CIRD47040 - Intangible assets: international
issues: company ceases to be resident in UK: deferral of taxable
credit: general
FA02/SCH29/PARA109 (1)
Circumstances where provision applies
This paragraph applies where:
- a company holding goodwill or an
intangible asset ceases to be resident in the UK,
- the asset is deemed to be realised and
reacquired at market value under the rule described in
CIRD47030,
- the asset is held for the purposes of a
trade carried on through a foreign permanent establishment,
- the market value exceeds the original tax
cost of the asset; and
- the company and another company, which
remains resident in the UK and of which the first company is a 75%
subsidiary (see
CIRD40030), jointly elect within two
years of the change of residence for the provision to apply.
(FA03/S153 (1) substituted the words ‘permanent
establishment’ for ‘branch or agency’ effective
for all accounting periods beginning on or after 1 January
2003.)
Treatment
In these circumstances recognition under Schedule 29 of the
excess of the deemed realisation proceeds over the original cost of
the asset may be deferred until the earlier of the time when:
- the intangible asset is realised if that
is less than six years after the date the company ceased to be
resident in the UK, or
- the 75% subsidiary relationship is broken
in one of the three ways described below.
On such an event the taxable credit deferred is regarded as
arising to the company remaining resident in the UK at the time of
the event. It is treated as a non-trading credit in its hands (see
CIRD13530 onwards).
Where recognition of the credit is triggered by the
part-realisation of the goodwill or intangible asset by the company
no longer resident in the UK there are special rules to determine
how much of the taxable credit deferred is to be recognised. These
are described in
CIRD47050.
Circumstances where 75% subsidiary relationship regarded as
broken
The 75% subsidiary relationship between the two company making
the election to defer the taxable credit is broken if at any time
(not just within six years) either:
- the company which remains resident in the
UK (‘company B’) disposes of enough ordinary shares in
the company which left the UK (‘company A’) to cause
company A to cease to be a 75% subsidiary, or
- company B disposes of ordinary shares in A
after A has ceased to be a 75% subsidiary of B other than as a
result of a share disposal, or
- company B ceases to be resident in the
UK.
The second bulleted circumstance triggering recovery of the
deferred taxable credit above addresses the possibility that
company A could have ceased to be a 75% subsidiary of company B
other than by the disposal of shares by B (which would have come
within the first bullet). For example, company A could have issued
sufficient additional ordinary shares to a third party to bring
B’s interest below 75%.
Other points to note
- Only the excess of the market value of the asset over its tax
cost (not its tax written down value) can be deferred under this
provision.
- The realisation of assets six years or more after the company
ceases to be resident do not trigger recovery of the deferred
taxable credit.
- This relief is equivalent to that in TCGA92/S187 (see CG42430
onwards).
