Changes are to be made following the deliberations of a joint working group with interested tax professionals to ensure that the tax treatment of transfers of assets and liabilities between UK resident companies is the same as that which applies to transfers between UK resident and non-UK resident companies.

Baker Tilly analysis

The dividend exemption introduced, with effect from 1 July 2009, provides that most dividends paid by UK and non-UK companies are exempt from UK corporation tax in the hands of non-traders. This is an area of tax law which can give rise to difficulties in common place transactions and, following the findings of a joint working group, the legislation is being refined to ensure that the tax treatment of transfers of assets and liabilities between UK resident companies is the same as that which applies to transfers between UK resident and non-UK resident companies.

In detail

The transfer of assets by a company to its members at below the market value and certain other similar transfers are broadly treated as distributions for the purposes of the Corporation Taxes Act
2010. The changes announced are intended to remove an anomaly created by the abolition of Advance Corporation Tax in 1998. The changes are intended to ensure that the transfer of assets and liabilities between UK resident companies made on or after the day on which the Finance Bill receives the Royal Assent (expected to be in July 2012) can be treated as a distribution for the purposes of corporation tax in all cases. 

The transfer of assets by a company to its members at below the market value and certain other similar transfers are broadly treated as distributions for the purposes of the Corporation Taxes Act2010. The changes announced are intended to remove an anomaly created by the abolition of Advance Corporation Tax in 1998. The changes are intended to ensure that the transfer of assets and liabilities between UK resident companies made on or after the day on which the Finance Bill receives the Royal Assent (expected to be in July 2012) can be treated as a distribution for the purposes of corporation tax in all cases. 

The objective is achieved by ensuring that certain transactions involving transfers of assets or liabilities between UK resident companies are not excluded from being treated as distributions for the purposes of Corporation Tax. The draft legislation also removes an overlap between different parts of the legislation which define what a distribution is. The amendments to be made deal with certain gaps and differences in opinion that have been identified between HMRC and advisers as to how the legislation applies. A change will also be made to clarify the interface between two overlapping provisions in the distributions rules.