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The Treasury has published a full consultation paper with detailed simplification proposals, including draft legislation, on capital losses after a change in company ownership, value shifting and depreciatory transactions, and degrouping charges.
Since the related companies simplification review was announced at the 2007 pre-Budget report, dialogue between business and the Government has identified the capital gains rules for groups of firms as an area where simplification would be particularly useful.
Chapter 2 of the new document, called Simplification review: capital gains rules for groups of companies – a consultation document, sets out Government proposals to simplify the rules governing the use of capital losses following a change in company ownership in cases where the targeted anti-avoidance rules on gain and loss buying do not apply.
The main proposal is to remove restrictions on the use of losses that are not realised at the time a change in ownership takes place.
As a result, there will no longer be any requirement to apportion gains and losses on pre-entry assets, and many of the complex rules applying to holdings of shares and securities can be repealed.
An additional proposal is for the amended rules to apply in a similar way to assets used for the purposes of trades and other businesses, rather than being limited to trades alone.
Chapter 3 describes the Government’s proposals to simplify the legislation in respect of value shifting and depreciatory transactions.
The plan is to replace the complex value shifting rules applying to groups at TCGA 1992, s 31 to s 34 with a simpler, motive-based rule. In addition, the Government proposes the introduction of a six-year time limit to the depreciatory transactions rules at s 176.
Finally, chapter 4 maps the Government’s proposals on simplifying the degrouping charge rules and ensuring a closer matching between economic outcomes and tax outcomes.
One element is to clarify the existing exception to the degrouping charges for asset transfers between associated companies that leave a group together.
A further element is to ensure the degrouping charge is generally payable by the vendor group rather than the company which has been sold.
In addition, the proposals would provide a further safeguard to the effect that where no exception or exemption applies, the degrouping charge will not result in economic double taxation.
Comments on Simplification review: capital gains rules for groups of companies – a consultation document should be emailed by 17 May 2010.
