question the need for this additional paragraph as it is clear that the degrouping charges crystallise on or before Completion. Alternatively some tax covenants define “Degrouping Charge” and then include this as a separate heading within the covenant section of the tax deed. 3.14 It is also very understandable that the tax covenants refer to both actual and deemed transactions: the tax that arises under the degrouping charges are in respect of transactions which have not taken place but which are deemed, by the Taxes Acts, to have taken place. 3.15 With some of the degrouping charges it is possible for them to be transferred to an entity other than the Company. As previously noted, a charge arising under Section 179 TCGA can, by means of Section 179A, be transferred to another company in the Seller group by means of a joint election. This may be beneficial if there is a company in the Seller group which has capital losses. 3.16 There is a similar facility with regard to intangible assets given in Section 792, CTA (formerly paragraph 66, Schedule 29, Finance Act 2002). Again, a joint election can be made so that the charge is effectively transferred to another company in the former group. 3.17 If this is relevant, as the Company is being sold out of a group, it is possible to cover this situation in the tax covenant - either as an exclusion or, more likely, as a separate section of the tax covenant, setting out the obligations on the Buyer with regard to procuring the making of the appropriate elections if requested by the Seller group to do so. 4.1 As noted in Chapter 2, there are always concerns in tax authorities if it is believed that trading tax losses may be traded in the same way as other assets. Section 768, ICTA provides that tax losses carried forward will be disallowed if within any period of three years there is both a change in the ownership of a company and also a major change in the nature or conduct of a trade carried on by that company. 4.2 As an example, Yoxford Breweries Limited acquires the shares of Peasenhall Fine Wines Limited on 30 June. Peasenhall Fine Wines Limited has tax losses of £200,000 at the Last Accounts Date. Both companies have a year end of 31 December. Unbeknown to Yoxford Breweries Limited, there was a change in the trade of Peasenhall Fine Wines Limited two years earlier: the tax losses related to a period when the company’s trade was somewhat different. The tax losses for periods up to Completion are likely to be available to offset against the profits. However, HMRC invoke the provisions of Section 768 to deny relief for the losses from Completion. All later periods would be similarly denied relief, and the tax losses would therefore have no value at Completion. 3.18 As a final obvious point, degrouping charges are not a concern if the shares in the Company are being sold by individuals and are not being sold out of a group. 4 The Disallowance of Trading Losses after Completion
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