Policy paper

Corporation Tax: related party rules, partnerships and transfers of intangible assets

Published 25 November 2015

Who is likely to be affected

Companies holding intangible fixed assets through a partnership, including a Limited Liability Partnership.

General description of the measure

The measure makes amendments that clarify when intangible fixed assets held by a partnership come within the intangible fixed asset rules. These rules will ensure that such assets are treated appropriately, as either assets to which the intangible fixed asset rules apply or assets within the capital gains code, when calculating the chargeable profits allocated to a corporate partner.

Policy objective

This measure supports the government objective of preventing tax avoidance. The measure does this by clarifying how the intangible fixed asset rules apply to partnerships. This will ensure that partnerships cannot be used in arrangements that seek to obtain the benefit of a tax relief for their corporate members in a way that is contrary to the intention of the existing related party rules.

Background to the measure

This measure was announced at Autumn Statement 2015.

Detailed proposal

Operative date

The measure will apply to all transactions involving intangible fixed assets that take place on or after 25 November 2015. With regard to transactions that occurred before 25 November 2015 the measure will have effect in relation to the accounting debits and credits accruing on or after that date.

Current law

The Intangible Fixed Asset rules are in Part 8 of the Corporation Tax Act 2009 (CTA 2009). They apply only to companies. In general these rules allow the gains and losses relating to the relevant intangible assets to be taxed or relieved as they are recognised in the accounts. To come under these rules it is a requirement that the intangible fixed asset has to be created, or acquired from a person that is not a related party, by a company on or after 1 April 2002 (the ‘commencement rules’). These commencement rules are in chapter 16.

The rules that define a related party are in chapter 12. Generally these rules refer to connections between companies and/or their participators. These rules do not say specifically how a partnership is to be treated. If a company is a partner in a partnership it pays corporation tax on its share of the partnership profits. The partnership has first to calculate its profit along corporation tax lines before any allocation is made to a corporate partner (see Part 17 of CTA 2009). Therefore while a partnership is not a company, if the partnership has intangible fixed assets it is possible that Part 8 is relevant to the calculation of a corporate partner’s profit share.

Proposed revisions

Legislation will be introduced in Finance Bill 2016 to amend Part 8 of CTA 2009.

These revisions will include specific provisions that apply the commencement rules to partnerships. This will confirm how these commencement rules in Part 8 have effect with regard to intangible fixed assets that are acquired or disposed of by a partnership. The changes therefore make it clear that transfers of intangible assets to a partnership with companies as members will not circumvent the Intangible Fixed Asset commencement rules that would otherwise apply to those corporate members.

Part 8 will be amended to apply these rules to transactions that occur on or after 25 November 2015. Part 8 will also be amended to allow an apportionment of the accounting debits and credits in any period that straddles 25 November 2015 where they relate to transactions that occurred prior to that date.

Summary of impacts

Exchequer impact (£m)

2015 to 2016	2016 to 2017	2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021
+15	+45	+70	+35	+30	+25

These figures are set out in Table 3.1 of Autumn Statement 2015 and have been certified by the Office for Budget responsibility. More details can be found in the policy costings document published alongside Autumn Statement 2015.

Economic impact

This measure is not expected to have any significant macroeconomic impacts.

Impact on individuals, households and families

The measure is not expected to impact on individuals or households as it affects only companies.

The measure is not expected to impact on family formation, stability or breakdown.

Equalities impacts

It is not anticipated that there will be negative impacts on any group with protected characteristics.

Impact on business including civil society organisations

This measure is expected to have negligible impact on businesses. The measure will affect only a small number of companies that dispute HM Revenue and Customs (HMRC) current view of existing legislation.

The measure is expected to have no impact on civil society organisations.

Operational impact (£m) (HMRC or other)

It is not anticipated that implementing this change will incur any additional costs or saving for HMRC.

Other impacts

Other impacts have been considered and none have been identified.

Monitoring and evaluation

This measure will be monitored through information collected from tax returns.

Further advice

If you have any questions about this change, please contact Martin Trott on Telephone: 03000 585619 or email: martin.trott@hmrc.gsi.gov.uk, John Williams on Telephone: 03000 530434 or email: john.r.williams@hmrc.gsi.gov.uk.

Declaration

David Gauke MP, Financial Secretary to the Treasury has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.