2.3 This Section is an anti-avoidance section: the mischief was that a trade of a company was transferred out, possibly to a group company. The company which had previously been active was then inactive and was left with cash sufficient to meet its final tax liability. The shares in the company were then sold to a non-resident company for consideration equivalent to a proportion of the cash on the balance sheet. The company did not meet the tax liability and, without the protection of Section 767A and Section 767AA, there was no recourse available to the UK tax authorities. 2.4 The only Seller who can be charged is the Seller who controlled the Company. However, the usual definition of control in Section 416, ICTA is modified by Section 767B ICTA so that it embraces shareholders with a 50% share holding and also embraces two or more persons if they are acting together. The Seller or Sellers can be personally charged, as can any other company that they control (Section 767A(2) ICTA). 2.5 Section 767A does not provide a complete lifting of the corporate veil, as the tax can only be charged to the Seller if any of three stated conditions are met (Section 767A(1), ICTA. 2.6 The first condition is that at any time during the period of three years before the change in the ownership of the Company the trading or business activities of that company ceased or virtually ceased, without a significant revival taking place (Section 767A(4), ICTA). 2.7 The second condition is that the cessation of the trading or business activities took place after the change of ownership but in accordance with arrangements in place before such change (Section 767A(5), ICTA). 2.8 The third condition is more complex: if there is a major change in the nature or conduct of the trade in the 6 year period beginning three years before Completion, there is a transfer of assets out of the Company to the Seller or anyone connected with him, and the major change is attributable to that asset transfer (Section 767A(6) and (7), ICTA). 2.9 The three conditions all relate to actions of the Seller and it is difficult to see why there should be any counter-indemnity provided by the Buyer, unless the Company being bought has become virtually dormant and has outstanding corporate tax liabilities. 2.10 There is a set of circumstances which may appear to lead to an exposure for the Seller: if the Buyer carries out any steps which are within the three conditions, and then sells the Company to another party within three years, then, at first sight, those persons who are liable under Section 767A are any person who controlled the Company in the previous three years (Section 767A(2) and (3), ICTA). However, Section 767A(3)(b), ICTA provides that the period of three years is shortened if there are two changes of ownership as described above. If there are two changes of ownership, the Seller at risk under Section 767(A) is the Seller in the second transaction.
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