Corporation Tax Bill

House of Commons

Session 2009 - 10
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Corporation Tax Bill

Corporation Tax Bill
Part 5 — Group relief
Chapter 2 — Surrender of company’s losses etc for an accounting period
61

109
Restriction on losses etc surrenderable by dual resident
(1)
This section applies if in the surrender period the surrendering company is UK
resident and is also within a charge to non-UK tax under the law of a territory
because—
(a)
it derives its status as a company from that law,
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(b)
its place of management is in that territory, or
(c)
it is for some other reason treated under that law as resident in that
territory for the purposes of that tax.
(2)
If condition A, B or C is met, the surrendering company may not surrender any
losses or other amounts under this Chapter.
10
(3)
Condition A is that the surrendering company is not a trading company
throughout the surrender period.
(4)
Condition B is that in the surrender period the surrendering company carries
on a trade of such a description that the company’s main function, or one of its
main functions, consists of one or more of the following activities.
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Activity 1

Acquiring and holding shares, securities or investments of any other kind
(whether directly or indirectly).
Activity 2

Making, under loan relationships, payments in relation to which debits fall to
20
be brought into account for the purposes of Part 5 of CTA 2009.
Activity 3

Making payments which are qualifying charitable donations.
Activity 4

Making payments similar to those within Activity 3 but which are deductible
25
in calculating the profits of the surrendering company for corporation tax
purposes.
Activity 5

Obtaining funds for the purposes of, or otherwise in connection with, any of
Activities 1 to 4.
30
(5)
Condition C is that in the surrender period the surrendering company carries
on one or more of Activities 1 to 5—
(a)
to an extent that does not appear to be justified by any trade which it
carries on, or
(b)
for a purpose that does not appear to be appropriate to any such trade.
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110
Restriction on surrender of losses etc from alternative finance arrangements
(1)
This section applies if the surrendering company is prevented from obtaining
a deduction in respect of an amount by section 520 of CTA 2009 (provision not
at arm’s length: non-deductibility of relevant return).
(2)
The amount may not be surrendered under this Chapter.
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Corporation Tax Bill
Part 5 — Group relief
Chapter 3 — Surrenders made by non-UK resident company resident or trading in the EEA
62

Chapter 3
Surrenders made by non-UK resident company resident or trading in the EEA
Introduction
111
Overview of Chapter
(1)
This Chapter allows a non-UK resident company that is resident or carrying on
5
a trade in the European Economic Area to surrender losses and other amounts
it has for a period.
(2)
Section 113 sets out the basic provisions about the surrendering of losses and
other amounts.
(3)
Sections 114 to 121 set out conditions that must be met if losses and other
10
amounts are to be surrendered (see Step 2 in section 113(2)).
(4)
Sections 122 to 128 set out other rules, assumptions and exclusions (see Steps 3
and 5 in section 113(2)).
112
EEA related definitions
In this Chapter—
15
“EEA accounting period” means a period for which an EEA related
company has a loss or other amount,
“EEA amount” has the meaning given under Step 1 of section 113(2),
“EEA related company” means a non-UK resident company that—
(a)
is resident in an EEA territory, or
20
(b)
is not resident in any EEA territory but is carrying on a trade in
an EEA territory through a permanent establishment, and
“EEA territory”, in relation to any time, means a territory outside the
United Kingdom that is within the European Economic Area at that
time.
25
Basic provisions about surrendering losses and other amounts
113
Steps to determine extent to which loss etc can be surrendered
(1)
This section applies if an EEA related company has a loss or other amount for
an EEA accounting period.
(2)
Take the following steps to determine the extent to which the EEA related
30
company may surrender the loss or other amount under this Chapter.
Step 1

Determine the extent to which (if at all) the loss or other amount is eligible for
corporation tax relief (apart from this Chapter).

The loss or other amount may be surrendered only so far as it is not so eligible.
35

A loss or other amount, so far as surrenderable under this Step, is referred to
in this Chapter as an “EEA amount”.

Corporation Tax Bill
Part 5 — Group relief
Chapter 3 — Surrenders made by non-UK resident company resident or trading in the EEA
63

Step 2

Determine the extent to which the EEA amount in question meets—
(a)
the equivalence condition (see section 114),
(b)
the EEA tax loss condition (see sections 115 and 116),
(c)
the qualifying loss condition (see sections 117 to 120), and
5
(d)
the precedence condition (see section 121).

References to “the qualifying part of the EEA amount” are references to the
EEA amount so far as it meets all those conditions.
Step 3

Recalculate the EEA amount in accordance with section 128 using the
10
assumptions set out in sections 123 to 126.

The result is called “the recalculated EEA amount”.
Step 4

Determine the amount that may be surrendered.

That amount is—
15
(a)
the qualifying part of the EEA amount, or
(b)
if less, an amount equal to the relevant proportion of the recalculated
EEA amount.

If the recalculated EEA amount is an amount of income or other profits, the
amount that may be surrendered is nil.
20

“The relevant proportion” is the same as the proportion that the qualifying part
of the EEA amount bears to the EEA amount.
Step 5

Determine the extent to which (if at all) the amount resulting from Step 4 is
excluded by section 127.
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If any of that amount is excluded, reduce it accordingly.
(3)
If in recalculating the EEA amount at Step 3 it is to be assumed under section
125 that there are two or more accounting periods in relation to the EEA
accounting period, the total of the amounts apportioned to the assumed
accounting periods available for surrender under subsection (2) is not to
30
exceed the qualifying part of the EEA amount.
(4)
Under paragraph 70(1) of Schedule 18 to FA 1998, an EEA related company
surrenders an EEA amount, so far as eligible for surrender under this Chapter,
by consenting to one or more claims for group relief in relation to the amount
(see Requirement 1 in section 135).
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(5)
In this Part, in relation to losses or other amounts that an EEA related company
has for an EEA accounting period—
“the surrenderable amounts” means the losses or other amounts so far as
eligible for surrender under this Chapter,
“surrendering company” means the company that has the losses or other
40
amounts, and
“the surrender period” means the assumed accounting period under
section 125 for which the company is taken to have the surrenderable
amounts.

Corporation Tax Bill
Part 5 — Group relief
Chapter 3 — Surrenders made by non-UK resident company resident or trading in the EEA
64

Conditions that must be met
114
The equivalence condition
An EEA amount meets the equivalence condition so far as it corresponds (in all
material respects) to a loss or other amount within section 99(1)(a) to (g).
115
The EEA tax loss condition: companies resident in EEA territory
5
(1)
In the case of a surrendering company that is resident in an EEA territory (“the
resident EEA territory”), an EEA amount meets the EEA tax loss condition so
far as—
(a)
subsection (2) applies to the amount, and
(b)
the amount is not excluded by subsection (3).
10
(2)
This subsection applies to the EEA amount so far as it is calculated in
accordance with the rules of the resident EEA territory that are applicable for
determining, in the surrendering company’s case, the amount of any loss or
other amount eligible for relief from any non-UK tax (see section 187)
chargeable under the law of the resident EEA territory.
15
(3)
The EEA amount is excluded so far as, for corporation tax purposes, it is
attributable to a permanent establishment through which the surrendering
company carries on a trade in the United Kingdom.
116
The EEA tax loss condition: companies not resident in EEA territory
(1)
In the case of a surrendering company that is not resident in any EEA territory
20
but is carrying on a trade in an EEA territory (“the relevant EEA territory”)
through a permanent establishment, an EEA amount meets the EEA tax loss
condition so far as—
(a)
subsection (2) applies to the amount, and
(b)
the amount is not excluded by subsection (3).
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(2)
This subsection applies to the EEA amount so far as it is calculated in
accordance with the rules in the relevant EEA territory that are applicable for
determining, in the surrendering company’s case, the amount of any loss or
other amount eligible for relief from any non-UK tax chargeable under the law
of the relevant EEA territory.
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(3)
The EEA amount is excluded so far as it is attributable to activities of the
surrendering company that are subject to relieving arrangements.
(4)
“Relieving arrangements” means arrangements within subsection (5) that have
the effect mentioned in subsection (6) (or would have that effect if a claim were
made).
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(5)
Arrangements are within this subsection if they are made with a view to
affording relief from double taxation in relation to—
(a)
any non-UK tax chargeable under the law of the relevant EEA territory
and any non-UK tax chargeable under the law of any other territory, or
(b)
any non-UK tax chargeable under the law of the relevant EEA territory
40
and United Kingdom income or corporation tax.
(6)
The effect referred to in subsection (4) is that the income or gains arising for the
EEA accounting period from the activities are ignored in calculating the

Corporation Tax Bill
Part 5 — Group relief
Chapter 3 — Surrenders made by non-UK resident company resident or trading in the EEA
65

surrendering company’s profits, income or gains chargeable to non-UK tax
under the law of the relevant EEA territory for that period.
117
The qualifying loss condition: general
(1)
An EEA amount meets the qualifying loss condition so far as sections 118, 119
and 120 apply to it.
5
(2)
In this section and sections 118 to 120, “the relevant EEA territory” means—
(a)
the EEA territory in which the surrendering company is resident, or
(b)
(as the case may be) the EEA territory in which the surrendering
company carries on a trade through a permanent establishment.
(3)
In sections 118 and 119 “relevant non-UK tax” means any non-UK tax
10
chargeable under the law of the relevant EEA territory or any other resident
territory.
(4)
A “resident territory” is—
(a)
if the surrendering company is resident in an EEA territory and is also
resident in another territory outside the United Kingdom, that other
15
territory, or
(b)
if the surrendering company is not resident in any EEA territory, the
territory (or territories) in which it is resident.
118
The qualifying loss condition: relief for current and previous periods
(1)
This section applies to an EEA amount so far as subsections (2) and (3) apply
20
to it (but subject to subsection (4)).
(2)
This subsection applies to the EEA amount so far as, for the purposes of any
relevant non-UK tax, the EEA amount cannot be taken into account in
calculating any profits, income or gains that—
(a)
arise in the EEA accounting period or any previous period to the
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surrendering company or any other person, and
(b)
are chargeable to that tax for the EEA accounting period or any
previous period.
(3)
This subsection applies to the EEA amount so far as, for the purposes of any
relevant non-UK tax, the EEA amount cannot be relieved in the EEA
30
accounting period or any previous period—
(a)
by the payment of a credit,
(b)
by the elimination or reduction of a tax liability, or
(c)
in any other way.
(4)
This section applies to the EEA amount (or a part of it) only if every step is
35
taken (whether by the surrendering company or any other person) to secure
that the EEA amount (or part) is—
(a)
taken into account as mentioned in subsection (2), or
(b)
relieved as mentioned in subsection (3).
119
The qualifying loss condition: relief for future periods
40
(1)
This section applies to an EEA amount so far as subsections (2) and (3) apply
to it.

Corporation Tax Bill
Part 5 — Group relief
Chapter 3 — Surrenders made by non-UK resident company resident or trading in the EEA
66

(2)
This subsection applies to the EEA amount so far as, for the purposes of any
relevant non-UK tax, the EEA amount cannot be taken into account in
calculating any profits, income or gains that—
(a)
might arise in any period after the EEA accounting period to the
surrendering company or any other person, and
5
(b)
(if there were any) would be chargeable to that tax for any period after
the EEA accounting period.
(3)
This subsection applies to the EEA amount so far as, for the purposes of any
relevant non-UK tax, the EEA amount cannot be relieved in any period after
the EEA accounting period—
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(a)
by the payment of a credit,
(b)
by the elimination or reduction of a tax liability, or
(c)
in any other way.
(4)
The determination as to the extent to which the EEA amount—
(a)
cannot be taken into account as mentioned in subsection (2), or
15
(b)
cannot be relieved as mentioned in subsection (3),

is to be made as at the time immediately after the end of the EEA accounting
period.
120
The qualifying loss condition: non-UK tax relief in another territory
(1)
This section applies to an EEA amount so far as it is not excluded by subsection
20
(2) or (3).
(2)
The EEA amount is excluded so far as, for the purposes of any non-UK tax
chargeable under the law of any territory other than the relevant EEA territory,
it has been taken into account in calculating any profits, income or gains that—
(a)
have arisen in any period to the surrendering company or any other
25
person, and
(b)
were chargeable to that tax for the period (or would have been so
chargeable had the EEA amount not been so taken into account).
(3)
The EEA amount is excluded so far as, for the purposes of any non-UK tax
chargeable under the law of any territory other than the relevant EEA territory,
30
it has been relieved in any period—
(a)
by the payment of a credit,
(b)
by the elimination or reduction of a tax liability, or
(c)
in any other way.
121
The precedence condition
35
(1)
An EEA amount meets the precedence condition so far as no relief can be given
for it in any territory which—
(a)
is outside the United Kingdom,
(b)
is not the relevant EEA territory (as defined by section 117(2)), and
(c)
is within subsection (2).
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(2)
A territory is within this subsection if—
(a)
a company resident in the territory owns (directly or indirectly)
ordinary share capital in the surrendering company,

Corporation Tax Bill
Part 5 — Group relief
Chapter 3 — Surrenders made by non-UK resident company resident or trading in the EEA
67

(b)
a UK resident company owns (directly or indirectly) ordinary share
capital in the company resident in the territory,
(c)
the surrendering company is a 75% subsidiary of the UK resident
company, and
(d)
the surrendering company is not such a subsidiary as a result of its
5
being a 75% subsidiary of another UK resident company.
(3)
In subsection (1) the reference to relief being given in any territory is a
reference to relief being given—
(a)
by taking the EEA amount (or a part of it) into account in calculating
any profits, income or gains of any person chargeable to non-UK tax
10
under the law of the territory,
(b)
by the payment of a credit to any person under that law,
(c)
by the elimination or reduction of a tax liability of any person under
that law, or
(d)
in any other way.
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(4)
Chapter 5 explains how to determine if a company is a 75% subsidiary of
another company.
Other rules, assumptions and exclusions
122
Assumptions to be made in recalculating EEA amount
Sections 123 to 126 apply for the purpose of recalculating the EEA amount at
20
Step 3 in section 113.
123
Assumptions as to UK residence
(1)
Assume that the surrendering company is UK resident throughout the EEA
accounting period.
(2)
But this does not require it to be assumed—
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(a)
that there is any change in the place or places at which the surrendering
company carries on its activities (although see section 124), or
(b)
that the surrendering company ceases to be UK resident at the end of
the EEA accounting period.
(3)
Assume that the surrendering company becomes UK resident (and, therefore,
30
within the charge to corporation tax) at the beginning of the EEA accounting
period.
124
Assumptions as to places in which activities carried on
(1)
If during the EEA accounting period the surrendering company carries on a
trade wholly or partly in the relevant EEA territory, assume that the trade is
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carried on wholly or partly in the United Kingdom.
(2)
If the surrendering company holds any estate, interest or rights in or over land
in the relevant EEA territory, assume that the land is in the United Kingdom.
(3)
For the purposes of subsection (2) the reference to holding an estate, interest or
rights in or over land in the relevant EEA territory is to be read so as to produce
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the result that most closely corresponds with that produced by applying those