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HMRC internal manual

Corporate Finance Manual

Other tax rules on corporate finance: manufactured payments: unallowable purpose

This guidance applies to manufactured payments made before 1 January 2014, when the tax rules were simplified. For manufactured payments made on or after 1 January 2014, see CFM74430.

Arrangements having an unallowable purpose

CTA10/S799 denies tax relief for manufactured payments by companies where they arise under arrangements having an unallowable purpose. The rule has no effect on the recipient of the manufactured payment.

Before CTA10/S799 can apply the following conditions must be met:

  • a company must make, or be deemed to make, a manufactured payment in pursuance of arrangements to which it is party, and
  • the arrangements, or any transaction entered into in pursuance of them, must have an unallowable purpose.

Tax avoidance is an unallowable purpose if it is the main or one of the main purposes for which the company is party to the arrangements. Tax avoidance means a purpose that consists in securing a tax advantage for the manufacturer or any other person. This is the same definition as in the loan relationship unallowable purpose rule CFM38100.

Reference should be made to Anti Avoidance Group in any case where it is thought that the unallowable purpose rule may apply.

Extension of the definition of manufactured payment for arrangements having an unallowable purpose

Manufactured payments in excess of the gross amount of dividends or interest that they represent are not treated as manufactured dividends or interest, but are deemed to be separate fees for income tax purposes by ITA07/S583 and for corporation tax purposes by CTA10/S796-S797.

From 6 December 2006 the manufactured payments unallowable purpose rule is extended to cover such payments. This extension is in legislation at CTA10/S801(1)(b).