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HMRC internal manual

Corporate Finance Manual

HM Revenue & Customs
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Loan relationships: tax avoidance: unallowable purpose: tax avoidance purpose

Tax avoidance purpose

In certain circumstances a tax avoidance purpose does not qualify as being a business or other commercial purpose of the company and so related debits are disallowed.

The term ‘tax avoidance purpose’ is defined in CTA09/S442(5) as any purpose that consists of securing a tax advantage for the company or any other person. ‘Tax advantage’ takes its meaning from CTA10/S1139.

A tax avoidance purpose is an unallowable purpose if it is the main purpose or one of the main purposes for which the company is party to the relationship or has entered into a related transaction by reference to it. Whether a tax avoidance purpose is the main, or one of the main, purposes is a question of fact which depends on all the circumstances of the particular case.

See CFM38150 for an example.

Facilitators of tax avoidance schemes

S442(5) defines tax avoidance purpose as a ‘purpose that consists of securing a tax advantage for the company or any other person)’. SS441-442 may apply to loan relationship debits of facilitators of tax avoidance schemes, for example, where the facilitator enters into a loan relationship with a view to participating in a transaction or a series of transactions that are designed to secure a tax advantage for another person.

Funding tax avoidance schemes

SS441-442 apply to borrowings taken by the borrower to provide funds for participation in a tax avoidance scheme even though the tax avoidance does not result directly from relief obtained on the borrowing.