Inter-company transfer

When calculating the corporation tax liabilities of a group of companies our understanding is that the generally accepted practice has been that management charges could be levied between the businesses.

This would enable the corporation tax position to be optimised when some group companies might otherwise fall into the marginal rate and others might not. Because the corporation tax differentials have narrowed in recent years the corporation tax at stake is of course much less.

We have however come across a situation where in a two-company group a trading company subsidiary would like to pay a one-off management charge to its otherwise dormant holding company parent. The purpose is so that the trading company’s results do not from a superficial review of the accounts appear as strong as they otherwise are.

Consideration of the required accounting disclosure notes ...