The UK has amended its rules on Group Relief for companies resident in the European Economic Areas following a ruling by the Court of Justice of the European Union in September 2012 which said that the UK’s group relief rules were in breach of the EU’s freedom of Establishment Provisions.
The HMRC recognizing that the UK group relief provisions are at odds with the EU law have set out a legislative change to section 107 Corporation Tax Act 2010 which will come into effect from 1st April 2013. The change means that a different restriction will apply for EEA resident companies based on whether the losses attributable to their UK PE’s are actually relieved in another country, rather than on whether they could potentially be relieved in another country. This should ensure that losses are not relieved twice, once as group relief in the UK and then again in another country. Currently non-UK resident companies resident in the EEA are subject to the same rules as non-EEA resident companies. This legislation will only apply for EEA resident companies and non-EEA resident companies will not be affected.
The amendments will prevent a non-UK resident company that is resident in the EEA from surrendering group relief for a loss or other amount attributable to its UK PE to the extent that it is relieved against the non-UK profits of any other person in any period. Where an amount that has been surrendered as group relief is later used against non-UK profits, then the benefit of the UK group relief will be withdrawn to the extent that the amount has been relieved elsewhere.
Non-UK resident company’s carrying on a trade in the UK through a PE have been able to participate in group relief since 1 April 2000. In order for the non-UK resident company to surrender a loss or other amount as group relief three conditions needed to be met.
– The loss or other amount is attributable to activities of the Company’s UK PE in respect of which the company is within the charge to corporation tax.
– The loss or other amount is not attributable to activities of the company that are exempted from taxation under a double taxation treaty
– The loss or other amount does not correspond to, and is not represented in, an amount that is deductible or otherwise allowable for tax purposes against non-UK profits of any person in any period