INTM209200 - Controlled Foreign Companies: Computation of Chargeable Profits and Creditable Tax

Reconstruction without change of ownership

ICTA88/SCH24/PARA8

The provisions of ICTA88/S343 are modified in some respects for the purposes of Chapter IV. ICTA88/S343 effectively provides for continuity of relief for capital allowances and losses when a trade is transferred from one company to another in a reconstruction where substantial identity of ownership remains. Under Chapter IV the conditions for the operation of ICTA88/S343 are not satisfied where an overseas company is the 'successor' company within the meaning of ICTA88/S343, subject to the exception described below.

The major consequences of disapplying ICTA88/S343 in this way are

• the acquiring company is not entitled to relief for losses incurred by the 'predecessor' company in respect of the trade transferred, and
• subject to ICTA88/SCH24/PARA10 (see INTM209140), capital allowances are computed as though the acquiring company had set up and commenced a new trade.

The exception referred to above is that the provisions of ICTA88/S343 continue to apply if the overseas company acquires a new trade previously carried on under the same overall ownership by a company within the charge to United Kingdom tax in respect of it. That is provided the acquiring company carries on the trade through a branch or agency in the United Kingdom.

Where an overseas company is a 'predecessor', the provisions of ICTA88/S343 will apply for the purpose of computing its chargeable profits provided that the company under the same overall ownership to which it transfers a trade is in fact resident in the United Kingdom. The major consequence of this is that the overseas company’s capital allowances are computed as though it were continuing the trade. The United Kingdom company which succeeds to the trade is not, of course, entitled to relief for trading losses incurred by the overseas company, since the conditions of ICTA88/S343 are not satisfied for the purposes of computing its Corporation Tax profits.