Taxation (International and Other Provisions) Act 2010 section 371SKA

Restrictions on certain deductions: deductions allowances

Section 371SKA prevents a controlled foreign company (CFC) from using its deductions allowances when calculating taxable total profits subject to the carried-forward loss restriction rules, including the special rules for banking companies.

• When applying the carried-forward loss restriction rules (Part 7ZA of CTA 2010) to a CFC, all three of its deductions allowances — the general deductions allowance, the trading profits deductions allowance, and the non-trading profits deductions allowance — are treated as nil.
• The same nil assumption applies where the carried-forward loss restriction rules are being used for the purposes of the separate bank loss restriction rules (Part 7A of CTA 2010).
• There is one exception: if the CFC qualifies for an increase in its deductions allowance in connection with onerous or impaired leases under section 269ZX of CTA 2010, the allowance is not nil but is instead equal to the amount of that lease-related increase.
• The effect is that CFCs generally cannot shelter carried-forward losses from restriction by relying on deductions allowances, ensuring consistent treatment with the policy intent of the loss restriction regime.