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HMRC internal manual

Corporate Finance Manual

HM Revenue & Customs
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Other rules on corporate debt: tax mismatch schemes: application of the conditions

The tests in condition A and B are both carried out at the outset of the scheme, by reference to:

  • a company’s initial purpose in being party to a scheme, or
  • what, at the outset, that scheme is practically certain to achieve.
  • hindsight cannot be used to determine whether the scheme is a TMS.

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

It is unlikely that a standard intra-group loan or derivative would meet either condition A or B. Where UK GAAP is the measure of taxable profits then a company within a group is unlikely to bring amounts into account asymmetrically.

If profits or losses are computed using specific tax rules that require departure from UK GAAP, for example the write off and release of a connected party loan, then in standard cases these rules are also likely to give rise to symmetrical credits and debits. Where this is not the case, it is just as possible that any asymmetries would produce a tax disadvantage as a tax advantage.