The Finance Act 2006 (“FA 2006”) extended the provisions in the Corporation Tax Acts concerning loss relief for groups of companies (known as “group relief”). Prior to that Act, the relief was available only to U.K. resident companies or companies with a permanent establishment in the U.K. Following the EC Court of Justice’s decision in Marks and Spencer p.l.c. v Halsey (H.M. Inspector of Taxes) in 2005, FA 2006 included provisions allowing certain non-resident companies (an “EEA company”) to surrender losses to a U.K. resident company in the same group. The loss must be calculated following the provisions of the Corporation Tax Acts. Paragraph 16 of Schedule 1 to FA 2006 gives the Treasury power to modify the relevant provisions, including for a particular class of trade or business. These Regulations make such provision for insurance companies.

Regulation 1 provides for citation, commencement, effect and interpretation. The retrospective effect provided for by regulation 1(2) is authorised by paragraph 16(5) of Schedule 1 to FA 2006.

Regulation 2 provides that the modifications in regulations 3 to 10 apply to EEA life insurance companies (as defined) and those in regulations 11 and 12 apply to EEA general insurers (as defined).

Regulation 3 modifies the meanings of “insurance business transfer scheme” and “periodical return” (defined according to provisions in domestic legislation) to refer to their EEA equivalents. Regulations 4 and 6 to 10 make similar technical modifications. Regulation 5 provides for an assumption that the trade of the EEA company is taxed under Case 1 of Schedule D (and not under the alternative “I minus E basis”).

Regulations 11 and 12 provide for assumptions that provisions in the General Insurance Reserves (Tax) Regulations 2001 (S.I. 2001/1757) and the Insurance Companies (Reserves) (Tax) Regulations 1996 (S.I. 1996/2991) apply to the EEA general insurer.

A Regulatory Impact Assessment on the extension of group relief was published with the 2006 Budget and can be found at http://www.hmrc.gov.uk/ria/ria-ct-extension.pdf.