Transfer of corporate profits

The Government introduced new legislation on transfer of corporate profits in s1305A in Chapter 1, Part 20 of Corporation Tax Act 2009, as introduced by the Finance Act 2014.

This legislation applies where companies in the same group enter into arrangements where payments are made, directly or indirectly, of all or a significant part of the profits of the business of a company in the group to another company in the group.

In those circumstances, the company from which profits were transferred is taxed as though the transfer had not taken place, for example, if a deduction had been claimed for a transfer of profits, then the effect of the clauses is that the profits transferred are added back for corporation tax purposes. It applies where the arrangements were entered into for tax avoidance purposes.

We have welcomed Ministerial assurances that the legislation will not apply if a company pays its profits for charitable purposes unless avoidance is present, and the confirmation that it is not avoidance if taxpayers use statutory relief for charities in the way intended by Parliament. We also welcome the written assurances, given in the technical guidance note (see example 6) published in March 2014, that charitable subsidiaries would not be caught. However, based on our previous experience, we believe that further legislative assurances are needed and urge the inclusion of a charity exemption in the Act.

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