7A(1)This paragraph applies in any case where—
(a)a manufactured payment falls to be made by a company in an accounting period in pursuance of any arrangements (see sub-paragraphs (9) and (10) for definitions), and
(b)the arrangements have an unallowable purpose at any time (see sub-paragraphs (3) to (5)).
But this is subject to sub-paragraph (8) below (cases where tax relief is denied apart from this paragraph).
(2)The company is not entitled, by virtue of anything in this Schedule or any provision of regulations under it, or otherwise, to any relevant tax relief (see sub-paragraph (10)), to the extent that the relief is in respect of, or referable to, the whole or any part of so much of the manufactured payment as, on a just and reasonable apportionment, is attributable to the unallowable purpose.
(3)Arrangements have an unallowable purpose at any time if at that time the purposes for which the company is a party to—
(a)the arrangements,
(b)any related transaction (see sub-paragraphs (6) and (7)), or
(c)any transaction in pursuance of the arrangements,
include a purpose (“the unallowable purpose”) which is not among the business or other commercial purposes of the company.
(4)The business and other commercial purposes of a company do not include the purposes of any part of its activities in respect of which it is not within the charge to corporation tax.
(5)Where one of the purposes for which a company is at any time a party to—
(a)any arrangements,
(b)any related transaction in the case of any arrangements, or
(c)any transaction in pursuance of any arrangements,
is a tax avoidance purpose, that purpose shall be taken to be a business or other commercial purpose of the company only where it is not the main purpose, or one of the main purposes, for which the company is party to the arrangements or transaction at that time.
(6)One or more transactions are to be regarded as related transactions, in the case of any arrangements, if it would be reasonable to assume, from either or both of—
(a)the likely effect of the transactions, and
(b)the circumstances in which the transactions are entered into or effected,
that none of the transactions would have been entered into or effected independently of the arrangements.
(7)Transactions are not prevented from being related transactions, in the case of any arrangements, just because the transactions—
(a)are not between the same parties, or
(b)are not between the parties to the arrangements.
(8)This paragraph does not apply if, as a result of any of the following provisions—
(a)[F1section 1219(2)(b) of CTA 2009] (expenses of management of companies with investment business: unallowable purposes),
(b)section 76(4)(d) (expenses of insurance companies: unallowable purposes),
(c)[F2section 441 of CTA 2009] (loan relationships with unallowable purposes),
the company in question is not entitled to a relevant tax relief in respect of, or referable to, the whole or any part of the manufactured payment.
[F3The reference to section 76 is a reference to that section as it has effect] in relation to accounting periods beginning on or after 1st April 2004.
(9)Any reference in this paragraph to a manufactured payment falling to be made by a company includes a reference to a manufactured payment which is deemed by or under any provision of the Tax Acts to be made by a company (and references to a transaction, or to a company being party to a transaction, are to be construed accordingly).
(10)In this paragraph—
“arrangements” includes schemes, arrangements and understandings of any kind, whether or not legally enforceable, and shall be taken to include any related transactions;
“manufactured payment” means any of the following—
(a)any manufactured dividend;
(b)any manufactured interest;
(c)any manufactured overseas dividend;
(d)[F4any payment which by virtue of paragraph 7(1) constitutes a fee;]
“
” shall be construed in accordance with sub-paragraphs (6) and (7) above;“relevant tax relief” means any of the following—
(a)any deduction in computing profits or gains for the purposes of corporation tax;
(b)any deduction against total profits;
(c)the bringing into account of any debit for the purposes of [F5Part 5 of CTA 2009] (loan relationships);
(d)the surrender of an amount by way of group relief;
[F6“tax advantage” has the meaning given by section 840ZA;]
“tax avoidance purpose” means any purpose that consists in securing a tax advantage (whether for the company in question or any other person);
and sub-paragraphs (3) to (7) above have effect for the purposes of this paragraph.
Textual Amendments
F1Words in Sch. 23A para. 7A(8)(a) substituted (1.4.2009 with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), Sch. 1 para. 285(4)(a)(i) (with Sch. 2 Pts. 1, 2)
F2Words in Sch. 23A para. 7A(8)(c) substituted (1.4.2009 with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), Sch. 1 para. 285(4)(a)(ii) (with Sch. 2 Pts. 1, 2)
F3Words in Sch. 23A para. 7A(8) substituted (1.4.2009 with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), Sch. 1 para. 285(4)(a)(iii) (with Sch. 2 Pts. 1, 2)
F4Sch. 23A para. 7A(10): in definition of "manufactured payment", para. (d) inserted (with effect in accordance with Sch. 5 para. 9(2)-(4) of the amending Act) by Finance Act 2007 (c. 11), Sch. 5 para. 9(1)
F5Sch. 23A para. 7A(10): in definition of "relevant tax relief", words in para. (c) substituted (1.4.2009 with effect in accordance with s. 1329(1) of the amending Act) by Corporation Tax Act 2009 (c. 4), Sch. 1 para. 285(4)(b) (with Sch. 2 Pts. 1, 2)
F6Sch. 23A para. 7A(10): definition of "tax advantage" substituted (6.4.2007 with effect in accordance with s. 1034(1) of the amending Act) by Income Tax Act 2007 (c. 3), Sch. 1 para. 238(7) (with Sch. 2)