CTM81591 | Groups: group relief: surrendering company not UK resident: amount of the loss: comparison of UK and overseas loss: information to be provided by claimant company

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 the UK equivalent amount.

This is a complex process involving detailed comparisons of one GAAP to another. For HMRC to be satisfied that the figure claimed is acceptable detailed information will need to be provided by the claimant company.

The below list is not prescriptive but provides an overview of the type of information HMRC would expect to see to support a claimant’s figures:

1. A reconciliation between local GAAP results and the UK GAAP results – for example

1. A copy of the local GAAP audited accounts (English language, or at a minimum a translation of key paragraphs, such as accounting policies, which support the submission)

2. Explanations and support for each adjustment – including a full explanation of the GAAP difference and the basis on which they have been quantified.

3. Details of the exercise undertaken by the taxpayer to ensure the completeness and accuracy of the GAAP adjustments – in order to prepare the reconciliation accurately above the taxpayer should have considered all differences between the UK and Local accounting frameworks in the applicable year in order to identify any differences which might result in an adjustment to profits or losses. Methods for doing this can include:

• A “standard by standard” review comparing each of the relevant accounting standards in UK and Local GAAP in the applicable year.

• A review of the disclosed accounting policies in the local entity accounts and commentary on how each of these complies (or does not comply) with UK GAAP at that time.

• EU subsidiary companies with parent which filed consolidated accounts in the UK, may already have prepared UK GAAP basis adjusted results for that entity in the applicable year for internal group reporting processes.

1. Details of any assurance obtained over the completeness and accuracy of the GAAP conversion calculations – for example, whether the auditor has performed any agreed upon procedures to provide assurance over the reconciliation.

2. UK equivalent Corporation Tax computation - Once the claimant company has arrived at a UK equivalent accounting loss full UK tax rules should be applied as if company were UK resident. This includes applying scheduler approach to the accounting loss to arrive at UK equivalent CT loss.

3. Where applicable - Breakdown of UK equivalent tax losses into deemed accounting periods in line with UK tax law - where the ‘loss period’ of non UK company exceeds 12 months normal UK deemed accounting period rules should be applied. In these circumstances the accounting period will begin at the start of the loss period and end at the earlier of:

• 12 months from beginning of loss period, or

• end of loss period.

Where the above applies the group may have two accounting periods for UK purposes. In these cases the group should provide UK equivalent CT computations for both periods.

See CTM81570 for further guidance.

1. Where applicable - details of any apportionment of UK equivalent tax losses – Where the ‘loss period’/deemed accounting period of the non-UK surrendering company does not coincide with those of UK claimant company, the normal group relief apportionment rules apply (CTM80215).