Clause 36 - Notional transfers within a group
Finance Bill
12:00 pm
Richard Spring (Shadow Minister, Treasury; West Suffolk, Conservative)
The clause tidies up existing legislation so that an existing relieving provision can be used by UK branches of overseas companies with capital losses. The context is the rules for offsetting capital gains and capital losses within a group of companies. There is no group relief as such for capital losses. Group relief gives scope for offsetting losses and profits only on trading losses, management expenses and so on. To offset capital losses, which in any case can only be offset against capital gains, traditionally the asset being disposed of had to be transferred to another group member so that the losses and profits could be realised within the same company. However, the Finance Act 2000 inserted what is now section 171A of the Taxation of Chargeable Gains Act 1992, which allows that transfer to happen notionally. Companies can elect for the transfer to be deemed to have happened and thus the capital loss and capital gain are suitably matched.
Clause 36 extends section 171A. It covers a branch situation and thus allows a notional transfer in a situation in which A and B are both 100 per cent. subsidiaries of C, B has a branch in the UK, A is about to dispose of an asset which will produce a chargeable capital gain, and B has capital losses in its UK branch. The provision in the clause will mean that A and B can make an election, deeming A’s asset to be used in B’s UK activities. While that is sensible, it once again begs the question of why group relief cannot simply be extended to capital losses, restricted to offset against capital gains in other group companies if necessary.
I have one further point. A number of other countries permit such a use of capital losses—for example, Belgium, Norway, Spain, Italy, Switzerland, Greece, Austria and most of eastern Europe. New Zealand and Hong Kong do not tax capital gains or losses at all. That comes back to the issue that underlies so much of our proceedings: the weight of taxation in this country versus that in other parts of the world with which we compete.