.png)
.png)
HMRC have outlined their view of what it means to be associated companies for the purposes of the exception to the de-grouping charge, following the Court of Appeal decision in Johnston Publishing (North) Ltd v CRC [2008] STC 3116.
The case concerned the degrouping charge which may arise when a company leaves a group of companies at a time when it owns an asset that had been acquired from a fellow group company (TCGA 1992, s 179).
The Court of Appeal confirmed the taxman's view of the exception to the de-grouping charge for associated companies in s 179(2): the transferor and transferee company are required to be associated at the time of the intra-group transfer as well as at the time they leave the group.
The question of what may constitute 'two or more companies (that) by themselves form a group of companies' for the purposes of s 179(10) was not directly in point in the Johnston case and was not fully explored.
It is necessary to refer back to the basic definition of a capital gains group at s 170 when considering whether any company(ies) other than the transferor and transferee must be present in the sub-group of companies at the time when it leaves the group.
In Revenue & Customs Brief 59/08, HMRC also consider that the question of whether companies are associated arises in respect of each potential de-grouping charge, and that regard must be had to the use of the words 'by themselves' in s 179(10).
Therefore, in this context, the sub-group in point would comprise the minimum number of companies necessary to establish the required group relationship.
Thus, as noted in the decision, if transferor A and transferee B can only be considered to form a group by reference to some other company C at the time of the transfer, then A, B and C must also form a group at the time they leave.
That is the sub-group to be considered. This situation will arise, for example, where A and B are sibling subsidiaries of C.
The Revenue says the use of the words 'by themselves' in s 179(10) means that the presence, or absence, of any company(ies), other than A, B and such other companies that are required to identify a group relationship between A and B, would not prevent s 179(2) applying.
Section 170(2) defines a group by reference to a principal company and its 75% subsidiaries and s 170(10) provides that a group remains the same while the principal company remains the same.
Applying these to the provision at s 179(10), HMRC would expect the sub-group to remain defined by reference to the same company from the time of the asset transfer to the time the companies leave the group.
The Revenue's Capital Gains Manual para 45456 will be updated to state that the view expressed there has been confirmed by the Court of Appeal.
The department's interpretation of what it means to be 'associated companies' will also be added to the manual.
