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HMRC internal manual

Corporate Finance Manual

Debt cap: anti-avoidance rules: general: scheme as part of a wider scheme

This guidance applies to worldwide group periods of account ending before or straddling 1 April 2017.

The anti-avoidance rules can apply to a scheme that is part of a larger scheme

The borrowing arrangements of a multi-national group can be very complex. The question of whether those borrowing arrangements, or just part of those arrangements, make up a scheme may not have a simple answer. The structure of the borrowing arrangements may mean that there are a number of schemes. Particular transactions may be present in more than one scheme. Schemes may overlap or there may be schemes within schemes.

The focus should be on the transactions, etc. that make up the scheme that is intended to frustrate the debt cap measure rules.

Consider a multi-national group that has just concluded the takeover of another multi-national group:

  • The target group acquisition is funded initially by syndicated bank debt, which is then largely replaced with a number of corporate bonds.
  • Some existing bank debt of the acquiring and target groups is retired.
  • The existing UK holding company borrows intra-group to acquire some of the target group subsidiaries.

As part of the acquisition finance, one of the corporate bonds is issued by an overseas group company in a weak currency with a high interest rate. Other financial instruments are entered into by other members of the group which reduces, in substance, the cost of borrowing in the weak currency. One would expect the main purpose of using the weak currency corporate bond to be to increase the available amount for the UK members of the group.

The borrowing arrangements in their entirety, including the external and intra-group arrangements, form a scheme. The principal purpose of that scheme is to acquire another group. However the arrangements involving the weak currency corporate bond also form a scheme and one of main purposes of that scheme is to increase the available amount.