CFM39560 - Loan relationships: tax avoidance: regime anti-avoidance rule: counteraction

CTA09/S455B(1) and S698B(1)

CTA09/S455B and S698B require adjustments to be made to counteract any loan-related or derivative-related tax advantages which would otherwise arise as a result of relevant avoidance arrangements. The adjustments to be made are those that are just and reasonable to achieve that end. The term ‘just and reasonable’ is not defined in statute, and the words therefore take their natural meaning and are to be interpreted in the light of the particular facts of each case. The range of circumstances in which the regime anti-avoidance rule may apply precludes any more particular specification of the appropriate counteraction. In determining what is the ‘just and reasonable’ counteraction in any case, it may in some circumstances be appropriate to consider amounts taxed or relieved and tax paid in other companies, in other periods or under other tax regimes, provided that they arise as a result of the relevant avoidance arrangements. The overall aim is to put the company into the position in which it would have been in the absence of the relevant avoidance arrangements.

The guiding principle is that the target of the adjustments is the elimination of any loan-related or derivative-related tax advantages. It follows that the tax advantages which would otherwise arise need to be clearly identified. This in turn implies a comparison of the outcomes that arise under the arrangements in question with the outcomes that would arise in their absence. It is important to remember that the outcomes to be considered here are only those that are reflected in the amount or timing of Part 5 or Part 7 credits or debits.

Determination of the tax advantage to be counteracted will be straightforward in some cases, particularly where arrangements have no purpose beyond obtaining a tax advantage. In other cases, it may be more difficult. Arrangements may combine commercial and tax purposes where, for example, additional steps or other elements are inserted in order to obtain a loan-related or derivative-related tax advantage. In such a case, it may be relevant to consider what would have been the arrangements that would have been put in place if their purpose had been purely to achieve the commercial purpose in question. The outcome here will depend on the facts in point. The key is to identify the particular tax advantage arising from the avoidance arrangements and to apply the legislation to counteract that tax advantage.

Sections 455B and 698B are not prescriptive about the way in which adjustments are to be made. Adjustments may be made by way of an assessment, a modification of an assessment, amendment or disallowance of a claim, or otherwise, and are to be made only in relation to credits and debits under Part 5 or Part 7. Normally, adjustments will be made within the framework of the CT Self Assessment enquiry rules in Part IV of FA1998/Schedule 18, and may therefore be made either by the company or by HMRC, depending on the circumstances of the case.