(1)This section applies for the purposes of sections 80 and 86(2).
(2)In this section “the first party” and “the second party” mean—
(a)where this section applies for the purposes of section 80, C and P (within the meaning of section 80) respectively, and
(b)where this section applies for the purposes of section 86(2), the foreign company and A (within the meaning of section 86) respectively.
(3)The insufficient economic substance condition is met if one or more of subsections (4), (5) and (6) apply.
(4)This subsection applies where—
(a)the effective tax mismatch outcome is referable to a single transaction, and
(b)it is reasonable to assume that the transaction was designed to secure the tax reduction,
unless, at the time of the making or imposition of the material provision, it was reasonable to assume that, for the first party and the second party (taken together) and taking account of all accounting periods for which the transaction was to have effect, the non-tax benefits referable to the transaction would exceed the financial benefit of the tax reduction.
(5)This subsection applies where—
(a)the effective tax mismatch outcome is referable to any one or more of the transactions in a series of transactions, and
(b)it is reasonable to assume that the transaction was, or the transactions were, designed to secure the tax reduction,
unless, at the time of the making or imposition of the material provision, it was reasonable to assume that, for the first party and the second party (taken together) and taking account of all accounting periods for which the transaction or series was to have effect, the non-tax benefits referable to the transaction or transactions would exceed the financial benefits of the tax reduction.
(6)This subsection applies where—
(a)a person is a party to the transaction, or to any one or more of the transactions in the series of transactions, to which section 80(1)(b) or section 86(2)(a) refers, and
(b)it is reasonable to assume that the person’s involvement in the transaction or transactions was designed to secure the tax reduction,
unless one or both of the conditions in subsection (7) is or are met.
(7)Those conditions are—
(a)that, at the time of the making or imposition of the material provision, it was reasonable to assume that, for the first party and the second party (taken together) and taking account of all accounting periods for which the transaction or series was to have effect, the non-tax benefits referable to the contribution made to the transaction or series by that person, in terms of the functions or activities that that person’s staff perform, would exceed the financial benefit of the tax reduction;
(b)that, in the accounting period—
(i)the income attributable to the ongoing functions or activities of that person’s staff in terms of their contribution to the transaction or transactions (ignoring functions or activities relating to the holding, maintaining or protecting of any asset from which income attributable to the transaction or transactions derives), exceeds
(ii)the other income attributable to the transaction or transactions.
(8)For the purposes of subsection (7) a person’s staff include—
(a)any director or other officer of the person,
(b)if the person is a partnership, any individual who is a member of the partnership, and
(c)externally provided workers in relation to the person.
(9)For the purposes of subsections (4)(b), (5)(b) and (6)(b)—
(a)when determining whether it is reasonable to assume—
(i)that a transaction was, or transactions were, designed to secure the tax reduction, or
(ii)that a person’s involvement in a transaction or transactions was designed to secure the tax reduction,
regard must be had to all the circumstances, including any liability for any additional tax that arises directly or indirectly as a consequence of the transaction or transactions, and
(b)a transaction or transactions, or a person’s involvement in a transaction or transactions, may be designed to secure the tax reduction despite it or them also being designed to secure any commercial or other objective.
(10)In this section—
“externally provided worker” has the meaning given by section 1128 of CTA 2009, but as if in that section for “company” (in each place) there were substituted “person”;
“non-tax benefits” means financial benefits other than—
the financial benefit of the tax reduction, and
any other financial benefits which derive (directly or indirectly) from the reduction, elimination, or delay of any liability of any person to pay any tax;
“tax” includes non-UK tax.