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Loan relationships anti-avoidance rule is ‘very widely drawn’, says CIOT

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The Chartered Institute of Taxation has raised with HMRC several concerns regarding draft legislation designed to counter a tax avoidance scheme, disclosed by Barclays, which sought to avoid the charge on ‘deemed releases’ of loan relationships.

As Tax Journal reported on 5 March, HMRC invited comments by 12 March on the proposed anti-avoidance rules set out in a technical note. Ashurst, the law firm, said the provisions were ‘broadly drafted’ and would limit the scope for planning in the context of commercial restructurings.

The CIOT said in its submission of 9 March:

  • the proposed new s 363(3)(b) could give rise to anomalies where the creditor company accounts for the creditor relationship on a fair value basis and there is a delay between the creditor company acquiring the creditor relationship and becoming connected with the debtor company;
  • an express statement was needed that s 322(4) takes precedence over s 362;
  • there should be statutory confirmation that where a charge does not arise under s 361 because one of the exceptions in s 361A, 361B or 361C applies, then s 363A will not apply;
  • there should be a corporate rescue exception to s 362; and
  • section 363A [the proposed targeted anti-avoidance rule] was ‘very widely drawn’ and could cause problems ‘in connection with the acquisition and disposal of companies whose net assets are less than their outstanding liabilities’.

The CIOT also suggested that the opportunity should be taken to amend CTA 2009 s 362 to reflect what was understood to be HMRC practice, although this practice was not followed in example 2 in the Corporate Finance Manual at CFM35490 or in any other published guidance.