Introduction Background
8.This section is one of three that close existing loopholes in the loss rules.
9.This section shuts down a loophole whereby a company can divert profits to a controlled foreign company (CFC) so as to reduce its ‘gross profits’ for a period – allowing it to access losses that would not otherwise be surrenderable under section 105 CTA 2010.
10.Where one company is the 75% subsidiary of another company or where both are the 75% subsidiary of a third company one company may surrender losses and other amounts to another company, by way of group relief.
11.There are seven different categories of losses, expenses and deficits that can be surrendered under the group relief rules (section 99 (1) CTA 2010). Four of these (referred to at section 99(1)(d)-(g)) can only be surrendered if together they exceed the surrendering company’s ‘gross profits’ for a period. The legislation at section 105 describes how this restriction works.
12.CFC apportioned profits are self assessed, with the resulting tax charged on the UK company as an amount equivalent to corporation tax.
13.This section will ensure that apportionments in respect of CFC’s profits will be taken in to account as well as gross profits in computing whether any of the second type of losses can be surrendered.
14.The threshold covers apportionments under both the old and new rules for CFCs (contained in Chapter 4 of Part 17 of the Income and Corporation Taxes Act `1988 and Part 9A of the Taxation (International and Other Provisions) Act 2010, respectively). The old rules apply to an accounting period of a CFC that straddles 1 January 2013; the new rules apply to an accounting period beginning on or after 1 January 2013.