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HMRC internal manual

Company Taxation Manual

Corporation Tax: management expenses: targeted anti-avoidance rule (TAAR) - purpose

If management expenses or other tax advantage arise out of a transaction that is part of arrangements, the legislation asks whether the main purpose or one of the main purposes of the arrangements (referred to as ‘a main purpose’ in this guidance) is to create or increase the deduction for management expenses or to achieve another tax advantage.

The purpose of the arrangements is determined by the purpose of the participants in entering into the arrangements. If any participant has a main purpose of achieving a deduction (or increased deduction) for management expenses or other tax advantage, that will constitute a main purpose of the arrangements.

All of the evidence regarding the facts and circumstances relating to the arrangements need to be taken into consideration to determine purposes of the arrangements, including:

  • any overall commercial objective from the perspective of both the individual participants and the wider corporate group. In this context a commercial objective does not include tax motivated reasons
  • whether this objective is one which the parties involved might ordinarily be expected to have, and which is genuinely being sought;
  • whether the objective is being fulfilled in a straightforward way. Would any particular steps have taken place were it not for tax advantage that could be obtained

Consideration should also be given to whether, in the absence of the tax considerations:

  • the transaction(s) giving rise to the relief/tax advantage would have taken place at all;

if so

  • whether the transaction would have been made under the same terms and conditions.

By itself, the existence of a deduction for management expenses or other tax advantage is not enough to show that the arrangements have a main purpose of obtaining a tax advantage. Where the tax advantage is a fortunate consequence of arrangements, not a main purpose for the arrangements the TAAR will not apply and genuine expenses of management will continue to be eligible for relief in the normal way.

A company or a group may consider two options to achieve a commercial objective and choose on commercial grounds to pursue one of them. The fact that there was a beneficial difference in tax treatment for the chosen route would not mean that a disallowance automatically arises from the TAAR. Where a choice is made between alternative options, then disallowance by the TAAR will only take effect where securing a deduction for management expenses or other tax advantage was a main purpose of the arrangements.

There may be situations where the beneficial tax treatment secured through undertaking one route rather than another is so significant that this indicates that achieving that tax treatment was a main purpose. However this is unlikely to be the case where the arrangements chosen do not involve additional, complex or costly steps included to secure or enhance the tax treatment.