CTM06505 - Corporation Tax: company purchase schemes: introduction and signposts
CTA10/S706 to S717
CTA10/S706 to S717 were introduced, before being rewritten to CTA10, by FA94/S135 and designed to counter the use of "company purchase schemes" to avoid the payment of Corporation Tax (CT)Ìý In a typical case a profitable company would be stripped of its trade or business, usually by way of transfer to another member of its group, leaving it only with sufficient cash to settle its outstanding CT.Ìý »Ê¹ÚÌåÓýapp company would then be sold - for a sum equivalent to a proportion of the tax outstanding - to a third party (often non-resident) who would arrange for the company to participate in arrangements intended to reduce the tax liability to nil.Ìý On the assumption that the arrangements would be successful the new owner would then arrange for the cash to be withdrawn.
If the avoidance arrangements were effective the exchequer ends up with no tax.Ìý But if they are found to be ineffective HMRC would anyway have little or no prospect of securing payment of the tax unpaid because the company would have been left with no funds.
Subsequently alternative schemes were developed which attempted to find ways around the 1994 legislation.Ìý For example, as that legislation only applied to tax liabilities for accounting periods beginning before the change in ownership, the new schemes ensured that the tax liability crystallised in an accounting period beginning after that date.Ìý »Ê¹ÚÌåÓýappy did this by using provisions such as rollover relief that postponed the tax charge or other provisions that involved income or gains being taxed in periods other than that in which they accrued.Ìý CTA10/S713 to S718 (as ICTA88/S767AA), was introduced by FA98/S114 to counter these new schemes in relation to changes in ownership on or after 2 July 1997.
Under the legislation, on the assumption that the conditions are satisfied, HMRC is able to collect the tax that was outstanding from the persons who previously controlled the company or, alternatively, other companies under their control.Ìý See