MTT21120 | Calculating the effective tax rate: Adjusted profits: Intra-group transactions

Income, expenses, gains and losses arising from transactions between a member and other members of its group must be reflected in the adjusted profits, in accordance with section 139 of Finance (No.2) Act 2023.

However, such amounts are not to be reflected in the adjusted profits of a member if:

• an amount is recognised outside of the profit and loss account in the underlying profits of that member (see MTT21010), or

• an election to exclude intra-group transactions is applicable to that member (see below).

Election under section 164 to exclude intra-group transactions

A group may elect that, when determining the adjusted profits, members that are located in the same territory and are included in a tax consolidation group are to apply the consolidated accounting treatment of the ultimate parent to eliminate income, expenses, gains and losses arising from transactions between those members.

For each period to which the election applies:

• the underlying profits of those members are to be adjusted to eliminate such items, and

• for the first accounting period for which the election has effect, the underlying profits must be further adjusted so as to ensure that the election does not give rise to duplications or omissions of items of income, expenses, gains or losses.

This is a long term election. See MTT52200 for guidance on elections.

Current or deferred tax is not excluded by section 175(2)(a) and s182(2)(a) where the sole reason for its exclusion would be that the related intragroup income or gains are not included in adjusted profits because this election has been made (See MTT25200 and MTT27100). This is set out in subsections 175(3) and 182(2)(a) Finance (No.2) Act 2023.

Revocation of an election

Where an election is revoked, the underlying profits must be adjusted for the first accounting period in which the election does not apply, so as to ensure that the revocation does not give rise to duplications or omissions of items of income, expenses, gains or losses.

Tax consolidation group

Members in a territory are included in a ‘tax consolidation group’ if their income, expenses, gains or losses may, as a result of a connection between the members, be (for tax purposes):

• aggregated,

• surrendered to each other, or

• otherwise shared or transferred between them.

Amendment in Finance Act 2026

Sections 175 and 182 were amended by FA26. This guidance page reflects the current version of the legislation. Consult FA26 for the legislation applicable to prior periods if the retrospection election does not apply.