The general premise of the section is that an unallowable
purpose is a purpose which is not amongst the business or other
commercial purposes of the company (see FA96/SCH9/PARA13(2)).
But a purpose of any part of a company’s activities in
respect of which it is not within the charge to Corporation Tax
does not count as a business or other commercial purpose
(FA96/SCH9/PARA13(3)). This would, for instance, apply where the UK
branch of a company resident outside the UK was paying interest on
a loan which was being used to fund activities of the company
unconnected with the UK branch.
Where a tax avoidance purpose (see
INTM509050) is the main or one of the
main purposes for which the company is party to the loan
relationship the debits attributable to that purpose are
disallowed.
