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HMRC internal manual

International Manual

From
HM Revenue & Customs
Updated
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Arbitrage: legislation and principles - receipts: receipts rule conditions

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

Condition A

Condition A is that a scheme makes or imposes provision between the company and another person (the paying party) by means of a transaction or series of transactions.

Condition B

Condition B is that the provision made or imposed by the scheme between the company and the paying party includes the making by the paying party, by means of a transaction or series of transactions, of a payment that is a qualifying payment in relation to the company.

A payment is a qualifying payment in relation to a company if it constitutes a contribution to the capital of the company.

Condition C

Condition C is that as regards the qualifying payment made by the paying party, there is an amount that is available either as a deduction for the purposes of the Taxes Acts, or may be deducted or otherwise allowed in respect of the payment under the tax law of any territory outside the United Kingdom.

Condition C is not satisfied if:

  • the paying party is a dealer,
  • in the ordinary course of his business, he incurs losses in respect of the transaction or transactions forming part of the scheme to which he is party, and
  • the amount by reference to which Condition C would otherwise be satisfied is an amount in respect of those losses.

The term “dealer” means a person who is a dealer in relation to a distribution within the meaning of s130 CTA 2009 or who would, if he were resident in the United Kingdom, be such a dealer.

Condition D

Condition D is that at least part of the qualifying payment made by the paying party is not:

  • income or gains arising to the company in the accounting period in which the qualifying payment was made in relation to the company
  • income arising to any other company resident in the United Kingdom in a corresponding accounting period
  • an amount taken into account in determining the debits and credits to be brought into account by a company for the purposes of FA96/PT4/CH2 as respects a share in another company by virtue of FA96/S91A or FA96/S91B (shares treated as loan relationships).

The accounting period of a company (“company A”) corresponds to the accounting period of another company (“company B”) if at least one day of company A’s accounting period falls within company B’s accounting period.

Condition E

Condition E is that the company and the paying party expected on entering into the scheme that a benefit would arise as a result of condition D being satisfied (whether by reference to all or part of the qualifying payment).