HMRC has made substantial changes to the guidance in its Corporate Finance Manual on the loan relationships unallowable purpose test. The updated guidance (at CFM38100–CFM38200) not only provides a more detailed summary of the rules but also reflects HMRC’s view on more contentious issues which have been the subject of recent litigation and disputes with taxpayers. For example:
CFM38140 (meaning of tax advantage): provides that ‘all that is required for there to be a tax advantage for the purposes of CTA 2009 s 1139(2)(a) [i.e. a relief or increased relief] is for the taxpayer to have improved its tax position as a result of a transaction, for instance by deductible loan relationship debits’ - this reiterates the view taken by HMRC in recent cases that it is not necessary to hypothesise a comparator transaction in order to determine whether a tax advantage arises;
CFM38150 (just and reasonable apportionment): sets out various methods as to how to apportion debits to unallowable purposes on a just and reasonable basis and discusses testing a proposed apportionment by considering the extent to which the debit would otherwise be different ‘but for’ the unallowable purpose;
CFM38170 (factors relevant to assessing evidence of a main tax avoidance purpose): includes a ‘non-exhaustive list of potentially relevant tax-related factors which may be helpful in assessing [whether or not a taxpayer has a main purpose of securing a tax advantage], based on experience in working cases and, in respect of some factors, on case law’; and
CFM38190 (situations where the unallowable purpose rule would or would not normally apply): contains 17 example transactions that illustrate ‘underlying fact patterns that have been identified as useful in indicating HMRC’s views on the kinds of situations in which the unallowable purpose rule may or may not apply’.
HMRC has made substantial changes to the guidance in its Corporate Finance Manual on the loan relationships unallowable purpose test. The updated guidance (at CFM38100–CFM38200) not only provides a more detailed summary of the rules but also reflects HMRC’s view on more contentious issues which have been the subject of recent litigation and disputes with taxpayers. For example:
CFM38140 (meaning of tax advantage): provides that ‘all that is required for there to be a tax advantage for the purposes of CTA 2009 s 1139(2)(a) [i.e. a relief or increased relief] is for the taxpayer to have improved its tax position as a result of a transaction, for instance by deductible loan relationship debits’ - this reiterates the view taken by HMRC in recent cases that it is not necessary to hypothesise a comparator transaction in order to determine whether a tax advantage arises;
CFM38150 (just and reasonable apportionment): sets out various methods as to how to apportion debits to unallowable purposes on a just and reasonable basis and discusses testing a proposed apportionment by considering the extent to which the debit would otherwise be different ‘but for’ the unallowable purpose;
CFM38170 (factors relevant to assessing evidence of a main tax avoidance purpose): includes a ‘non-exhaustive list of potentially relevant tax-related factors which may be helpful in assessing [whether or not a taxpayer has a main purpose of securing a tax advantage], based on experience in working cases and, in respect of some factors, on case law’; and
CFM38190 (situations where the unallowable purpose rule would or would not normally apply): contains 17 example transactions that illustrate ‘underlying fact patterns that have been identified as useful in indicating HMRC’s views on the kinds of situations in which the unallowable purpose rule may or may not apply’.
