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Budget
REVBN2A
21 March 2000
The group relief rules for companies will be modernised to allow groups and consortia to be established through companies resident anywhere in the world, it was announced today. The changes respond to the increasing globalisation of business and will give multinational groups of companies greater flexibility in structuring their commercial activities in the UK.
The changes will take effect from 1 April 2000. Group relief will also be extended from that date to UK branches of overseas companies.
1. From 1 April 2000, it will be possible to establish a group or consortium for group relief purposes through a company resident anywhere in the world. Examples of what this will mean in practice are given in the annex attached.
2. The Inland Revenue announced in February 1999 that, following the decision of the European Court of Justice in the case of ICI v Colmer, group relief would be available where the existence of a group or consortium was established through companies resident in the European Union or the European Economic Area. The changes announced today go much further, by completely removing any restriction on the residence of companies through which a group or consortium is established.
3. Group relief will also be extended, from 1 April 2000, to UK branches of overseas companies. Under the new rules, a UK branch of an overseas company will be able to claim losses surrendered by other group companies as group relief, to reduce its profits chargeable to corporation tax. A UK branch will also be able to surrender its losses as group relief, where those losses are not relievable (other than against profits within the charge to UK corporation tax) in the overseas country.
4. The rules for overseas branches of UK companies will be brought into line with those for UK branches of overseas companies. A UK company will be able to surrender losses which are attributable to an overseas branch if those losses are not relievable (other than against profits within the charge to UK corporation tax) in the overseas country.
5. Two other minor technical amendments are also being made. These will provide for further simplification of the administrative arrangements for claiming group relief under existing regulatory powers, and will correct a minor defect in the rules determining the maximum amount of a consortium claim to group relief.
1. Group relief allows a company to claim the benefit of trading losses and certain other reliefs of another company if both companies are members of the same group. Its objective is to make the tax treatment of a group carrying on a variety of activities through different companies closer to what it would have been if those activities had been carried on by a single company. A group exists, broadly, where one company owns 75 per cent of the other, or a third company owns 75 per cent of both of them.
2. Simplified administrative arrangements for claiming group relief for accounting periods within Corporation Tax Self Assessment were provided by the Corporation Tax (Simplified Arrangements for Group Relief) Regulations (SI99/2975). These regulations reduce the paperwork involved in making and revising group relief claims.
3. Group relief is extended to consortia. A consortium exists where companies (the consortium members) each own at least 5 per cent, and together own at least 75 per cent, of the share capital of
4. UK branches of non-resident companies are subject to UK corporation tax on their trading profits. Before the changes announced today, their trading losses could be set off only against other profits of the branch or carried forward against future trading profits of the branch.
5. UK-resident companies are subject to corporation tax on their world-wide profits, including any profits made by their overseas branches (though overseas tax paid by the branch can be set against the company's corporation tax liability). Where an overseas branch makes a loss, that loss will be reflected in the results of the company as a whole. And to the extent that a branch loss forms part of an overall loss made by the company, it may be surrendered as group relief under the current rules. The new rules will restrict the surrender of losses which are attributable to an overseas branch where they are relievable in the overseas country (other than against profits within the charge to UK corporation tax). But otherwise the position will remain unchanged.
6. A press release was issued on 26 February 1999 following the decision of the European Court of Justice in ICI v Colmer. It explained how the Revenue would settle open cases where the establishment of a group or consortium relied on a company or companies resident within the European Union or the European Economic Area.
7. Modernisation of the rules affecting groups of companies for the purposes of chargeable gains has also been announced today. Details are given in REVBN2B.
8. The costs of extending the group relief rules are estimated to be £50m in 2000-01, £100m in 2001-02 and £65m in 2002-03, but the ongoing annual cost is likely to be small. These costs take account of behavioural effects.
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Example 1 - Non-UK resident parent
In this example the two UK subsidiaries will now be members of the same group, whatever the country of residence of the parent. The two UK subsidiaries will therefore be able to claim and surrender group relief between each other.
In this example the three companies will form a consortium, whatever the country of residence of the non-UK resident member. The UK-resident member of the consortium and the UK-resident trading company will be able to claim and surrender group relief between each other.
In this example a consortium will now exist, whatever the country of residence of the non-UK resident trading companies. Group relief will therefore be available between the UK-resident companies in the consortium.
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