CTM80310 | Groups: group relief: UK permanent establishment of non-resident company

CTA10/S107, CTA10/S188BI

From 1 April 2000, a non-resident company that is within the charge to CT (because it trades in the UK through a permanent establishment, CTM80150) can claim group relief against its chargeable profits from other group members and surrender trade losses, and other amounts (CTM80345) relating to chargeable UK activities, to group members.

Where the non-resident company with the UK permanent establishment is the claimant company, then it may claim group relief against its UK chargeable profits in accordance with the usual group relief rules (CTM80100).

Non-EEA companies, & EEA companies prior to 1 April 2013 and from 27 October 2021

Where the non-resident company with the UK permanent establishment is the surrendering company, there are additional conditions for, and limitations on, relief. These are:

a. The loss or other amount must be attributable to activities carried on by the permanent establishment that are within the charge to CT. Amounts, which relate to activities which, if there were profits, would not be within the charge to CT are not eligible for relief - CTA10/S107(3). For further guidance about this condition see CTM80345.

b. Losses or other amounts attributable to an activity exempted from CT by a bilateral Double Tax Agreement cannot be surrendered – CTA10/S107. For further guidance about this condition see CTM80340.

c. If tax relief for part of the loss or other amount may be available against non-UK profits in a foreign jurisdiction, then none of the loss can be surrendered as group relief. Note that this is an all or nothing test. If any part of the loss attracts relief against overseas profits, none of the loss is available for group relief in the UK – CTA10/S107(5) and (6). For further guidance about this condition see CTM80315 and for the impact of these rules where the company is resident in a foreign jurisdiction which operates a credit system for overseas permanent establishment income or in one that operates an exemption system see CTM80330.

These conditions were altered from 1 April 2013 to 26 October 2021 for companies resident in the EEA.

(This content has been withheld because of exemptions in the Freedom of Information Act 2000)

EEA companies from 1 April 2013 to 26 October 2021

In September 2012 the Court of Justice of the European Union, in the case of Philips Electronics UK Ltd (C-18/11), ruled that condition c, above, was not compatible with EU law.

From 1 April 2013, where the non-resident company with the UK permanent establishment is the surrendering company and is resident in a country that is in the EEA, conditions a and b, above, must still be satisfied but condition c does not. Instead, the permanent establishment losses cannot be surrendered to the extent that tax relief has been given for them against non-UK profits in a foreign jurisdiction. This means that if tax relief has not in fact been given against non-UK profits in a foreign jurisdiction then the loss will be available for surrender as group relief, even if relief could be given against non-UK profits in the foreign jurisdiction in future. For further guidance about this additional condition see CTM80315.

Where a loss that has been surrendered as group relief is later relieved against non-UK profits, then the benefit of the UK group relief should be withdrawn to the extent that the loss has been used against non-UK profits. This ensures that the losses are not relieved twice, once as group relief in the UK and then again in another country. For further guidance about how this claw back is operated, please see CTM80335.

CTA10/S107 was changed with effect for losses arising on or after 1 April 2013. Where an accounting period straddles this date, such that an apportionment is needed to work out the losses that arise after 1 April 2013, companies should use a time apportionment basis unless that produces an unjust or unreasonable result.

Note that for companies not resident in the EEA, the rules were not changed; the conditions at a-c, above, must still be satisfied.

(This content has been withheld because of exemptions in the Freedom of Information Act 2000)

From 1 April 2017, similar rules apply to group relief for carried-forward losses at CTA10/S188BI.

EEA companies from 27 October 2021

Following the UK’s departure from the EU, sections 24(2) and 24(4) Finance Act 2022 amended sections 107 and 188BI of CTA 2010 to remove the separate rules for EEA-resident companies with effect from 27 October 2021. All non-UK resident companies, therefore, can only surrender losses of their UK permanent establishments if the loss is not to be deductible from or allowable against non-UK profits of any person for any period. This reverses the position for EEA companies so that condition C in CTA10/s107(5) applies as it did prior to 1 April 2013 but with effect from 27 October 2021.

Where an accounting period straddles this date, such that an apportionment is needed to work out the losses that arise after 26 October 2021, companies should use a time apportionment basis unless that produces an unjust or unreasonable result.