INTM603100 - Transfer of assets abroad: Exemptions from charge: Genuine transaction exemption - conditions

Paragraph 7, Schedule 26 FA 2013 added a new section: ITA07/S742A.

This is an additional and free standing ‘genuine transactions’ exemption test which operates independently of the ‘avoidance purpose’ exemption test whose conditions are outlined in INTM602760.

ITA07/S742A applies, in line with the general scheme of the provisions, to the potential liability of an individual to a transfer of assets charge by reference to a relevant transaction.

The conditions for its application are:

  • the transaction is effected on or after 6 April 2012, and
  • on the assumption that the transaction is genuine (see INTM603120), and
  • it would otherwise be caught by the ToAA charge, but such a charge would breach the EU Treaty freedoms (most likely, of freedom of establishment or freedom of movement of capital) without justification (see INTM603140).

The individual must satisfy HMRC (subject to appeal in the usual way) that the transaction may be considered genuine, analysed by reference to objective features, and having regard to any surrounding arrangements and other relevant circumstances: see INTM602660 - applying for exemption.

Thus, the test only needs to be considered when there is a potential breach of the EU Treaty freedoms: see INTM603140.

In applying the test, HMRC officers should bear in mind the underlying policy of allowing an exemption for ‘genuine transactions’ which serve the treaty aims of:

  • economic interpenetration, under freedom of establishment, and
  • the efficient allocation of capital (as distinct from just tax regime shopping).

Time should not be spent on detailed enquiries where the transactions and arrangements appear genuine in that context. But where the circumstances suggest that on balance these aims are not served - and perhaps a veneer of commerciality disguises the underlying reality so that income may arise from a purely artificial arrangement - enquiries aimed at teasing out the commercial reality will be justified.

In every case the individual should be given full opportunity to explain the genuine nature of the transactions. INTM603120 gives further detail.