ACCA Advanced Taxation (ATX) Practice Exam

If one company within a group elects to exempt overseas profits from UK tax, how does this affect the other companies in the group?

1. It applies to all companies equally

2. It does not affect other UK companies

3. It will apply to all subsidiaries of that company

4. It will require unanimous consent from the group

The correct answer is: It does not affect other UK companies

When a company within a group elects to exempt overseas profits from UK tax, it does not affect other companies within the group. This is because each company's tax treatment is assessed on an individual basis, and the election for exemption applies solely to the profits of the specific company making the election. Thus, the decision of one company to exempt its overseas profits is a standalone action, meaning other UK companies in the group can maintain their own tax positions without being influenced by this election. This autonomy allows each company to strategize its tax liabilities independently, ensuring that the tax implications of one do not necessarily dictate the outcomes for others in the group. Other options suggest either a broad applicability across all companies or a requirement for consensus among the group, which does not align with the structure of UK tax law as it pertains to group taxation and the treatment of overseas profits.