ACCA Advanced Taxation (ATX) Practice Exam

Can losses carried forward after a change in ownership be surrendered to the new group?

1. Yes, immediately

2. No, for five years

3. It depends on the type of loss

4. Yes, if the company is performing well

The correct answer is: No, for five years

In the context of tax legislation, particularly regarding the treatment of losses following a change in ownership, the correct answer reflects a specific rule in tax law that delays the ability to surrender losses. When a company undergoes a change in ownership, the tax rules typically impose restrictions on how and when losses can be utilized. Specifically, losses carried forward from a previous period may not be immediately available to the new group or ownership. The rationale behind this is often to prevent abuse of tax reliefs and ensure that losses are utilized in a manner that reflects the economic reality of the company’s operations. The rule stating that these losses cannot be surrendered for five years serves as a safeguard, allowing time to assess the viability of the new ownership while preventing potential manipulation by new stakeholders looking to offset gains with historical losses. This five-year period acts as a buffer, establishing a clear demarcation between the past operations of the entity under previous ownership and its future under new management. Thus, this period is a critical factor in understanding how losses can be managed and utilized for tax purposes post-change in ownership.