2.34 There are special rules that apply to group relief when a company joins or leaves a group: in simple terms the group relief is restricted to the period when the Company is within the group, with the profits being allocated on the basis of time apportionment. 2.35 Due to these special rules, group relief is not an elixir that allows significant profits in the pre-Completion period to be covered by losses in the Buyer group. Its application will be restricted to those circumstances when there is a significant distortion between the levels of profits in the pre- and post-Completion periods when comparing actual results and time-apportioned results. 2.36 In addition to Section 402 group relief, there was a facility to surrender advance corporation tax to a subsidiary under Section 240, ICTA. This section was repealed with effect from accounting periods beginning after 5 April 1999, so is becoming increasingly irrelevant. However, it still makes an appearance in tax covenants from time to time, as part of the fossil record.
2.37 There is a facility for the surrender of tax refunds within a group under Section 102, Finance Act 1989 and this is another form of Buyer’s Group Relief.
2.38 Lastly there is a provision within paragraph 4 of the Double Taxation Relief (Surrender of Relievable Tax Within a Group) Regulations 2001 for the surrender of eligible unrelieved foreign tax to another company which is a member of the same group. 2.39 This Relief is also dealing in the currency of notional rather than real cash flows. The timing of sums due under the covenant is normally linked to the timing of the tax payments that have been reduced or extinguished.
Buyer’s Relief - General Comments
2.40 The four ingredients of Buyer’s Relief cover net and gross amounts: Deferred Tax Relief relates to the taxed values of various timing differences; Accounts Relief is similar in that it is concerned with the net values at which amounts of tax are recoverable; however both Post-Completion Relief and Buyer’s Group Relief are describing gross figures, rather than the actual values, assuming the applicable rate of corporation tax. 2.41 Due to this combination of net and gross values when dealing with Reliefs, it is important to make sure that there is clarity as to the measure of loss in the other clauses of the tax covenant.
3 Corresponding Saving
1.2.2 “ Corresponding Saving ” means a Relief which arises from a Tax Liability which has resulted in a payment by the Covenantors falling due under this Tax Deed and that Relief is utilised.
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