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Chapter 2

Group issues

3.1 Group loss relief

Tax consolidation enables a tax group to be recognised, allowing trading losses to
be surrendered between different entities. Some countries enable losses to be
surrendered only between resident companies, while others allow overseas entities
to be included based on profits within that country. Generally, tax groups are different
from groups for accounting purposes. There are various restrictions on the transfer
such as in the UK where only losses of the current accounting period can be
surrendered.

It is important to appreciate; each entity will still produce their own individual
accounts and will be taxed individually. However, if they are part of a group for tax
purposes it may enable them to transfer losses between group members to save tax
for the group as a whole.

Capital losses cannot usually be surrendered between group entities. In the UK,
group entities can transfer ownership of an asset to a group entity at nil gain/nil loss.
A capital gain or loss only arises when an asset is sold outside the group to a third
party. In this way, the entire capital loss group is effectively treated as one entity by
the authorities for capital gains tax.

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