Revenue Note for Guidance

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Revenue Note for Guidance

623 Company ceasing to be member of group

Summary

This section sets out the charge to tax on one or more group members leaving a group of companies in respect of assets the company leaving the group acquired from other group companies within a period of 10 years immediately preceding the time the company leaves the group. It also provides rules of assessment and collection of tax in such circumstances.

Details

Interpretation

(1)(a) Associated companies are described as 2 or more companies who, by themselves, would form a group of companies.

(1)(b) A chargeable gain deferred on a replacement of business assets is a chargeable gain on the disposal of the old assets which, under section 597, is treated as not accruing until the new assets cease to be used for the company’s trade.

(1)(c) An asset and another asset owned later, the value of which is derived from the first asset, are treated as one and the same asset. In particular, a freehold is treated as the same asset as a leasehold where the reversion is later acquired by the lessee.

(1)(d) A company which leaves a group as a result of it or another group member winding up for bona fide commercial reasons (and not for the purposes of avoiding tax) is not considered to have ceased to be a member of a group.

Application

(2) This section applies to assets where —

  • a company which is a member of a group had acquired an asset from another member of the group,
  • the company subsequently ceases to be a member of the group within 10 years after the acquisition,
  • at the time of acquisition of the asset the company was resident in the State or (in the case of a company which was not so resident) the asset was a chargeable asset in relation to the company,
    and
  • at the time of acquisition the group company from which the asset was acquired was resident in the State or (in the case of a company not so resident) the asset was a chargeable asset in relation to the company.

(2A) The section does not apply to inter-group transfers of assets between the National Asset Management Agency and its effective 75 per cent subsidiaries (within the meaning of section 616(1)(g)).

(3)(a)(i) Excluded from the application of the section are transfers of assets from one associated company to another associated company and both such companies and other associated companies, if any, leave the group at the same time, while continuing to be in a group relationship with each other.

(3)(a)(ii) & (b) Where 2 or more such associated companies leave a group at the same time and a dividend has been paid or a distribution has been made by one of the associated companies to a company which is not one of the associated companies wholly or partly out of profits deriving from the transfer of an asset between the associated companies, then, the amount of the dividend or of the distribution attributable to such profits is to be treated as additional consideration received by the company (in respect of the dividend/distribution) in respect of a disposal which disposal gave rise to or was caused by the associated companies ceasing to be group members.

Effect of leaving a group

(4) A charge to tax is imposed where a chargeable company ceases to be a member of a group and the chargeable company or an associated company of the chargeable company (which is also leaving the group) at that time owns an asset to which this section applies. The charge to tax is imposed by deeming the chargeable company to having effectively disposed of and immediately reacquired the asset at market value at the date when the asset was acquired from another group member. The chargeable company would have been treated under section 617 as having acquired the asset at the original cost to the other group company from which it acquired the asset. This provision by deeming the asset to have been disposed of at market value generates a chargeable gain equal to the excess of the market value over the original cost of the asset to the group member from which it was acquired. Also brought into charge by this subsection is a gain on the sale of business assets which has been deferred under section 597. This provision does not apply to trading stock.

Finance Act 2014 amended subsection (4) to clarify that the due date for payment of the charge to tax should be determined by reference to the accounting period in which the company leaves the group. Therefore, the due date for payment of the tax is the due date for payment of the company’s corporation tax for that accounting period. The rate of tax is determined by reference to the capital gains tax rate applying at the time of the original intra-group transfer.

Recovery of tax from other group member

(5) & (6) Revenue have the right —

  • to recover, from other companies in the group, tax assessed under this section which remains unpaid 6 months after the due date,
  • to assess the principal company, or any company which owned the asset at the due date (or when the chargeable company ceased to be a member of the group) for all or part of the tax due within 2 years after that date,
  • to make assessments up to 10 years after the chargeable company leaves the group, and to make recomputations and adjustments of tax under the section.

Where, under this section, another member company pays the tax due it has the right to recover the tax from the chargeable company.

Meaning of “group of companies”

(7) For the purposes of the section, a “group of companies” includes companies which, under the law of a relevant Member State or other territory with which this country has a double tax treaty, are resident for tax purposes in such Member State or territory. In this context, “tax” means any tax in the Member State or territory which corresponds to corporation tax in the State.

Relevant Date: Finance Act 2017