Amendment of the Tax Avoidance Schemes (Prescribed Description of Arrangements) Regulations 2006
9. After regulation 18 (Description 8: Employment income provided through third parties)(1) insert—
“Description 9: Financial products
19.—(1) Subject to regulation 21, arrangements are prescribed if—
(a)condition 1 is met, and
(b)it would be reasonable to expect an informed observer (having studied the arrangements and having regard to all relevant circumstances) to conclude that—
(i)condition 2 is met, and
(ii)either condition 3 or condition 4 is met.
(2) Condition 1 is that the arrangements include at least one financial product specified in regulation 20(1) (a “specified financial product”).
(3) Condition 2 is that the main benefit, or one of the main benefits, of including a specified financial product in the arrangements is to give rise to a tax advantage.
(4) Condition 3 is that a specified financial product included in the arrangements contains at least one term which is unlikely to have been entered into by the persons concerned were it not for the tax advantage.
(5) Condition 4 is that the arrangements involve one or more contrived or abnormal steps without which the tax advantage could not be obtained.
(6) For the purposes of this regulation condition 3 is treated as not having been met if—
(a)the specified financial product includes a term requiring that it is held for a minimum period of time before it is redeemed and—
(i)section 135 or 136 of TCGA 1992(2) applies to the specified financial product, and
(ii)condition 3 is met only by virtue of that term; or
(b)the specified financial product includes a term whereby the issuing company can secure that the date for redemption falls before the end of the permitted period and—
(i)but for that term, the specified financial product would be an equity note, and
(ii)condition 3 is met only by virtue of that term.
(7) In paragraph (6)(b) “equity note” and “the permitted period” have the meanings given by section 1016 of CTA 2010.
(8) For the purposes of condition 4 a step is not to be treated as being contrived or abnormal if—
(a)that step involves only the transfer of an asset to which the condition in paragraph 15A(2)(b) of Schedule 7AC to TCGA 1992(3) applies; or
(b)that step involves only the issue of shares and—
(i)that step is taken to eliminate or substantially reduce the economic risk of holding a loan relationship or a derivative contract, or part of such a loan relationship or a derivative contract, which is attributable to fluctuations in exchange rates, and
(ii)the shares are treated for accounting purposes as a liability of the company in accordance with generally accepted accounting practice.
(9) For the purposes of this regulation, neither condition 3 nor condition 4 is treated as having been met if—
(a)the specified financial product includes a term providing for conversion into, or redemption in, a currency other than sterling, and
(b)both condition 3 and condition 4 are met only by virtue of that term.
20.—(1) The financial products specified in this paragraph are—
(a)a loan,
(b)a share,
(c)a derivative contract within the meaning given by section 576 of CTA 2009,
(d)a repo in respect of securities within the meaning given by section 263A(A1) of TCGA 1992(4),
(e)a creditor repo, creditor quasi-repo, debtor repo or a debtor quasi-repo (within the meanings given by sections 543, 544, 548 and 549 of CTA 2009(5) respectively),
(f)a stock lending arrangement within the meaning given by section 263B(1) of TCGA 1992(6),
(g)an alternative finance arrangement within Chapter 6 of Part 6 of CTA 2009 or Part 10A of ITA 2007(7),
(h)a contract which, whether alone or in combination with one or more other contracts—
(i)is in accordance with generally accepted accounting practice required to be treated as a loan, deposit or other financial asset or obligation, or
(ii)would be required to be so treated by the person entering into the arrangements were that person a company to which the Companies Act 2006(8) applies.
(2) Paragraph (1) does not specify a financial product held within an account which satisfies the conditions in regulation 4 of the Individual Savings Account Regulations 1998(9).
Arrangements excepted from Description 9
21. Arrangements are excepted from being prescribed under regulation 19 if—
(a)a promoter is a participating entity, or is part of a participating group, within the meaning of section 286 of the Finance Act 2014(10); and
(b)HMRC has confirmed, or could reasonably be expected to confirm, to the promoter that the arrangements are acceptable transactions under the Code of Practice on Taxation for Banks (as published by the Commissioners for Her Majesty’s Revenue and Customs on 31st May 2013)(11).”
Regulation 18 was substituted for regulation 17A by regulation 10 of S.I. 2013/2595.
1992 c.12. Sections 135 and 136 were substituted by paragraphs 7 and 9 of Schedule 45 to the Finance Act 2002 (c.23). Section 135 was amended by paragraph 23 to the Corporation Tax Act 2010.
Schedule 7AC was inserted by paragraph 1 of Schedule 8 to the Finance Act 2002.
Section 263A was inserted by section 80(4) of the Finance Act 1995 (c.4) and subsection (A1) was inserted by paragraph 9(2) of Schedule 12 to the Finance Act 2013 (c.29).
Section 549 was amended by article 6(5) of S.I. 2009/2860.
Section 263B was inserted by paragraph 5(1) of Schedule 10 to the Finance Act 1997 (c.16).
Part 10A of the Income Tax Act 2007 was inserted by Part 1 of Schedule 2 to the Taxation (International and Other Provisions) Act 2010 (c.8).
S.I. 1998/1870; relevant amending instruments are regulation 3 of S.I. 2002/1974, regulations 5 and 6 of S.I. 2007/2119, regulation 4 of S.I. 2009/1994, regulation 3 of S.I. 2010/2957, regulations 4 and 5 of S.I. 2011/782, regulation 7 of S.I. 2011/1780, paragraph 22 of Schedule 2 to S.I. 2013/472, regulation 5 of S.I. 2014/1450 and regulation 5 of S.I. 2015/869.
The Code is available at https://www.gov.uk/government/publications/code-of-practice-on-taxation-for-banks. For those without computer access, a copy of the code can be obtained without charge by writing to: FAO Banking Code Team, Large Business Financial, Floor 6 & 7, Bush House, S.W. Wing, The Strand, London, WC2B 4RD.