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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: EEA financing income: conditions for anti-avoidance rules to apply

There are three filters for the anti-avoidance rules dealing with manipulation of TIOPA10/CH5/PT7

The anti-avoidance rules covering schemes that involve manipulation of the rules within Chapter 5 are contained within TIOPA10/S311. Chapter 5 contains the rules that exempt financing income from corporation tax where it is received from another member of the group resident in the European Economic Area (EEA), apart from the UK, and the payer is denied a deduction for tax purposes in respect of that financing income amount.

The three conditions for the anti-avoidance rules to apply are set out in subsections (2) to (4) of S311:

  • Condition A - a scheme is entered into at any time before the financing income is received and the outcome of that scheme is that any of the conditions in subsections (2) to (4) of TIOPA10/S299 is met in relation to that financing income amount.
  • Condition B - the main purpose, or one of the main purposes of any party entering into the scheme is to secure that the relevant TIOPA10/S299 condition is met.
  • Condition C - the scheme is not an excluded scheme.

Condition A is tested when the financing income amount is received. So if the financing income amount accrues in 2012 but is not paid until 2016, condition A can apply if the scheme was not actually entered into until say 2015.

In order for financing income to be exempt under TIOPA10/S299, three conditions in subsections (2) to (4) must be met. These conditions are broadly that the payer must be a member of the group and liable to tax in an EEA state (apart from the UK) when financing income amount is paid, and that the payer does not receive tax relief for the payment.

Condition A in TIOPA10/S311(2) is met if the outcome of the scheme is that any of the three conditions in S299. So if for example the scheme is about ensuring the payer is a member of the group at the time of payment, then condition A is met. If the other two conditions in TIOPA10/S299 were already met (i.e. no manipulation was needed to meet those conditions), the TIOPA2010/S311(2) condition is not thereby prevented from being met.

Condition B in TIOPA10/S311(3) considers whether there is a main purpose of securing the relevant TIOPA10/S299 condition is met.. So if the scheme is intended to ensure that the payer is a member of the group (TIOPA10/S299(2)), then condition B considers the purpose of parties entering into that scheme. If the scheme were intended to ensure that the payer was a member of the group and a resident of an EEA state then condition B considers the purpose of parties entering into that scheme.