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HMRC internal manual

Banking Manual

Banking surcharge: targeted anti-avoidance rule: meaning of main purpose or one of the main purposes

CTA10/S269DN(1)(b) &TIOPA10/S371BI(3)(b)

Arrangements meet the TAAR if the main purpose, or one of the main purposes, of the arrangements is to avoid, or reduce, a banking company’s surcharge profits or its CFC chargeable profits.

The application of the main purpose part of the TAAR will be fact-dependent.  It is expected that the company entering into an arrangement will know the purpose of that arrangement, and in particular whether avoiding or reducing the banking company’s surcharge profits or its CFC chargeable profits are a main purpose.

In relation to high-risk transactions, it is likely that HMRC will seek to test with the banking company the commercial and tax drivers motivating a particular arrangement. 

Examples of transactions where HMRC may seek to apply the TAAR:

  • A banking company transfers part of its trade to a non-banking company.  The transfer results in significant reduction in the surcharge profits of the banking company for the chargeable period in which the transfer takes place.

 

  • A banking company transfers part of its trade to a non-banking company.  The transfer does not result in a significant reduction in the surcharge profits of the banking company for the chargeable period in which the transfer takes place but is forecast to result in a significant reduction in the surcharge profits of the banking company over the next few years.

 

  • A banking company transfers part of its trade to a non-banking company as part of its restructuring to meet ring-fencing requirements and the transfer includes additional steps that were not necessary to achieve the regulatory purpose.

 

  • A banking company arranges buy-to-let mortgages for individuals.  It decides that from 1 January 2017 all new business will be written in a newly set up non-banking company.  HMRC will consider this to be a relevant transfer if it leads to a significant reduction in the surcharge profits of the banking company.   By way of contrast, if the newly set up non-banking company was offering buy to let mortgages for commercial customers and the banking company had not done this previously and did not have any existing plans to do so, this would not be a relevant transfer.

 

  • A banking company transfers current loss-making activity to a non-banking company where the activity is forecast to become profitable in the medium term.  HMRC would seek to establish if the transfer resulted in a significant reduction in the surcharge profits that the banking company would have made in any chargeable period over the forecast period.  If it would, then HMRC will seek to test with the banking company the commercial and tax drivers for the transfer.

 

  • A banking company transfers a capital gains asset standing at a capital gain to an non-banking company and the non-banking company sells the asset shortly afterwards.  The group was expecting to dispose of the asset to a third party before the transfer took place.  The transfer results in a significant reduction in the surcharge profits the banking company would have made in that chargeable period if the transfer had not taken place.

 

  • A non-banking company that was intending to dispose of a capital gains asset standing at capital loss transfers that asset to a banking company which sells the asset shortly afterwards.  The banking company uses the capital loss to offset other capital gains in that chargeable accounting period resulting in a significant reduction in its surcharge profits. 

The avoidance or reduction in surcharge liability or CFC chargeable profits could be a main purpose when there are clear non-tax purposes for an arrangement, the two are not mutually exclusive.  It is a question of fact whether the tax arrangement has a main purpose of reducing the surcharge liability or CFC chargeable profits. 

It may be the case that there are other main purposes to the arrangements, but the condition will still be met where one of the main purposes was to avoid, or reduce, a banking company’s surcharge profits or its CFC chargeable profits.