BKM406500 - Banking surcharge: targeted anti-avoidance rule: meaning of significant

CTA10/S269DN(2) & TIOPA10/S371BI (4)

The TAAR applies where there is a relevant transfer and avoiding the surcharge or CFC chargeable profits is the main purpose or one of the main purposes for that transfer. A relevant transfer is one which results in a significant reduction in the surcharge profits of the banking company for a chargeable accounting period when compared with what the surcharge profits of the banking company would have been without the relevant transfer.

The TAAR is an anti-avoidance measure and so significant means anything which is significant in terms of the purpose of the provision, which is intended to discourage banks from entering into relevant transfers with the main purpose, or one of the main purposes, of avoiding a sum being charged on the banking company as surcharge profits or CFC chargeable profits.

HMRC considers that a transfer that results in a reduction of more than 5 per cent of the surcharge or CFC chargeable profits otherwise payable is a relevant transfer. However a smaller percentage reduction may be considered significant depending on the circumstances. For example where surcharge profits for one year are £500m, a reduction of £24m may be considered significant.

The surcharge is chargeable in relation to an accounting period. Where a transfer impacts on surcharge or CFC chargeable profits for a number of accounting periods the banking company will need to consider each accounting period separately to decide whether the impact is significant in that accounting period.

  • If the relevant transfer does not lead to a significant reduction in in surcharge or CFC chargeable profits in year 1 the TAAR may still apply in later years if the transfer results in a significant reduction in surcharge profits over those later years and the purpose test is satisfied in relation to those later years.

  • If the relevant transfer leads to a significant reduction in in surcharge or CFC chargeable profits in year 1 and the arrangements continue to have a significant reduction on profits in year 2, the banking company will need to consider if the TAAR applies in year 2.

  • The TAAR will need to be considered in each subsequent accounting period to establish if the arrangements entered into in year 1 result in the transfer of significant part of the surcharge or CFC chargeable profits that would otherwise be payable by the banking company for that accounting period.

Where there is more than one transfer under the same arrangement the banking company should compare the surcharge or CFC chargeable profits payable without that arrangement with the aggregate reduction in surcharge or CFC chargeable profits resulting from the relevant transfers. The TAAR will apply if the aggregate reduction is significant and the purpose test is satisfied.