CTM34620 - Residence: dual resident companies: anti- avoidance: limitation of other reliefs

Six different types of relief are within the scope of the legislation because they have the potential for avoidance. The relief's concerned all relate to CG or capital allowance provisions. They are not available in the circumstances below.

CG

• Where there is a transfer of an asset to a dual resident investing company from another member of the group, the no gain/no loss basis treatment of the member making the disposal under TCGA92/S171 (see CG7460 onwards) is denied TCGA92/S171 (2).
• Where the member of the group acquiring the new assets is a dual resident investing company, the treatment of all the trades carried on by members of the group as a single trade under TCGA92/S175 (1) (see CG7485 and CG4605 (iii)) is prevented by TCGA92/S175 (2).

Capital allowances (where the buyer is a dual resident investing company)

• Parties under common control are prevented from making an election under CAA90/S158 (1) (see CA13100) by CAA90/S158 (3)(b). Under CAA90/S157 (4), the sale is at market value.
• If the parties are also connected persons and the sale is of machinery or plant at less than market value, disposal value is at market value, CAA90/S26 (1)(b) (see CA23250).

Capital allowances (where there is a succession to a trade by a dual resident investing company)

• Which involves a company reconstruction without change of control, the operation of the continuation treatment in ICTA88/S343 (2) (see CA15400) is prevented by ICTA88/S343 (2) (previously F2A87/S64 (2).
• If the parties are also connected persons, an election under CAA90/S77 (1) is prevented by CAA90/S (1) (previously F2A87/S64 (6)).

These limitations only come into effect when the event that would otherwise have triggered the application of these provisions takes place on or after 1 April 1987 and at this time the successor/acquiring company is a dual resident investing company. It is irrelevant whether or not that company is a dual resident investing company at the time the asset or trade is finally disposed of outside the group. You should also bear in mind that these provisions apply to all dual resident investing companies, not only to those submitting accounts which show a loss. Indeed the accounts of dual resident investing companies engaging in these transfers for reasons of avoidance could well show a profit for UK tax purposes.

ICTA88/S343 (2), TCGA92/S171 (2), TCGA92/S175 (2), CCA90/S26 (1)(b), CAA90/S77 (1) and CAA90/S158 (3), also apply to dual resident investing companies that have never exploited the rules to obtain a double deduction and which have made a profit. If the application of any of these provisions, in these circumstances, is disputed advise CT&VAT, International CT.