INTM509150 – Intra-group funding: avoidance and arbitrage

Tackling arbitrage

Arbitrage is not easy to tackle because

• instances are often difficult to identify
• it is not always offensive
• in some cases there are no obvious or immediate remedies.

But, as pointed out earlier, there are some specific anti-arbitrage provisions and in a fair number of cases the UK’s general provisions relating to the taxation of financial transactions can be used to tackle artificial or uncommercial arrangements.

It is however important for CT & VAT, International CT to be aware of significant cases involving arbitrage because large sums are likely to be involved. And it is likely that any particularly successful forms of arbitrage will be fully exploited and become widespread. Legislation is the most effective remedy against arbitrage, but before legislation can be considered, there has to be an indication of the scale of the relevant problem. So it follows that where an Inspector uncovers a significant example of arbitrage to which there appears to be no effective remedy in UK domestic legislation, this should be drawn to the attention of the Thin Cap/Arbitrage Group at CT & VAT, International CT at an early stage.

The Thin Cap/Arbitrage Group at CT & VAT, International CT is also interested in seeing examples of arbitrage where a treaty partner country, rather than the UK itself, may be losing revenue as a result of tax arbitrage. As good treaty partners we may be able to pass on the information under the terms of our treaties.