Autumn Budget 2017: Corporation Tax – transfers of assets in share re-organisations

Currently, where a UK resident company incorporates an overseas branch into a foreign subsidiary company in exchange for shares in that company, any capital gains arising on the disposal of the branch is deferred until such time as either the assets are sold by the subsidiary or the shares in the subsidiary are disposed of, other than in a corporate reconstruction of the group.

Currently there is an anomaly in that, under a group reconstruction, if the transfer of the overseas subsidiary shares is within the Substantial Shareholdings Exemption then this may inadvertently crystallise the charge previously deferred albeit there has been no actual disposal of the shares.

The proposed changes will ensure that the inadvertent tax charges arising out of this anomaly will not arise where a reconstruction is undertaken for commercial reasons, for example through a change in regulatory requirements in the foreign jurisdiction.

This change will benefit international groups who have previously incorporated their overseas branches and may be required to restructure in the future purely for commercial reasons.