ACCA Advanced Taxation (ATX) Practice Exam

What is the time frame for considering the treatment of losses in relation to a change of ownership?

1. 1 year

2. 3 years

3. 5 years

4. 10 years

The correct answer is: 5 years

In the context of taxation, particularly regarding the treatment of losses when there's a change of ownership, the correct time frame to consider is five years. This period is significant because it determines how losses can be utilized after a business undergoes ownership changes. Under legislation governing corporate tax, when there is a change in ownership, there are restrictions on how losses can be carried forward or back to offset against profits. The five-year limit is intended to maintain a balance between allowing businesses to benefit from losses incurred prior to a change in ownership while safeguarding against tax avoidance strategies that might exploit such situations. This five-year framing provides clarity and a defined timeframe for companies to assess the impact of ownership changes on their ability to use prior losses, aligning with regulatory guidelines aimed at ensuring tax integrity.