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HMRC internal manual

Capital Gains Manual

ETMD: division of a non - UK business: main conditions

TCGA 1992 section 140C was amended to include subsection 140C(1A) which sets out the particular conditions which have to be met before the effect of section 140C can apply to a partial division. This paragraph covers those particular conditions and CG45715 sets out effect of section 140C. ‘For ‘roll over’ treatment of any gain at the shareholder tier see CG45719.

Note: section 140C can only apply to partial divisions which take place on or after 1 January 2007.

The particular conditions for a partial division within section 140C(1A) are;

  1. A UK resident company transfers part of its business to one or more companies. Note that unlike a transfer of assets where the there can only be one transferee under a partial division there can be more than one transferee; section 140C(1A).
  2. Immediately before the transfer the part of the business to be transferred is carried on by the transferor UK resident company business through a permanent establishment in a member state other than the UK; section 140C(1A)(a).
  3. At least one transferee is resident in a member state other than the UK; section 140C(1A)(b). This follows on from the first difference set out at bullet point 1. It is entirely possible that where say three companies are involved two companies will be resident in the same state. If that were the case then the legislation would still apply provided that the third company was resident in another member state.
For example companies A and B are resident in the same member state and company C is resident in another member state. Companies A and C both transfer part of their business to B. Provided the other conditions are met section 140C(1A) would apply to the partial division involving companies C and B. In this example company C would have to be UK resident. The tax treatment on the transfer between companies A & B will depend on the law in the state in which they are resident. For example if ignoring all other factors it was the UK and companies A and B were in the same capital gains group then section 171 would apply.
  1. The transferor continues to carry on a business after the transfer, section 140C(1A)(c). This is the second difference between a transfer of assets and a partial division. For a transfer of assets there is no requirement within section 140C(1) that the transferor must continue to carry on a business after the transfer.
  2. That the conditions in section 140C(1)(b), (d)-(f) are met. See bullet points 2, 4, 5 & 6 in CG45713 above.
  3. That either the condition in section 140C(1B) or (1C) is met; section 140C(1A)(f). This is the third difference between a transfer of assets and a partial division and involves the issue of shares. Similar to section 140A the requirement within section 140C(1B) is that where there is a partial division the transferee or transferee companies must issue shares or debentures to the shareholders or debenture holders of the transferor company. However if the transferee is the parent company of the transferor and as a result of UK company law or corresponding statute in other members states the transferee parent is prevented from issuing its own shares to itself section 140C(1C) overrides the requirement within section 140C(1B).
Note as section 140C does not prevent there being a chargeable occasion there is no need to disapply sections 124 or 122. See CG45705 for a fuller explanation.