ACCA Advanced Taxation (ATX) Practice Exam

What exemption can companies consider in addition to rollover relief?

1. Substantial shareholding exemption (SSE)

2. Tax deferral benefit

3. Investment incentive exemption

4. Capital gains tax exemption

The correct answer is: Substantial shareholding exemption (SSE)

The substantial shareholding exemption (SSE) allows companies to avoid capital gains tax on the sale of shares in another company, provided certain conditions are met. This exemption is particularly relevant for companies that hold a significant stake in another business, typically at least 10% of the ordinary share capital. By qualifying for SSE, companies can structure their investments and divestments in a way that minimizes their tax liabilities during transactions involving share sales. In the context of rollover relief, which allows companies to defer tax on gains from the disposal of an asset when reinvested in a new qualifying asset, the SSE serves as an additional strategic advantage. It complements rollover relief by providing a tax-free outcome when shares in a subsidiary or associated company are disposed of, further encouraging business reorganizations and mergers and acquisitions without immediate capital gains tax implications. Other options, such as tax deferral benefits or capital gains tax exemptions, do not specifically apply to the scenario of share disposals in the same manner as SSE does. While these concepts might involve postponing or canceling tax obligations, they do not specifically cater to shares like the SSE. Therefore, the substantial shareholding exemption stands out as the appropriate consideration alongside rollover relief for companies engaged in strategic transactions involving shareholdings.