BKM307500 - Bank loss restriction: targeted anti-avoidance rule: meaning of tax value and non-tax value - non-tax value

The non-tax value is defined as the value of any economic benefits other than the tax value. The assessment is therefore based on the overall value of the economic benefits of the tax arrangements, and whether or not the tax value is anticipated to be more than half of that overall value.

If, in the first example in BKM307450, the increased profits in company X and the reduced profits in company Y had arisen from the interest on a loan between the two parties, the non-tax value would be the value to the group of entering into that loan, not including any tax value. If the loan had no commercial purpose, then overall the value is neutral:

• Company X will be have an asset in the form of the debt and a reduction in its assets for the money loaned;
• Company Y will have an asset in the form of the money borrowed and a liability in its debt; and
• Company X receives more income, and company Y receives an equal amount less income.

Overall between the connected companies there is no non-tax value.

If the loan was part of a wider arrangement which generated economic benefits for the group, this would be taken account of as part of the non-tax value.

Another example of a situation where the TAAR is unlikely to apply would be where the group organises it funding to make a third-party acquisition in such a way that the interest receipts arose in a company with relevant brought forward relief to set against them. The economic value of the new company as an asset and its capacity to generate future profits for the group would be likely to more than off-set any tax benefit.

It is also likely that any arrangements entered into for regulatory reasons would represent an economic necessity and the TAAR would not apply unless there were steps taken in order to secure a tax advantage and those additional steps were not necessary to achieve the regulatory purpose.