On 25 March 2019, the First-tier Tribunal held that the denial of intra-group transfer relief (section 171 TCGA 1992) for transfers to a non-UK EU parent was contrary to the right to freedom of establishment.
The appellant (a UK company) made two disposals (of intangible assets and shares, respectively) to non-UK members of the same group of companies as the appellant (a Swiss and a Dutch company, respectively). Neither transferee had a permanent establishment in the UK. HMRC took the view that the appellant was liable to corporation tax on chargeable gains in respect of each transfer.
The Tribunal found in favour of the appellant in respect of the transfer of shares to the Dutch company (the ultimate parent of the group) but not in respect of the transfer of intangible assets to the Swiss group company.
For the intra-group transfer of intangible assets to the Swiss company, the Tribunal agreed with HMRC that the effect of the denial of section 171 group relief was not to amount to a restriction on the ultimate parent’s freedom of establishment. The Tribunal took the view that relief would also have been denied for this transfer had the ultimate parent been a UK company (or otherwise subject to UK tax).
However, for the intra-group transfer of shares to the Dutch ultimate parent company the Tribunal found that the requirement for the Dutch company to be subject to UK tax (in order for section 171 to apply) was a restriction on the parent’s freedom of establishment. It would appear from the Tribunal’s decision that, had the appellant been able to pay the assessed tax in instalments, the denial of section 171 relief would have been a “proportionate” means of balancing the allocation of taxing rights between member states.
Whether the decision will be appealed remains to be seen. Taxpayers that have incurred UK tax on intra-group transfers of assets to non-UK EU parents (or to other non-UK EU group companies) may want to consider whether they have grounds for any tax repayment.