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HMRC internal manual

Corporate Finance Manual

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HM Revenue & Customs
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Loan relationships: tax avoidance: meaning of tax avoidance arrangements

Meaning of ‘as a result of tax avoidance arrangements’

A company must be party to tax avoidance arrangements for the anti-avoidance rule in CTA09/S311 and S312 to bite. It will not override the accounting treatment for tax purposes in normal commercial situations where generally accepted accounting practice does not require recognition.

An arrangement will generally involve a number of parties. It is possible that some will have an avoidance purpose while others do not. Although the term ‘arrangements’ has a wide meaning, and includes arrangements entered into by any party whose purpose is to obtain a tax advantage (whether for itself or another company), the reference to ‘any party to the arrangements’ in CTA09/S311(7) will not require a counterparty (company A) to a company that has an avoidance purpose (company B) to recognise an amount that company A innocently derecognises.

Section 311(2) require that the company is both party to a creditor loan relationship and also party to tax avoidance arrangements as a result of which that company does not recognise amounts in respect of the loan.

If company A innocently enters into a loan that forms part of company B’s tax avoidance arrangements, and in consequence does not fully recognise amounts in respect of that loan (or another loan), then its non-recognition of amounts is not the result of its being party to tax avoidance arrangements. While company A will be party to a loan pursuant to company B’s tax avoidance arrangements, that does not make it party to company B’s tax avoidance arrangements, since a loan is not, on its own, an avoidance arrangement.

Company A would have to have the purpose of obtaining a tax advantage for itself or another company, and the result of entering into the avoidance arrangements would have to be that amounts are not fully recognised by company A, before the legislation could apply.

This guidance applies for accounting periods beginning on or after 6 December 2010. For periods before that date, refer to CFM33120 and CFM33122.