Corporation tax clarified for the sale of intangible fixed assets.

The tax position on the disposal of a company’s intangible fixed assets involving non-cash consideration has been clarified. The measure also amends the rules in relation to licences for intangible fixed assets granted by or to a company where the other party to the licence is a related party.

Current law governing the realisation of intangible fixed assets is contained in chapter 4 of part 8 of the Corporation Tax Act 2009 (CTA), where the profit or loss on the disposal of an intangible fixed asset is expected to be calculated by reference to the proceeds of realisation for accounting purposes. In a cash transaction this would generally be the amount actually received, subject to any arms-length or market value adjustment.

The market value rule requires that where an intangible fixed asset is transferred between related parties the amount recognised is equivalent to the amount of cash that would be received if the transaction was at market value. The transfer pricing legislation in chapter 1 of part 4 of the Taxation (International and Other Provisions) Act 2010 (TIOPA) will generally take priority over the market value, but is similar in effect in applying the arms-length principle to a transaction.

The Autumn 2017 budget introduces proposed revisions of the current law as part of the Finance Bill 2017/18. These revisions aim to ensure that the market value rule can apply to an intangible fixed asset licence granted between related parties and  therefore prevent manipulation of the transaction price to avoid unfair tax advantages.

The proposed revisions will also confirm that the proceeds of realisation for accounting purposes within chapter 4 of part 8 of CTA 2009 should recognise the market value of any non-cash consideration (which includes anything received other than cash – typically, other assets such as shares). This clarification applies to all disposals, not just licensing arrangements, and ensures that transactions other than cash are treated similarly to a cash transaction.

Article from ACCA In Practice