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HMRC internal manual

Corporate Finance Manual

HM Revenue & Customs
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Other tax rules on corporate debt: group mismatch schemes: the second asymmetry condition

If it becomes clear that a scheme will not produce a relevant tax advantage, despite being a GMS, the second asymmetry condition in CTA10/S938C (5) applies. The condition is that the loss or profit:

  • does not meet the first asymmetry condition, but
  • arises from a transaction, or series of transactions, that might (if events had turned out differently) have given rise to a loss or profit that would have done so.

This rule covers those schemes where it becomes apparent, most probably towards the end of the scheme period, that no relevant tax advantage will arise even though in earlier accounting periods the presumption was that such an advantage would arise. In that case, scheme losses (possibly also scheme profits) will have been disregarded in those earlier periods, but it would not, without CTA10/S938C(5), be possible to disregard the later events (most likely scheme profits) since in that period there are no scheme profits or losses.


If in period 1, group company A accrues debits, and it then seems unlikely that the group counterparty B will ever bring corresponding profits into account, then company A’s debits will be ignored. If in period 2, B does bring the credits into account then the scheme has not after all produced a relevant tax advantage. However, the second asymmetry condition will be satisfied with the result that the scheme profit in period 2 will also be ignored.

CTA10/S938C(5) ensures that any such amount is treated as a scheme profit and is not taxed. This preserves the intention of the legislation to tax connected party loans or derivatives symmetrically.

CTA10/S938C (5) would not apply if the later profit merely reduced the amount of the relevant tax advantage. For example, a profit that partially reverses a timing advantage, but not so as to eliminate the relevant tax advantage, would be a scheme profit and so be disregarded by virtue of the rule in CTA10/S938C (2).

In theory a scheme originally meeting condition A or B could turn out to produce a tax disadvantage. In this circumstance, the evidential burden would be on the scheme group to demonstrate that such a scheme was a GMS from the outset. That is, that despite the scheme being one that was practically certain to produce a relevant tax advantage, or it being the main purpose of a group member to secure the chance of securing such an advantage, the scheme actually did the opposite. If so, then CTA10/S938C (5) would mean that amounts that gave rise to the tax disadvantage would be left out of account, thereby eliminating the disadvantage but without creating any advantage.