CIRD42115 - Intangible assets: company reorganisations: advance clearances: common reasons for refusal

Clearance under S831 will only be granted where HMRC is satisfied that both:

  • the relevant transactions will be effected for genuine commercial reasons; and
  • they do not form part of a scheme or arrangement of which the main purpose, or one of the main purposes, is the avoidance of liability to corporation tax, income tax or capital gains tax.

A common reason for clearance not being granted is that the reorganisation is proposed with a view to the sale or future sale of all or part of the business바카라 사이트™s intangible assets but the sale arrangements haven바카라 사이트™t been finalised. In circumstances where the reorganisation is part of a wider scheme, for example a future sale, we will not be able to consider the clearance until all the transactional steps are known.

Reorganisations with a view to a sale of intangible assets

The purpose of S818 is to allow a business to be reorganised and to transfer intangible assets on tax neutral terms. This provides a similar advantage to S775 for transfers between two companies who are part of the same group.

Tax-neutral transfers can, however, create tax avoidance opportunities. A common tax avoidance arrangement is often referred to as 바카라 사이트˜enveloping바카라 사이트™ or 바카라 사이트˜the envelope trick바카라 사이트™. This involves an asset being transferred between two companies on a tax neutral basis. The shares in the asset holding company are then sold. In this scenario the intangible asset has been sold within the 바카라 사이트˜envelope바카라 사이트™ company and so escapes from any taxable credit (or debit) under Chapter 4.

For tax neutral transfer made under S775, such arrangements are countered by the degrouping charge at S780.

A tax neutral reorganisation using S818 has the same potential as S775 to be used for 바카라 사이트˜enveloping바카라 사이트™ and avoiding a tax charge on the realisation of a business바카라 사이트™s intangible assets. This is the situation if a S818 reorganisation is being undertaken principally to effect the disposal of intangible assets, through the sale of one of the demerged companies to a third party. Where HMRC have concerns that this is the case then clearance under S831 will be refused.

Note that a degrouping charge will not arise if, on or after 7 November 2018, a company leaves a group as a result of a share disposal that would qualify for the Substantial Shareholding Exemption in Paragraph 1 Schedule 7AC TCGA 1992. In particular, this requires that the company is a trading company (or the parent of a trading sub-group), with no substantial non-trading activities. This exception is provided by CTA09/S782A (introduced to the degrouping charge rules by FA19/s26 . When reviewing clearance applications HMRC will therefore have regard to whether the CTA09/S782A exception would be available to prevent degrouping charges from arising.