INTM255810 - Controlled Foreign Companies: Computation of Chargeable Profits and Creditable Tax: Reconstruction without change of ownership

ICTA88/SCH24/PARA8

»Ê¹ÚÌåÓýapp provisions of CTA10/Part 22/Chapter 1 (previously ICTA88/S343) are modified in some respects for the purposes of Chapter IV. CTA10/Part 22/Chapter 1 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 CTA10/Part 22/Chapter 1 are not satisfied where an overseas company is the ‘successorâ€� company within the meaning of CTA10/Part 22/Chapter 1, subject to the exception described below.

»Ê¹ÚÌåÓýapp major consequences of disapplying CTA10/Part 22/Chapter 1 in this way are

  • the acquiring company is not entitled to relief for losses incurred by the ‘predecessorâ€� company in respect of the trade transferred, and
  • subject to ICTA88/SCH24/PARA10 (see INTM255750), capital allowances are computed as though the acquiring company had set up and commenced a new trade.

»Ê¹ÚÌåÓýapp exception referred to above is that the provisions of CTA10/Part 22/Chapter 1 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 permanent establishment in the UK.

Where an overseas company is a ‘predecessorâ€�, the provisions of CTA10/Part 22/Chapter 1 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 UK. »Ê¹ÚÌåÓýapp major consequence of this is that the overseas company’s capital allowances are computed as though it were continuing the trade. »Ê¹ÚÌåÓýapp UK 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 CTA10/Part 22/Chapter 1 ICTA88/S343 are not satisfied for the purposes of computing its Corporation Tax profits.