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HMRC internal manual

Corporate Finance Manual

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HM Revenue & Customs
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Other tax rules on corporate debt: tax mismatch schemes: meaning of relevant tax advantage

CTA10/S938R defines a ‘relevant tax advantage’. The economic profit is determined over the whole scheme period and arises from asymmetries in the way that the company brings debits and credits into account under the loan relationship or derivative contract rules. The legislation will not apply where this economic profit is negligible.

A relevant tax disadvantage is defined as an economic loss that is made by the company over the scheme period that arises as a result of asymmetries in the way that the company brings, or does not bring, debits or credits into account. The legislation will not apply where this economic loss is negligible.

The definition makes clear that an economic profit includes an increase in economic profit and a decrease in an economic loss.

The requirement that the profit arises from asymmetries means that losses or profits on genuine third party loans or derivatives that might be part of a scheme (for example a loss arising from interest on money borrowed from a third party that is used to fund a scheme) cannot be scheme losses or profits. This is because such losses or profits cannot affect the amount of any relevant tax advantage because they cannot produce asymmetries.

For the purposes of establishing the relevant tax advantage an asymmetry includes, but is not limited to, asymmetries related to quantification and timing.