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FM 22: Arrangements to avoid consolidation rules
or “Rules to prevent companies from dodging group tax responsibilities when transferring property”
You could also call this:

“Rules for selling shares between related companies”

When you’re part of a group of companies, there are special rules about selling shares. Here’s what you need to know:

If you have two companies in the same group, and one company (let’s call it Company A) loses value because of money or assets it gives to the other company (Company B), there are some important things to consider.

If a third company (Company C) then sells shares in Company A for less money than they would normally be worth, the government has a special way of looking at this sale.

Instead of using the actual price Company C got for the shares, the government will pretend the sale happened at a fair price, as if Company A hadn’t lost any value. This fair price is treated as income for Company C, and they might have to pay tax on it.

The government decides what this fair price would have been by looking at what the shares were worth before Company A lost value.

There are a couple of exceptions to this rule, which you can find in other parts of the law called FM 3, FM 8, and FM 11.

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Next up: FM 24: General treatment of foreign dividends

or “This section about foreign dividend rules has been removed from the law”
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Part F Recharacterisation of certain transactions
Consolidated groups of companies: Accounting for particular property

FM 23Arrangements for disposal of shares

  1. This section applies when—

  2. 2 companies (company A and company B) are in the same consolidated group; and
    1. the value of company A’s net assets have been reduced as a result of a dividend, distribution, payment, arrangement, or transaction between company A and company B at the time the dividend is paid or the distribution, payment, arrangement, or transaction is made; and
      1. another company (company C) disposes of shares in company A for consideration that is less than the amount that would have been received in an arm’s length transaction had the reduction in the value of company A’s net assets not occurred; and
        1. if the disposal were by way of sale, the consideration from the sale would be included in company C’s income, other than income taken into account under section FM 3.

          1. The disposal is treated as if it were a sale at arm’s length.

          2. The amount that would have been received in an arm’s length transaction is income of company C under section CV 3 (Consolidated groups: arrangement for disposal of shares).

          3. The time at which the consideration for the sale at arm’s length is determined is before the reduction in the value of company A’s net assets.

          4. Subsection (2) does not apply to an amount of income taken into account under section FM 8 or FM 11.

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