MTT49020 | Particular entities and adjustments: Transitional provisions: Intra-group transfers before entry into regime

A targeted anti-avoidance rule applies to prevent an increase to the carrying value of an asset being recognised for MTT purposes, where that increase arises as a result of an intra-group transfer made before MTT or other equivalent taxes apply to the transferor.

Deferred tax assets relating to the transferred asset may be limited.

The rule is set out in paragraph 2, Schedule 16 of Finance (No.2) Act 2023.

Conditions

an asset is transferred between two members of a group in an accounting period
the transferor was not subject to MTT or a foreign equivalent in that period
the transferor was not subject to a qualifying domestic top-up tax in that period
the transfer took place on or after 1 December 2021
the asset is not manufactured, and is not of a type sold, in the course of carrying on a trade by either the transferor or transferee

Meaning of ‘subject to MTT or a foreign equivalent’

When determining whether the transferor was subject to MTT or a foreign equivalent, it is not considered subject to MTT for the purpose of this rule solely because another member of the group in the same territory is subject to the tax. This can happen in the case of intermediate parent members, which may be the responsible member for only some of the members of the group in the member’s territory. See MTT61030 for guidance on responsible members.

Additionally, a member will not be considered to be subject to MTT if the QDMTT safe harbour (see MTT15100+) applies to it.

Effect

Where the rule applies:

Additionally, where the relevant time is later than the date of the transfer (i.e., when the transferee first becomes subject to MTT or a foreign equivalent):

Relevant time

The ‘relevant time’ is the later of:

the date of the transfer, and
the commencement of the first period in which the transferee is subject to MTT or a foreign equivalent.

Value of deferred tax assets

When determining the value of deferred tax assets arising in relation to the asset:

if the rate of tax in relation to the asset exceeds 15%, it is to be valued as though the rate had been 15%, and
exclude the impact of any valuation adjustments or accounting recognition adjustments.

Tax paid amount

The tax paid amount is the sum of:

When determining the tax expense of the transferor:

where a loss arising in the period of transfer is offset against a taxable gain arising on the transfer, ignore that offsetting, and
exclude the impact of any valuation adjustments or accounting recognition adjustments.

Cap amount

The cap amount is the amount given by:

This means the cap amount is 15% of the value of the asset grossed up from the tax expense paid by the transferor on the asset.

Election to disapply the rule

Where the cap amount is exceeded by the sum of:

the tax paid amount, and
the value of deferred tax assets that arose in relation to the assets before their transfer,

the group may elect that the rule to be disapplied.

This is an annual election that is made in respect of a transfer. See MTT52200 for guidance on making elections.

Meaning of ‘transfer of assets’

For the purpose of this rule, a ‘transfer of assets’ includes a transaction relating to assets that does not result in a change in their ownership, if the transaction has a similar effect for accounting purposes to a change in ownership of the assets.

Series of transfers

Where there are a series of intra-group transfers, and each of those transfers meet the conditions of this rule, that series of transfers is treated as a single transfer.

In such a case:

the value of the asset is to be treated as the carrying value of the asset in the hands of the transferor in the first transfer of the series,
the cap amounts, tax paid amounts, and value of deferred tax assets are to be aggregated,
the ‘date of transfer’ when determining the relevant time is the date of the last transfer in the series, and
the ‘transferee’ when determining the relevant time is the transferee in the last transfer of the series.