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HMRC internal manual

Corporate Finance Manual

Other tax rules on corporate debt: group mismatch schemes: application of the conditions

The tests in condition A and B are both carried out by reference to:

  • a company’s purpose in being party to a scheme, or
  • what that scheme is practically certain to achieve.

Hindsight cannot be used to determine whether the scheme is a Group Mismatch Scheme (GMS).

A scheme that, in fact, does not produce a relevant tax advantage may still be a GMS. Equally a scheme which does ultimately produce a relevant tax advantage may not be a GMS.

It is unlikely that a standard intra-group loan or derivative would meet either condition A or B. Where GAAP is consistently applied within a group the measure of taxable profits is likely to be symmetrical. Where this is not the case, for instance because the group companies use different functional currencies, it is just as possible that any asymmetries would produce a tax disadvantage as a tax advantage.

If profits or losses are computed using specific tax rules that require departure from GAAP, for example, for the write off and release of a connected party loan, then in standard cases these rules are likely to give rise to symmetrical credits and debits.