99.Current tax law contains a number of targeted anti-avoidance rules to ensure that amounts that are economically equivalent to interest are charged to corporation tax in the same way as interest.
100.The section and Schedule replace these piecemeal responses with a rule that sets this principle out comprehensively. It is the result of consultation on the use of “principles-based drafting” to tackle avoidance involving disguised interest. The effect of the legislation is that (subject to the excluded share rule and arrangements not involving tax avoidance) a return equivalent to interest is charged to corporation tax in all circumstances where it would not currently be taxed as income.
101.The new legislation follows two consultation exercises on the use of principles-based drafting to counter avoidance in the areas of financial products. The consultation documents can be accessed at the following references: