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HMRC internal manual

Corporate Finance Manual

Other tax rules on corporate debt: group mismatch schemes: outline of the legislation

The Group Mismatch Scheme (GMS) rules apply to two or more companies within the charge to corporation tax that are members of a group and party to a scheme, where at least one of two conditions (condition A or condition B) is met. These conditions are either that

  • it is practically certain that the scheme will secure a relevant tax advantage, or
  • the purpose of the company is to secure a relevant tax advantage.

Where the rules apply to a company, the GMS rules prevent a scheme profit or loss being brought to account as a credit or debit for the purposes of the loan relationship or derivative contracts rules. A scheme profit or loss is one that arises from the scheme and meets either or both of the asymmetry conditions.

The GMS rules require the economic profits or losses of all the scheme participants to be calculated taking into account profits and losses made as a result of the provisions of the Corporation Tax Acts, and assuming that the group has tax capacity to benefit from scheme losses.

Where a mismatch is produced, without two different companies being involved, the provisions of the tax mismatch legislation may apply instead of group mismatch. This may apply, for example, where a mismatch is between a company and a partnership of which the company is a member (CFM 77700).

The terms used in, and the application of, the legislation are explained in more detail as follows:

CFM77530 to CFM77540  explain the two conditions, condition A and condition B, one of which must be met for the legislation to apply
CFM77550 explains the terms used in the legislation - ‘scheme’, ‘scheme profit or loss’
CFM77560 to CFM77570  explain the asymmetry conditions
CFM77580 explains the meaning of ‘relevant tax advantage’
CFM77590 explains the meaning of ‘scheme period’
CFM77600 explains the meaning of ‘group’
CFM77610 explains the meaning of ‘economic profit or loss’
CFM77620 to CFM77630  explains the meaning of ‘tax capacity’