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HMRC internal manual

International Manual

Foreign Permanent Establishments of UK Companies: chargeable gains: no gain / no loss transfers

Treatment of no gain / no loss transfers

There are several circumstances in which the chargeable gains regime deems the consideration received for the disposal of an asset to have been an amount that gives rise to neither a gain nor a loss for the transferor (a complete list of the “no gain/ no loss provisions” is at TCGA92/S288(3A)). Of these, the one most likely to be relevant here is TCGA92/S171, which deals with transfers of assets within a group of companies.

Where an asset attributable to a permanent establishment is transferred under the no gain/ no loss provisions by a company that has opted into branch exemption, those provisions are modified in order to ensure that an appropriate measure of exemption will apply on the eventual disposal of the asset. The no gain / no loss value is taken to be that which would secure neither a gain nor a loss for the transferor after taking account of CTA09/S18A. This is so whether or not the transferee company has opted into branch exemption.

The branch exemption legislation introduces a new section 276A into TCGA92 requiring this treatment on a no gain/no loss disposal by a company in relation to which an election under CTA09/S18A has effect. TCGA92/S276A goes on to clarify that this will have the result that the amount of the no gain / no loss value will include the foreign permanent establishments amount attributable to the disposal if it were not a no gain/ no loss disposal.

Example (assuming full use by the PE business over the period and ignoring indexation, costs, etc)

An asset costing £100 is used in the exempt PE of group company A and transferred to group company B when its value was £130. TCGA92/S171 applies and the operation of S276A requires the ‘no gain/no loss’ value to be £130 rather than £100, so that it includes the exempt PE gain of £30. That gain would be deducted in the computation of company A so there would be no net effect in its corporation tax calculation. The acquisition cost for company B would be £130.

If company B then used the asset in the UK before disposing of it for £200 its chargeable gain would be £70 (rather than £100), effectively preserving the value of exemption for the transferee company - which should not be taxed on the company A PE’s £30 gain.

In practice there is no requirement to provide a computation of the no gain/no loss value at the time of the transfer that is covered by TCGA92/S171. If the other State does not tax a gain at the time of that transfer, or does not tax a gain on the basis of market value, there is no requirement to determine market value for the purpose of determining the acquisition cost of company B. Instead the overall gain or loss during the ownership of the asset in the group may be computed retrospectively at the time of the disposal out of the group in such a way as to ensure that a just and reasonable adjustment is given in computing the chargeable gain or allowable loss. However, as mentioned in relation to example 1 above, whether this could be achieved by a straight line time apportionment would depend on whether there was reason to believe there had been any significant fluctuations in the value of the asset. Taxpayers should retain adequate records in order to establish and be able to substantiate the exemption adjustment on the eventual disposal out of the group.