INTM503060 – Intra-group funding: downstream loans - dealing with ‘equity function’ arguments

Referrals to CT & VAT, International CT

As previously indicated, there are a number of reasons that CT & VAT, International CT needs to know about equity function cases

• once a sum has been accepted as fulfilling an equity function, even though the legal form is not that of equity, it is deemed to be equity thereafter
• as a general rule HM Revenue & Customs assumes that the legal form of a transaction can be overturned for tax purposes only in a narrow set of circumstances, so that the possible creation of precedents to the contrary needs to be closely monitored
• it is important to ensure that there is consistency of interpretation of the UK tax legislation
• referral of equity function cases to International is mandatory. The current position is that where it is contended that £50m or less performs an equity function, rather than falling within the loan relationships and transfer-pricing legislation, the Inspector may continue to work the case using the guidelines in this chapter, seeking assistance from the Thin Cap/Arbitrage Group at CT & VAT, International CT where necessary.

In a case where the amount contended as performing an equity function is greater than £50m, the Inspector should obtain all the facts and documents surrounding it and submit the file to CT & VAT, International CT, using ADM6.109 as the basis for the submission. If, before submitting the file, the Inspector would like to discuss the case over the telephone, members of CT & VAT, International CT will be happy to do so.