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Budget 2013: £1bn Corporation tax loss-buying abuse blocked

COMPANIES ENGAGING in arrangements whereby they sell their losses to unconnected parties will no longer be able to do so, after the chancellor closed the loophole in his 2013 Budget.

Companies were able to use planning techniques to effectively sell their corporation tax losses to unconnected third parties, which was against the principles under which losses could be used.

The underlying principles of loss relief mean losses should only be available to the current owner or against profits of the same activity in order to gain reliefs.
The government expects to save £1bn in closing down a number of loopholes in order to scupper the planning.

Due to commence from next month, HM Revenue & Customs’ document outlining the legislation said the department expects the measure will have “negligible economic impact”, despite the expected £1bn saving.

Alvarez & Marsal managing director for corporate tax, Ian Fleming, said companies will have to take extra care in the treatment of their losses, particularly in takeovers and acquisitions.

He said: “In M&A situations where companies are being sold with losses, care should be taken to ensure the losses are preserved as much as possible.

The closure of the loopholes form part of a Targeted Anti-Avoidance Rule (TAAR), which the government is labelling a “Deduction Transfer TAAR”.

Fleming expressed concern that the government has introduced the legislation shortly before a General Anti-Abuse Rule comes in.

“When the government is about to introduce a GAAR, it seems unhelpful to complicate the tax system with a TAAR”, he said.

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