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HMRC internal manual

International Manual

Foreign Permanent Establishments of UK Companies: intangible fixed assets: introduction

Overview

The intangible fixed assets legislation at CTA09/Part 8 allows tax-neutral transfers within a group in a similar way to no gain/ no loss transfers under TCGA92/S171. This is provided for at CTA09/S775(1).

The consequence of a tax-neutral transfer is outlined at CTA09/S776. Broadly, the transfer is treated as not involving any realisation by the transferor nor any acquisition by the transferee. Instead the transferee is treated as having held the asset at all times in place of the transferor and the transferee inherits the original cost and the debits and credits of the transferor. For all practical purposes the transferee inherits the Tax Written Down Value (“TWDV”) of the transferor.

However CTA09/S775(4) disapplies S775(1) in certain situations and these are extended (by S775(4)(c)) to include the situation where an election under CTA09/S18A is effective and the asset has at any time been used for the purposes of a foreign permanent establishment. This means the transfer would be treated as taking place at market value.

Example (assuming full use by the PE business prior to an intra-group transfer)

The exempt foreign PE business of Company A acquires an intangible fixed asset costing £100. Company A subsequently transfers the asset to group company B when its TWDV is £70 and the market value is £130. CTA09/S775(4) (c) disapplies S775(1) so that company B acquires the asset at its market value (£130) in accordance with CTA09/S845, rather than the TWDV under CTA09/S776.