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Corporation Tax LiabilitiesSection BCorporation TaxGroupsChargeable Gains

ACCA · Question 27 · Corporation Tax Liabilities

Section B: Case 3 - Meridian Logistics Plc

Scenario: Meridian Logistics Plc is the parent company of a cross-border shipping and warehousing group. Meridian Logistics Plc owns 80% of the ordinary share capital of Alpha Ltd. Alpha Ltd owns 90% of the ordinary share capital of Beta Ltd. Meridian Logistics Plc also directly owns 60% of Gamma Ltd. All companies are UK resident and prepare accounts to 31 March.

Question: Which of the companies form a Chargeable Gains group headed by Meridian Logistics Plc?

Answer options:

A.

Meridian Logistics Plc and Alpha Ltd only.

B.

Meridian Logistics Plc, Alpha Ltd, and Beta Ltd.

C.

Meridian Logistics Plc, Alpha Ltd, Beta Ltd, and Gamma Ltd.

D.

None of the companies.

How to approach this question

Apply the Chargeable Gains group definition: 75% direct ownership at each tier, AND the principal company must have an effective interest of more than 50% in the subsidiary.

Full Answer

B.Meridian Logistics Plc, Alpha Ltd, and Beta Ltd.✓ Correct
A Chargeable Gains group consists of a principal company and its 75% subsidiaries, and their 75% subsidiaries, provided the principal company has an effective interest of more than 50% in each subsidiary. - Alpha Ltd: 80% direct holding (>=75%). Effective interest 80% (>50%). In group. - Beta Ltd: Alpha owns 90% (>=75% at that tier). Meridian's effective interest is 80% x 90% = 72%. This is >50%. In group. - Gamma Ltd: 60% direct holding. Fails the 75% direct test. Not in group. Therefore, the gains group comprises Meridian, Alpha, and Beta.

Common mistakes

Confusing the >50% effective interest rule for gains groups with the 75% effective interest rule for group relief.
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