Deferral of corporation tax payments on EU group asset transfers

Who is likely to be affected

Member companies of multinational groups transferring assets to a member of the group elsewhere in the European Economic Area (EEA).

General description of the measure

This measure adds an option to existing legislation governing when corporation tax payments must be made in respect of profits or gains, which are taxed on certain transfers of assets to a member of the same corporate group. , who is resident in another European Union (EU) or EEA State.

The measure provides that the UK corporate taxpayer can claim to pay this tax over a period of up to 5 years.

Deferred payments are subject to interest at the same rate as corporation tax paid in arrears.

Political objective

The government decided to introduce this change following a recent decision by the UK’s first level tax tribunal, which is currently under appeal. This modification aims to remove the uncertainty as to the compatibility with EU law of the UK rules, for the taxation of gains realized on the transfer of assets within a group of companies.

Context of the measure

The changes brought about by this measure aim to remove the uncertainty as to the compatibility of the British rules for the taxation of transfers of assets between 2 companies in the group.

Under current legislation, when such a transfer takes place between 2 companies within the framework of corporation tax, this is generally considered not to give rise to an immediate tax charge for the transferor.

There are group asset transfer rules covering assets dealt with under the Taxation of Chargeable Gains Act 1992, and equivalent provisions for intangible assets, loan relationships and derivative contracts in the Corporation Tax Act 2009 ( CTA 2009).

Where the transfer is from a company subject to corporation tax to a member of the group which is not subject to corporation tax, the transfer is considered to take place at market value for tax purposes. , and any profit or gain is taxable to the transferor for the accounting period in which the transfer takes place.

A recent case before the Court of First Instance examined the compatibility with EU law, group asset transfer rules in Section 171 Taxation of Chargeable Gains Act 1992, when a UK company transferred assets to a parent company based in the Netherlands.

It found that the difference in treatment between a purely national transfer and a transfer to a group company in a different country EU or EEA State, was a restriction on the right of freedom of establishment of the Dutch parent company which could not be justified, unless the UK company had the option of paying the additional tax over 5 years.

In the absence of such an option, the judge concluded that the transfer to the Dutch company should be treated the same as a domestic transfer.

Although the case remains subject to appeal, the Tribunal’s ruling has created some uncertainty as to whether and when these transfers will be subject to UK corporation tax. This measure removes this uncertainty.

Therefore, companies carrying out group asset transfers similar to the one in this case have the option of deferring the payment of tax to the extent that this is affected by the judgment.

There was no prior consultation on the changes brought about by the measure, which were announced in a written ministerial statement of July 11, 2019 with immediate effect.

Detailed proposal

Effective date

From July 11, 2019, companies may request, with immediate effect, to defer payment of up to the amount of Corporation Tax on profits or capital gains attributable to contributions of group assets. concerned, including the due date provided for in article 59D of the Tax Management Code The 1970 law has not yet been passed.

The same rule applies whether or not the corporation is a large or very large corporation, which generally pays its corporation tax under the provisions of quarterly instalments. In effect, this means that corporation tax on transfers of group assets during accounting periods that ended on or after October 10, 2018, may be subject to a claim for deferred payment.

Current law

Current law providing for the treatment of domestic group asset transfers can be found in:

• Chapter 1, Part VI The Taxation of Taxable Gains Act 1992 (CT on taxable earnings)
• Chapter 4, Part 5, Corporation Tax (Lending Relationships) Act 2009
• Chapter 5, Part 7, Corporation Tax (Derivative Contracts) Act 2009
• Chapter 9, Part 8, Corporation Tax (Intangible Assets) Act 2009

CT the payment dates and current rules for deferred payment of certain corporate tax charges affected by EU law are set out in:

• Share VA Taxes Management Act 1970 (payment of tax)
• Schedule 3ZB Taxes Management Act 1970 (CT Exit Fee Payment Plans)

Proposed revisions

The measure adapts the existing provisions of Schedule 3ZB Taxes Management Act 1970, for the deferred payment of exit costs incurred by a business migrating from the UK to a EEA state, so that an equivalent payment plan can be concluded in respect of the corporation tax attributable to the transfers of assets from the group within the EU or EEA.

These adapted rules are set out in a new Schedule 3ZC to the Taxes Management Act 1970.

There are 4 main conditions that must be met for companies to request the deferral of corporation tax payments on a transfer of group assets:

a) there is a transfer of an asset or a liability from either:

I. a UK resident company, or

ii. a non-resident company which carries on business in the UK through a permanent establishment (PE), and the asset is used or held for the purposes of the business of the PE

b) such transfer is to another member of the group who resides outside the United Kingdom in a EU state, or a EEA State

(c) the only reason the transfer is not treated as tax neutral by any of the group transfer provisions is that the transferee company is not liable to corporation tax under asset or liability

(d) at the time of the transfer, there is a relationship between the transferor and the transferee companies, i.e. there has been exercise of the rights of freedom of establishment under either Article 49 of the Treaty on the Functioning of the European Union, or Article 31 of the EEA Deal

There are rules to determine the amount of tax the payment of which may be deferred, limiting eligible tax to the amount attributable to the transfers of relevant group assets.

Once the payment plan application has been accepted by HMRC, the payment of eligible tax is subject to the same rules as for exit charges under the provisions of Schedule 3ZB Taxes Management Act.

An exception is that there is an additional circumstance which causes the deferred tax to become fully payable, namely if the transferor and transferee companies cease to belong to the same group of companies.

The new Annex 3ZC contains a provision that allows the withdrawal of the deferred payment option.

This can be used if the Treasury determines that the immediate payment of corporation tax, in these circumstances, would not constitute a breach of a corporation’s enforceable rights under the Treaty on the Functioning of the European Union, e.g. example, following a final judgment to that effect by a UK court, or after the UK has left EUthis provision is no longer considered necessary.

Summary of impacts

Impact on Treasury (£m)

The final cost will be subject to review by the Office of Budget Responsibility and will be presented in the 2019 budget.

Economic impact

The measure should not have significant economic impacts.

Impact on individuals, households and families

This measure will have no impact on individuals or households. The measure should not affect the formation, stability or breakdown of the family.

Equalities impacts

It is not expected that there will be any impacts on groups sharing protected features.

Impact on businesses, including civil society organizations

This measure will have a negligible impact on companies, less than 1,000 companies per year are estimated to be eligible to request the deferral of the payment of corporation tax, on profits from the disposal of group assets within the EEA.

These would incur one-time familiarization costs. Only a few of those businesses choosing to take this option will also have ongoing costs, which will include submitting an application to HMRC and providing an annual report during the deferral period.

This measure should have no impact on civil society organisations.

Operational impact (£m) (HMRC or other)

There will be negligible operational impact on HMRC for this change.

Other impacts

This will have no impact on the climate and energy poverty objectives, nor on the air quality objectives.

Other impacts were taken into account and none were identified.

Monitoring and evaluation

The measure will be reviewed through regular communication with affected taxpayer groups.

Additional tips

If you have any questions about this change, please contact Phil Donlan by phone: 03000 585504 or email: Philip.donlan@hmrc.gov.uk.