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HMRC internal manual

Company Taxation Manual

Transfer of Deductions - Profit Shifting: Transfer of Profits into Newly Acquired Company with Available Deductions

CTA10/S730D

S730D acts to prevent the deduction TAAR from being circumvented by placing profits of an acquiring group into a newly acquired company which has deductible amounts available. For example, if a company with capitalised expenditure is purchased by a larger group and then profits are moved into the company by the new owner, S730D acts to prevent the capitalised expenditure being claimed against the profits as they arise.

Where the following 4 conditions are met, deductible amounts may not be deducted in calculating profits or losses of the acquired company ‘C’ or any company connected with C in any accounting period ending on or after the relevant day.

  • Condition A: There is a “qualifying change” in ownership (CTM07020)
  • Condition B: Arrangements (“the profit transfer arrangements”) are made, which result in either an increase in the total profits of C, or of a company connected with C or a reduction of any loss or other amount for which relief from corporation tax can be given to C or a company connected with C, in any accounting period ending on or after the relevant day.
  • Condition C: On the relevant day (CTM07020), it is “highly likely” that the amount, or any part of it, would be brought into account by C, or any company connected with C, in any accounting period ending on or after the relevant day (CTM07030).
  • Condition D: The purpose, or one of the main purposes, of the profit transfer arrangements is to bring the amount (whether or not together with other deductible amounts) into account as a deduction in any accounting period ending on or after the relevant day (CTM07040).