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HMRC internal manual

International Manual

Arbitrage: legislation and principles - receipts: what is reasonable expectation?

There are five conditions that will need to be satisfied before the legislation can have effect in respect of receipts, as set out in INTM595530.

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).

While the receipts rules do not include a tax advantage purpose as a necessary condition, it is necessary that the parties expected a benefit to arise as a result of the receipt escaping taxation. It is therefore unlikely that the legislation will apply unless the parties were aware that this was a likely result of the scheme (or would have been in the absence of the arbitrage legislation).