Enter Your E-mail

The Government has published an amendment to Finance Bill 2007, clause 31, which deals with restrictions on companies buying losses or gains and associated tax avoidance schemes.

In summary, the amendments now published (Amendments 79, 80 and 81) ensure that the simplification of the conditions relating to the use of certain capital losses realised by companies before 5 December 2005 does not create an opportunity for those losses to be used by groups other than the one in which they arose. The amendments have effect in relation to disposals of assets taking place on or after 9 May 2007.

Details

A new condition is being implemented so that the relief for qualifying losses (provided for in FA 2006 ss. 70(10) to (13)) will cease to be available where there is a change of ownership of the principal company in a capital gains group and the main purpose, or one of the main purposes of that change of ownership, was for the new owners to seek a tax advantage from those qualifying losses.

FA 2006 s 70 implemented targeted anti-avoidance rules into TCGA 1972, ss 184A and 184B to prevent the practice of selling and buying companies in order to secure a tax advantage by gaining access to capital losses or gains incurred by those companies.

Section 70 also included specific rules for certain cases of qualifying changes of ownership and disposals occurring before 5th December 2005 which did not involve gain or loss buying. These transactions typically involved arrangements where a company holding assets standing at a loss left its original capital gains group for tax purposes, crystallising a tax loss under TCGA 1992, s 179, but the company remained under the commercial control of its original parent.

FA 2006 s 70(9) et seq provide, in brief, that such qualifying losses can be relieved against gains on ‘pre-change
assets’ held by any company that was in the same capital gains group as the company leaving the group immediately before it left, subject to certain conditions being met.

Finance Bill 2007, clause 31 amends the original provisions in FA 2006 s 70  to retain this relief. It also
relaxes the conditions in subsection 70(9), by allowing relief where there has been a sale or liquidation of the company whose departure from the group created the losses, or a take-over of the original parent company. Previously either of these events would have prevented any further use of qualifying losses.

The amendments now being made to clause 31 prevent an avoidance opportunity by prohibiting relief for the qualifying losses where there is a change of ownership of the principal (parent) company and the principal company is acquired in consequence of arrangements where the main purpose or one of the main purposes is to secure a tax advantage which involves the deduction of a qualifying loss from a chargeable gain.

Link

Draft legislation: Government amendment to Finance Bill 2007, clause 31