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HMRC internal manual

Company Taxation Manual

Transfer of Deductions – Motive Test

CTA10/S730C, S730D

Where a qualifying change has occurred, the motive is the purpose for the acquisition of the new company. If the main purpose, or one of the main purposes, was to gain access to or bring into account deductible amounts in ways such as in CTM07050 and CTM07060 then the CTA10/Part 14A rules apply.

It will be necessary to take all relevant factors into account when seeking to establish the purpose of the arrangements, but particular focus should be paid to the following factors when considering whether a tax avoidance purpose is present.

  • The amount paid for the acquired company relative to the tax value of any relevant deductions (after taking into account other assets and liabilities of the acquired company).
  • Changes made to the business carried on by the acquired company prior to its acquisition – in particular, any attempts to isolate the value of the relevant deductions from other aspects of the business or trade (e.g. through the use of special purpose vehicles and/or the hiving off of parts of the business) such that the acquired company in effect becomes little more than a shell for the latent deductions.
  • The nature of the business carried on by the transferred company relative to the business carried on by the new group.
  • The planned conduct of the transferred business following its transfer. For example, whether plans were in place to carry it on commercially and with a view to profit once it became part of the new group and whether any arrangements are in place to transfer the trade back to the selling group.