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HMRC internal manual

Corporate Finance Manual

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HM Revenue & Customs
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Debt cap: anti-avoidance rules: gateway: conditions for anti-avoidance rules to apply

There are three filters for the anti-avoidance rules dealing with manipulation of TIOPA10/CH2/PT7

The anti-avoidance rules covering schemes that involve manipulation of the rules within Chapter 2 of Part 7 are contained within TIOPA10/S305A and S306. Chapter 2 contains the rules for identifying whether a group is within the debt cap. The test in Chapter 2 is based on a comparison of the UK net debt (see CFM90680) of a group with the worldwide gross debt of the group (see CFM90660). A group which does not meet that principal test is said to pass the gateway test.

Section 305A was introduced by FA12 and has effect for periods of account of the worldwide group ending on or after 17 July 2012. Section 305A applies to the worldwide group if it does not have any relevant group companies for the period of account and consequently the debt cap rules do not apply. There are two conditions to be satisfied before section 305A applies, they are as follows:

  • Condition A is that at or before the end of the period of account a scheme is entered into; and the main purpose, or one of the main purposes, of any party to the scheme is that the group does not have any relevant group companies for the period of account.
  • Condition B is that the scheme is not an excluded scheme.

Section 306 has three conditions:

  • Condition A - a scheme is entered into at any time before the end of a period of account of the worldwide group and the outcome of that scheme is that the gateway is passed (that is, the UK net debt of the group does not exceed 75% of the worldwide gross debt of the group).
  • Condition B - the main purpose, or one of the main purposes of any party entering into the scheme is to secure that the gateway test is passed.
  • Condition C - the scheme is not an excluded scheme.