Revenue Note for Guidance

423 Company joining or leaving group or consortium

Summary

This section regulates the position in regard to companies joining or leaving a group or consortium. Group relief is to be given only if the surrendering and claimant companies are members of the same group or consortium during the whole of the surrendering company’s accounting period to which the claim relates and during the whole of the corresponding accounting period of the claimant company. (The companies need not be in group relationship at the time when the relief is claimed, which may be some time after the relevant accounting periods).

Where 2 companies become or cease to be members of the same group, an accounting period for each company is deemed to end and a new one to commence (unless an actual accounting period then ends). In such circumstances the losses or other amounts for which relief is to be granted and the profits of the claimant company against which those losses or other amounts are to be set are arrived at by apportionment on a time basis. Similar provisions apply when a company begins or ceases to fulfil the conditions for consortium relief either as a surrendering company or as a claimant company.

Details

(1) Group relief is given only if the surrendering and claimant companies are members of the same group or consortium during the whole of the surrendering company’s accounting period to which the claim relates and during the whole of the corresponding accounting period (see section 422) of the claimant company.

(2) Where 2 companies become or cease to be members of the same group, an accounting period for each company is deemed to end and a new one to begin at that time (unless an actual accounting period then ends). In such a situation the losses or other amounts of an actual accounting period in respect of which relief is to be granted are to be apportioned on a time basis and the profits of the claimant company for its actual accounting period are to be similarly apportioned.

(3) Where one company is the surrendering company and the other company is the claimant company —

references to accounting periods, profits, losses, etc, of the surrendering company in section 420 are to be construed having regard to subsection (2),
references to accounting periods in section 422 and subsection (1) are to be similarly construed,
references to profits and amounts to be set off in section 422 are also to be similarly construed.

(4) Subsections (2) and (3) are applied to a company beginning or ceasing to fulfil the conditions for consortium relief as either a surrendering or a claimant company.

Example 1

Company A acquires a 75 per cent subsidiary, B, on 31 March, 2002, and another 75 per cent subsidiary, C, on 30 June, 2002. All 3 companies make up their accounts to 31 December and their results for the 12 months to 31 December, 2002 are —

A. Excess management expenses	€36,000
B. Trading profits	€20,000
C. Trading profits	€30,000.

B claims group relief from A with A’s consent and is entitled to the smaller of —

9/12 * €36,000 =	€27,000
OR 9/12 * €20,000 =	€15,000

C claims group relief from A with A’s consent and is entitled to the smaller of —

6/12 * €36,000 =	€18,000
OR 6/12 * €30,000 =	€15,000

The section limits the group relief which B and C can claim to €15,000 each.

This would be further restricted by section 428 because A was not in group relationship with either B or C in the 3 months to 31 March, 2002. The maximum group relief which A can surrender is therefore limited by section 428, to 9/12 * €36,000 = €27,000. Subject to the limitations imposed by the present section, this can be divided between B and C as the companies themselves choose. Thus, if the restriction under section 428 is applied to C, the group relief would be €15,000 to B and €12,000 to C.

Example 2

Company A acquires 75 per cent subsidiaries B and C as in Example 1. The results for the 12 months to 31 December, 2002 are —

A. Excess management expenses	€36,000
B. Trading profits	€40,000
C. Trading loss	(€30,000)

B claims group relief from A with A’s consent and is entitled to the smaller of —

9/12 * €36,000 =	€27,000
OR 9/12 * €40,000 =	€30,000

B also claims group relief from C with C’s consent and is entitled to the smaller of —

6/12 * €36,000 =	€15,000
OR 6/12 * €40,000 =	€20,000

Since B was not in group relationship with either A or C in the 3 months to 31 March, 2002, the maximum group relief with B can obtain from A and C in respect of the accounting period to 31 December, 2002 is further restricted by section 428 to 9/12ths of B’s profit for that accounting period, namely 9/12 *€40,000 = €30,000. The companies have, therefore, to choose how this restriction is to be applied. They may, for example, apply it to C, in which case A surrenders €27,000 while C surrenders only €3,000.

Example 3

All the shares in company A are held, equally, by companies B, C, D and a bank, E. The companies B, C, D and E thus are a consortium. All 5 companies make up their accounts to 31 December and for the 12 months to 31 December, 2002, company A has a trading loss, €50,000, and each of the other companies has ample profits to absorb any relief surrendered by A. All the companies, including E, consent to a claim for consortium group relief, which is dealt with as follows —

B. 25 per cent of A’s loss	€12,500.
C. 25 per cent of A’s loss	€12,500.
D. 25 per cent of A’s loss	€12,500.
	€37,500.

The bank E is by section 411(2) precluded from claiming group relief since a profit on a sale of its shares in A would be a receipt of its trade.

A may carry forward the balance of its loss, €12,500 (that is, €50,000 – €37,500 surrendered for group relief).

Relevant Date: Finance Act 2021