Budget 2014: Corporate profit transfer, contrived losses and double-tax relief

With immediate effect the government is to close down tax avoidance schemes involving other arrangements to transfer profits to a related company where the arrangements have a main purpose of securing a tax advantage

The changes will have effect for any transfer of profits made on or after 19 March 2014, and will be legislated in Finance Bill 2014 to prevent companies from obtaining a corporation tax advantage by transferring profits between companies within a group.

It does not apply to any arrangement falling within section 695A of the Corporation Tax Act 2009 (CTA 2009) which came into effect from 5 December 2013 and relate s specifically to derivative contracts, but it does apply to any arrangements that have been put in place to circumvent that provision.

The legislation will provide that where as part of tax avoidance arrangements a company transfers all or a significant part o of its profits to another group member, then the company’s profits will be taxed as though the transfer had not occurred.

According to the Treasury, the measure will be monitored through monitoring of disclosures of new avoidance schemes to circumvent the measure, and through regular communication with affected taxpayers and practitioners.

In further guidance published today, the Treasury has said that some arrangements which are caught by this provision may also be potentially caught by other anti-avoidance provisions.

'In practice, it is likely that any challenges would be run parallel,' the Treasury said.

Avoidance involving capital losses

The government will also amend the operation of a Targeted Anti-Avoidance Rule relating to chargeable gains, confirming that it applies generally to counter the contrived use of capital losses to reduce income profits by whatever means. (Finance Bill 2014)

Double taxation relief: revenue protection

The government will close 2 loopholes to reinforce the UK’s double taxation relief policy that relief for foreign tax should only be given where income has been doubly taxed, once in the UK and once in the foreign territory. (Finance Bill 2014)

Penny Sukhraj |Content editor, Accountancy - (up to 2016)

Penny Sukhraj, former content editor and writer for Accountancy and Accountancy Live, responsible for commissioning and editing news...

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