If certain conditions are met, a UK parent company (or a UK
resident subsidiary of the UK parent company) may be able to claim
to set an amount representing the foreign tax loss suffered by a
subsidiary resident in another European Economic Area (EEA)
territory against its profits.
The tax loss to be considered is the loss computed under the
rules of the EEA territory in which the surrendering company is
resident, or, in the case of a company not resident in the EEA, the
rules of the EEA territory where it carries on a trade through a
permanent establishment.
In order to quantify the loss eligible for relief, the
foreign loss is to be recomputed in accordance with UK
principles.
Foreign losses must be recomputed in accordance with UK tax
principles, i.e. in accordance with the provisions of the UK
Corporation Tax Acts and UK GAAP or International Accounting
Standards (IAS) if appropriate. (All EU companies listed on a
regulated market are required to prepare group accounts under IAS
from 1 Jan 2005. In addition the DTI allows unquoted companies to
adopt IAS from this date.) This may require a full recomputation of
the relevant amounts. However in some cases a full recomputation
will not be necessary to identify the UK measure of a particular
category of loss or other amount available for surrender by way of
group relief. In such a case all UK tax principles must still be
applied, but it may be sufficient to start with, say, the foreign
trading loss and adjust for differences between respective
accounting standards and tax law.
To enable the recomputation to be carried out, the extended
rules require assumptions to be made about the surrendering
company. Those assumptions relate to:
