Section 845 — Corporation Tax Act 2009: Transfer between company and related party treated as at market value

Transfer between company and related party treated as at market value 845 1 The basic rule is that a transfer of an intangible asset—

a from a company to a related party, or b to a company from a related party, is treated for all purposes of the Taxes Acts as being at market value (as respects both the company and the related party) if condition A or B is met.

2 Condition A is that the asset is a chargeable intangible asset in relation to the transferor immediately before the transfer.

3 Condition B is that the asset is a chargeable intangible asset in relation to the transferee immediately after the transfer.

4 That rule is subject to—

a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . b section 847 (transfers involving other taxes),

c section 848 (tax-neutral transfers), ... ca section 848A (assets held for purposes of exempt foreign permanent establishments), ... d section 849 (transfers involving gifts of business assets), ... e section 849A (disincorporation relief: transfer values for post-FA 2002 goodwill) , and f sections 900E and 900F (special rules in respect of assets that were pre-FA 2002 assets etc) . 4ZA But the basic rule does not apply in relation to a transfer if—

a the transfer is a cross-border transfer, and b the transfer is subject to transfer pricing. 4ZB See also section 846 for a different rule where—

a the basic rule doesn’t apply as a result of subsection (4ZA),

and b the profits and losses of the company or the related person are not required, under Part 4 of TIOPA 2010, to be calculated as if the arm’s length provision had been made instead of the provision comprising the transfer or of which the transfer forms part. 4ZC Where, as a result of section 846 or Part 4 of TIOPA 2010, the profits and losses of the company or the related person are to be calculated as if the arm’s length provision had been made instead of the actual provision for the transfer, the transfer is treated for all purposes of the Taxes Acts as being for the price it would have under that arm’s length provision (as respects both the company and the related party). 4ZD For the purposes of subsection (4ZA)(a) a transfer is a cross-border transfer if, at the time of the transfer, the related party is—

a a UK resident company, but only if it has a qualifying permanent establishment in a territory outside the United Kingdom, b a non-UK resident company, other than a non-UK resident company that has a permanent establishment in the United Kingdom with a relevant connection to the transferred asset, c a non-UK resident individual, other than an individual that carries on a trade, profession or vocation in the United Kingdom through a branch or agency that has a relevant connection to the transferred asset, or d a partnership, but only if all of its members are non-UK resident or it has a qualifying permanent establishment in a territory outside the United Kingdom. 4ZE Where the related party has a permanent establishment in a territory outside the United Kingdom, that permanent establishment is “qualifying” if—

a exemption adjustments under section 18A(1) of CTA 2009 (exemption for profits or losses of foreign permanent establishments) would be made in calculating the taxable profits of the related party, and b those adjustments include adjustments in respect of the transferred asset. 4ZF A permanent establishment of the related party in the United Kingdom has a relevant connection to the transferred asset if the asset is, in accordance with Chapter 4 of Part 2, attributable to that permanent establishment. 4ZG A branch or agency of the related party has a relevant connection to the transferred asset if—

a where the related party is the transferor, it was used or held for the purposes of the branch or agency immediately before the transfer, or b where the related party is the transferee, it was acquired for use by, to be held by or for the purposes of, the branch or agency. 4A References in subsection (1) to a related party in relation to a company are to be read as including references to a person in circumstances where the participation condition is met as between that person and the company. 4B References in subsection (4A) to a company include a firm in a case where, for section 1259 purposes, references in subsection (1) to a company are read as references to the firm. 4C Section 148 of TIOPA 2010 (when the participation condition is met) applies for the purposes of subsection (4A) as it applies for the purposes of section 147(1)(b) of TIOPA 2010. 4D Subsection (4E) applies where—

a a gain on the disposal of an intangible asset by a firm is a gain to be taken into account for section 1259 purposes, and b for those purposes, references in subsection (1) to a company are read as references to the firm. 4E Where this subsection applies, the gain referred to in subsection (4D)(a) is to be treated for the purposes of this section as if it were a chargeable realisation gain for the purposes of section 741(1) (meaning of “chargeable intangible asset”). 4F In this section, “ section 1259 purposes ” means the purposes of determining under section 1259 the amount of profits or losses to be allocated to a partner in a firm.

5 In subsection (1)— “ market value ” means the price the asset might reasonably be expected to fetch on a sale in the open market, and “ the Taxes Acts ” means the enactments relating to income tax, corporation tax or chargeable gains.

6 In this section “branch or agency”—

a means any factorship, agency, receivership, branch or management, but b does not include any person within any of the exemptions under sections 835G to 835K of ITA 2007 (persons who are not UK representatives).

7 For the purposes of this section and section 846— “ provision ” and “arm’s length provision” are to be construed in accordance with Part 4 of TIOPA 2010 (transfer pricing); a transfer is “ subject to transfer pricing ” if—

as a result of Part 4 of TIOPA 2010 (transfer pricing), the profits and losses of the company or the related party are to be calculated for tax purposes as if the arm's length provision to which those credits or debits would relate had been made or imposed instead of the actual provision to which they relate, or those profits would be so calculated if the actual provision — conferred a potential advantage in relation to United Kingdom taxation (within the meaning of that Part) on the company, and differed from the arm’s length provision.