OTR90045 - Orchestra Tax Relief: Avoidance: Transactions not entered into for genuine commercial reasons

S1217RM Corporation Tax Act 2009

The extent to which Orchestra Tax Relief (OTR) is available is dependent on the amount of core expenditure on a concert or series of concerts.  The minimum amount of core expenditure that is UK expenditure must be 10%. (Prior to 1 April 2024, the minimum expenditure condition instead required at least 25% of core expenditure to be European expenditure. Please see OTR50040 and OTR50045 for details.)

Furthermore, because the rate at which surrenderable losses are exchanged for an Orchestra Tax Credit (OTC) can be higher than the rate of Corporation Tax, it may be the case that UK expenditure is overstated artificially.

Where a transaction is attributable to arrangements entered into otherwise than for genuine commercial reasons and the purpose is to inflate the amount of the additional deduction and OTC given to an OPC then that transaction is disregarded when computing the additional deduction for OTR.

To prevent the size of the budget being artificially distorted, in determining the size of an orchestral concert or series’ core expenditure, the amount of expenditure on transactions entered into (directly or indirectly) between connected persons must be established by reference to what the arm's length value would have been had the parties been unconnected. If this is not done, the expenditure is excluded to the extent that it represents connected party profit. Please see OTR70015 for more details.