CTM80315 - Groups: group relief: UK permanent establishment of non-resident company - tax relief in a foreign jurisdiction

CTA10/S107

For general guidance about the surrender as group relief of losses and other amounts (CTM80110) of a UK permanent establishment of a non-resident company see CTM80310.

Non-EEA companies & EEA companies prior to 1 April 2013 and from 27 October 2021

There can be no such surrender if any part of the loss etc. corresponds to or is represented in any amount for which tax relief may be given against non-UK profits in a foreign jurisdiction.

CTA10/S107(6) refers to any part of the amount is ‘in any period deductible from or otherwise allowable against non-UK profits of any person’…‘for the purposes of non-UK tax’. This means that for non-EEA resident companies and for EEA resident companies before 1 April 2023 and after 26 October 2021, it is not enough for there to have been no deduction or relief in foreign tax computations for the period that the loss etc. relates to. The carry forward of losses in the foreign jurisdiction for relief against future profits will also prevent a group relief surrender.

The only exception to this is where it is clear that there is no possibility of relief in the foreign jurisdiction. This may be the case for instance if the company is in liquidation and any possibility of using the losses by consolidation with a parent group or other avenue of relief in the foreign jurisdiction is ruled out. For the impact of these rules where the company is resident in a foreign jurisdiction which operates a credit system for overseas permanent establishment income or in one that operates an exemption system see CTM80330.

The laws of the foreign jurisdiction may contain “mirror” rules which prevent the deduction of losses in that jurisdiction if the losses could be relieved in the UK. In that case, the losses are treated as being deductible or otherwise allowable for the purposes of non-UK tax and cannot be surrendered as group relief in the UK - CTA10/S107(8) and (9).

Note that the UK has entered into a Competent Authority Agreement with the US that disapplies CTA10/S107(9) where a company makes an election under that agreement to use the losses in the UK. Where such an election is made, the losses are not automatically treated as being deductible or otherwise allowable for the purposes of non-UK tax, but note that the other conditions of CTA10/S107 must still be satisfied in order for group relief to be given in the UK.

EEA companies from 1 April 2013 to 26 October 2021

CTA10/S107(6B) refers to whether the losses or other amounts are ‘in any period deducted from or otherwise allowed against non-UK profits of any person’…‘for the purposes of non-UK tax’. This means that on or after 1 April 2013 for EEA resident companies it is sufficient that there has been no deduction or relief in foreign tax computations for the period that the loss etc. relates to, even though the loss may be being carried forward. Any part of a loss that has not been relieved against non-UK profits in a foreign jurisdiction will be available for surrender as group relief.

As CTA10/S107(6B) refers to ‘in any period’; if the loss is later relieved against non-UK profits in a foreign jurisdiction then the group relief given in the UK should be withdrawn – see CTM80335 for details of how this claw back operates.

See CTM80332 for guidance on how to identify the extent of losses of a permanent establishment that have been relieved in a foreign jurisdiction and CTM80333 for guidance on how to determine the UK group relief available when part of the losses have been relieved in a foreign jurisdiction.

If you receive claims in respect of losses of a UK permanent establishment of an EEA company arising on or after 1 April 2013 to 26 October 2021 that do not adjust for losses used in a foreign jurisdiction, then please contact a CT Technical Specialist for advice on how to proceed.

EEA companies from 27 October 2021

Following the UK’s departure from the EU, CTA10/S107 was amended by s24 Finance Act 2022 (with effect from 27 October 2021) to remove the separate rules for EEA-resident companies so that all non-UK resident companies can only surrender as group relief losses of a UK permanent establsihment if the loss is not deductible from or allowable against non-UK profits of any person for any period.

Where an accounting period straddles this date, such that an apportionment is needed to work out the losses that arise after 26 October 2021, companies should use a time apportionment basis unless that produces an unjust or unreasonable result.

Tax relief given

Restrictions on group relief for companies with a UK permanent establishment depend on whether tax relief could be given or is given, for the purposes of non-UK tax, either to the non-resident company with the UK permanent establishment or to any other person.

Losses and other amounts which are brought into foreign tax computations only for the purpose of excluding them from the foreign tax charge do not fall within this definition - CTA10/S107(7).

For the meaning of non-UK profits see CTM80320 and for the meaning of non-UK tax see CTM80325.