CG52631 - Share exchange: anti-avoidance: clearance procedure
There is an advance clearance procedure. It is not mandatory for companies to apply for clearance. The procedure exists so commercial decisions are not hindered by uncertainty about the possible application of the anti-avoidance provisions. For practical reasons only the company whose shares or debentures are being acquired or the company making the acquisition can apply for clearance. Section 138 of the Taxation of Chargeable Gains Act (TCGA) 1992 allows either of these companies to apply to the Board for confirmation that the anti-avoidance provisions of section 137 TCGA 1992 will not prevent section 135 TCGA 1992 from applying. For the clearance to be valid, the application must be made and granted before the new shares or debentures are issued.
The information provided in support of the application must fully and accurately disclose all the relevant facts. If it does not the clearance may be void.
The Board has thirty days to deal with the application. If clearance is refused the applicant can ask for the application to be reconsidered by the First-tier Tribunal. All referrals to the Tribunal are dealt with by the Clearance and Counteraction Team.
The clearance procedure is only concerned with whether the anti-avoidance provisions of section 137 TCGA 1992 will prevent section 135 TCGA 1992 or section 136 TCGA 1992 from applying. Clearance does not mean that the sections will actually apply. In the case of section 135 TCGA 1992 it is still necessary to check whether the technical conditions set out in CG52523 are satisfied. CG52660 gives instructions on how to deal with computations prepared on the basis that section 135 TCGA 1992 will apply.
The clearance letter will not indicate whether any debentures that are to be issued are qualifying corporate bonds (QCBs). If the debentures are QCBs it is still relevant to apply for clearance, see CG53823. But section 135 TCGA 1992 and section 136 TCGA 1992 will not apply to the exchange or reconstruction. For full guidance on QCBs see CG53700C.
The clearance only deals with the share exchange or, in the case of section 136 TCGA 1992 the scheme of reconstruction. All other Capital Gains Tax and Corporation Tax aspects of the transaction must be dealt with in the normal way. The transactions may include Capital Gains Tax or Corporation Tax events and avoidance that are not referred to in the clearance letter or the clearance application.
What to do when you receive a statutory clearance application
The Clearance and Counteraction Team deals with all applications for clearance under section 138 TCGA 1992. All clearance applications received elsewhere in HMRC should be forwarded immediately to the Clearance and Counteraction Team at reconstructions@hmrc.gov.uk. You should advise the agent or company that you have done so in the following terms:
"I refer to the application for clearance you sent me. All such applications must be made to the Clearance and Counteraction Team. Your application has been forwarded. The team may be contacted by email at reconstructions@hmrc.gov.uk or by writing to BAI Clearance HMRC BX9 1JL. The team have thirty days to reply."
You may also receive applications for clearance under other statutory provisions. If so, these should also be forwarded to the Clarance and Counteraction team. Common provisions you might encounter include:
- section 701 of the Income Tax Act 2007 - transactions in securities, see CTM36880
- section 1091 of the Corporation Tax Act (CTA) 2010 - demergers, see CTM17260
- section 1044 CTA 2010 - company purchase of own shares, see CTM17570
A full list of the statutory clearances dealt with by the Clearance and Counteraction Team can be found at Apply for statutory clearance for a transaction (GOV.UK). Please note that it is common for multiple clearance provisions to apply to a transaction and that customers typically request all the relevant provisions in a single application.