Corporation tax liabilities — ACCA Practice Question 14

How to approach this question

Apply the two tests for a capital gains group: 1) Is there a 75% direct holding at each level? (Yes, 80% > 75%). 2) Is the principal company's effective interest > 50%? (80% x 80% = 64% > 50%).

Full Answer

B.Yes, because Beta Ltd is a 75% subsidiary of Alpha Ltd, Gamma Ltd is a 75% subsidiary of Beta Ltd, and Alpha Ltd has an effective interest of more than 50% in Gamma Ltd.✓ Correct

To form a Capital Gains Group, two conditions must be met: 1) Each subsidiary must be a 75% direct subsidiary of another company in the group. (Beta is 80% of Alpha; Gamma is 80% of Beta. Both meet the 75% test). 2) The principal company (Alpha) must have an effective interest of more than 50% in the subsidiary. Alpha's effective interest in Gamma is 80% x 80% = 64%. Since 64% is greater than 50%, Gamma is in the capital gains group.

Common mistakes

Assuming the effective interest must also be 75%.

Section A

Alpha Ltd owns 80% of Beta Ltd. Beta Ltd owns 80% of Gamma Ltd. All companies are UK resident.

Do Alpha Ltd and Gamma Ltd form a Capital Gains Group?

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA TX — Taxation Practice Exam 2

More questions from this exam

Section A Alpha Ltd owns 80% of Beta Ltd. Beta Ltd owns 80% of Gamma Ltd. All companies are UK resident. Do Alpha Ltd and Gamma Ltd form a Capital Gains Group?

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA TX — Taxation Practice Exam 2

More questions from this exam

Section A

Alpha Ltd owns 80% of Beta Ltd. Beta Ltd owns 80% of Gamma Ltd. All companies are UK resident.

Do Alpha Ltd and Gamma Ltd form a Capital Gains Group?