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HMRC internal manual

Capital Gains Manual

Non-resident companies: compliance

One of the difficulties with the operation of TCGA92/S13 is ensuring compliance with its provisions. If you are aware that a taxpayer owns shares or has an interest in a non-resident company it is good practice to record this in a Permanent Note.

TCGA92/S13 requires the participant to self assess whether tax is due. So there may be limited information available about the true nature of the company’s activities or its motives. The correct application of TCGA/S13 requires HMRC to show why it thinks that a capital gains tax liability arises and cases must be considered on an individual basis. It should be remembered that a company may undertake business in many different countries and the commercial arrangements that would be made in each country may be different.

TCGA92/S13 requires the application of a series of objective tests which are designed to eliminate the overwhelming majority of cases from its scope and leave only those where their economic substance does not match their form. The motive test (see CG57319) is then applied.

When cases are being reviewed it may be clear from an early stage that tax avoidance was not a main purpose of the arrangements, and if this has been established TCGA92/S13 cannot apply to a gain arising.