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HMRC internal manual

International Manual

Controlled Foreign Companies: Assumed Taxable Total Profits, Assumed Total Profits and the Corporation Tax Assumptions: Group Relief

TIOPA10/S371SL(1) requires an assumption that the CFC is neither a member of a group of companies nor a member of a consortium for the purposes of any provision of the Taxes Acts. The main effect of this assumption is to prevent the group loss relief provisions from applying to the CFC. Thus it cannot accept losses or other amounts available for surrender under CTA10/S99 which are surrendered to it by an associated company and it cannot surrender its own losses or other reliefs to such a company. See, however INTM245400 concerning the reliefs available to a UK resident company to which a CFC’s chargeable profits are apportioned.

TIOPA10/S371SL(2) and (3) provide that any relief potentially deductible is to be ignored in determining the CFC’s assumed taxable total profits for the relevant accounting period. This could occur where, under CTA10/Part 5 (group relief), the CFC actually surrenders losses to another UK company by way of group relief from the CFC’s loss-making UK permanent establishment. These sections have the effect of restricting relief for losses in the CFC’s assumed taxable total profits computation where they have arisen to a UK permanent establishment of the CFC and have been actually group relieved in the UK thereby preventing the losses from being effectively relieved twice. So where the losses have in fact arisen in a UK permanent establishment of a CFC but have not been group relieved in the UK, they should still be included in the computation of the CFC’s assumed taxable total profits