Transfer of assets to non-resident company
On 6 January the Government announced that changes were being made, with immediate effect, to the corporation tax rules for the capital gains of companies.
The changes will ensure that a postponed charge on gains arising where assets of an overseas branch are transferred to a non-resident company is brought back into charge at the appropriate time. This will directly affect UK companies that transfer such assets in exchange for securities consisting of shares or loan stock. In these circumstances corporation tax on gains arising from the transfer is postponed until the disposal of the securities.
In some situations, however, the security received in exchange has been an exempt asset. Typically this would be loan stock that falls within the definition of a qualifying corporate bond (QCB) which is exempt from capital gains tax under TCGA 1992, s 115. Prior to 6 January 2010 the disposals of all Qualifying Corporate Bonds were exempt from capital gains tax.
The changes mean that where a gain on the transfer of an overseas branch’s assets to a non-resident company in exchange for securities has been postponed, the disposal of those securities will create a deemed gain that is chargeable to tax.
Instead of treating the postponed gain as additional consideration for the disposal of an exempt asset, a separate chargeable gain equal to the postponed gain will be deemed to accrue at the time of disposal of the securities.
This change will apply where the securities themselves are exempt from a charge to tax.