Corporation Tax Act 2010 section 937J

Tax capacity assumption

Section 937J sets out how to calculate economic profits and losses when testing whether a risk transfer scheme meets the conditions in section 937C, by assuming that any scheme loss receives its full tax benefit.

• When a group member incurs a scheme loss in an accounting period, the group's economic profits and losses for that period must be recalculated on the assumption that the company obtained the full tax benefit of that loss.
• The "full tax benefit" is the corporation tax saving the company would achieve if the loss were fully deductible against an equivalent amount of taxable profits.
• This assumption ensures that a company's lack of sufficient taxable profits does not distort the economic profit and loss calculation used to test whether condition 2 of the risk transfer scheme rules is satisfied.
• References to bringing a loss into account mean recognising it as a debit or credit under the loan relationships rules or the derivative contracts rules in CTA 2009.