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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: avoidance: new measures in FA06/S77: change to rules: new assets derived from companies’ existing assets

CTA09/PART8/S894 and S895

FA02/SCH29/PARA127A and PARA127B

Background

CTA09/PART8 FA02/SCH29 specifically excludes the assets held by companies at the commencement of the new intangibles regime (1 April 2002) unless and until those assets are acquired by an unrelated party after that date. These assets are termed ‘pre-FA 2002 assets’ in CTA09 (CTA09/PART8/S881) and ‘existing assets’ in FA02 (FA02/SCH29/PARA118 (3)). However it became apparent that certain tax avoidance schemes, involving intra-group arrangements, were being put in place which attempted to obtain relief under CTA09/PART8 (FA02/SCH29) for the value of companies’ ‘pre-FA 2002 assets’ (‘existing assets’), which were not intended to be within the scope of the regime.

We do not accept that such arrangements are effective. However, to put the issues beyond doubt, CTA09/PART8/S894 and S895 (FA02/SCH29/PARA127A and PARA127B) ensure that, in certain circumstances, intangible assets whose value is derived in whole or part from existing assets held by related parties, or which result from related party disposals and fall within the scope of the definition of an asset for the purposes of TCGA 1992, are themselves existing assets.

CTA09/PART8/S894 (FA02/SCH29/PARA127A)

This paragraph is aimed at schemes where assets are derived in whole or part from existing assets.

S894 (PARA127A) provides that where an asset is acquired from a related party and that asset derives the whole or part of its value from an asset that after 5 December 2005 has been an existing asset:

  • in the hands of that related party, or
  • in the hands of another related party of either the transferee or transferor company,

the derived asset is treated as an existing asset to the extent that its value derives from an existing asset (where only part of the value is derived from an existing asset, then the legislation applies as if the derived asset were two assets, one representing the derived value, and one representing the rest of the value).

The scope of this paragraph extends beyond assets which would be assets for the purposes of TCGA 1992.

CTA09/PART8/S895 (FA02/SCH29/PARA127B)

S895 (PARA127B) applies where there is a related party transaction involving the acquisition of an intangible fixed asset by a company and the disposal of an asset by a related person which at the time of the disposal is an existing asset in the hands of the person. The effect of S895 (PARA127B) is to ensure that the acquired asset is an existing asset for the acquiring company.

Measures deemed always to have been in force

The new measures are deemed to have always been in force for the purposes of making tax calculations for accounting periods beginning on or after 5 December 2005 (and the latter part of any straddling period).