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HMRC internal manual

Capital Gains Manual

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HM Revenue & Customs
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ETMD: transfer of a non - UK business: main conditions

Where the business that is being transferred by way of a transfer of assets or partial division is carried on by a UK resident company through a permanent establishment in another member state TCGA 1992 section 140(C) provides for different treatment to that covered by section 140A, see CG45702+ above. The general principle is that unlike section 140A which provides for no gain no loss treatment at the asset tier under section 140C a charge to tax can arise at the time of the transfer at the asset tier but where appropriate the transferor company must have the opportunity of setting against any charge to tax notional double taxation relief.

Care must be taken not to confuse section 140C with section 140. Section 140 is not too dissimilar to section 140C but under section 140 there is no scope for allowing notional tax and any charge to tax is deferred until one of two possible events takes place. See CG45660+ for a fuller explanation on section 140.

There are certain conditions within section 140C which are common to both a transfer of assets and a partial division. This paragraph sets out the particular conditions which are applicable to a transfer of assets. CG45714 covers the particular conditions applicable to a partial division, including references to the three important differences in the appropriate criteria, and CG45715 covers the effect of section 140C.

The particular conditions for transfer of assets within section 140C are;

  1. Immediately before the transfer a UK resident company carries on a business through a permanent establishment in a member state other than the UK and the whole or part of that business is transferred to a company resident in a member state other than the UK; section 140C(1)(a).
  2. The transfer includes the whole of the assets of the transferor used for the business or part of the business (or the whole of those assets excluding cash); section 140C(1)(b).
  3. The transfer is wholly or partly in exchange for shares or debentures issued by the transferee company to the transferor company; section 140C(1)(c).
  4. The aggregate of the chargeable gains accruing to the transferor exceeds the aggregate of the total allowable losses accruing to the transferor; section 140C(1)(d). A separate CG computation has to be prepared for each chargeable asset that is transferred and all the resulting gains are added together as are all the resulting losses. The total chargeable gains must exceed the total allowable losses. If they do the net gain is treated as if it were a single chargeable gain.
  5. A claim is made by the transferor. No claim can be made under this section where a claim is made under TCGA 1992 section 140; section 140C(1)(e).
  6. The anti avoidance rules in section 140D, see CG45731 do not apply; section 140C(1)(f).