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HMRC internal manual

International Manual

Arbitrage: legislation and principles - receipts: role of the receipts rule in reinforcing other financial avoidance rules

An important role for the arbitrage receipts rule is to reinforce the financial avoidance rules in F2A05/SCH7/S39, and prevent artificial schemes from sidestepping those rules. Therefore the receipts rules will apply in similar situations as the financial avoidance rules, where a UK company issues shares on deferred payment terms. The company acquiring the shares pays more to compensate the UK company for the late payment, which represents a contribution to capital. Arbitrage arises where the paying company obtains a tax deduction for the extra amount that compensates for the delay - the compensation is equivalent to an interest charge - but absent this legislation the amount received would be untaxed.