Section 121: The precedence condition
450.This section deals with the possibility that relief is available in more than one territory. It is based on paragraph 9 of Schedule 18A to ICTA.
451.Suppose there is a chain of companies with a “top” holding company, a “bottom” trading company and a series of other companies each of which is both a subsidiary and a holding company. If the companies are resident in a variety of territories, where there are rules equivalent to those in this Chapter of the Act, it is possible for the losses of the “bottom” trading company to be relievable in several territories.
452.The section resolves the problem by providing that relief is assumed to be given at the lowest possible level in the chain. If the company at that level is UK resident, group relief is available.
453.Subsection (1) introduces the idea that relief may be available in a territory that is neither the United Kingdom nor the territory where the EEA amount arises.
454.Subsection (2) describes the chain of companies. Paragraph (a) establishes that the company in question is in the chain. Paragraph (b) establishes that higher in the chain there is a UK resident company. Paragraph (c) establishes that the surrendering company is a 75% subsidiary of that UK resident company. Paragraph (d) establishes that there is no other UK resident company in the chain between the surrendering company and the company in question.
455.If relief is available to the company in question it is excluded from the EEA amount.
456.Subsection (3) sets out the sorts of relief with which the section is concerned: they are the same as those in section 118(2) (a direct deduction) and (3) (other relief).
Example
A UK resident company U1 owns all the share capital in N, a company resident in the Netherlands.
N owns all the share capital in U2, a UK resident company.
U2 owns all the share capital in G, a company resident in Germany.
G owns all the share capital in F, a company resident in France.
U1 claims group relief for F’s losses.
Subsection (2) of the section applies to G because:
it is resident in Germany (not the relevant EEA territory, which is France);
U2 owns (directly) share capital in G;
F is a 75% subsidiary of U2; and
F is not a subsidiary of U2 as a result of its being a 75% subsidiary of another UK resident company.
So Germany is a territory within subsection (2). If relief for F’s loss is available in Germany no United Kingdom group relief is available. G’s potential claim takes precedence over U1’s claim because G is lower in the chain.
But, in relation to N:
it is resident in the Netherlands (not the relevant EEA territory, which is France);
the only UK resident company that owns share capital in N is U1;
F is a 75% subsidiary of U1; but
F is a subsidiary of U1 only as a result of its being a 75% subsidiary of another UK resident company (U2).
So the Netherlands is not a territory within subsection (2). Even if relief for F’s loss is available in the Netherlands, United Kingdom group relief may be available to U2. U2’s potential claim takes precedence over N’s because U2 is lower in the chain.
