3(1)Arrangements are “tax arrangements” for the purposes of this Schedule if, having regard to all the circumstances, it would be reasonable to conclude that the obtaining of a tax advantage was the main purpose, or one of the main purposes, of the arrangements.
(2)Tax arrangements are “abusive” for the purposes of this Schedule if they are arrangements the entering into or carrying out of which cannot reasonably be regarded as a reasonable course of action in relation to the relevant tax provisions, having regard to all the circumstances.
(3)The circumstances to which regard must be had under sub-paragraph (2) include—
(a)whether the substantive results, or the intended substantive results, of the arrangements are consistent with any principles on which the relevant tax provisions are based (whether express or implied) and the policy objectives of those provisions,
(b)whether the means of achieving those results involves one or more contrived or abnormal steps, and
(c)whether the arrangements are intended to exploit any shortcomings in those provisions.
(4)Where the tax arrangements form part of any other arrangements regard must also be had to those other arrangements.
(5)Each of the following is an example of something which might indicate that tax arrangements are abusive—
(a)the arrangements result in an amount of income, profits or gains for tax purposes that is significantly less than the amount for economic purposes;
(b)the arrangements result in deductions or losses of an amount for tax purposes that is significantly greater than the amount for economic purposes;
(c)the arrangements result in a claim for the repayment or crediting of tax (including foreign tax) that has not been, and is unlikely to be, paid;
but a result mentioned in paragraph (a), (b) or (c) is to be taken to be such an example only if it is reasonable to assume that such a result was not the anticipated result when the relevant tax provisions were enacted.
(6)The fact that tax arrangements accord with established practice, and HMRC had, at the time the arrangements were entered into, indicated their acceptance of that practice, is an example of something which might indicate that the arrangements are not abusive.
(7)The examples given in sub-paragraphs (5) and (6) are not exhaustive.
(8)In sub-paragraph (5) the reference to income includes earnings, within the meaning of Part 1 of the Social Security Contributions and Benefits Act 1992 or Part 1 of the Social Security Contributions and Benefits (Northern Ireland) Act 1992.