CTM07905 - Corporation tax: targeted anti-avoidance rule: summary

F(NO2)A17/C32/S19

The reforms to carried forward losses include a targeted anti-avoidance rule (TAAR) to counteract tax advantages that might arise from certain avoidance arrangements.

The TAAR is designed to target particular types of arrangement that seek to circumvent or exploit the rules. Such arrangements might for example seek to increase the amount of losses a company can use under the loss restriction by manipulating group structures or artificially increasing profits. Or arrangements might seek to gain a tax advantage in another way that results from a deduction or increased deduction under any of a number of relevant provisions.

Conditions

For arrangements to be relevant to this TAAR, they must meet two conditions, A and B:

Condition A (F(No2)A17/S19(4)): the purpose or one of the main purposes of the arrangements must be to obtain a loss-related tax advantage.

Condition B (F(No2)A17/S19(5)): It must also be reasonable to regard the arrangements as

  • Circumventing the intended limits of relief under any of the relevant provisions, or
  • Otherwise exploiting shortcomings in those provisions.

In condition B, relevant provisions refers to the legislation listed at F(No2)A17/S19(8) and set out on the key terms page of this guidance.

In forming a view on whether the circumvention or exploitation condition is met, HMRC would take account of all the relevant circumstances.

Relevant circumstances is not defined. So relevant circumstances might relate to the arrangements, or to the tax advantage. Relevant circumstances that relate to the particular arrangements may include contrived or abnormal steps, the absence of a genuine commercial purpose, or whether the substantive results are inconsistent with any principles of the relevant legislation.

A claim for loss relief or capital allowances, or a claim, for example under CTA10/S45B(5), to reduce or prevent relief for losses in a particular period, will not be based on arrangements that meet the conditions of the TAAR simply because it creates an advantageous result for the company. Arrangements will only meet the conditions of the TAAR where it is reasonable to conclude that they circumvent intended reliefs or exploit shortcomings in the rules.

A TAAR is only applied where the ordinary legislation cannot defeat the arrangements. If the tax advantage that might arise from an arrangement is neutralised by the legislation those arrangements target, or under other tax rules, then the TAAR will not apply. For example, it is possible that the deduction-buying rules in CTA10/PART14 would apply in certain circumstances where changes of ownership of a company would otherwise create a loss-related tax advantage.

Counteraction

Arrangements that meet the conditions of the TAAR should be counteracted (whether by HMRC or the person to whom the tax advantage may arise) by making just and reasonable adjustments. The adjustments could be made by

  • An assessment,
  • The modification of an assessment,
  • Amendment or disallowance of a claim, or
  • Another method.