Chartered Institute of Taxation (CIOT / CTA) Taxation of Major Corporates Advisory Syllabus

Which losses can be surrendered as current-year group relief?

Trading losses, excess capital allowances, non-trading loan relationship deficits, qualifying charitable donations, UK property losses, management expenses and non-trading IFA losses — broadly current-period amounts, with non-trade items only after offsetting the surrendering company's own profits.

What does the group relief for carried-forward losses (CFLR) regime, from 1 April 2017, allow?

Post-1 April 2017 carried-forward losses (trading, NTLRD, management expenses etc.) can be surrendered to 75% group members, subject to the $\pounds 5$m deductions allowance and 50% restriction applying group-wide.

Define consortium relief and the consortium condition.

A company is consortium-owned if at least 75% of its ordinary share capital is held by companies (members) each holding at least 5% but less than 75%. Losses can be surrendered between the consortium company and members in proportion to ownership.

What is the £5m deductions allowance in the corporate loss restriction?

From 1 April 2017, carried-forward losses can only offset 50% of profits above a $\pounds 5$m annual deductions allowance (shared across a group). Below $\pounds 5$m, profits can be fully relieved; above, only 50% of the excess.

What defines a capital gains group?

A principal company plus its 75% subsidiaries (direct holdings) and their 75% subsidiaries, with the principal company holding an effective interest of more than 50% in each sub-subsidiary. A company can only be in one gains group.

What is the key consequence of being in a capital gains group regarding asset transfers?

Assets transfer between group members on a no gain/no loss basis (TCGA 1992 s171) automatically — at the transferor's base cost plus indexation (frozen at December 2017). No election is required.

How does group relief for capital losses / current-year gains and losses operate (s171A)?

Group companies can jointly elect to treat a chargeable gain or allowable loss as accruing to another group member, allowing gains and losses to be matched without an actual asset transfer.

What is a 'degrouping charge' and when does it arise (s179)?

It arises when a company leaves a capital gains group within 6 years of acquiring an asset on a no gain/no loss intra-group transfer, while still owning that asset. The leaving company is treated as having sold and reacquired the asset at market value at the date of the original transfer.

How is a degrouping charge treated when it arises on a share sale qualifying for SSE?

The degrouping gain is added to the consideration for the share disposal (it accrues to the selling company), so if the share sale qualifies for the substantial shareholding exemption, the degrouping gain is effectively exempt too.

State the core conditions for the substantial shareholding exemption (SSE).

The investing company must have held a substantial shareholding — at least 10% of ordinary share capital (plus 10% of profits/assets) — for a continuous 12-month period within the 6 years before disposal, and the investee must be a trading company or holding company of a trading group/subgroup.

What is the effect of the substantial shareholding exemption?

A gain on the disposal of qualifying shares is wholly exempt from corporation tax; correspondingly, a loss on such a disposal is not allowable. It is mandatory, not elective, when conditions are met.

Following the 2017 reforms, is the investing company still required to be a trading company for SSE?

No. From 1 April 2017 the trading requirement on the investing company was removed; only the investee company (or group) must meet the trading test. A relaxed exemption also applies where the investor is owned by qualifying institutional investors.

What is the share-for-share exchange treatment under TCGA 1992 s135?

Where shares are exchanged for shares/debentures in the acquiring company, there is no disposal — the new holding 'stands in the shoes' of the old (paper-for-paper), deferring the gain, provided the exchange is for bona fide commercial reasons and not tax avoidance (s137).

Distinguish a 'direct' (statutory) demerger from an 'indirect' demerger.

Direct demerger: the parent distributes shares in a subsidiary directly to its shareholders (an exempt distribution under CTA 2010 s1076). Indirect demerger: the parent transfers a trade or subsidiary to a new company whose shares are issued to the shareholders, used where direct is not possible.

What is a Capital Reduction (s110) demerger and when is it used?

A liquidation demerger under Insolvency Act 1986 s110: the company is liquidated and the liquidator distributes the business/subsidiaries to new companies owned by different shareholder groups. Used to split a group between shareholders, often with clearance and SSE/share-exchange reliefs.

What is a permanent establishment (PE) under the OECD Model / UK rules?

A fixed place of business through which the business of an enterprise is wholly or partly carried on (e.g. branch, office, factory), or a dependent agent habitually concluding contracts in the company's name. Preparatory/auxiliary activities are excluded.

How are profits attributed to a permanent establishment?

Under the 'separate enterprise' / authorised OECD approach (AOA): the PE is treated as a distinct and separate enterprise dealing at arm's length, with profits based on functions performed, assets used and risks assumed (the functionally separate entity approach).

Compare operating overseas via a branch versus a subsidiary for a UK company.

Branch (PE): profits taxed in UK (unless branch exemption elected), early-year losses relievable in UK. Subsidiary: separate entity, profits taxed locally, dividends usually exempt, losses not directly relievable in UK; offers transfer pricing planning and limited liability.

What is the foreign branch exemption election (CTA 2009 s18A)?

An irrevocable election to exempt all foreign PE profits and losses from UK corporation tax. Once made it applies to all the company's overseas branches; anti-diversion (CFC-style) rules can claw back exempt profits artificially diverted.

What is the purpose of the Controlled Foreign Companies (CFC) regime?

To counter diversion of UK profits to low-taxed overseas subsidiaries. A CFC charge taxes UK resident companies (holding 25% or more) on a CFC's 'chargeable profits' that pass through the gateway, at the UK corporation tax rate, with credit for foreign tax.

Define a CFC.

A company that is (a) resident outside the UK and (b) controlled by UK resident persons (companies or individuals). 'Control' includes legal, economic and accounting control, and a 40%/40% joint-venture test.

How does the CFC 'gateway' and entity-level exemptions work?

Profits are only charged if they pass through the gateway (Chapters 4–8, e.g. profits from UK significant people functions, non-trading finance profits). Entity exemptions — exempt period, low profits, low profit margin, tax exemption (foreign tax ≥ 75% of UK), and excluded territories — remove a CFC from charge entirely.

What is the CFC finance company partial exemption (Chapter 9)?

For qualifying loan relationships (intra-group overseas lending), a company can claim to exempt 75% (or up to 100%) of the non-trading finance profits, giving an effective rate of around 6.25% on financing income before its EU State-aid-driven restrictions.

State the arm's length principle underlying transfer pricing.

Transactions between connected/associated parties must be priced as if between independent parties dealing at arm's length. UK rules (TIOPA 2010 Part 4) adjust profits only to increase UK taxable profits (one-way street), with a compensating adjustment for the UK counterparty.

Which businesses are exempt from UK transfer pricing rules?

Small enterprises (under 50 staff and either turnover or balance sheet under €10m) are wholly exempt; medium enterprises (under 250 staff and turnover under €50m or balance sheet under €43m) are exempt unless HMRC issues a notice — except for transactions with non-treaty territories.

What is thin capitalisation and how do UK rules address it?

Thin capitalisation is excessive debt funding by connected parties relative to what an independent lender would provide. It is treated as a transfer pricing issue — interest on the 'excess' debt is disallowed by adjusting to arm's length borrowing levels and terms.

Summarise the Corporate Interest Restriction (CIR).

Restricts a group's UK net tax-interest deduction to the higher of the fixed ratio (30% of UK tax-EBITDA) or the group ratio, subject to a $\pounds 2$m de minimis. Disallowed interest carries forward indefinitely; unused capacity carries forward 5 years.

What is the Diverted Profits Tax (DPT) and its rate?

A standalone tax (currently 31%, set 6% above the main CT rate) targeting profits artificially diverted from the UK via (a) avoidance of a UK PE or (b) transactions lacking economic substance between connected parties. Designed as a deterrent to encourage proper CT/transfer pricing self-assessment.

What are the two main charging situations for Diverted Profits Tax?

(1) A foreign company avoiding a UK taxable permanent establishment despite significant UK activity; (2) entities/transactions lacking economic substance that create an effective tax mismatch. A notification and HMRC charging-notice process applies, with a 12-month review period.

What is the headline rate and scope of the Pillar Two global minimum tax?

A 15% global minimum effective tax rate for multinational groups with consolidated revenue of at least €750m. The UK implements it via the Multinational Top-up Tax (MTT, an income inclusion rule) and Domestic Top-up Tax (DTT) for accounting periods from 31 December 2023.

Explain the Income Inclusion Rule (IIR) and the top-up tax calculation under Pillar Two.

The IIR makes the parent pay top-up tax on low-taxed subsidiaries. Top-up tax = top-up percentage × excess profit, where $$\text{Top-up }\% = 15\% - \text{ETR}$$ and excess profit is GloBE income less the substance-based income exclusion (a carve-out for payroll and tangible assets).

What is the Undertaxed Profits Rule (UTPR) under Pillar Two?

A backstop to the IIR: where low-taxed profits are not captured by an IIR (e.g. at the ultimate parent level in a non-implementing country), other group entities deny deductions or make an equivalent adjustment to collect the residual top-up tax.

Who must be the Senior Accounting Officer (SAO) and which companies are in scope?

The SAO is the director or officer with overall responsibility for the company's financial accounting arrangements. The regime applies to UK companies (and groups) with turnover over $\pounds 200$m and/or a balance sheet total over $\pounds 2$bn in the previous year.

What are the SAO's main duties and the penalties for failure?

To take reasonable steps to establish and monitor appropriate tax accounting arrangements and to provide HMRC an annual certificate (compliant or not). Penalties: $\pounds 5{,}000$ personally on the SAO for a failure, $\pounds 5{,}000$ for failing to certify, and $\pounds 5{,}000$ on the company for not notifying the SAO's name.

What does the Corporate Criminal Offence (CCO) of failure to prevent the facilitation of tax evasion cover?

Under the Criminal Finances Act 2017, a 'relevant body' (company/partnership) is strictly liable where an associated person (employee, agent, contractor) criminally facilitates tax evasion (UK or foreign), unless it had reasonable prevention procedures. There is no upper limit on the fine.

What is the only defence to the Corporate Criminal Offence?

That the body had reasonable prevention procedures in place (or that it was unreasonable to expect any), based on six guiding principles: risk assessment, proportionality, top-level commitment, due diligence, communication/training, and monitoring/review.

What is the UK General Anti-Abuse Rule (GAAR)?

A rule (Finance Act 2013) counteracting 'abusive' tax arrangements — those that cannot reasonably be regarded as a reasonable course of action (the 'double reasonableness' test). HMRC may make just and reasonable adjustments, with an advisory GAAR Panel and a 60% GAAR penalty.

How do Targeted Anti-Avoidance Rules (TAARs) differ from the GAAR?

TAARs are specific statutory provisions aimed at particular avoidance (e.g. transactions in securities, unallowable purpose rules for loan relationships), operating automatically where conditions are met. The GAAR is a broad backstop for abusive arrangements not caught by specific rules.

What is the 'unallowable purpose' rule for loan relationships?

Under CTA 2009 s441–442, where a loan relationship has an unallowable purpose (a main purpose of securing a tax advantage not among the company's business/commercial purposes), debits attributable to that purpose are disallowed on a just and reasonable apportionment.

Which large businesses must publish a tax strategy, and what must it contain?

UK companies/groups exceeding the SAO-style thresholds (turnover over $\pounds 200$m or balance sheet over $\pounds 2$bn, or qualifying multinationals) must publish their UK tax strategy annually online. It must cover approach to tax risk management/governance, attitude to tax planning, level of accepted tax risk, and approach to dealings with HMRC.

What is the Business Risk Review (BRR+) and HMRC's customer compliance manager (CCM) relationship?

Large businesses are allocated a CCM and given a BRR+ rating — Low Risk, Moderate, Moderate–High, or High Risk — across systems, internal governance, and approach to tax. A lower rating means lighter-touch HMRC engagement; ratings drive the intensity of compliance interventions.

What are DOTAS and the role of disclosure regimes in corporate tax risk?

DOTAS (Disclosure of Tax Avoidance Schemes) requires promoters/users to notify HMRC of arrangements bearing avoidance 'hallmarks', generating a scheme reference number reported on returns. Alongside DAC6/Mandatory Disclosure Rules for cross-border arrangements, it gives HMRC early visibility of avoidance, informing tax risk management.