The above brief outlines HMRC's view that no Corporation Tax relief is due in circumstances where it is claimed that goodwill is created out of synergies realised as a consequence of an acquisition.

HMRC has previously stated they would challenge past claims with a view to litigation where there are arrangements to claim Corporation Tax relief for goodwill under the corporate intangible fixed asset regime where a company has acquired a business that was carried on by a related party before commencement of the regime (1 April 2002).

A case on goodwill, Greenbank Holidays Limited vs The Commissioners for HMRC, was recently heard by the Upper Tribunal which found in favour of HMRC.

In HMRC's opinion, comments at paragraphs 24 to 28 of the judgment indicate the approach that a Tribunal may take in relation to goodwill arguments where synergy benefits might arise from the acquisition or merger.

HMRC'S view is that both the First-Tier and Upper Tribunals confirmed:

• ‘goodwill’ includes internally-generated goodwill;
• ‘goodwill’ is neither created by the purchaser on acquisition nor created when recognised in the purchasers accounts;
• the goodwill recognised by the purchaser is the same asset as that disposed by the vendor;
• paragraph 121 Schedule 29 FA02 (now Section 884 CTA 2009) determines the time of creation in relation to the commencement of Sch 29/Part 8; and
• the Section 70 FA09 amendment is a confirmatory amendment.

HMRC state that the rules of the regime exclude goodwill in these circumstances, therefore relief is not available.

HMRC are aware of arrangements where taxpayers are continuing to claim relief in circumstances similar to those in Greenbank, notwithstanding the decision in that case.

An argument is advanced that the goodwill is created through ‘synergies’ achieved on merging the business acquired with the existing business. HMRC believe the Greenbank decision applies in all cases, including those in which a synergy claim is made, and will continue to challenge past or future claims with a view to litigation.

For more information visit http://www.hmrc.gov.uk/briefs/company-tax/brief2511.htm