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HMRC internal manual

International Manual

HM Revenue & Customs
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Controlled Foreign Companies: Computation of Chargeable Profits and Creditable Tax: Reconstruction without change of ownership


The provisions of CTA10/Part 22/Chapter 1 (previously ICTA88/S343) are modified in some respects for the purposes of Chapter IV. CTA10/Part 22/Chapter 1 effectively provides for continuity of relief for capital allowances and losses when a trade is transferred from one company to another in a reconstruction where substantial identity of ownership remains. Under Chapter IV the conditions for the operation of CTA10/Part 22/Chapter 1 are not satisfied where an overseas company is the ‘successor’ company within the meaning of CTA10/Part 22/Chapter 1, subject to the exception described below.

The major consequences of disapplying CTA10/Part 22/Chapter 1 in this way are

  • the acquiring company is not entitled to relief for losses incurred by the ‘predecessor’ company in respect of the trade transferred, and
  • subject to ICTA88/SCH24/PARA10 (see INTM255750), capital allowances are computed as though the acquiring company had set up and commenced a new trade.

The exception referred to above is that the provisions of CTA10/Part 22/Chapter 1 continue to apply if the overseas company acquires a new trade previously carried on under the same overall ownership by a company within the charge to United Kingdom tax in respect of it. That is provided the acquiring company carries on the trade through a permanent establishment in the UK.

Where an overseas company is a ‘predecessor’, the provisions of CTA10/Part 22/Chapter 1 will apply for the purpose of computing its chargeable profits provided that the company under the same overall ownership to which it transfers a trade is in fact resident in the UK. The major consequence of this is that the overseas company’s capital allowances are computed as though it were continuing the trade. The UK company which succeeds to the trade is not, of course, entitled to relief for trading losses incurred by the overseas company, since the conditions of CTA10/Part 22/Chapter 1 ICTA88/S343 are not satisfied for the purposes of computing its Corporation Tax profits.