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HMRC internal manual

Company Taxation Manual

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HM Revenue & Customs
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Corporation Tax: company purchase schemes: ‘reasonable to infer’ test

CTA10/714 (1) to (3) (formerly ICTA88/S767AA (2))

The effect of the ‘reasonable to infer’ test in CTA10/S714 (1) to (3), formerly ICTA88/S767AA (2), is that the reasonable inference to be drawn is that of a hypothetical observer with full knowledge of the terms of the transactions and the surrounding circumstances. It follows that if this condition is to be met, all documents relating to the transactions and the surrounding circumstances (including all background documents, correspondence etc) must be obtained and an inference made taking all factors into account.

If, for example, it is found that the price to be paid for a company is significantly higher than the company is worth on the open market (because the purchaser stands to benefit from the unpaid tax) the condition in CTA10/S714 (1) to (3), formerly ICTA88/S767AA (2), is likely to be met.