Beta This part of GOV.UK is being rebuilt – find out what this means

HMRC internal manual

Corporate Finance Manual

From
HM Revenue & Customs
Updated
, see all updates

Debt cap: anti-avoidance rules: main rules: comparing net relevant deductions: examples

Examples showing the net relevant deduction calculated as a result of the scheme and the net relevant deduction calculated as a result of the counterfactual

Condition A in TIOPA10/S307 requires a comparison of the net relevant deduction that is calculated on the basis that the scheme in question is implemented and the net relevant deduction that is calculated on the basis that the scheme is not implemented and instead the most likely counterfactual is implemented. If the scheme does not result in any reduction of the net relevant deduction, it is not within the scope of the anti-avoidance rule.

Only if this objective condition is met will it be necessary to consider whether achieving the reduction was a main purpose of the scheme (CFM92630).

The test is applied for each period of account of the worldwide group. If a scheme does not reduce the relevant net deduction in the period of account in question, condition A will not be met for that period of account, even if it is highly likely to effect such a reduction in a future period.

Example 1

A group has calculated the following figures for the period of account ended 31 December 2012:

  • tested expense amount of £400 million;
  • available amount of £500 million; and
  • tested income amount of nil.

The available amount is £300 million higher than it would be because of a scheme that was implemented by the group in 2011. The net relevant deduction as a result of the scheme being implemented is nil as the tested expense amount does not exceed the available amount.

If the scheme had not been implemented, the net relevant deduction for the year ended 31 December 2012 would have been £200 million, calculated in accordance with TIOPA10/S309.

So as a result of the scheme, the net relevant deduction is lower than it would have been if it had been calculated under TIOPA10/S309. If a party has a main purpose of securing that outcome then Condition A in TIOPA10/S307 is met.

Example 2

A group has calculated the following figures for the period of account ended 31 December 2012:

  • tested expense amount of £400 million;
  • available amount of £300 million; and
  • tested income amount of £150 million.

The tested expense amount is £200 million lower than it would be because of a scheme that was implemented by the group in 2011. The net relevant deduction as a result of the scheme being implemented is nil as the total disallowed amount of £100 million (the amount by which the tested expense exceeds the available amount) is less than the tested income amount.

If the scheme had not been implemented, the net relevant deduction for the year ended 31 December 2012 would have been £150 million, calculated in accordance with TIOPA10/S309.

So as a result of the scheme, the net relevant deduction is lower than it would have been if it had been calculated under S309. If a party has a main purpose of securing that outcome then Condition A in TIOPA10/S307 is met.

Example 3

A group has calculated the following figures for the period of account ended 31 December 2012:

  • tested expense amount of £500 million;
  • available amount of £400 million; and
  • tested income amount of £200 million.

The tested expense amount is £200 million lower than it would be because of a scheme that was implemented by the group in 2011 and the available amount is £100 million higher than it as a result of the same scheme being implemented. The net relevant deduction as a result of the scheme being implemented is nil as the total disallowed amount of £100 million (the amount by which the tested expense exceeds the available amount) is less than the tested income amount.

If the scheme had not been implemented, the net relevant deduction for the year ended 31 December 2012 would have been £200 million, calculated in accordance with TIOPA10/S309.

So as a result of the scheme, the net relevant deduction is lower than it would have been if it had been calculated under S309. If a party has a main purpose of securing that outcome then Condition A in TIOPA10/S307 is met.

Example 4

A group has calculated the following figures for the period of account ended 31 December 2012:

  • tested expense amount of £800 million;
  • available amount of £750 million; and
  • tested income amount of £300 million.

The tested expense amount is £200 million lower than it would be because of a scheme that was implemented by the group in 2011. The net relevant deduction as a result of the scheme being implemented is nil as the total disallowed amount of £50 million (the amount by which the tested expense exceeds the available amount) is less than the tested income amount.

If the scheme had not been implemented, the net relevant deduction for the year ended 31 December 2012 calculated in accordance with TIOPA10/S309 would still be nil - the total disallowed amount would have been £250 million which is still less than the tested income amount.

So even though there is a scheme, the net relevant deduction calculated for the counterfactual under TIOPA10/S309 is no different from the net relevant deduction calculated as a result of the scheme being implemented. Condition A cannot be met and so the anti-avoidance rules don’t apply.

Example 5

A group has calculated the following figures for the period of account ended 31 December 2012:

  • tested expense amount of £500 million;
  • available amount of £400 million; and
  • tested income amount of £150 million.

The tested expense amount is £200 million lower than it would be because of a scheme that was implemented by the group in 2011 and the available amount is £100 million higher than it would be because of a scheme implemented by the group in 2010.

Because there are two schemes, each scheme has to be considered separately.

The net relevant deduction as a result of the 2011 scheme being implemented is nil as the total disallowed amount of £100 million (the amount by which the tested expense exceeds the available amount) is less than the tested income amount of £150 million (note the figure used is the figure with the 2010 scheme in place).

If the scheme had not been implemented, the net relevant deduction for the year ended 31 December 2012 would have been £150 million (total disallowed amount of £300 million less the tested income amount of £150 million), calculated in accordance with TIOPA10/S309.

The net relevant deduction as a result of the 2010 scheme being implemented is nil as the total disallowed amount of £100 million (the amount by which the tested expense exceeds the available amount and noting that the tested expense amount figure is the figure with the 2011 scheme in place) is less than the tested income amount of £150 million.

If the scheme had not been implemented, the net relevant deduction for the year ended 31 December 2012 would have been £50 million (total disallowed amount of £100 million less the tested income amount of £50 million), calculated in accordance with TIOPA10/S309.

So as a result of both schemes, the net relevant deduction in both cases is lower than it would have been if it had been calculated under TIOPA10/S309. If a party has a main purpose of securing that outcome then Condition A in S307 is met.