tax arising from a degrouping charge is not paid within six months of it falling due. It is based on paragraph 68 of Schedule 29 to FA 2002.
Clause 796: Interpretation of section 795
2106. This clause gives interpretative rules for the previous clause. It is based on paragraph 68 of Schedule 29 to FA 2002.
Clause 797: Recovery under section 795: procedure etc
2107. This clause sets out the procedural aspects of the recovery provision in clause 795. It is based on paragraph 69 of Schedule 29 to FA 2002.
Clause 798: Recovery under section 795: time limit
2108. This clause sets a three year time limit for the service of a recovery notice under clause 795. It is based on paragraph 70 of Schedule 29 to FA 2002.
2109. Subsections (3) to (6) determine the start date of the three year period depending on the origins of the original charge.
Clause 799: Disregard of payments between group members for reliefs
2110. This clause ensures that a payment by one group company to another for the transfer of relief is left out of account provided it does not exceed the amount of the relief. It is based on paragraph 71 of Schedule 29 to FA 2002.
Chapter 10: Excluded assets
Clause 800: Introduction
2111. Not all assets that might fall within the definition of intangible fixed asset are intended to come within the rules in this Part. This clause introduces the rules on assets that are excluded. It is new.
Clause 801: Right to dispose of or acquire excluded asset also excluded
2112. This clause gives an important general extension to the exclusion rules in this Chapter: if an asset is excluded by those rules, so is an option or other right to acquire or dispose of that asset. It is based on paragraph 72 of Schedule 29 to FA 2002.
2113. There is a counterpart, obverse rule in clause 713(2).
Clause 802: Effect of partial exclusion
2114. This clause addresses the case where an asset falls partly within and partly outside the intangible fixed asset rules. It is based on paragraph 72 of Schedule 29 to FA 2002.
Clause 803: Non-commercial purposes etc
2115. This clause is an exclusion rule of general application which can exclude any asset by reference to the purpose for which it is held. It is based on paragraph 77 of Schedule 29 to FA 2002.
2116. This clause is necessary because the intangible fixed assets regime is largely autonomous and does not contain general calculation rules that apply elsewhere for corporation tax such as the prohibition of a deduction for expenses not incurred wholly and exclusively for the purposes of a trade. Without this rule there would be no test of purpose or commerciality for non-trading gains and losses.
Clause 804: Assets for which capital allowances previously made
2117. This clause excludes entirely assets in respect of which capital allowances have previously been made. It is based on paragraph 73A of Schedule 29 to FA 2002.
Clause 805: Rights over tangible assets
2118. This clause excludes rights over tangible assets. It is based on paragraph 73 of Schedule 29 to FA 2002.
Clause 806: Financial assets
2119. This clause excludes financial assets. It is based on paragraph 75 of Schedule 29 to FA 2002.
2120. Subsection (3) lists the main financial assets but is not intended to be exhaustive.
Clause 807: Rights in companies, trusts etc
2121. This clause excludes shares and other rights in companies, rights under a trust and the interest of a partner in a partnership. It is based on paragraph 76 of Schedule 29 to FA 2002.
2122. Subsections (2) and (3) provide for exceptions that follow the accounting treatment. They are exceptions to an exclusion, so the assets they refer to come within the intangible fixed assets regime.
Clause 808: Assets representing production expenditure on films
2123. This clause excludes certain expenditure on films. It is based on paragraph 80A of Schedule 29 to FA 2002.
Clause 809: Oil licences
2124. This clause excludes oil licenses. It is based on paragraph 74 of Schedule 29 to FA 2002.
2125. Oil licences are potentially only transitory intangible assets in that they may subsequently be charged to a tangible asset account representing successful exploration costs. They are outside the accountancy definition of goodwill and intangible assets and are subject to their own industry reporting standard.
Clause 810: Mutual trade or business
2126. This clause excludes, except as respects royalties, intangible fixed assets to the extent they are held for the purposes of a mutual trade or business. It is based on paragraph 79 of Schedule 29 to FA 2002.
2127. Subsection (2) is new. It gives a signpost to an exception relevant to certain insurance companies.
Clause 811: Sound recordings
2128. This clause excludes, except as regards royalties, intangible fixed assets to the extent they represent certain expenditure on sound recordings. It is based on paragraph 80B of Schedule 29 to FA 2002.
Clause 812: Master versions of films
2129. This clause excludes certain recent film expenditure from the intangible fixed assets regime. It is based on paragraph 80A of Schedule 29 to FA 2002.
Clause 813: Computer software treated as part of cost of related hardware
2130. This clause excludes, except as regards royalties, intangible fixed assets to the extent they represent expenditure on certain computer software. It is based on paragraph 81 of Schedule 29 to FA 2002.
2131. Software acquired with the related hardware is not treated as an intangible asset under accountancy rules, so it is excluded from the intangible fixed assets regime.
Clause 814: Research and development
2132. This clause limits the application of the rules in this Part to the extent specified where intangible fixed assets represent expenditure on research and development. It is based on paragraph 82 of Schedule 29 to FA 2002.
Clause 815: Election to exclude capital expenditure on software
2133. This clause, if the company so elects, limits the application of the rules in this Part to the extent specified where intangible fixed assets represent capital expenditure on computer software. It is based on paragraph 83 of Schedule 29 to FA 2002.
2134. This clause sets out the substantive rule and its tax effects. This rule reflects the existence of capital allowances rules that would normally offer a company more beneficial relief. The election switches off the intangible fixed assets rules in this Part that would otherwise override those capital allowances rules.
2135. Subsection (8) is new. It gives a signpost to the extension of the right to make an election under this clause to some insurance companies.
Clause 816: Further provision about elections under section 815
2136. This clause gives procedural rules in respect of the election under the preceding clause. It is based on paragraph 83 of Schedule 29 to FA 2002.
Chapter 11: Transfer of business or trade
Clause 817: Overview of Chapter
2137. This clause introduces the rules that allow transfers of intangible fixed assets to be made on a tax-neutral or other tax advantageous basis when they are made as part of certain transfers of businesses. It is new.
2138. The purpose of these rules is to ensure continuity or consistency of treatment where those assets change hands in the course of genuine commercial business reorganisations.
2139. Subsection (2) gives a signpost to provisions dealing with the genuine commercial transaction requirement. This requirement limits the application of the reliefs under this Chapter to cases where the transfer is not motivated by tax avoidance.
Clause 818: Company reconstruction involving transfer of business
2140. Where there are certain transfers of a business (or part of a business) as part of a company reconstruction, this clause allows the tax-neutral transfer of intangible fixed assets that are within the intangible fixed asset rules. It is based on paragraph 84 of Schedule 29 to FA 2002.
2141. A tax-neutral transfer is defined in clause 776.
Clause 819: European cross-border transfers of business: introduction
2142. This clause introduces the rule in clause 820 providing for the tax-neutral transfer of assets in the case of certain European cross-border transfers of business and states the main conditions for it to apply. It is based on paragraph 85 of Schedule 29 to FA 2002.
Clause 820: Transfer of assets on European cross-border transfer of business
2143. This clause provides for the tax-neutral transfer of assets in the case of certain European cross-border transfers of business. It is based on paragraph 85 of Schedule 29 to FA 2002.
Clause 821: European cross-border mergers: introduction
2144. This clause introduces the rule in clause 822 providing for the tax-neutral transfer of assets in the case of certain European cross-border mergers and states the main conditions for it to apply. It is based on paragraph 85A of Schedule 29 to FA 2002.
Clause 822: Transfer of assets on European cross-border merger
2145. This clause provides for the tax-neutral transfer of assets in the case of certain European cross-border mergers. It is based on paragraph 85A of Schedule 29 to FA 2002.
Clause 823: Interpretation of sections 821 and 822
2146. This clause gives rules of interpretation relevant to the two preceding clauses. It is based on paragraph 85A of Schedule 29 to FA 2002.
Clause 824: Transfer of business of building society to company
2147. This clause allows the tax-neutral transfer of intangible fixed assets within the intangible fixed assets rules when the business of a building society is transferred to a company. It is based on paragraph 90 of Schedule 29 to FA 2002.
Clause 825: Application of sections 780 and 785 where transfer within section 824 occurs
2148. This clause relaxes certain degrouping rules in Chapter 9 of this Part on the transfer of a building societys business to a company. It is based on paragraph 90 of Schedule 29 to FA 2002.
Clause 826: Amalgamation of, or transfer of engagements by, certain societies
2149. This clause allows the tax-neutral transfer between certain societies of intangible fixed assets within the intangible fixed assets rules when the transfer is part of an amalgamation of the societies or when the whole or a part of the business of one society is transferred to the other (a transfer of engagements). It is based on paragraph 91 of Schedule 29 to FA 2002.
Clause 827: Claims to postpone charge on transfer
2150. This clause sets out the circumstances under which a charge under this Part can be postponed when a trade is transferred to a non-UK resident company. It is based on paragraph 86 of Schedule 29 to FA 2002.
Clause 828: Relief on transfer
2151. This clause sets out the effect of the clause 827 postponement of charge. It is based on paragraph 86 of Schedule 29 to FA 2002.
Clause 829: Charge on subsequent realisations
2152. This clause provides for a whole or partial reinstatement of the charge postponed under 827. It is based on paragraph 86 of Schedule 29 to FA 2002.
Clause 830: Exclusion from section 829 of group transfers
2153. This clause allows transfers, subsequent to the transfer of the trade under 827, of assets between group members without triggering the reinstatement rules in clause 829. It is based on paragraph 86 of Schedule 29 to FA 2002.
Clause 831: The genuine commercial transaction requirement and clearance
2154. This clause states the genuine commercial transaction conditions and provides for an advance clearance procedure in respect of it. It is based on paragraph 84 of Schedule 29 to FA 2002.
2155. Many of the relieving provisions in Part 11 of Schedule 29 to FA 2002 are conditional on the transactions involved not having an avoidance purpose. And to provide certainty to those contemplating a transaction they provide for an advance clearance application. In the source legislation these matters are repeated in each relieving provision to which they apply. Rather than rewrite the same condition and clearance as part of each of the clauses to which they apply, they are rewritten only once, in this clause, and applied, where appropriate, by reference, in the clauses to which they are relevant, to the genuine commercial transaction requirement.
2156. Subsection (3) defines the appropriate applicant referred to in subsection (2). The source legislation defines in each relevant paragraph who should make the clearance application. Rewriting the clearance rule only once (as described in the previous paragraph) necessitates identification of the appropriate applicant depending on the transaction in respect of which the application is to be made.
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