MTT44030 - Particular entities and adjustments: Restructures: Transfers of assets or liabilities – Transfer from a group member

Where:

  • assets or liabilities are transferred from a member of a group to another entity, and
  • the transfer is made in the course of a qualifying reorganisation,

any gain or loss on the transfer is to be:

  • excluded from the adjusted profits of the member to the extent that it is a qualifying gain or loss, and
  • included in the adjusted profits of the member to the extent that it is a non-qualifying gain or loss.

This is set out in section 210 of Finance (No.2) Act 2023.

Non-qualifying gain or loss made on transfer in the course of qualifying reorganisation

Where:

  • a member transfers an asset or liability in the course of a qualifying reorganisation, and
  • that member recognises a non-qualifying gain or loss on the transfer,

the non-qualifying gain or loss should be included in the adjusted profits of the member.

Meaning of ‘qualifying reorganisation’

A transfer of assets or liabilities occurs in the course of a ‘qualifying reorganisation’ where:

  • all three conditions A, B and C are met, and
  • the transfer takes place as the result of a merger, de-merger, liquidation, change in form of an entity, or similar event.

Condition A is met where:

  • any consideration for the transfer is, or the transfer involves, wholly or mostly equity interests issued by the transferee, or by a person connected with the transferee, or
  • in the case of a liquidation, any consideration for the transfer is, or the transfer involves, wholly or mostly, the cancellation of equity interests in the entity subject to the liquidation, or
  • the reorganisation does not result in a change in the ownership of an entity.

To determine whether there has been a change in the ownership of an entity, the rules laid out in section 719 to 724A CTA2010 are used (see CTM06300 onwards), subject to the adjustments in section 212(5) Finance (No.2) Act 2023.

Condition B is met where any gain or loss of the transferor that arises from the transfer is not, wholly or partly, subject to tax.

Condition C is met where, under the law of the territory the transferee is located in, the value of the assets or liabilities for the purpose of determining the transferee’s taxable income is no greater than the tax basis value of the assets or liabilities in the hands of the transferor, adjusted for any non-qualifying gain or loss.

Meaning of ‘non-qualifying gain or loss’

For the purpose of this provision, a ‘non-qualifying gain or loss’ is a gain or loss of the transferee on the transfer of assets or liabilities, and is the lesser of:

  • the amount of that gain or loss that is subject to tax in the transferee’s territory, and
  • the amount of that gain or loss reflected in the underlying profits accounts of the transferee.