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HMRC internal manual

Corporate Finance Manual

Debt cap: anti-avoidance rules: EEA financing income: non-abusive schemes: examples

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

The type of transactions and arrangements that are unlikely to considered as a scheme to manipulate the rules in Chapter 5

There are unlikely to be many cases where the rules under Chapter 5 will apply to exempt financing income received by a UK group company, but there will be some cases where a commercial (non-tax) investment in a group company resident in another EEA state does result in a denial of relief for financing income paid to the UK.

A scheme is unlikely to be subject to anti-avoidance rules in TIOPA10/S311 where it is driven by commercial (non-tax) objectives and is not influenced by consideration of the potential benefit of the debt cap rules. Where the scheme structure is the most logical choice, disregarding any debt cap considerations, to meet the commercial objectives then it is unlikely that any party has entered into the scheme with a main purpose of securing that financing income will be exempt from corporation tax in the UK. Where however the structure of the scheme contains various steps (for example routing funding through a particular structure to the group entity requiring the funds) that are intended to maximise the potential application of the rules within Chapter 5 then the purpose of the parties entering the scheme should be considered more carefully.