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HMRC internal manual

Corporate Finance Manual

From
HM Revenue & Customs
Updated
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Debt cap: anti-avoidance rules: introduction

Structure of the anti-avoidance rules

The debt cap rules provide an objective measure of the net financing expenses of the UK part of a group against the gross financing expenses of the group as a whole. The test requires the calculation of three key figures. One of these figures, the available amount, may be derived from transactions that the UK members of the group have no direct involvement in. As well as the main comparison rules, the debt cap provides a gateway test and allows for the exemption of financing income received from other group companies resident in the EEA (other than the UK) where those companies are denied a deduction for the income paid to the UK.

TIOPA10/PT7/CH6 contains anti-avoidance rules to deter and prevent groups from frustrating the intention of the debt cap measure. The anti-avoidance rules are split into three parts and all three have a wide scope. All three parts however contain filters to ensure that the anti-avoidance rules will only apply where they are required to. This structure means that groups will find it very difficult to implement schemes that are not caught by the anti-avoidance rules, but at the same time financial arrangements put in place by groups that have nothing to do with avoiding the debt cap measure are unaffected.

This guidance is split into four sections.

  • CFM92615+ deal with issues that are common to each of the three parts of the anti-avoidance rules
  • CFM92660+ deal with anti-avoidance rules for the gateway test
  • CFM92690+ deal with anti-avoidance rules for the main debt cap rules
  • CFM92750+ deal with anti-avoidance rules for the part of the debt cap measure that provides for the exemption of financing income received from other group companies resident in the EEA (other than the UK) where those companies are denied a deduction for the income paid to the UK.

Most schemes that are designed to frustrate the debt cap measure are countered by the anti-avoidance rules within Chapter 6.