Part 5Loan Relationships

Chapter 15Tax avoidance

Unallowable purposes and tax relief schemes

442Meaning of “unallowable purpose”

1

For the purposes of section 441 a loan relationship of a company has an unallowable purpose in an accounting period if, at times during that period, the purposes for which the company—

a

is a party to the relationship, or

b

enters into transactions which are related transactions by reference to it,

include a purpose (“the unallowable purpose”) which is not amongst the business or other commercial purposes of the company.

2

If a company is not within the charge to corporation tax in respect of a part of its activities, for the purposes of this section the business and other commercial purposes of the company do not include the purposes of that part.

3

Subsection (4) applies if a tax avoidance purpose is one of the purposes for which a company—

a

is a party to a loan relationship at any time, or

b

enters into a transaction which is a related transaction by reference to a loan relationship of the company.

4

For the purposes of subsection (1) the tax avoidance purpose is only regarded as a business or other commercial purpose of the company if it is not—

a

the main purpose for which the company is a party to the loan relationship or, as the case may be, enters into the related transaction, or

b

one of the main purposes for which it is or does so.

5

The references in subsections (3) and (4) to a tax avoidance purpose are references to any purpose which consists of securing a tax advantage for the company or any other person.