CTM81590 | Groups: group relief: surrendering company not UK resident: amount of the loss: comparison of UK and overseas loss

The recomputed amount available for relief: CTA10/S128

If certain conditions are met, a UK parent company (or a UK resident subsidiary of the UK parent company) may be able to claim to set an amount representing the foreign tax loss suffered by a subsidiary resident in another European Economic Area (EEA) territory against its profits.

In order to quantify the loss eligible for relief the foreign loss is to be recomputed in accordance with UK tax principles to arrive at an amount for surrender as if the EEA loss making subsidiary was a UK resident company. This is known as the UK equivalent amount.

There are two main steps which should be documented clearly by the claimant company:

1. First identify the statutory/commercial profit or loss of the EU subsidiary based on UK GAAP or international accounting standards (this could be different from accounting standards applied locally), then

2. Apply normal UK tax principles to convert that commercial result to a UK taxable loss (or profit).

This is a complex process involving detailed comparisons of one GAAP to another. In order for a figure to be accepted the claimant company should provide a clear reconciliation between the foreign tax loss and the UK equivalent amount as well as detailed evidence of the process that they have followed.

A more detailed explanation of what the claimant should provide can be found at CTM81591.

If the recomputation results in an amount of profits or surplus income then no amount may be surrendered as group relief.

If a non-resident company has more than one category of loss eligible for relief, then the comparison described above must be made in relation to each category of loss.

If the non-resident company had both trading losses and excess capital allowances eligible for group relief then the UK and foreign amounts in each category would need to be compared to ascertain the amount that could actually be surrendered against UK profits.