CG46836 - Depreciatory intra-group dividends: TCGA92 S31A

TCGA92/S31A

FA99 introduced a new provision, Section 31A, to combat the offshore sandwich device. For disposals on or after 9 March 1999, the value shifting legislation can apply, despite the fact that the `asset severance test' is not satisfied, providing certain conditions are met. The principal condition in Section 31A is that the company owning the asset, which was the subject of the asset transaction, leaves the group within six years of the disposal to the non-resident subsidiary.

The effect of Section 31A is to permit adjustment of the gain on the transfer to the non- resident subsidiary, to take account of the value drained out. Any increase in the gain is brought into charge at the time of the sale of the UK subsidiary company outside the group.

For disposals before 1 April 2000, this increase is chargeable on the company which made the transfer to the non-resident company, or on the parent company of the group if that company no longer exists or has left the group.

As a result of the changes to the group definition in FA2000/SCH29/PARA1, which removed the condition that a group could only consist of companies resident in the UK, this alternative charging power has been changed. For disposals on or after 1 April 2000, the gain is chargeable on the company which made the transfer to the non-resident company. If that company no longer exists or has left the group, an officer of the Board may by notice designate a company to be the chargeable company. This company will have been a group member immediately before the transferor company left the group. Anti-Avoidance Group (Investigation) will give advice on the form of any notice under this provision.