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HMRC internal manual

Corporate Finance Manual

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

The Tax Mismatch Scheme (TMS) rules apply to any company within the charge to corporation tax that is a 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 TMS 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 TMS rules require the economic profits or losses of 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 company has tax capacity to benefit from scheme losses.

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

CFM77730 to CFM77740  explain the two conditions, condition A and condition B, one of which must be met for the legislation to apply
CFM77750 explains the terms used in the legislation - ‘scheme’, ‘scheme profit or loss’
CFM77760 to CFM77770  explain the asymmetry conditions
CFM77780 explains the meaning of ‘relevant tax advantage’
CFM77790 explains the meaning of ‘scheme period’
CFM77800 explains the meaning of ‘economic profit or loss’
CFM77810 explains the meaning of ‘tax capacity’
CFM77820 sets out priority rules