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FM 17: Trading stock
or “Rules for transferring and valuing stock between companies in the same group”
You could also call this:

“Rules for transferring financial arrangements between companies in the same group”

When a company (company A) transfers a financial arrangement to another company (company B), this section applies if certain conditions are met. These conditions are:

  1. Both companies are in the same consolidated group for the whole income year.
  2. The method for calculating income and expenditure from the financial arrangement stays the same after the transfer, and the consolidated group’s tax return is made on this basis.
  3. Neither company can use a loss balance carried forward, unless special rules for consolidated groups apply.

If these conditions are met, here’s what happens in the year of transfer and later:

  1. It’s as if company A was never involved with the financial arrangement. The rule about calculating a final amount (called a base price adjustment) doesn’t apply to company A.
  2. Company B is treated as if it did everything that company A did before the transfer. This includes entering into the arrangement, spending money, earning income, and filing tax returns related to it.

This section overrides other rules about disposing of financial arrangements for no or inadequate payment, and about deals that go against the purpose of the financial arrangements rules.

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Next up: FM 19: Financial arrangements: transfer for fair and reasonable consideration

or “Rules for transferring financial arrangements within a company group for fair value”
Next

Part F Recharacterisation of certain transactions
Consolidated groups of companies: Accounting for particular property

FM 18Financial arrangements: transfer from company A to company B

  1. This section applies in an income year in which a company (company A) transfers a financial arrangement to which the financial arrangements rules apply to another company (company B) when—

  2. company A and company B are in the same consolidated group for the whole of the income year; and
    1. the method of calculating income and expenditure from the financial arrangement does not change after the transfer, and the consolidated group’s return of income is made on that basis; and
      1. neither company A nor company B is entitled to use under sections IA 4, IA 5, and IB 3 (which relate to the use of loss balances by companies) a loss balance carried forward unless subpart ID (Use of tax losses by consolidated groups) applies.

        1. In the year of transfer and in later income years,—

        2. company A is treated as if it had never been a party to the financial arrangement, and section EW 31 (Base price adjustment formula) does not apply:
          1. company B is treated as if it had taken all the actions that company A undertook before the transfer in entering into the financial arrangement, incurring expenditure and deriving income, and providing its return of income in relation to the financial arrangement.

            1. This section overrides sections EW 38 (Consideration when disposal for no, or inadequate, consideration) and GB 21 (Dealing that defeats intention of financial arrangements rules).

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            Notes
            • Section FM 18(1)(c): amended (with effect on 1 April 2020), on , by section 70(1) (and see section 70(2) for application) of the Taxation (Annual Rates for 2020–21, Feasibility Expenditure, and Remedial Matters) Act 2021 (2021 No 8).