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HMRC internal manual

Corporate Intangibles Research and Development Manual

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HM Revenue & Customs
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Intangible assets: company reorganisations: transfer of foreign permanent establishment from UK to a non resident company: deferral of charge

FA02/SCH29/PARA86

The provisions of paragraph 86 are modelled on the provisions in TCGA92/S140. Paragraph 86 deals with the situation where a UK resident company has been trading in another country through an overseas permanent establishment.

It is not uncommon in such circumstances, for the UK company to decide that the part of its trade carried on by the permanent establishment should be transferred to a non-resident company, frequently in exchange for shares in the non-resident company. Such a transfer of the trade may also involve the transfer of intangible fixed assets attributable to the trade (for example the goodwill of the trade, whether it appears as a blance sheet asset or not). In such circumstances the disposal may trigger a taxable credit on the transferor under the rules described in CIRD13210 onwards.

All or part of this taxable credit may be deferred under paragraph 86 if all the following conditions are satisfied:

  • A UK resident company carrying on a trade outside the UK through a permanent establishment transfers that trade, or part of it, together with all the related assets (or all the assets other than cash), to a non-UK resident company.
  • The consideration for the trade or part trade transferred consists wholly or partly of shares, or shares and loan stock, issued by the transferee company to the transferor company.
  • The shares so issued, together with any other shares in the transferee company already held by the transferor company, are at least 25% of the ordinary share capital of the transferee company.
  • The transferor company makes a claim. But relief cannot be claimed both under these outward domestication provisions and under the provisions implementing the EC Mergers Directive that deal with the transfer of a non-UK trade. See CIRD42060.
  • The transfer is undertaken for bona fide commercial reasons, and does not form part of a scheme or arrangements where the main (or one of the main) purposes is avoidance of liability to CT, CG tax or income tax.

How to work out the amount of the deferred taxable credit, and the circumstances inwhich it ceases to be deferred are covered at CIRD42045 and CIRD42050.

(FA03/S153 (1) substituted the words ‘permanent establishment’ for ‘branchor agency’ effective for all accounting periods beginning on or after 1 January2003.)

Points to note

  1. There is a provision for companies to seek advance clearance that the fifth condition above (the commercial purpose test) is satisfied. The Anti-Avoidance Group (Intelligence), Clearance and Counteraction Team deals with all clearance applications and the procedure is described in CIRD42100.

  2. Where a company submits tax computations on the basis that relief is available under paragraph 86 and there is no record of a clearance application, inspectors should send a report and the file to the Anti-Avoidance Group (Intelligence), Clearance and Counteraction Team.

  3. Unlike the equivalent CG tax provision in TCGA92/S140, there is no requirement that intangible asset taxable credits and deductible debits resulting from the transfer be aggregated before computing the deferral available. Instead under this paragraph companies have to claim on an asset-by-asset basis.