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HMRC internal manual

Corporate Finance Manual

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Other rules on corporate debt: tax mismatch schemes: the conditions

CTA10/S938P defines a Tax Mismatch Scheme (TMS). A scheme is a TMS if either condition A or B is met.

Condition A

Condition A is that, at the time the scheme is entered into, there is no practical likelihood that the scheme will fail to secure a relevant tax advantage (CFM77780) of £2million or more.

‘Practical likelihood’ is the term used by Lord Oliver in Craven v White 62 TC 1 commenting on Lord Brightman’s speech in Furniss v Dawson 55 TC 324 describing the cases when the Ramsay principle, as understood at the time, would apply. It now has to be understood in the light of the judgment of the House of Lords in Scottish Provident Institution 76 TC 538 as precluding attempts to manufacture a ‘falsifying’ arrangement.

Condition B

Condition B is that the purpose, or one of the main purposes, of the company entering into the scheme is to obtain the chance of securing a relevant tax advantage (of any amount) and at the time the scheme is entered into there is no chance that the scheme will secure a relevant tax disadvantage or, if there is such a chance, the expected value of the scheme is still a positive amount.

Condition B, unlike condition A looks at the purpose of the company in being party to the arrangements. Again, this is a question of fact.

See CFM38120 onwards for guidance what factors should be taken into account in determining a company’s purpose.

Further guidance on how to establish purpose and the distinction between purpose and motive can also be found in the Business Income Manual at BIM37050 onwards.