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HMRC internal manual

International Manual

Arbitrage: legislation and principles - receipts: five conditions need to be met for the receipts rule to apply

There are five conditions that will need to be satisfied before the legislation can have effect in respect of receipts. The essential points to note are that:

  • the company has entered into a scheme;
  • the scheme provides for the company to receive an amount on which it is not liable to UK tax;
  • that amount may be deducted from or allowed against taxable income of the person making the payment;
  • the arbitrage - in this case a mismatch in tax treatment - is a reasonable expectation of the parties to the scheme; and
  • the payment constitutes a contribution to the capital of the company.