Corporation Tax Act 2009

[F1 18H The motive test U.K.

(1) The motive test is met if conditions A and B are met.

(2) Condition A is that in so far as any relevant transaction, or two or more transactions at least one of which was a relevant transaction (taken together), achieved a reduction in United Kingdom tax either—

(a) the reduction was minimal, or

(b) it was not the main purpose, or one of the main purposes, of the transaction, or of those transactions taken together, to achieve the reduction.

(3) In subsection (2) “relevant transaction” means a transaction the results of which are reflected in such of the company's profits in the accounting period as are attributable to the permanent establishment.

(4) For the purposes of subsection (2) a transaction achieves (or transactions achieve) a reduction in United Kingdom tax if, had the transaction (or transactions) not been effected, any person—

(a) would (disregarding section 18G(2)) have been liable for United Kingdom tax or for a greater amount of United Kingdom tax, or

(b) would (disregarding that provision) not have been entitled to a relief from, or repayment of, United Kingdom tax or would have been entitled to a smaller relief from, or repayment of, United Kingdom tax.

(5) For the purposes of subsection (2) it is the main purpose, or one of the main purposes, of a transaction (or of transactions taken together) to achieve a reduction in United Kingdom tax if that is the main purpose, or one of the main purposes, of—

(a) the company, or

(b) a person who has an interest in the company at any time during the relevant accounting period;

and section 749B of ICTA (persons who have an interest in a company) applies for the purposes of paragraph (b) as for the purposes of Chapter 4 of Part 17 of that Act.

(6) Condition B is that it was not the main reason, or one of the main reasons, for the company carrying on business through the permanent establishment to achieve a reduction in United Kingdom tax by a diversion of profits from the United Kingdom.

(7) For the purposes of subsection (6) the fact that the company carries on the business through the permanent establishment achieves a reduction in United Kingdom tax by a diversion of profits from the United Kingdom if it is reasonable to make the supposition in subsection (8).

(8) That supposition is that, if the company did not carry on business through any permanent establishment and there were no related companies—

(a) the whole or a substantial part of the receipts which are reflected in the profits attributable to the permanent establishment would have been received by the company otherwise than through the permanent establishment or by another UK resident company which is a non-electing company or an individual resident in the United Kingdom, and

(b) the company, that other UK resident company, that individual resident in the United Kingdom or any other person resident in the United Kingdom either—

(i) would (disregarding section 18G(2)) have been liable for United Kingdom tax or for a greater amount of United Kingdom tax, or

(ii) would (disregarding that provision) not have been entitled to a relief from, or repayment of, United Kingdom tax or would have been entitled to a smaller relief from, or repayment of, United Kingdom tax.

(9) For the purposes of subsection (8) a company is “related” to the company if—

(a) either it is a UK resident company in relation to which an election under section 18A has effect or it is not a UK resident company,

(b) it is connected with, or is an associate of, the company, and

(c) it fulfils or could fulfil, directly or indirectly, the same functions as those of the permanent establishment.

(10) Companies are associates for the purposes of subsection (9) if they are associated for the purposes of Chapter 4 of Part 19 of CTA 2010 (see section 882).

(11) References in subsection (8) to a UK resident company include a company which it is reasonable to assume would have been established if the permanent establishment did not exist.

(12) For the purposes of subsection (8) a UK resident company is a non-electing company if no election under section 18A has effect in relation to the company.

(13) In this section “United Kingdom tax” means corporation tax, income tax or capital gains tax.]

Textual Amendments

F1 Pt. 2 Ch. 3A inserted (19.7.2011) by Finance Act 2011 (c. 11), Sch. 13 paras. 4, 31