Corporate Tax 2010 - BMR Advisors

Slaughter and May
United Kingdom
United Kingdom
adjustments to the profits shown in the commercial accounts are
required for tax purposes.
4.5 Are there any tax grouping rules Do these allow for relief
in the United Kingdom for losses of overseas subsidiaries
Yes. The UK does not permit group companies to be taxed on the
basis of consolidated accounts but the grouping rules achieve a
degree of effective consolidation. A group consists in most cases of
a parent company and its subsidiaries which may in turn have
subsidiaries. The exact test for whether a group exists depends on
the type of group, but the common factor is that a specified
percentage of issued share capital is required to be beneficially held
directly or indirectly by the parent.
Group relief group
Losses (other than capital losses) can be surrendered from one UK
resident group company to another UK resident group company.
Losses can also be surrendered by or to a UK permanent
establishment of a non-UK group company. A UK permanent
establishment of an overseas company can only surrender those
losses as group relief if they are not relievable (other than against
profits within the charge to UK corporation tax) in the overseas
country. Similarly, a UK company can surrender the losses of an
overseas permanent establishment if those losses are not relievable
(other than against profits within the charge to UK corporation tax)
in the overseas country.
Following the judgment of the ECJ in Marks and Spencer v David
Halsey, (C446/03) on 13 December 2005, the UK’s loss relief
legislation for groups of companies was amended by Finance Act
2006 to provide, in certain very limited circumstances, for group
relief to be given in the UK for the otherwise unrelievable losses
incurred by EC companies, even if they are not resident or trading
in the UK. The new rules apply from 1 April 2006. The measures
also contain an anti-avoidance rule, introduced with effect from 20
February 2006, which denies relief for a loss arising to a nonresident
company as a result of arrangements which have as one of
their main purposes the obtaining of group relief.
The Finance Act 2006 provisions are narrowly drafted, and some
think that they do not properly give effect to the ECJ judgment.
Accordingly, the Chartered Institute of Taxation wrote to the
European Commission requesting that the Commission consider
whether the Finance Act 2006 provisions implement adequately the
decision of the ECJ. In September 2008, the European Commission
issued a “reasoned opinion” under Article 226 of the EC Treaty
listing the conditions in the Finance Act 2006 provisions which it
considers are incompatible with freedom of establishment and
requested the UK to properly implement the Marks & Spencer
ruling. If the UK legislation is not amended accordingly it could
lead to the Commission referring the matter of non-compliance to
the ECJ.
Capital gains group
There is no consolidation of capital gains and losses but it is
possible to make an election for a gain on a disposal made by one
capital gains group member to be treated as a gain on a disposal by
another group member.
Capital assets may be transferred between capital gains group
members at no gain/no loss. This has the effect of postponing tax
liability on transfers until the asset is transferred outside the group
or until the company holding the asset is transferred outside the
group. When a company leaves a capital gains group holding an
asset which was transferred intra-group in the previous 6 years, a
degrouping charge may arise for the transferee. A joint election
may be made for this degrouping charge to be reallocated to another
group company. A consultation document published in July 2009
indicates that the UK Government is considering simplifying the
current degrouping charge rules and that detailed proposals are
expected to be published by the end of 2009.
Stamp duty and SDLT groups
Transfers between group companies are relieved from stamp duty
or from SDLT where certain conditions are met.
VAT group
Transactions between group members are disregarded for VAT
purposes (although HMRC have powers to override this in certain
circumstances). Generally, two or more bodies corporate are
eligible to be treated as members of a VAT group if each is
established or has a fixed establishment in the UK and:
one of them controls the other;
one person (whether a body corporate or an individual)
controls all of them; or
two or more individuals carrying on business in partnership
control all of them.
4.6 Is tax imposed at a different rate upon distributed, as
opposed to retained, profits
Tax is not imposed at a different rate upon distributed, as opposed
to retained, profits in the UK.
4.7 What other national taxes (excluding those dealt with in
“Transaction Taxes”, above) are there - e.g. property taxes,
etc.
Business rates are payable by the occupier of business premises
based on the annual rental value. There are two rates for the year
ending on 31 March 2009: 48.1% (for businesses that qualify for
small business rate relief); and 48.5% (for all other businesses).
Business rates are a deductible expense for corporation tax
purposes.
4.8 Are there any local taxes not dealt with in answers to
other questions
There are no other local taxes.
5 Capital Gains
5.1 Is there a special set of rules for taxing capital gains and
losses
Corporation tax is chargeable on “profits” which includes both
income and capital gains. There is a separate regime for computing
capital gains which contains more exemptions and has an inflationlinked
basis adjustment which means that the effective rate of tax
can be less than 28%.
5.2 If so, is the rate of tax imposed upon capital gains
different from the rate imposed upon business profits
The same 28% rate of corporation tax is applied to both trading
income and capital gains - but the effective rate may be lower for
capital gains - see the answer to question 5.1 above.
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