ACCA Advanced Taxation (ATX) Practice Exam

Which of the following best describes group relief for losses?

1. Losses can only be shared between subsidiaries

2. Losses can be surrendered to unrelated companies

3. Group companies must be established in the same country

4. Group relief can only occur in certain circumstances

The correct answer is: Group companies must be established in the same country

Group relief for losses allows companies within the same group to offset losses from one company against the profits of another company within the group, thereby managing the overall tax liability more effectively. The correct understanding revolves around the conditions under which group relief can be claimed. Group relief applies only when companies are part of the same group, which typically consists of a parent company and its subsidiaries. This arrangement promotes collaboration among companies that are under common control and facilitates tax efficiency. While it is true that many jurisdictions require the group companies to be in the same country for group relief to apply, the key aspect of group relief is that it does provide flexibility in utilizing losses across the group, thereby benefiting the overall tax position. Companies that are not in the same country generally cannot share losses under the typical group relief provisions, as the taxation rules may differ greatly across jurisdictions. The other options touch upon aspects of group relief, but they either misinterpret how losses can be shared or the necessary conditions that govern the system. Consequently, the essence of group relief is accurately captured in the requirement for group companies to be established in the same country.