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HMRC internal manual

Corporate Finance Manual

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HM Revenue & Customs
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Debt cap: income from EEA group companies: when to test

Availability of future relief must be determined at the end of the current period

TIOPA10/S303(4) states that when determining whether a deduction can be taken into account or a relief can be given in a future period of account, you must look at the position immediately after the end of the current period.

This means that when looking at whether qualifying EEA tax relief is available in a future period, you can only take account of any tax regulations of the EEA territory that are in force at that time.

If, immediately after the end of the current period, the payer would be allowed a qualifying EEA relief conditions A and B would not be met. If at some later point, when the relief would have been given or the deduction made, the tax laws of the EEA territory have changed to deny some or all of the relief, this has no bearing on the group’s debt cap position. The test made immediately following the end of the current period is made for once and for all.

The converse position is equally the case, in that if immediately following the end of the current period the qualifying EEA relief is not available, it is at that point you determine that no relief is available and thus conditions A and B are met.

TIOPA10/S303(4) makes it clear that if the availability of the relief is contingent on some future event, the relief must be regarded as available if, at the end of the period concerned, it is possible that the future event could happen: see the example below.

Example

EEA resident company A pays interest to UK company B, as part of its trade. The interest payment cannot be relieved in the year of payment, nor surrendered to another company; instead, it forms part of a trading loss that is carried forward. However, under the law of the EEA territory concerned, trading losses cannot be carried forward indefinitely - they are lost after 6 years.

The question of the future allowability of the interest payment must be decided at the end of the period under review. At that point, it is possible that the EEA company may have future trading profits sufficient to absorb its brought forward losses. If, at a future point, losses for the year in question (including the interest payment) are no longer capable of being relieved, the group cannot make a retrospective claim that no qualifying EEA tax relief has been given.