CFM39510 - Loan relationships: tax avoidance: regime anti-avoidance rule: Introduction

CTA09/S455B-D and S698B-D

BACKGROUND

The loan relationships regime, originally introduced in 1996, and the derivative contracts regime, added in 2002, have frequently been the target of tax avoidance involving attempts to sidestep the intended effect of rules within the regimes or to exploit them for advantage. Over the years, there have been multiple changes to the regimes in response to attempts at avoidance to ensure that such attempts do not succeed.

This incremental approach has been successful in countering schemes but it has not succeeded in deterring new attempts at avoidance. Further, the proliferation of targeted rules has added to the complexity of the legislation without providing a coherent overall protection.

Following a general review of the loan relationships and derivative contracts regimes, sections 455B, 455C and 455D were introduced into the loan relationships regime by F(No.2)A15. Equivalent sections 698B, 698C and 698D were introduced into the derivative contracts regime in Part 7 at the same time. These provisions constitute new ‘regime anti-avoidance rules’, which are intended to deter and counter attempts to exploit or sidestep the loan relationships and derivative contracts rules generally, reducing the need to deal with risks on a piecemeal basis going forward. The following guidance applies equally to both the loan relationships and derivative contracts regimes, except where stated.

OVERVIEW

The regime anti-avoidance rules apply to relevant avoidance arrangements (see CFM39520) – that is, arrangements, the main purpose, or a main purpose, of which is to enable a company to obtain a loan-related or a derivative-related tax advantage (see CFM39530).

However, arrangements are not relevant avoidance arrangements (see CFM39540) where they are made in circumstances in which it is reasonable to regard that the provision in question was intended to apply.

Where the rules apply, they allow ‘just and reasonable’ adjustments (see CFM39560) to be made to counteract any tax advantage which would otherwise have arisen.

COMMENCEMENT

The rule applies to relevant avoidance arrangements entered into on or after 18 November 2015.