INTM610130 - Enjoyment Conditions: Procurer Test

The procurer test will be met if it is reasonable to conclude that the related individual acting alone or with any other person procurers the transfer of value to the overseas party with the intention of avoiding the enjoyment test being met.

The procurer test will consider whether the related individual was involved in instigating or arranging the transfer of value, and what their intention was in doing so, regardless of who actively creates the structure, who makes payments under the structure or who the apparent beneficiary of the arrangements is.

The procurer test does not look to see if the related individual simply enquired into possible structures – it requires them to have procured the establishment of the structure in such a way as to avoid the enjoyment test.

Example 12 – The Procurer Test

A is a UK resident individual who carries on a trade in the UK. A is seeking to reduce the tax they pay in the UK while still receiving the profits they make and seeks legal advice about how they can do this. A is given advice about how to set up a structure to divert profits out of the UK.

The advice received by A sets out a number of steps which they can take to ensure that the enjoyment conditions set out in 4(2)(a) Schedule 4 Finance Act 2019 are not satisfied. This advice could involve arrangements for A or their legal advisers to procure a ‘dummy’ settlor to settle a trust, or for the beneficiaries of trusts to be specific named charitable causes. HMRC are not able to demonstrate that A or parties connected to A are able to benefit from these arrangements.

In these circumstances A will have procured the transfer of value with a view to avoiding the conditions set out in paragraph 4(2)(a) and therefore the procurer test will be met.

For the purpose of determining whether either the enjoyment test or procurer test are met paragraph 4(4) Schedule 4 Finance Act 2019 extends references to an individual to cover any person who is connected with that individual, within the meaning of S993 of ITA 2007, with certain modifications. This means that in applying these tests consideration should be given to whether anyone connected to the related individual meets the enjoyment or procurer tests.

The definition in S993 ITA 2007 is restricted such that a person will not be considered connected to the related individual for the purposes of the enjoyment condition if:

  • they were connected by virtue of S993(4) ITA 2007 only, and
  • they were not associates of the related individual for the purposes of S450 and S451 of CTA 2010.

S993(4) ITA 2007 deals with circumstances were a person is in a partnership. Under s993(4) ITA 2007, a person who is a partner in a partnership is connected with:

  • any partner in the partnership,
  • the spouse or civil partner of any individual who is a partner in the partnership, and
  • a relative of any individual who is a partner in the partnership (this subsection does not apply in relation to acquisitions or disposals of assets of the partnership pursuant to genuine commercial arrangements).

This means that the related individual cannot be deemed to enjoy the benefit of the transfer of value if the benefit is enjoyed by someone (or that person’s spouse or relative) who they are only connected with because they are in a partnership with that person if they have no other connections to that person.

There is a distinction between the connection required for the purposes of applying the enjoyment test and the connection required in defining who the related individual is in relation to the arrangements as covered at INTM610050.

Paragraph 4(5) Schedule 4 Finance Act 2019 goes on to say that an individual (“A”) will be treated as connected with a person or entity (“B”) if A or a person connected with A (whether acting alone or with any other person):

  • is able to secure that B acts in accordance with the wishes of A or any person connected with A,
  • is able to acquire rights which would enable A or any person connected with A to secure that the B acts in accordance with the wishes of A or any person connected with A, or
  • is able to exercise significant influence over B (whether or not as a result of a legal entitlement of A or any person connected with A), or
  • B can reasonably be expected to act, or typically acts, in accordance with the wishes of A or a person connected with A.

Example 13 – Connection for Partners

A is a UK-resident individual and B is a non-UK resident individual. A and B carry on a trade in a partnership, P. A and B are not connected in anyway aside from their involvement in P.

If A is the resident party and B is able to enjoy the benefit of the transfer of value the enjoyment test in 4(2)(a) will not be met when considering whether arrangements are Profit Fragmentation Arrangements – for the purposes of testing whether the enjoyment condition is met A and B are not regarded as connected since the fact that they are partners is the only connection between them.