CFM39570 - Loan relationships: tax avoidance: regime anti-avoidance rule: interaction with other anti-avoidance rules

CTA09/S455B-D and S698B-D

A number of existing targeted anti-avoidance rules are repealed as a consequence of the introduction of the regime anti-avoidance rules. However, some specific rules remain, and in some cases, it may be possible that both a specific rule and the new regime anti-avoidance rule could apply to a set of arrangements, or a part of them. Where that is the case, the approach should be to consider the specific rule first; if that rule applies, it will not be appropriate to seek to apply the regime anti-avoidance rules as well to those arrangements, or that part of them, assuming that the tax advantage has already been negated. However, if the arrangements are aimed at exploiting or circumventing a specific anti-avoidance rule within Part 5 or Part 7, the regime rules would be capable of applying.

Interaction with the ‘unallowable purpose’ rules

CTA09/S441 and S690 prohibit a company from bringing into account debits in so far as they are attributable to an ‘unallowable purpose’ of a loan relationship or derivative contract (see CFM3800 and CFM56010+.). An unallowable purpose includes a tax avoidance purpose as defined in S442 and S691. S441 and S690 are not aimed at specific tax avoidance arrangements, and it is possible for their application to overlap with the regime anti-avoidance rules.

In such a case the general approach should be that, where avoidance is aimed at exploiting or sidestepping provisions of Part 5 or Part 7, the counteraction should be taken under the rules in S455B or S698B that are intended to protect those regimes.

However, S441 and S690 have a wider scope than S455B and S698B, in that their application is not limited to loan-related or derivative-related tax advantages defined in terms of Part 5 or Part 7 credits and debits. They draw on the much more general definition of a tax advantage in CTA2010/S1139 and do not include any equivalent provisions to S455C(4) and S698C(4), requiring consideration of the principles or policy objectives behind relevant legislation. So, for example, if a loan were entered into purely to fund an avoidance scheme which sought to exploit or avoid some other part of the tax code, S441 would prohibit a debit in respect of any interest payable. This is not to say that S455B cannot apply in such a circumstance, but generally the approach should be to apply S441. Example 10 (thin capitalisation - see CFM39580) gives a further instance of where it is likely that it is S441, rather than S455B, which should be applied if there is evidence of tax avoidance. In that example, even though loan-related tax advantages are potentially in scope, the arrangements (straightforward debt) are not aimed at exploiting or sidestepping provisions of Part 5.