Finance (No. 2) Act 2017

Meaning of “outstanding”: loans

3 (1) An amount of a loan is “outstanding” for the purposes of paragraph 1 if the relevant principal amount exceeds the repayment amount.

(2) In sub-paragraph (1) “relevant principal amount”, in relation to a loan, means the total of—

(a) the initial principal amount lent, and

(b) any sums that have become principal under the loan, otherwise than by capitalisation of interest.

(3) In sub-paragraph (1) “repayment amount”, in relation to a loan, means the total of—

(a) the amount of principal under the loan that has been repaid before 5 December 2016, and

(b) payments in money made by T on or after 5 December 2016 by way of repayment of principal under the loan.

(4) A payment is to be disregarded for the purposes of sub-paragraph (3)(b) if there is any connection (direct or indirect) between the payment and a tax avoidance arrangement (other than the arrangement in pursuance of which the loan was made).

(5) In this paragraph and in paragraph 9, “tax avoidance arrangement” means an arrangement which has a tax avoidance purpose.

(6) For the purposes of sub-paragraph (5), an arrangement has a tax avoidance purpose if sub-paragraph (7) applies to a person who is a party to the arrangement.

(7) This sub-paragraph applies to a person if the main purpose, or one of the main purposes, of the person entering into the arrangement is the avoidance of tax.

(8) The following paragraphs apply for the purpose of determining whether any payment is connected with a tax avoidance arrangement—

(a) a payment is connected with a tax avoidance arrangement if (for example) the payment is made (wholly or partly) in pursuance of—

(i) the tax avoidance arrangement, or

(ii) an arrangement at one end of a series of arrangements with the tax avoidance arrangement being at the other end, and

(b) it does not matter whether the person making the payment is unaware of the tax avoidance arrangement.