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HMRC internal manual

International Manual

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HM Revenue & Customs
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Controlled Foreign Companies: Computation of Chargeable Profits and Creditable Tax: Claims assumed to be made

ICTA88/SCH24/PARA4(1)

Where any relief to which a foreign company may be entitled in the computation of its chargeable profits is dependent on the making of a claim or election, the company is assumed to have made the claim or election. It is assumed to have made the claim or election which would produce the maximum amount of relief and it is assumed to have made the claim or election within any applicable time limit.

Example 1

X, a non-resident company, is liable to Corporation Tax in respect of the trading profits of a permanent establishment in the United Kingdom. In the year ended 31 March 2010, it incurs trading losses of £2,000 which are not relieved. For the purposes of computing its chargeable profits for the year ended 31 March 2011, it is assumed to have claimed relief in respect of the losses of £2,000 under CTA10/S37 (previously ICTA88/S393A(1)), regardless of whether the two year time limit in CTA10/S37 has expired.

Where the making of a claim affects the accounting period for which relief is due or where there is more than one possible way of claiming relief, ICTA88/SCH24/PARA4(1) should be interpreted as requiring relief to be given for the earliest possible accounting period.

Example 2

The facts are as in the Example 1 except that X has other profits chargeable to Corporation Tax totalling £1,000. As a result of a claim under CTA10/S37 , its Corporation Tax profits are reduced to nil and unrelieved losses of £1,000 are carried forward under CTA10/S45. In computing its chargeable profits for the year ended 31 March 2012, the maximum relief available in accordance with ICTA88/SCH24/PARA4(1) is £1,000 in respect of the losses brought forward.

Losses cannot be carried back to earlier periods under CTA10/S37(3) and CTA10/S39 (previously ICTA88/S393A(2) and (2B)) where exceptionally these apply because the controlled foreign company has a trade conducted in the United Kingdom itself. Where there are no chargeable profits for the period in which the losses arose, so no direction was made for that period, the computation of losses is relevant only for the purposes of computing chargeable profits for the later period (ICTA88/SCH24/PARA2(2)). Thus the losses are only available against the profits of subsequent periods.

Example 3

The facts are as in Example 2. However, even if X had profits chargeable to Corporation Tax in the year ended 31 March 2010 (or in an earlier accounting period) against which the surplus losses of the year ended 31 March 2011 could have been relieved if a claim had been made, no account is taken of this possibility and the surplus losses are regarded as available to be included in the computation of the chargeable profits for the year ended 31 March 2012.