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bigduckontax
bigduckontax, Accountant
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UK corp tax - my company purchased shares in a malaysian

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UK corp tax - my company purchased shares in a malaysian private company 5 years ago as part of an export business plan. There has been some trading in that period but the strategy is failing. The sector is oil and gas and the company is loosing money and seeking to raise additional capital. The rights issue values the company at substantially less than the investment made so the share asset value in my company balance sheet is impaired. The impairment affects this years P&L so the question is;
1. Is the share value impairment tax deductible ?
2. If it exceeds this years profit can it be carried forward and if so for how many years ?
bigduckontax

Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question.

As companies are not subject to the Capital Gains Tax (CGT) regime then any trading in shares is conducted through the trading account. Thus such transactions will be so reflected in the Profit and Loss Account and in the event of a loss in the relevant year then that loss can be carried forward indefinitely.

I do hope that my reply has been of assistance.

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Customer: replied 1 year ago.
Kieth,I think you miss understood elements of my question.The trading I was referring to was in services - that arose as part of the cooperative business plan in which the equity stake was a part. So there was an initial share purchase from retained earnings and the shares then obviously when to the balance sheet as an asset at purchase value. They have not then been traded. Since then there has been rights issue that clearly demonstrates that balance sheet asset value is impaired - so the shares are not to be re-sold but are to be revalued. The question is whether the implied loss from the re-valuation or provision is tax deductible or can only be claimed when the shares are eventually sold (i.e traded).

As I told you CGT does not apply to companies. Thus if an implied loss is passed through the P&L account there is no reason why it should not be set against Corporation Tax.

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Customer: replied 1 year ago.
OK - great and the implied loss of value set by the new share issue (rights issue) - would be a reasonable way to document the value of a share of a private company not normally traded.

In the circumstances set out I am of that opinion. I suggest that this is unlike;ly to be challenged by HMRC.

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