INTM598050 - Arbitrage: practical guidance - examples demonstrating the application of the arbitrage legislation: Example 2 Part 2 - outward investment

Example 2 Part 2 - outward investment

Facts: The facts are as in Part 1, but the UK parent funded the transaction by means of a rights issue, in which shareholders were told that the funds were intended for the purpose of the foreign investment.

Analysis: The way the funds were raised in this example suggests that the investment would have been made by way of equity, and that the purpose of the scheme was solely to achieve a foreign tax deduction. Therefore Condition C is not met and the legislation does not apply.