Corporation Tax Act 2009 section 1305A

Avoidance schemes involving the transfer of corporate profits

Section 1305A counteracts tax avoidance arrangements where profits are transferred between companies in the same group, by requiring the transferring company to calculate its taxable profits as if the transfer had never taken place.

• Where two group companies enter into arrangements that result in one company (A) transferring all or a significant part of its profits (or those of another group member) to the other company (B), and a main purpose is to obtain a tax advantage, the section applies to neutralise the tax benefit.
• Company A must calculate its corporation tax profits as though the profit transfer never happened — any deduction that A would otherwise claim in respect of the transfer is denied.
• To the extent that the profit transfer is not already caught by the denial of the deduction, company A's profits are increased by the amount of the transfer, even if those profits would not otherwise have been A's own profits.
• The section does not apply where the arrangements involve derivative contracts that already fall within the separate anti-avoidance rule in section 695A (disguised distribution arrangements involving derivative contracts).