INTM603160 | Transfer of assets abroad: Exemptions from charge: Genuine transaction exemption - examples of application

Creating an establishment overseas, whether or not the activities are carried on by a company, will attract exemption provided the activities are genuinely commercial and transactions take place at arm’s length.

But HMRC will examine the arrangements to ensure that, for example, they do not in reality reflect a UK establishment which is fronted by the foreign arrangements. Where activities do take place both overseas and in the UK, the UK activities will not fall within the exemption as the arrangements in this respect would constitute artificial profit shifting and an abuse.

For the purpose of determining where activities take place, the principles of profit attribution will be useful, having regard to

• the actual situation of assets which generate profit

• where key decisions are taken

• where key decision-making persons habitually reside

• where decisions are truly taken.

Assets managed abroad

The offshore funds legislation in Part 8 of TIOPA 2010 is designed to charge offshore income gains and prevent the avoidance of tax on income accruing. The transfer of assets provisions, among other things, prevent this legislation being circumvented through the transfer of assets into the hands of a manager based offshore. Although the overseas management activity may itself be rewarded on an arm’s length basis, this does not mean that returns on the assets will escape UK tax where the conditions of the transfer of assets provisions are satisfied.