Corporation Tax Act 2010

Introduction

Part 5: Group relief

Chapter 2: Surrender of company’s losses etc for an accounting period

Section 107: Restriction on losses etc surrenderable by non-UK resident

387.This section eliminates from group relief amounts that arise from activities that are not within the United Kingdom tax net, or are relieved abroad. It is based on section 403D of ICTA.

388.Subsection (1) restricts the operation of the section to companies not resident in the United Kingdom that carry on a trade through a permanent establishment in the United Kingdom.

389.Subsection (2) introduces the three conditions (A, B and C) that have to be met if the non-UK resident company is to be able to surrender group relief.

390.Subsection (3) sets out condition A. The activities of the company must bring it within the charge to corporation tax. So its business must be a trade carried on through a permanent establishment in the United Kingdom (see section 19 of CTA 2009).

391.Subsection (4) sets out condition B. A company may be within the charge to corporation tax because it carries on its business through a permanent establishment in the United Kingdom but those activities (for instance, those of an airline) may be exempt from United Kingdom tax as a result of a DTA. In that case, any losses arising from the exempt activities may not be surrendered as group relief.

392.Subsections (5) and (6) set out condition C. A loss or other amount attributable to a United Kingdom permanent establishment is not available for group relief if it qualifies for relief from non-UK tax.

393.Subsection (7) explains how Condition C works if a foreign tax system (such as those of France and Australia) operates by exempting foreign (in this case, United Kingdom) profits from tax in the foreign country. Such a system may need to calculate the United Kingdom profits in order to exempt them. But that calculation does not mean that the profits in question are the subject of foreign tax relief.

394.Subsections (8) and (9) resolve a potential circularity in the rules. Foreign tax rules may deny relief for an amount if it qualifies for relief from United Kingdom tax. In that case, it would not be clear how condition C operates.

395.The section changes the approach of section 403D(6) of ICTA. Instead of ignoring the condition in foreign tax law the section sets out the result. That is that the loss etc is treated as allowable for foreign tax.

396.Section 403D(11) of ICTA serves only to clarify the interface between relief under that section and relief under the EEA rules in sections 403F and 403G of ICTA. In this Act it is clear that relief under Chapter 2 of this Part is separate from, and (potentially) in addition to, relief under Chapter 3 of this Part. So section 403D(11) is not rewritten.