The measure
This measure corrects an anomaly which exists under current tax
law where banks enter into agreements with the Government for
financial support. Banks may surrender their rights to tax losses
or other reliefs as payment to the Government for support. There is
a risk that under current law the losses would continue to be
available notwithstanding their surrender to the Government.
Currently the Corporation Tax Acts provide that certain reliefs for
losses such as carry forward trading losses automatically reduce
profits in the next period. Where losses have been surrendered as
payment for Government support the losses should not be
available.
Legislation will be introduced to ensure that where a bank or other taxpayer has taken Government support and undertaken to forgo rights to certain tax losses, any automatic tax relief in relation to those losses is switched off. The legislation will also ensure that there is no tax relief for any expense representing the amount of reliefs forgone.
Who will be affected?
Banks and other taxpayers who take Government support and pay for the support by surrendering tax losses or other reliefs.
When?
The legislation will apply to arrangements entered into on or after 22 April 2009.
Our view
This is the correction of an anomaly that has arisen as a result of the banking crisis and the need for banks to apply for Government support under the Asset Protection Scheme and similar arrangements.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.