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HMRC internal manual

Corporate Finance Manual

Debt cap: anti-avoidance rules: gateway: conditions for anti-avoidance rules to apply

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

There are three filters for the anti-avoidance rules dealing with manipulation of the gateway

The anti-avoidance rules covering schemes that involve manipulation of the rules within TIOPA10/PT7/CH2 are contained within TIOPA10/ S306. CH2, in particular S261(2) and S262-S266 contains the rules for identifying whether a group is within the debt cap. The test in CH2 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). Where the UK net debt of a worldwide group is less than 75% of its worldwide gross debt, the group fails to ‘pass through the gateway’ and the operative rules of the debt cap are not applied.

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.