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HMRC internal manual

Company Taxation Manual

Residence: dual resident companies: introduction

Broadly, dual resident companies are companies that simultaneously satisfy the residence rules of the UK and another country. CTA10/S109 prevents certain dual resident companies from setting off their losses and other amounts (see CTM34600) by way of group relief.

In addition, the following provisions also restrict access to other types of relief normally available to group or associated companies

  • CTA10/S948 (continuation treatment of capital allowances on transfer of trade)
  • TCGA92/S171 (transfers within a group)
  • TCGA92/S175 (replacement of business assets within a group)
  • CAA01/S61 (item 2 of the Table) (disposal value: sale of plant and machinery at undervalue)
  • CAA01/S266 (1), (connected person succession - continuation election), and
  • CAA01/S569 (common control alternative amount election)
  • TIOPA10/S280A (no debt cap disallowance to dual resident investing company).

The legislation was introduced to deal with dual resident companies that were used to exploit the UK group relief provisions and their overseas equivalent.

These dual resident companies included companies incorporated in the United States or Australia. Such companies could get relief by setting off their losses against the profits of other companies incorporated within the jurisdiction concerned where those companies were under common control with the company making the losses. Typically such dual resident companies had no taxable income against which to set interest payments and these payments created tax losses, which could be relieved against profits arising in both countries.

The most common example of these dual resident companies were companies which were managed and controlled in the UK but were incorporated in the State of Delaware. This device was called the ‘Delaware Link’. There were also many examples where companies were managed and controlled in the UK and incorporated within a State other than Delaware.