Corporation tax deferral available on certain transactions with EEA member states

Transfers of assets between two group companies within the charge to UK tax generally take place without an immediate tax charge. However, where the transfer is to a member of the group outside the charge to UK tax, the transfer is treated as taking place at market value and any profit or loss is taxable in the accounting period in which the transfer takes place.

Following a recent First-tier Tribunal decision Gallaher v HMRC [2019] UKFTT 207, it was decided that denying tax relief in respect of a transfer of a chargeable asset to an EEA member state was contrary to the Freedom of Establishment under EU law which could not be justified unless the UK company was given the option to pay the extra tax over five years. While the case remains under appeal, this draft legislation has been released that is proposed to take effect from 11 July 2019 to remove uncertainty around whether such transactions will be taxed in the UK. HMRC has published draft legislation and further guidance on this measure here.

From 11 July 2019, companies may apply to defer payment of tax on profits or gains attributable to group transfers where the due and payable date has not yet expired. In effect, this means that group transfers during accounting periods ended on or after 10 October 2018 can be the subject of an application for deferral.

Companies will be able to defer payment to six equal annual instalments commencing on the normal due date for payment (nine months and one day after the year-end). Late payment corporation tax interest will apply on this deferral at the standard rates. The provisions for entering into a corporation tax payment plan will be included in Sch 3ZC, TMA 1970 and will be similar to rules regarding exit charges incurred by a company that migrates to a relevant EEA state.

These rules will relate to transfers of chargeable assets, intangible fixed assets, loan relationships and derivative contracts where the transferor is resident in the UK (or is a permanent establishment within the charge to UK tax) and the transferee is a group member resident in another EEA/EU member state. The rules will apply where the only reason that the transfer is not treated as tax neutral by one of the group transfer provisions, is that the transferee company is not within the charge to UK corporation tax in respect of the asset or liability. The tax will also become payable immediately if certain events occur, including if the transferor and transferee companies cease to be members of the same group.

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