Value shifting

By Tolley
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The following Corporation Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Value shifting
  • Disposals on or after 19 July 2011
  • Disposals prior to 19 July 2011

The value shifting rules are anti-avoidance rules which apply in specified circumstances where a tax advantage has been obtained as a result of a material reduction in asset values prior to a disposal. Where the rules apply, the chargeable gain or allowable loss that would otherwise apply is adjusted. This is unlike the depreciatory transactions provisions, which can only apply to restrict an allowable loss.

Finance Act 2011 introduced changes intended to simplify the value shifting rules which apply in respect of disposals on or after 19 July 2011. The new rules target tax driven arrangements explicitly intended to reduce the value of a company before a share sale. The main filter is whether the main purpose, or one of the main purposes, of the arrangements is to obtain a tax advantage. As a result, commercial arrangements should be out of scope of the rules for disposals on or after 19 July 2011.

This guidance note explains both the current Finance Act 2011 rules which apply to disposals taking place on or after 19 July 2011 and the previous rules.

Disposals on or after 19 July 2011

Following consultation, the previous complicated value shifting rules were amended by Finance Act 2011 for disposals on or after 19 July 2011. The scope of the amended rules is restricted to instances where companies have entered into tax motivated arrangements with the intention of reducing the tax liability on disposals of assets.

Any allowable loss or chargeable gain on the disposal of the shares or securities is adjusted by increasing the consideration by a ‘just and reasonable’ amount where a company is disposing of shares in, or securities of, another company and:

TCGA 1992, s 31(2)

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