Corporation Tax Act 2010 section 1066

Exception for certain transfers between UK resident companies

Section 1066 provides an exception to the rule that treats certain expenses of close companies as distributions, where both the company and the participator are UK resident and part of the same corporate group, and the benefit arises from an inter-company transfer of assets or liabilities.

• The distribution treatment under section 1064 does not apply where both the company and the participator are UK resident, one is a 51% subsidiary of the other (or both are 51% subsidiaries of the same UK resident parent), and the benefit arises from a transfer of assets or liabilities between them.
• When determining whether a 51% subsidiary relationship exists, any shares held directly as trading stock, any shares held indirectly where the direct holder treats them as trading stock, and any shares held in non-UK resident companies are all excluded from the ownership calculation.
• Shares are considered to be held as trading stock only if a profit on selling them would be treated as a trading receipt of that company's trade.
• This exception ensures that genuine intra-group asset transfers between UK resident companies within the same corporate group are not caught by the close company distribution rules.