CFM38010 - Loan relationships: tax avoidance: overview: unallowable purpose and non-arm’s length transactions

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Tax avoidance rules: overview

CTA09/PT5/CH15 contains the main tax avoidance provisions in the loan relationships regime. There are also tax avoidance rules outside the CTA09 which are relevant to loan relationships.

There are similar provisions relating to derivative contracts in CTA09/PT7/CH11 (CFM56000).

Unallowable purposes

The key anti-avoidance provision is the ‘unallowable purposes’ rule, previously in FA96/SCH9/PARA13, and now at CTA09/S441 to S442. See the guidance at CFM38100.

Operational responsibility for the application of the unallowable purposes rule lies with Counter Avoidance (Technical Team). Cases should be referred as appropriate.

Non-arm’s length transactions

There are rules to cover cases in which transactions are not on arm’s length terms. These rules were originally at FA96/SCH9/PARA11, and are now at CTA09/S444 to S446. See the guidance at CFM38400.

The application of these rules has been superseded in many cases by the transfer pricing rules in TIOPA10/Part 4 see the International Manual at INTM413180 and INTM519040.

There are specific rules which govern the treatment of forex in relation to non-arm’s length transactions. See the guidance at CFM38500.

Regime anti-avoidance rule (RAAR)

Over the years, there have been multiple changes to the regimes in response to attempts at avoidance to ensure that they do not succeed. This incremental approach to development of legislation has been successful in countering schemes but has not deterred new attempts at avoidance. As a result, a regime-wide anti-avoidance rule was introduced by F(No.2)A15 with the intention to deter and counter avoidance. Guidance can be found at {CFM38600}.

Other anti-avoidance rules

There are also a number of other anti-avoidance rules relating to loan relationships - see CFM38020.

Wherever these anti-avoidance rules are begin considered, you should refer the case to BAI (Financial Products Team) before issuing a closure notice.