Corporation Tax Liability Essay

1221 words - 5 pages

For corporation tax purposes, groups of companies are divided into a number of categories and each category enjoys certain tax advantages. These advantages may include (Melville 2004):* the transfer of trading losses from one group member to another, and* the transfer of chargeable assets from one group member to another.ASSOCIATED COMPANIESFor tax purposes, two companies are associated if one of the companies is under the control of a third party (which may be an individual, a partnership or a company). Control over a company is deemed to accompany (Lymer & Hancock 2002):* ownership of over 50 % of the company's issued share capital, or* ownership of over 50 % of the company's voting power, or* entitlement to over 50 % of the company's income, if all of that income were to be distributed, or* entitlement to over 50 % of the company's assets, if the company were wound up.The main consequences of two or more companies associated with one another is that the starting rate and small companies rate upper and lower limits are divided between the companies.There are six companies in the group namely Britannia Plc, Brunswick Ltd, Balfour Ltd, Biscayne Inc., BlueBay Ltd and BlackRock Ltd. There are all under common control (i.e. shareholdings of over 50%).However, BlueBay Ltd has not starting trading and would not count as an associated company. On the other hand, Biscayne Inc would be counted as an associated company even though it is resident overseas.Therefore, there are five associated companies and the limits would be divided by five (see Appendix I).GROUP RELIEFGroup relief consists of the surrender of trading losses and/or certain items by one member of a 75 % group (the "surrendering company") to another member of the group (the "claimant company") (Nightingale 2002).A 75 % group for the purpose of group relief is where (Harrowven 2001 & 2004):* one company is a 75 % subsidiary of the other, or they are both 75 % subsidiaries of a third company (which might or might not be UK resident),* the holding company has an effective interest of at least 75 % in the subsidiary's ordinary share capital.* the holding company has the right to receive at least 75 % of the subsidiary's distributable profits and net assets (were it to be wound up).BlueBay Ltd and BlackRock Ltd are not in a group relief group with the other companies since the effective interest is 65 % and 60 % respectively. Consequently, they cannot give or receive group relief from the other companies in the group.It should be noted that group relief is normally only available to, and may be claimed from, UK resident companies (BPP 2003).CAPITAL LOSSESCapital losses cannot be surrendered to another group member. This is in contrast to the treatment of trading losses which may be surrendered. However, two members of a 75 % group may jointly elect that an asset which has been disposed of outside the group by one of them should be treated as if it has been transferred between them...

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