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Paragraph 19 of the legislation provides an exemption from the requirement to notify in relation to uncertain amounts of Corporation Tax (paragraph 8(2)), where the overall tax advantage (considering the group position) is below the threshold.

A second condition (sub-paragraph 19(b)) must be met in addition to the conditions in sub-paragraphs 19(a) and 19(c), for this exemption to apply. This condition is that there are two or more companies, who are members of the same group (as defined by paragraph 3), transacting with one another.

鈥淭ransaction鈥� is defined in paragraph 30. Where this condition is met, and there is an uncertain amount of corporation tax (as required in sub-paragraph 17(a)), taxpayers must then consider whether the third and final condition in sub-paragraph 17(1)(c) is met in order to determine whether this notification exemption applies.

This condition is that the net effect of the transaction across the group (as defined in paragraph 3) results in a tax advantage that is below the threshold.

Example

Company A sells a building with a base cost of 拢20 million to Company B for market value of 拢60 million. Shortly afterwards but in the same accounting period, Company B sells the property to an unrelated party for 拢70 million. On the basis that the companies are within the same capital gains group, they apply the rules at Section 171 TCGA 1992 such that Company B acquires the property at no gain/ no loss from Company A. Company B recognises a 拢50 million gain (拢70 million less base cost of 拢20 million) when it sells the property, creating a Corporation Tax (CT) charge of 拢9.5 million (拢50m X 19%).

A provision is recognised in the accounts in respect of this sale due to the uncertainty that s171 may not apply to the transfer from Company A to Company B, and Company A recognises a gain of 拢40 million (拢60 million - 拢20 million), creating a provision in recognition of a potential charge of 拢7.6 million (拢40 million X 19%). Company B recognises a provision of 拢10 million (拢70 million - 拢60 million), based on a potential CT charge of 拢1.9 million (拢10 million X 19%).

Although the tax advantage to Company A arising from the uncertain tax treatment is 拢7.6 million (the amount of the provision), as the overall tax advantage to the group is 拢0 (comparing the uncertain amount of Company A and B (拢9.5m) with the expected amounts in Company A and B (拢7.6 million + 拢1.9 million), this falls below the 拢5 million threshold and the exemption is met.