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HMRC internal manual

Capital Gains Manual

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HM Revenue & Customs
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Value shifting: outline for groups: scope of value shifting charge

The rules in TCGA92/S31 apply to depreciatory dividends out of specified categories of profits which have not suffered tax in the subsidiary. These provisions are not aimed at the payment of dividends out of profits which have suffered tax, for example, normal trading profits or capital gains on disposals to unconnected third parties. It is commercially quite usual for a parent to strip accumulated profits out of a subsidiary by way of a dividend before selling the subsidiary. Otherwise there would be an effective double charge: the profits which have been taxed in the hands of the subsidiary would, if retained by the subsidiary, increase the chargeable gain in the hands of the parent. The type of case to which the value shifting provisions apply is where a group manufactures commercial profits which do not give rise to a tax charge, and uses those profits to pay a depreciatory dividend. The main ways of manufacturing tax-free commercial profits are an asset transfer at no gain/no loss under TCGA92/S171, and a revaluation of assets. Detailed instructions on Section 31 are at CG46821+.

Finance Act 2011 introduced a new Targeted Anti-Avoidance Rule for disposals of shares and securities by companies on or after 19 July 2011. See CG48500+.