Schedule 9: Taxation provisions relating to nuclear transfer schemes Part 2 – Other Transfers relating to BNFL or the UKAEA etc
533.Part 2 of Schedule 9 applies to transfers of shares, property, rights and liabilities of BNFL, UKAEA and their wholly owned subsidiaries. However, unlike Part 1, Part 2 only applies to transfers made in accordance with a nuclear transfer scheme, which must always fall within section 39, where the transferee is a publicly owned company which is not a subsidiary of the NDA, or the UKAEA. The provisions in Part 2 are in many cases in very similar terms to those in Part 1.
534.Paragraph 16 identifies the transfers which may fall within Part 2, as described above.
535.Paragraph 17 deals with the application of section 343 of the Income and Corporation Taxes Act 1988 (the “Taxes Act”) to transfers where the conditions in section 343(1) surrounding ownership of the transferor and transferee are satisfied in respect of such a transfer.
536.The paragraph states that section 343(4) shall not apply in respect of such transfers. This means that the general restriction of the trading losses which may be transferred by reference to the excess of relevant liabilities over relevant assets is specifically not applied to such transfers.
537.The application of section 343(4) of the Taxes Act has been removed as it is not yet determined what transfers will be made under nuclear transfer schemes. It is therefore possible that nuclear provisions relating to a different trade could remain in the transferor company when a nuclear transfer scheme is enacted. This may ordinarily cause a loss restriction under section 343(4) of the Taxes Act. It is the intention of Government that the possible restriction of tax losses should not be considered in determining the methods available to effect the transfer and that tax losses correctly attaching to a trade should not be lost solely because of the arrangements of a transfer scheme.
538.Paragraph 18 explains that transfers of chargeable assets within Part 2 of Schedule 9 are to be tax neutral for the transferor by treating the disposal as one where neither a gain nor a loss arises for tax purposes. This tax neutral disposal value is the base cost for acquisition purposes for the transferee.
539.The aim of this paragraph is to prevent tax liabilities arising in companies as a result of historic fixed asset transfers, where such liabilities arise only as a result of the implementation of nuclear transfer schemes.
540.Paragraph 19 prevents a degrouping charge as defined by the 1992 Act from arising in a company under a nuclear transfer scheme to which Part 2 of this Schedule applies. Paragraph 19(2) prevents the 1992 Act from deeming the transferred company to have made a chargeable disposal of certain assets on leaving the old group. Paragraph 19(3) ensures that the deemed disposal and reacquisition is reinstated when the transferred company leaves the new group, ‘new group’ being defined in the subparagraph.
541.Paragraph 20 provides that a transfer of debts under a nuclear transfer scheme to which Part 2 of this Schedule applies will not give rise to a tax charge in the transferor, to the extent that the debts transferred are treated as chargeable assets. This is consistent with the general aim of ensuring tax neutrality for transfer schemes.
542.Paragraph 20(2) deems the transferee to have always been the creditor in respect of the debt and therefore the effect is that no disposal takes place for the purposes of the 1992 Act.
543.Paragraph 21 details the capital allowances position where assets are transferred other than as part of a trade.
544.Where plant and machinery is transferred in accordance with a nuclear transfer scheme but the transfer does not form part of a trade, assets will be transferred at their book value. This treatment mirrors the treatment of assets transferred to the NDA, as set out in paragraph 9.
545.Paragraph 22 provides that the legislation detailing the capital allowances position in respect of transfers between connected persons is not to apply to transfers made in accordance with nuclear transfer schemes within Part 2.
546.Paragraph 23 explains how transfers of loan relationships should be treated in the event that a transferee replaces a person as party to a loan relationship in accordance with a transfer scheme, where Part 2 of this Schedule applies. The aim of the paragraph is that such transfers should be treated as tax neutral so that no tax benefit is obtained by either the transferor or the transferee as a result of the transfer.
547.Accordingly, paragraph 23(2) applies the loan relationship rules of Finance Act 1996 to the loan relationship, and treats the transferee as if it had been a party to the loan relationship since the time the transferor had been party to it.
548.Paragraph 24 explains how transfers of derivative contracts should be treated in the event that a transferee replaces a person as party to a derivative contract in accordance with a nuclear transfer scheme to which Part 2 of this Schedule applies. As with paragraph 23, the aim is that such transfers should be treated as tax neutral such that no undue tax benefit is obtained by either the transferor or the transferee as a result of the transfer.
549.Accordingly, paragraph 24(2) applies the derivative contract rules of Schedule 26 to the Finance Act 2002 to the derivative contract, and treats the transferee as if it had been a party to the derivative contract since the time the transferor had been party to it.
550.Paragraph 25 explains how the transfers of intangible assets are to be treated where a transfer is made under a nuclear transfer scheme to which Part 2 of this Schedule applies. As with paragraphs 23 and 24 the aim is that such transfers should be treated as tax neutral with no undue tax benefit being obtained by the transferor or transferee.
551.Paragraph 25(1) explains that the transfer of a ‘chargeable intangible asset’ should be treated as a tax neutral transfer for the purposes of Schedule 29 to the Finance Act 2002. Paragraph 25(2) explains that where an intangible asset is transferred that was not a chargeable intangible asset in the hands of the transferor but falls to be treated as such by the transferee, then the acquisition value for tax purposes for the NDA is the same amount as the disposal consideration of the transferor under paragraph 3(2) of the Schedule, that is an amount causing neither a gain nor a loss to arise on the transferor.
552.Paragraph 26 defers a degrouping charge that would otherwise arise as a result of the implementation of a nuclear transfer scheme, where the charge would arise in respect of intangible fixed assets that have previously been transferred between group companies. The aim of this paragraph is to prevent tax liabilities arising in companies due to historic transactions where such liabilities arise only as a result of the implementation of transfer schemes.
553.Paragraph 26(1) identifies the circumstances in which the paragraph applies. Paragraph 26(2) defers the application of the degrouping legislation of paragraph 58 of Schedule 29 to the Finance Act 2002 and paragraph 26(3) applies this degrouping legislation on the first subsequent occasion that the degrouped company ceased to be a member of its new group of companies, ‘new group’ being defined in the subparagraph.
554.Paragraph 27 ensures that where a trade or part of a trade is transferred under a section 39 scheme from a BNFL company to another publicly owned company that is not an NDA subsidiary, there is tax neutrality and the transferee effectively stands in the shoes of the transferor for tax purposes. This will potentially apply to trading items such as trade debtors or sums received in advance for the supply of goods or services by the transferor, or trade creditors and sums paid in advance for the provision of services to the company. The provision is similar to that in paragraph 15 which applies in respect of transfers to the NDA or a subsidiary within Part 1 of this Schedule.