BIM60615 - Profits from a trade of dealing in or developing UK land: Anti-fragmentation: Example

Example

In the situation above, ‘Dealer� is subject to the new charge, as ‘Dealer� will realise a profit from the disposal of UK Land.

In this case ‘Dealer� does not have the assets (e.g. cash) or employees to manage the risk comprised in the development. Instead, the risks associated with the development are funded by ‘Devco�.

In this example ‘Devco� performs many of the significant people functions (SPFs), and as such is paid the majority of the profits realised from the sale of the UK property. This is done in a manner that is designed to be compliant with UK transfer pricing methodologies.

The contribution ‘Devco� is making to the development of the land is not insignificant and the anti-fragmentation rules will apply in this case.

  • ‘Dealerâ€� has disposed of land in the UK,
  • Condition A is met in relation to the land, and
  • ‘Devcoâ€� has made a relevant contribution to the development of the land by assuming the risk.

Any profit realised by ‘Devco� will be taxed on ‘Dealer� as if ‘Dealer� and ‘Devco� were one entity. Only profits of ‘Devco� that are directly attributable to Dealer are taxed in that entity, while Devco’s other [unrelated] profits remain taxable in ‘Devco.�

If ‘Devco� is a UK resident Section 356OC(3) would provide relief, so far as the profits would be brought into account as income in calculating profits (of any other person).