(1)This Chapter sets out special rules relating to transactions between related parties.
(2)Sections 845 to 849 are about the rule that transfers between a company and a related party are treated as being at market value.
(3)Sections 850 and 851 set out other rules for transactions involving related parties.
(4)See Chapter 12 for the meaning of “related parties”.
(1)The basic rule is that a transfer of an intangible asset—
(a)from a company to a related party, or
(b)to a company from a related party,
is treated for all purposes of the Taxes Acts as being at market value (as respects both the company and the related party) if condition A or B is met.
(2)Condition A is that the asset is a chargeable intangible asset in relation to the transferor immediately before the transfer.
(3)Condition B is that the asset is a chargeable intangible asset in relation to the transferee immediately after the transfer.
(4)That rule is subject to—
(a)section 846 (transfers not at arm’s length),
(b)section 847 (transfers involving other taxes),
(c)section 848 (tax-neutral transfers), and
(d)section 849 (transfers involving gifts of business assets).
(5)In subsection (1)—
“market value” means the price the asset might reasonably be expected to fetch on a sale in the open market, and
“the Taxes Acts” means the enactments relating to income tax, corporation tax or chargeable gains.
(1)Section 845 does not apply if the consideration for the transfer—
(a)falls to be adjusted for tax purposes under Schedule 28AA to ICTA (provision not at arm’s length), or
(b)falls within that Schedule without falling to be so adjusted.
(2)For the purposes of subsection (1)(b) the consideration for a transfer falls within that Schedule without falling to be adjusted under it if—
(a)the conditions in paragraph 1(1) of that Schedule are met, but
(b)the actual provision does not differ from the arm’s length provision.
(3)In subsection (2) “the actual provision” and “the arm’s length provision” have the same meaning as in that Schedule (see paragraph 1(1) and paragraph 1(2) and (3) of that Schedule respectively).
(1)This section applies if—
(a)in a case where section 845(1) applies and the asset is transferred from the company to a related party, the transfer is at less than its market value,
(b)in a case where that section applies and the asset is transferred to the company from the related party, the transfer is at more than its market value, and
(c)conditions A and B apply.
(2)Condition A is that the related party—
(a)is not a company, or
(b)is a company in relation to which the asset is not a chargeable intangible asset immediately after the transfer to it or, as the case may be, immediately before the transfer from it.
(3)Condition B is that the transfer—
(a)gives rise to an amount to be taken into account in calculating any person’s income, profits or losses for tax purposes because of a relevant provision, or
(b)would do so apart from section 845(1).
(4)If this section applies, section 845(1) does not apply in relation to the calculation referred to in subsection (3) for the purposes of any relevant provision.
(5)In this section “relevant provision” means—
(a)section 209 of ICTA (meaning of “distribution”), and
(b)Part 3 of ITEPA 2003 (employment income: earnings and benefits etc treated as earnings).
(1)Section 845 does not apply if the transfer is tax-neutral for the purposes of this Part as a result of any provision in this Part.
(2)For such provisions, see, in particular—
(a)section 775 (transfers within a group), and
(b)sections 818 to 826 (transfer of business or trade).
(1)This section applies if—
(a)the asset is transferred to the company mentioned in section 845(1), and
(b)on a claim for relief under section 165 of TCGA 1992 (relief for gifts of business assets) in respect of the transfer, a reduction is made under section 165(4)(a).
(2)The transfer is treated for the purposes of this Part as being at market value, less the amount of the reduction.
(3)Any necessary adjustments may be made, by way of assessment, amendment of returns or otherwise, regardless of any relevant time limits.
(1)Chapter 7 (roll-over relief in case of realisation and reinvestment) does not apply in relation to the part realisation by a company of an intangible fixed asset if there is a related party acquisition as a result of, or in connection with, the part realisation.
(2)For this purpose there is a related party acquisition if a person who is a related party in relation to the company acquires an interest of any description—
(a)in the intangible fixed asset, or
(b)in an asset whose value is derived in whole or in part from that asset.
(1)This section applies if—
(a)a royalty is payable by a company to or for the benefit of a related party,
(b)the royalty is not paid in full within the period of 12 months after the end of the period of account in which a debit in respect of it is recognised by the company for accounting purposes, and
(c)credits representing the full amount of the royalty are not brought into account under this Part in any accounting period by the person to whom it is payable.
(2)The royalty is brought into account for the purposes of this Part only when it is paid.