天美影院

CTA09/S848A

CTA09/S848A applies where the normal tax neutral provision is disapplied by section S775(4)(c) but where the asset has not been used exclusively for the purpose of a foreign permanent establishment. S848A(2) provides that where this is the case the transfer value is taken to be the TWDV plus the amount which would be the transferor鈥檚 foreign permanent establishments amount (FPEA) attributable to the transfer if the transfer was at market value. This FPEA may be a positive or negative amount.

This ensures that debits (鈥渓osses鈥�) and credits (鈥済ains鈥�) relating to the part of the asset attributed to the exempt PE, or relating to its period of economic ownership, are appropriately taken into account on the disposal to another company to preserve the effect of exemption. The continuity of the tax neutral provision is effectively preserved in relation to the part of the asset not attributed to the exempt PE or the period of economic ownership that was not with the exempt PE.

Example 1 (assuming partial use by the PE business over the period asset amortised etc)

The UK business of Company A acquires an intangible fixed asset costing 拢100. It subsequently moves the part of the business in which the asset is exclusively used, along with all the relevant significant people functions, to a foreign PE. At that time company A has deductible debits of 拢20 under CTA09/Part 8 and the TWDV has been reduced to 拢80. The market value of the asset at that time is 拢120.

Company A subsequently transfers the asset to group company B when its TWDV has reduced to 拢70 and the market value is 拢130. The chargeable credit (鈥済ain鈥�) of company A computed in accordance with the rules in CTA09/Part 8 is 拢60, i.e. the difference between the market value and the TWDV. But the amount attributable to the exempt foreign PE鈥檚 period of ownership is 拢20 (based on the increase in market value (拢130 - 拢120) and the decrease in TWDV (拢80 - 拢70)) in respect of the period of ownership by the exempt foreign PE.

CTA09/S848A(2) provides that the transfer value is taken to be the TWDV of 拢70 plus the FPEA of 拢20 (the credit of 拢20 attributable to the exempt foreign PE).

The transfer value is therefore 拢90, calculated by adding the exempt foreign PE credit of 拢20 to the TWDV at the time of transfer (拢70). If company B then sold the asset for 拢200 its chargeable credit would be 拢110 (rather than 拢130), effectively preserving the value of exemption for the transferee company - which should not be taxed on company A PE鈥檚 credit of 拢20.

Company A鈥檚 credit on the transfer is 拢90 - 拢70 = 拢20, but all of this is included in the relevant profits amount for the foreign territory, so is left out of account for corporation tax.

Example 2 (assuming partial use by the PE business over the period asset amortised etc - first use by PE)

This example considers the position if the situation in example 1 was reversed. The asset is first acquired by the exempt foreign PE business, but then transferred to the UK Head Office when the PE鈥檚 business closes down and the relevant functions revert to the UK. The asset is subsequently transferred to company B. Using the same figures as example 1 (cost 拢100, market value on relocation to the UK 拢120, with TWDV 拢80), the credit attributable to the exempt foreign PE period of ownership is 拢40. This is added to the TWDV of 拢70 at the time of the intra group transfer to arrive at the transfer value on the transfer to company B of 拢110 under CTA09/S848A.

Company A鈥檚 credit is 拢110 - 拢70 = 拢40, but all of this is included in the relevant profits amount for the foreign territory, so is an exempt credit. As noted at INTM282040, CTA09/S18B(1) provides that exemption adjustments include those to remove the effect of any gains or losses taken into account in computing the foreign PE鈥檚 amount in relation to any accounting period.

Example 3 (assuming partial use by the PE business over the period asset amortised etc - adjustment to debit or loss)

The UK business of Company A acquires an intangible fixed asset costing 拢100. It subsequently moves the part of the business in which the asset is exclusively used, along with all the relevant significant people functions, to a foreign PE. At that time company A has deductible debits of 拢20 under CTA09/Part 8 and the TWDV has been reduced to 拢80, equal to its market value.

Company A subsequently transfers the asset to group company B when its value has been reduced by unforeseen events occurring in that period to 拢10. The TWDV at the time of this transfer is 拢40 (which had been market value prior to the unforeseen events). If this was the company鈥檚 year end, an impairment review would reduce the Net Book Value of the asset to 拢10. But as this is not the company鈥檚 year end the TWDV at the time of the transfer is still 拢40. The deductible debit (loss) is 拢30 i.e. the difference between TWDV and the market value and it is correct to attribute the deductible debit to the exempt foreign PE.

The transfer value under CTA09/S848A is 拢10, calculated by deducting the foreign PE debit of 拢30 from (or adding the negative FPEA to) the TWDV of 拢40. Company A鈥檚 拢30 debit arising on the transfer is 鈥榣eft out of account鈥� in calculating profits for corporation tax, under CTA09/S18A. Looking at the result for company B, the transfer value of 拢10 ensures that the debit (loss) of 拢30 accruing to the exempt foreign PE is not subsequently relieved on a disposal out of the group.