Commentary on Sections Part 2: Charge to corporation tax: basic provisions Overview Section 26: Transfer of financial assets
132.This section applies the separate enterprise principle to loans or financial assets transferred between the permanent establishment and any other part of the company. It is based on paragraphs 7(1) and 8(1) and (2) of Schedule A1 to ICTA.
133.Each of the sections applying the separate enterprise principle to banks contains the phrase “in accordance with the separate enterprise principle” to clarify that the provisions given are all within the general principle in section 21 and not expressing new principles.
134.Subsections (3) and (4) retain the term “valid commercial reasons” in paragraph 8(2) of Schedule A1 to ICTA notwithstanding that the usual phrase adopted in rewrite Bills is either “commercial reason” or “genuine commercial reason”. This is because “valid commercial reason” is the term used in the Commentary (paragraph 15.2) to Article 7(2) of the treaty.
135.Subsection (4) also contains the term “tax advantage”. The term is undefined (as in the source legislation) although its use elsewhere in the Taxes Acts refers to the definition in section 709 of ICTA. The absence of a definition in paragraph 8(2) of Schedule A1 is intentional. It was considered that any attempt to define all possible and future forms of tax advantage in this context would have added complexity for no good purpose.