Corporation Tax Act, 1976

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Change in ownership of company: disallowance of trading losses.

27.—(1) If—

(a) within any period of three years there is both a change in the ownership of a company and (either earlier or later in that period, or at the same time) a major change in the nature or conduct of a trade carried on by the company, or

(b) at any time after the scale of the activities in a trade carried on by a company has become small or negligible, and before any considerable revival of the trade, there is a change in the ownership of the company,

no relief shall be given—

(i) under section 16 by setting a loss incurred by the company in an accounting period beginning before the change of ownership against any income or other profits of an accounting period ending after the change of ownership; nor

(ii) under section 182 (relief in respect of unrelieved losses etc. carried forward from the year 1975-76) or 184 (relief in respect of corporation profits tax losses) against corporation tax payable for any accounting period ending after the change of ownership.

(2) In applying this section to the accounting period in which the change of ownership occurs, the part ending with the change of ownership, and the part after, shall be treated as two separate accounting periods, and the profits or losses of the accounting period shall be apportioned to the two parts.

The apportionment shall be on a time basis according to the respective lengths of those parts except that, if it appears that that method would work unreasonably or unjustly, such other method shall be used as appears just and reasonable.

(3) In subsection (1) “major change in the nature or conduct of a trade” includes—

(a) a major change in the type of property dealt in, or services or facilities provided, in the trade, or

(b) a major change in customers, outlets or markets of the trade,

and this section applies even if the change is the result of a gradual process which began outside the period of three years mentioned in subsection (1) (a).

(4) In relation to any relief available under section 20, subsection (1) shall apply as if any loss sustained by a predecessor company had been sustained by a successor company and as if the references to a trade included references to the trade as carried on by a predecessor company.

(5) Where relief in respect of a company's losses has been restricted under this section then, notwithstanding section 304 (6) of the Income Tax Act, 1967 (provisions as to interpretation for purposes of Part XVI of that Act), in applying the provisions of Part XVI of that Act (Annual Allowances for Certain Capital Expenditure) in relation to balancing charges to the company by reference to any event after the change of ownership of the company, any allowance or deduction falling to be made in taxing the company's trade for any chargeable period before the change of ownership shall be disregarded unless the profits or gains of that chargeable period or of any subsequent chargeable period before the change of ownership were sufficient to give effect to the allowance or deduction.

In applying this subsection it shall be assumed that any profits or gains are applied in giving effect to any such allowance or deduction in preference to being set off against any loss which is not attributable to such an allowance or deduction.

(6) Where the operation of this section depends on circumstances or events at a time after the change of ownership (but not more than three years after), an assessment to give effect to the provisions of this section shall not be out of time if made within ten years from that time, or the latest of those times.

(7) Notwithstanding the repeal by this Act of section 39 of the Finance Act, 1973 , the provisions of the Fifth Schedule to that Act (Disallowance of Trading Losses and Restriction of Capital Allowances), except paragraphs 8 and 10 of Part I thereof, shall have effect, as if enacted in this Act, for the purpose of supplementing this section with the substitution, for references to section 39 of that Act, of references to this section.

(8) This section shall not apply if the change of ownership took place before the 16th day of May, 1973, and subsection (1) (a) shall not apply if the major change in the nature or conduct of the trade was completed before that date; but in other respects this section shall have effect by reference to circumstances and events before that date, as well as by reference to later circumstances and events.