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HMRC internal manual

Corporate Finance Manual

Other tax rules on corporate debt: group mismatch schemes: the first asymmetry condition

The first asymmetry condition in CTA10/S938C (2) is that the loss or profit affects the amount of any relevant tax advantage secured by the scheme.

A loss on a loan or derivative will increase the amount of any relevant tax advantage because it will reduce the amount of tax payable. A profit will decrease the amount of the advantage. But the transaction must involve intra-group elements before the legislation can apply.

‘Tax’ for this purpose means UK tax. The rules apply to the extent necessary to cancel the UK tax advantage that would otherwise be achieved as a result of the arrangements. The legislation does not apply where the tax advantage is an overseas one, subject to the rules on CFCs described at CFM77650. It is, however, necessary to take into account all of the relevant circumstances to determine whether as a matter of fact the arrangements are intended to reduce the amount of UK tax.