CG52633 | Share exchange: anti-avoidance: clearance procedure: bona fide commercial reasons

TCGA1992/S138

HMRC will not give statutory clearance to arrangements that seek to avoid a criminal, civil or regulatory risk or liability.

This is because HMRC consider that the “bona fide commercial reasons” test expressly requires genuine, “good faith” commercial reasons for undertaking the exchange or scheme of reconstruction.

Where an applicant is aware of a specific risk or liability of this nature HMRC consider this to be material information. Failure to disclose this in a clearance application could result in the resulting notification being considered void. Whether a clearance given is void is ultimately a matter for the Tribunal, see CG52636.

For example – the X group has subsidiary Y that faces potential prosecution under Health and Safety legislation. The arrangements involve transferring the business of Y to a new company, Z, incorporated by the shareholders of X. X and Y will then be liquidated. This is potentially a scheme of reconstruction within TCGA92/S136.