CFM39530 - Loan relationships: tax avoidance: regime anti-avoidance rule: loan-related and derivative-related tax advantages

CTA09/S455C(5) and S698C(5)

The rules are targeted at arrangements aimed at obtaining a loan-related tax advantage (or derivative-related tax advantage) for any company. In this context, a company obtains a tax advantage if:

• A debit to be brought into account is created or increased;
• A credit does not have to be brought into account or is reduced; or
• A debit or credit is brought into account earlier or later than it otherwise would be.

This anti-avoidance rule is concerned with tax advantages sought by way of the loan relationships or derivative contracts rules. The definition of a loan-related or derivative-related tax advantage by reference to credits and debits within Part 5 or Part 7 (see S455C(6) and S698C(6)) ensures that the impact of the rules is limited to such cases. Arrangements that seek to obtain a tax advantage not realised by way of Part 5 or Part 7 credits or debits are not within the scope of these provisions.

The definition of a tax advantage makes no reference to the actual tax payable by a company (or any party) as a result of the arrangements. In deciding whether arrangements give rise to a loan-related or derivative-related tax advantage, it is necessary to consider only the credits and debits brought into account. The ultimate tax effect is not relevant to that question. It may however be relevant to the question of what adjustments may be appropriate in a particular case, to counteract the tax advantage.

If, for example, a company enters into arrangements which have a main purpose of increasing Part 5 debits that are surrendered to another grouped company, a loan-related tax advantage will arise in the surrendering company, in which debits would be increased, not in the claimant company, which would actually pay less tax. Likewise, if the anti-avoidance rule applied, the counteraction would be to adjust the debits of the surrendering company, which would require an amended group relief claim and surrender.