Corporation Tax Bill

House of Commons

Session 2008 - 09
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Other Bills before Parliament

Corporation Tax Bill

Corporation Tax Bill
Part 8 — Intangible fixed assets
Chapter 9 — Application of this Part to groups of companies
369

773
Supplementary provisions
(1)
In applying the definition of “75% subsidiary” in section 838 of ICTA for the
purposes of this Chapter, any share capital of a registered industrial and
provident society is treated as ordinary share capital.
(2)
Section 170(12) to (14) of TCGA 1992 (application to certain statutory bodies of
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provisions relating to groups of companies) applies for the purposes of this
Chapter as it applies for the purposes of sections 171 to 181 of TCGA 1992.
Chapter 9
Application of this Part to groups of companies
Introductory
10
774
Overview of Chapter
(1)
This Chapter makes provision about how this Part applies in the case of certain
transactions involving groups.
(2)
In particular—
(a)
for the treatment of transfers within groups as “tax-neutral transfers”
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and the meaning of that expression, see sections 775 and 776,
(b)
for the application of Chapter 7 (roll-over relief in case of realisation
and reinvestment) in relation to a company that is a member of a group,
see sections 777 to 779,
(c)
for the rules that apply where a company ceases to be a member of a
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group, see—
(i)
sections 780 to 791 (which provide for the deemed realisation of
chargeable intangible fixed assets and their deemed
reacquisition at market value), and
(ii)
sections 792 to 798 (which provide for elections for a different
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member of the group to be treated as the company to which any
gain on the deemed transfer accrues, how roll-over relief
applies in such a case and for the recovery of the charge on any
such gain), and
(d)
for the disregard of some payments made in connection with claims for
30
relief under Chapter 7 where this Chapter applies and payments made
in connection with such elections as are mentioned in paragraph (c)(ii),
see section 799.
(3)
Section 788 contains provisions that supplement sections 780 to 787.
Transfers within a group treated as tax-neutral
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775
Transfers within a group
(1)
A transfer of an intangible fixed asset from one company (“the transferor”) to
another company (“the transferee”) is tax-neutral for the purposes of this Part
if—
(a)
at the time of the transfer both companies are members of the same
40
group,

Corporation Tax Bill
Part 8 — Intangible fixed assets
Chapter 9 — Application of this Part to groups of companies
370

(b)
immediately before the transfer the asset is a chargeable intangible
asset in relation to the transferor, and
(c)
immediately after the transfer the asset is a chargeable intangible asset
in relation to the transferee.
(2)
For the consequences of a transfer being tax-neutral for the purposes of this
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Part, see section 776.
(3)
Schedule 28AA to ICTA (provision not at arm’s length) does not apply in
relation to a transfer to which subsection (1) applies.
(4)
Subsection (1) does not apply if—
(a)
the transferor or transferee is a qualifying society within the meaning
10
of section 461A of ICTA (incorporated friendly societies entitled to
exemption from tax), or
(b)
the transferee is a dual resident investing company within the meaning
of section 404 of that Act (limitation of group relief).
776
Meaning of “tax-neutral” transfer
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(1)
This section sets out the consequences of a transfer of an asset being “tax-
neutral” for the purposes of this Part.
(2)
The transfer is treated for those purposes as not involving—
(a)
any realisation of the asset by the transferor, or
(b)
any acquisition of the asset by the transferee.
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(3)
The transferee is treated for those purposes—
(a)
as having held the asset at all times when it was held by the transferor,
and
(b)
as having done all such things in relation to the asset as were done by
the transferor.
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(4)
In particular—
(a)
the original cost of the asset in the hands of the transferor is treated as
the original cost in the hands of the transferee, and
(b)
all such credits and debits in relation to the asset as have been brought
into account for tax purposes by the transferor under this Part are
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treated as if they had been brought into account by the transferee.
(5)
The references in subsection (4)(a) to the cost of the asset are to the cost
recognised for tax purposes.
Roll-over relief under Chapter 7 (realisation and reinvestment)
777
Relief on realisation and reinvestment: application to group member
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(1)
This section deals with the application of Chapter 7 (roll-over relief in case of
realisation and reinvestment) in relation to a company that is a member of a
group.
(2)
Chapter 7 does not apply if the expenditure on other assets is expenditure on
the acquisition of assets from another member of the same group by a tax-
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neutral transfer.
(3)
Chapter 7 applies as if two companies (“A” and “B”) are the same person if—

Corporation Tax Bill
Part 8 — Intangible fixed assets
Chapter 9 — Application of this Part to groups of companies
371

(a)
the realisation of the old asset is by A,
(b)
at the time of the realisation A is a member of a group,
(c)
the expenditure on other assets is by B,
(d)
B is a member of the same group as A at the time the expenditure is
incurred (“the expenditure time”),
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(e)
B is not a dual resident investing company within the meaning of
section 404 of ICTA (limitation of group relief) at the expenditure time,
(f)
immediately after the expenditure time the other assets are chargeable
intangible assets in relation to B, and
(g)
both A and B make a claim for relief under Chapter 7.
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(4)
Expressions used in this section that are defined for the purposes of Chapter 7
have the same meaning in this section.
(5)
In particular, see section 754 for the meaning of “the old asset” and “the other
assets”.
778
Relief on reinvestment: acquisition of group company: introduction
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(1)
Chapter 7 (roll-over relief in case of realisation and reinvestment) applies in
accordance with section 779 if—
(a)
a company (“A”) acquires a controlling interest in another company
(“B”), and
(b)
intangible fixed assets (“underlying assets”) are held by B or one or
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more other companies within subsection (2).
(2)
A company is within this subsection if—
(a)
it was not in the same group as A before the acquisition, and
(b)
as a result of the acquisition it is in the same group as A immediately
after it.
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(3)
For this purpose A acquires a controlling interest in B if—
(a)
A and B are not in the same group,
(b)
A acquires shares in B, and
(c)
as a result of the acquisition A and B are in the same group immediately
after the acquisition.
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(4)
A claim for relief under Chapter 7 made because of section 779 must be made
jointly by A and the company or companies holding the underlying assets
concerned.
(5)
In this section and section 779 expressions that are defined for the purposes of
Chapter 7 have the same meaning as in that Chapter.
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779
Rules that apply to cases within section 778(1)
(1)
The expenditure by A on the acquisition is treated as expenditure on acquiring
the underlying assets.
(2)
The amount of the expenditure so treated is taken to be the lower of—
(a)
the tax written-down value of the underlying assets immediately
40
before the acquisition, and
(b)
the amount or value of the consideration for the acquisition.

Corporation Tax Bill
Part 8 — Intangible fixed assets
Chapter 9 — Application of this Part to groups of companies
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(3)
The requirement in section 756(3) (that immediately after the expenditure on
acquiring the assets is incurred the assets must be chargeable intangible assets
in relation to A) is treated as met in relation to the underlying assets if the
condition in subsection (4) is met.
(4)
That condition is that the underlying assets are chargeable intangible assets in
5
relation to the company by which they are held immediately after the
acquisition by A.
(5)
The tax written-down value of the underlying assets in the hands of the
company by which they are held is reduced by the amount available for relief
(but see subsections (6) and (7)).
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(6)
If—
(a)
there is more than one underlying asset, and
(b)
the amount of expenditure on other assets that is treated as incurred
exceeds the amount available for relief,

the company which holds the underlying assets may decide how the amount
15
available for relief is to be allocated in reducing the tax written-down values of
the assets.
(7)
If there are two or more such companies, they may agree between them how
that amount is to be allocated.
(8)
In this section references to “A” and “B” and “underlying assets” must be read
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in accordance with section 778(1).
Company ceasing to be member of group
780
Deemed realisation and reacquisition at market value
(1)
This section applies if—
(a)
a company (“the transferor”) that is a member of a group (“the group”)
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transfers an intangible fixed asset (“the relevant asset”) to another
company (“the transferee”),
(b)
immediately before the transfer the relevant asset is a chargeable
intangible asset in relation to the transferor,
(c)
immediately after the transfer the relevant asset is a chargeable
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intangible asset in relation to the transferee,
(d)
the transferee—
(i)
is a member of the group at the time of the transfer, or
(ii)
subsequently becomes a member of the group,
(e)
the transferee ceases to be a member of the group during the period of
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6 years after the date of the transfer, and
(f)
when the transferee ceases to be a member of the group, the relevant
asset is held by the transferee or an associated company (see section
788(3)) also leaving the group.
(2)
This Part applies as if the transferee—
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(a)
had realised the relevant asset immediately after its transfer to the
transferee for its market value at that time, and
(b)
had immediately reacquired the asset at that value.
(3)
The adjustments to be made as a result of subsection (2), by the transferee or a
company to which the relevant asset has been subsequently transferred, in
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Corporation Tax Bill
Part 8 — Intangible fixed assets
Chapter 9 — Application of this Part to groups of companies
373

relation to the relevant period must be made by bringing the total net credit or
debit into account as if it had arisen immediately before the transferee ceased
to be a member of the group.
(4)
In subsection (3) “the relevant period” means the period between—
(a)
the transfer of the relevant asset to the transferee, and
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(b)
the transferee ceasing to be a member of the group.
(5)
This section is subject to—
(a)
section 782 (certain transferees of businesses etc not treated as leaving
group),
(b)
section 783 (associated companies leaving group at the same time),
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(c)
section 785 (principal company becoming member of another group),
(d)
section 787 (company ceasing to be member of group because of
exempt distribution), and
(e)
section 789 (merger carried out for genuine commercial reasons).
(6)
See section 788 (provisions supplementing this section and sections 781 to 787)
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for the interpretation of certain expressions used in this section or those
sections.
(7)
For the way in which Chapter 7 applies if a company is treated as having
realised an asset as a result of this section, see section 791 (application of roll-
over relief in relation to degrouping charge).
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781
Character of credits and debits brought into account as a result of section 780
(1)
For the purposes of Chapter 6 (how credits and debits are given effect) credits
or debits brought into account as a result of section 780 take their character
from the purposes for which the relevant asset was held by the transferee
immediately after the transfer.
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(2)
But subsection (1) does not apply if conditions A and B are met.
(3)
Condition A is that immediately after the transfer the relevant asset was held
by the transferee for the purposes of a trade, business or concern within section
747, 748 or 749.
(4)
Condition B is that the transferee ceased to carry on that trade, business or
30
concern before it ceased to be a member of the group.
(5)
If conditions A and B are met, a credit or debit brought into account because of
section 780 is treated for the purposes of Chapter 6 as a non-trading credit or
debit.
(6)
References in this section to “the transferee” and the relevant asset” must be
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read in accordance with section 780.
782
Certain transferees of businesses etc not treated as leaving group
(1)
This section applies if—
(a)
the relevant asset is transferred in the course of a transfer of business to
which section 820 applies or which includes such a transfer as is
40
mentioned in section 807B(2)(b)(iii) of ICTA and in respect of which
section 807C of that Act applies (European cross-border transfers of
business), and

Corporation Tax Bill
Part 8 — Intangible fixed assets
Chapter 9 — Application of this Part to groups of companies
374

(b)
in consequence of the transfer the transferee ceases to be a member of a
group (“Group 1”).
(2)
For the purposes of section 780, the transferee is not treated as having left
Group 1.
(3)
If as a result of the transfer the transferee becomes a member of another group
5
(“Group 2”), it is treated for the purposes of section 780 as if Group 1 and
Group 2 were the same.
(4)
References in this section to “the transferee” and “the relevant asset” must be
read in accordance with section 780.
783
Associated companies leaving group at the same time
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(1)
If two or more companies that are associated (see section 788(3)) cease to be
members of a group at the same time, section 780 does not apply in relation to
a transfer between them.
(2)
This subsection applies if—
(a)
a company (“the transferee”) that is a member of a group of companies
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(“the first group”) acquires an asset from another company (“the
transferor”) which is a member of that group at the time of the transfer,
(b)
the transferee ceases to be a member of the first group,
(c)
subsection (1) applies in relation to the transferee ceasing to be a
member of the first group (so that section 780 does not apply),
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(d)
the transferee subsequently ceases to be a member of another group of
companies (“the second group”), and
(e)
there is a relevant connection between the two groups (see section 784).
(3)
If subsection (2) applies, section 780 applies in relation to the transferee ceasing
to be a member of the second group as if both companies had been members of
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the second group at the time of the transfer.
(4)
This section is subject to section 789 (merger carried out for genuine
commercial reasons).
784
Groups with a relevant connection
(1)
For the purposes of section 783(2) there is a relevant connection between the
30
first group and the second group if, at the time when the transferee ceases to
be a member of the second group, the company which is the principal company
of that group is under the control of—
(a)
a person within subsection (2),
(b)
a person or persons within subsection (3), or
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(c)
a person or persons within subsection (4).
(2)
A person is within this subsection if it is the company—
(a)
that is the principal company of the first group, or
(b)
if that group no longer exists, that was its principal company when the
transferee ceased to be a member of it.
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(3)
A person or persons are within this subsection if they—
(a)
control the company within subsection (2), or

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Part 8 — Intangible fixed assets
Chapter 9 — Application of this Part to groups of companies
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(b)
have had it under their control at any time in the period since the
transferee ceased to be a member of the first group.
(4)
A person or persons are within this subsection if they have, at any time in that
period, had under their control either—
(a)
a company that would have fallen within subsection (3) if it had
5
continued to exist, or
(b)
a company to which subsection (5) applies.
(5)
This subsection applies to a company if, had the company continued to exist—
(a)
it would have fallen within subsection (4) because of its control of
another company that would have fallen within subsection (3) if that
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other company had continued to exist, or
(b)
it would have fallen within subsection (4) because of its control of a
company to which paragraph (a) or this paragraph would have
applied.
(6)
Section 416(2) to (6) of ICTA (meaning of control) applies for the purposes of
15
this section as it applies for the purposes of Part 11 of that Act.
(7)
But a person carrying on a business of banking is not treated for those purposes
as having control of a company just because of—
(a)
having any rights in respect of loan capital or debt issued or incurred
by the company for money lent by that person to the company in the
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ordinary course of that business, or
(b)
the consequences of having exercised such rights.
(8)
References in this section to “the first group”, “the second group” and “the
transferee” must be read in accordance with section 783.
785
Principal company becoming member of another group
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(1)
Section 780 does not apply if a company ceases to be a member of a group just
because the principal company of the group becomes a member of another
group (“the second group”).
(2)
This subsection applies if—
(a)
section 780 would have applied but for subsection (1),
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(b)
after the transfer and before the end of the period of 6 years after the
date of the transfer, the transferee ceases to meet the condition that it is
both a 75% subsidiary and an effective 51% subsidiary of one or more
members of the second group (“the qualifying condition”), and
(c)
at the time at which the transferee ceases to do so, the relevant asset is
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held by the transferee or another company in the same group.
(3)
If subsection (2) applies, this Part applies as if immediately after the transfer to
the transferee of the relevant asset the transferee had—
(a)
realised the asset for its market value at that time, and
(b)
immediately reacquired the asset at that value.
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(4)
The adjustments to be made as a result of subsection (3), by the transferee or a
company to which the relevant asset has been subsequently transferred, in
relation to the relevant period must be made by bringing the total net credit or
debit into account as if it had arisen immediately before the transferee ceased
to meet the qualifying condition.
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