CD 5 What is a transfer of value?
General test

(1)

A transfer of value from a company to a person occurs when—

(a)

the company provides money or money’s worth to the person; and

(b)

if the person provides any money or money’s worth to the company under the same arrangement, the market value of what the company provides is more than the market value of what the person provides.

Release of debt

(2)

A company (the creditor) provides money’s worth to a person (the debtor) if the debtor is released from an obligation to pay money to the creditor, either by agreement or by operation of law, except to the extent to which—

(a)

the obligation the debtor is released from is an amount of debt to which section EW 46C(3) (Consideration when debt forgiven within economic group) applies; and

(b)

at the time the debtor is released, the debtor is a company that is a member of the same wholly-owned group as the creditor, and the debtor is described in section EW 46C(1)(a) or (b).

When shares are cancelled

(2B)

The market value of any transfer from the shareholder to the company on the cancellation of a share or the shareholder’s rights as a shareholder is zero.

Provision of services for less than market value

(3)

Despite subsection (1), a transfer of value does not occur to the extent to which the money’s worth provided by the company is only the provision of services.

Limit to subsection (3)

(4)

Subsection (3) does not apply to the provision of services by a company that is a close company, if the provision is the benefit of expenditure of the company.

Defined in this Act: arrangement, close company, company, market value, pay, services, share, shareholder, transfer of value, wholly-owned group of companies

Compare: 2004 No 35 s CD 4

Section CD 5(2): replaced (with effect on 1 April 2008), on 30 March 2017, by section 16(1) (and see section 16(3)) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).

Section CD 5(2B) heading: inserted (with effect on 1 April 2008), on 6 October 2009, by section 12(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section CD 5(2B): inserted (with effect on 1 April 2008), on 6 October 2009, by section 12(1) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section CD 5(2B): amended, on 29 March 2018 (with effect on 1 April 2008 and applying for the 2008–09 and later income years), by section 9(1) of the Taxation (Annual Rates for 2017–18, Employment and Investment Income, and Remedial Matters) Act 2018 (2018 No 5).

Section CD 5 list of defined terms market value: inserted (with effect on 1 April 2008), on 6 October 2009, by section 12(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section CD 5 list of defined terms share: inserted (with effect on 1 April 2008), on 6 October 2009, by section 12(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section CD 5 list of defined terms shareholder: inserted (with effect on 1 April 2008), on 6 October 2009, by section 12(2) of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section CD 5 list of defined terms wholly-owned group of companies: inserted (with effect on 1 April 2008), on 30 March 2017, by section 16(2) of the Taxation (Annual Rates for 2016–17, Closely Held Companies, and Remedial Matters) Act 2017 (2017 No 14).