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HMRC internal manual

Capital Gains Manual

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HM Revenue & Customs
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Depreciatory intra-group dividends: TCGA92 S31A

TCGA92/S31A

FA99 introduced a new provision, Section 31A, to combat the offshore sandwich device. For disposals on or after 9 March 1999, the value shifting legislation could apply, despite the fact that the `asset severance test’ was not satisfied, providing certain conditions were met. The principal condition in Section 31A was that the company owning the asset, which was the subject of the asset transaction, left the group within six years of the disposal to the non-resident subsidiary.

The effect of Section 31A was to permit adjustment of the gain on the transfer to the non-resident subsidiary, to take account of the value drained out. Any increase in the gain was brought into charge at the time of the sale of the UK subsidiary company outside the group.

For disposals before 1 April 2000, this increase was chargeable on the company which made the transfer to the non-resident company, or on the parent company of the group if that company no longer existed or had left the group.

As a result of the changes to the group definition in FA2000/SCH29/PARA1, which removed the condition that a group could only consist of companies resident in the UK, this alternative charging power was changed. For disposals on or after 1 April 2000, the gain was chargeable on the company which made the transfer to the non-resident company. If that company no longer existed or had left the group, an officer of the Board could issue a notice to designate a company to be the chargeable company. This company would have been a group member immediately before the transferor company left the group.

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+.