CTM06830 - Corporation Tax: loss buying: restriction of group relief for carried-forward losses: claimant company previously owned by a consortium
CTA10/S676CC
Consortium conditions 1 and 2
When, immediately before a change in ownership of a company
- the transferred company, company C, was owned by a consortium, and
- as a result, company C and another company, company X, met either consortium condition 1 or consortium condition 2 (CTA10/S188CF to S188CG)
then CTA10/S676CC controls the amount of relief company C can claim from company X as group relief for carried-forward losses (CTA10/PART5A).
In practice, this will only apply in circumstances where the change in ownership does not effectively sever the relationship between company C and company X for the purposes of CTA10/PART5A.
The way in which CTA10/S676CC operates depends on which of the two consortium conditions was met.
Companies previously met consortium condition 1
Broadly, consortium condition 1 is met if the claimant company is owned by a consortium and the surrendering company is a member of that consortium.
Where company C and company X met this condition immediately before the change in ownership of company C, following the change, CTA10/S676CC (1) to (4) restrict the amount of relief C can claim from company X under CTA10/PART5A.
The restriction applies only to profits of the first five years following the end of the accounting period of the transferred company in which the change in ownership occurred.聽 The amount of relief company C can claim against profits arising after this time is not affected by CTA10/S676CC.
Relief is only restricted so far as it relates to losses incurred before the change in ownership and carried forward under one of the provisions specified in CTA10/PART14/CHAPTER2C (CTA10/S676CH).
The extent of the restriction depends on the relationship between company C and company X at the time immediately before the change in ownership of company C.聽 This gives the maximum amount of relief that company C can obtain for restricted losses claimed from company X in any particular claim period, up to the fifth anniversary of the end of the accounting period of the transferred company in which the change in ownership occurred.
The maximum amount is the amount of relief that would be available for a claim based on consortium condition 1, where the ownership proportion (CTA10/S188DH to S188DI) was equal to the lowest of four proportions.
This, though, is a maximum and claims based on consortium condition 1 or consortium condition 2 are subject to further limitations at CTA10/PART5A/CHAPTER4.聽 These include limitations specific to claims based on consortium condition 1 or 2, found at CTA10/S188DH to S188DL.
The claim should use the lowest of the four following ownership proportions:
A. The proportion of the ordinary share capital of the transferred company, company C, that was beneficially owned by the surrendering company, company X, immediately before the change in ownership;
B. The proportion of any profits available for distribution to equity holders of company C to which the company X was beneficially entitled at that time;
C. The proportion of any assets of company C available for distribution to such equity holders on a winding up to which company X would be beneficially entitled (as determined at that time);
D. The proportion of the voting power in company C that was directly possessed by company X at that time.
For example:
- Company C is owned by a consortium;
- For this reason, company C and company X meet consortium condition 1;
- There is a change in ownership in company C;
- Immediately before the change, the lowest of proportions A to D listed above was A, the proportion of ordinary share capital in company C that was owned by company X, namely 15 per cent;
- Following the change in ownership, company C and company X meet the group relief group condition (CTA10/S188CE, S188FB, CTA10/PART5/CHAPTER5);
- In a subsequent period that falls within the five years following the change, company C wishes to claim losses from company X under CTA10/PART5A.聽 The losses in question were incurred before the change in ownership, and are restricted under CTA10/S676CC;
- The amount of relief that company C would have been able to claim immediately before the change in ownership from company X in a claim based on consortium condition 1, using a 15 per cent ownership proportion, is 拢5 million.
In the period in question, the maximum amount that company C may be able to claim from company X, in respect of restricted losses incurred before the change in ownership, is therefore 拢5 million.聽 However, this will be subject to limitations set out in CTA10/PART5A/CHAPTER4.
Companies previously met consortium condition 2
Broadly, consortium condition 2 is met if
- a聽claimant company, company C, is owned by a consortium,
- another company, the link company, is a member of that consortium, and
- the surrendering company, company Y, is a member of the same group of companies as the link company.
Where company C and company Y met this condition immediately before a change in ownership of company C, CTA10/S676CC (5)聽 to (8) control the amount of relief that C can claim from company Y under CTA10/PART5A, in respect of restricted losses incurred by company Y before the change.
These provisions operate in largely the same way as CTA10/S676CC (1) to (4), above.
However, the maximum amount is determined with reference to the link company's ownership proportion, rather than that of company Y.
For example:
- Company C is owned by a consortium of which Company X is a member;
- A link company, company L, is a member of the consortium;
- Company Y is a member of the same group as company L;
- For this reason, company C and company Y meet consortium condition 2;
- There is a change in ownership in company C;
- Immediately before the change, the lowest of proportions A to D listed above was A, the proportion of ordinary share capital in company C that was owned by company L, the link company, namely 30 per cent;
- Following the change in ownership, company C and company Y meet the group condition;
- In a subsequent period that falls within the five years following the change, company C wishes to claim losses from company Y under CTA10/PART5A - the losses in question were incurred before the change in ownership, and are restricted under CTA10/S676CC.
The amount of relief that company C would have been able to obtain from company Y immediately before the change in ownership in a claim based on consortium condition 2, using a 30 per cent ownership proportion, is 拢7 million.
In this subsequent period, the maximum amount that company C can claim from company Y, in respect of restricted losses incurred before the change in ownership, is therefore 拢7 million.
But claims based on consortium condition 1 or consortium condition 2 are subject to further limitations at CTA10/PART5A/CHAPTER4.聽 These include limitations specific to claims based consortium condition 1 or 2, found at CTA10/S188DH to S188DL.
Apportionment
Companies may need to apportion amounts in order to determine the amounts of losses restricted and profits affected.聽 They should do so following the method set out in legislation for each of the following two periods