Corporation Tax Bill

House of Commons

Session 2009 - 10
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Corporation Tax Bill

Corporation Tax Bill
Part 22 — Miscellaneous provisions
Chapter 1 — Transfers of trade without a change of ownership
461

Transfers to which Chapter applies
940
Transfers to which Chapter applies
This Chapter applies to a transfer of a trade if—
(a)
the ownership condition is met (see sections 941 and 942), and
(b)
the tax condition is met (see section 943).
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941
The ownership condition
(1)
The ownership condition is that—
(a)
on the transfer of the transferred trade or at some time during the
period of two years beginning immediately after the transfer, a 75%
interest in the transferred trade belongs to certain persons, and
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(b)
at some time during the period of one year ending immediately before
the transfer, a 75% interest in the transferred trade belonged to the same
persons.
(2)
In subsection (1) references to a 75% interest are to an interest amounting to a
share of at least 75%.
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(3)
If at any time the activities of the transferred trade are actually included in the
activities of another trade, for the purposes of subsection (1) interests in the
transferred trade at that time are determined by reference to interests in the
other trade.
(4)
Accordingly, a person who has an interest in the other trade at that time is
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taken to have a corresponding interest in the transferred trade.
(5)
For the purposes of this section—
(a)
if two or more companies carry on a trade, the interests in the trade
belonging to them are taken to correspond to the shares of the trade’s
profits to which they are entitled, and
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(b)
an interest in a trade belonging to trustees (otherwise than for
charitable or public purposes) is treated as belonging to the persons for
the time being entitled to the income under the trust.
(6)
If a company is carrying on a trade, the interest in the trade belonging to the
company may be treated in accordance with any of the options set out in
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section 942(1) if that results in the ownership condition being met.
(7)
In determining for the purposes of this section the extent to which an interest
in a trade belongs at different times to the same persons—
(a)
the persons from time to time entitled to the income under a trust are
treated as a single person, and
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(b)
persons who are relatives of one another are treated as a single person.
(8)
In subsection (7) “relative” means spouse, civil partner, ancestor, lineal
descendant, brother or sister.
942
Options that may be applied for the purposes of the ownership condition
(1)
The options referred to in section 941(6) are as follows (with references in the
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options to “the trading company” being to the company to which the interest
in the trade belongs as mentioned in that subsection).

Corporation Tax Bill
Part 22 — Miscellaneous provisions
Chapter 1 — Transfers of trade without a change of ownership
462

Option 1

The interest in the trade is taken to belong to the persons owning the ordinary
share capital of the trading company in proportion to the amount of their
holdings of that capital.
Option 2
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This option can be applied if the trading company is the subsidiary of another
company (see subsection (2)).

The interest in the trade is taken to belong to—
(a)
a company that is a parent company of the trading company (see
subsection (3)), or
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(b)
the persons owning the ordinary share capital of such a parent
company in proportion to the amount of their holdings of that capital.
Option 3

This option can be applied if—
(a)
a person (“P”) has management control over a company (see
15
subsections (4) and (5)), and
(b)
by applying Option 1 or 2 an interest in the trade can be taken to belong
to that company.

That interest in the trade is instead taken to belong to P.
(2)
For the purposes of this section a company (“company A”) is a subsidiary of
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another company (“company B”) if at least 75% of company A’s ordinary share
capital is owned by company B.
(3)
If company A is a subsidiary of company B, company B is a parent company of
company A unless both are subsidiaries of a third company.
(4)
For the purposes of subsection (1) a person has management control over a
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company if the person has the power to secure that the affairs of the company
are conducted in accordance with the wishes of the person.
(5)
“Power” in subsection (4) means power resulting from—
(a)
the holding of shares or the possession of voting rights in or in relation
to any company, or
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(b)
a document regulating any company.
(6)
In this section references to a person owning ordinary share capital are to be
read, if the person is a company, as references to the company owning the
capital—
(a)
directly,
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(b)
through another company or companies, or
(c)
partly directly and partly through another company or companies.
(7)
If a company owns ordinary share capital as mentioned in subsection (6)(b) or
(c), the amount of the capital owned by the company is determined in
accordance with sections 1155 to 1157.
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(8)
In this section references to ownership are references to beneficial ownership.

Corporation Tax Bill
Part 22 — Miscellaneous provisions
Chapter 1 — Transfers of trade without a change of ownership
463

943
The tax condition
(1)
The tax condition is that, in the period mentioned in subsection (2), the
transferred trade is carried on only by companies within the charge to
corporation tax or income tax in respect of the trade.
(2)
That period is the period—
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(a)
beginning with the latest time at which the requirement of section
941(1)(b) is met for the purposes of the ownership condition, and
(b)
ending with the earliest time at which the requirement of section
941(1)(a) is met for the purposes of that condition.
(3)
If at any time the activities of the transferred trade are actually included in the
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activities of another trade, subsection (1) applies in relation to that time as if
references to the transferred trade were references to the other trade.
Effect of Chapter in relation to transfers to which it applies
944
Modified application of Chapter 2 of Part 4
(1)
If this Chapter applies to a transfer of a trade, Chapter 2 of Part 4 (relief for
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trade losses) has effect subject to subsections (2) and (3).
(2)
Section 39 (terminal losses: extension of periods for which relief may be given)
does not apply in relation to a loss made by the predecessor in the transferred
trade.
(3)
Relief under section 45 (carry forward of trade loss against subsequent trade
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profits) is given to the successor in relation to a loss—
(a)
which is made by the predecessor in the transferred trade, and
(b)
for which relief would have been given under that section to the
predecessor had it continued to carry on that trade.
(4)
Subsection (3) is subject to—
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(a)
any claim made by the predecessor under section 37 (including a case
where section 42 applies), and
(b)
section 945.
945
Cases in which predecessor retains more liabilities than assets
(1)
This section applies if L exceeds A.
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(2)
“L” is the amount of the predecessor’s liabilities so far as they—
(a)
are outstanding immediately before the transfer of the transferred
trade, and
(b)
are not transferred to the successor on the transfer of the trade.
(3)
“A” is the sum of the values of—
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(a)
the predecessor’s assets immediately before the transfer of the
transferred trade so far as they are not transferred to the successor on
that transfer, and
(b)
the consideration given to the predecessor by the successor in relation
to the transfer of the transferred trade.
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Corporation Tax Bill
Part 22 — Miscellaneous provisions
Chapter 1 — Transfers of trade without a change of ownership
464

(4)
The relief to be given to the successor as a result of section 944(3) is limited to—

where—

R is the total amount of loss for which relief could be given to the
successor as a result of section 944(3), ignoring this section, and

E is the amount by which L exceeds A.
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(5)
If R does not exceed E, no relief is to be given to the successor.
946
Rules for determining “L”
(1)
This section applies for the purposes of section 945(2) (determination of “L”).
(2)
A liability is to be ignored if—
(a)
the predecessor was the predecessor in relation to a transfer of a trade
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on a previous application of this Chapter, and
(b)
on that previous application of this Chapter the liability was
apportioned under section 952 to a trade carried on by the company
that was the successor on that application.
(3)
Subsection (4) applies if—
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(a)
the predecessor transfers a liability to the successor, and
(b)
the creditor in question has agreed to accept settlement of part of the
liability as settlement for the whole of it.
(4)
The transfer of the liability is taken to cover only the part of the liability
mentioned in subsection (3)(b).
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(5)
The predecessor’s capital is to be treated as a liability of the predecessor so far
as it is recently converted capital (but not otherwise).
(6)
For the purposes of subsection (5) a part of the predecessor’s capital is recently
converted capital if—
(a)
it was issued or otherwise originated on the conversion of a liability
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that was not part of the predecessor’s capital or on the conversion of a
part of that capital that was itself recently converted capital, and
(b)
the conversion occurred during the period of 12 months ending with
the day on which the transfer of the transferred trade occurs.
(7)
In this section “the predecessor’s capital” means the predecessor’s share
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capital, share premium account, reserves and relevant loan stock.
(8)
In subsection (7) “relevant loan stock” means any loan stock or similar security
(whether secured or unsecured) other than any to which subsection (9) applies.
(9)
This subsection applies to any stock or security if, when the liability giving rise
to the stock or security was incurred, the person who was the creditor was
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carrying on a trade of lending money.
947
Rules for determining “A”
(1)
Subsections (2) to (4) apply for the purposes of section 945(3)(a) (determination
of assets within “A”).
(2)
An asset is to be ignored if—
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Corporation Tax Bill
Part 22 — Miscellaneous provisions
Chapter 1 — Transfers of trade without a change of ownership
465

(a)
the predecessor was the predecessor on a previous application of this
Chapter, and
(b)
on that previous application of this Chapter the asset was apportioned
under section 952 to a trade carried on by the company that was the
successor on that application.
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(3)
The value of an asset is to be taken to be the price which it might reasonably be
expected to have fetched on a sale in the open market immediately before the
transfer of the transferred trade.
(4)
If immediately before the transfer of a trade—
(a)
the predecessor has relevant loan stock (as defined by section 946(8))
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that is not included in L, and
(b)
the stock is secured on an asset of the predecessor that is not transferred
to the successor on the transfer of the trade,

the value of the asset is reduced by the amount of the liability.
(5)
Subsection (6) applies for the purposes of section 945(3)(b) (determination of
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consideration within “A”).
(6)
If the successor assumes a liability of the predecessor, that does not count as
giving consideration.
948
Modified application of CAA 2001
(1)
If this Chapter applies to a transfer of a trade, CAA 2001 has effect subject to
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subsections (2) to (4).
(2)
Any allowances or charges are to be made to or on the successor if such
allowances or charges would have been made to or on the predecessor had the
predecessor continued to carry on the transferred trade.
(3)
A transfer of assets from the predecessor to the successor does not of itself give
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rise to any allowances or charges if—
(a)
the transfer of the assets is made on the transfer of the transferred trade,
and
(b)
the assets are in use for the purposes of that trade.
(4)
For the purpose of determining the amount of the allowances or charges
30
mentioned in subsection (2) to be made to the successor—
(a)
the successor is to be treated as if it has been carrying on the transferred
trade since the predecessor began to do so, and
(b)
anything done to or by the predecessor is to be treated as having been
done to or by the successor.
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(5)
This section is subject to sections 949 and 950.
(6)
For other cases in which this section does not apply in relation to a transfer,
see—
(a)
section 561 of CAA 2001 (transfer to company in another member
State), and
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(b)
section 561A of that Act (transfer during formation of SE by merger).