Part 6Tax arbitrage
Deduction notices
232Deduction notices
1
An officer of Revenue and Customs may give a company a notice under this section if—
a
the company is within the charge to corporation tax, and
b
the officer considers on reasonable grounds that each of the deduction scheme conditions is or may be met in relation to a transaction to which the company is party.
2
In this Part—
a
a notice under this section is referred to as a “deduction notice”, and
b
“the deduction scheme conditions” means the conditions specified in section 233.
3
For the consequences of a deduction notice, see section 243.
233The deduction scheme conditions
1
This section sets out the deduction scheme conditions.
2
Deduction scheme condition A is that the transaction to which the company is party forms part of a scheme that is a deduction scheme for the purposes of this Part (see sections 236 to 242).
3
Deduction scheme condition B is that the scheme is such that for corporation tax purposes the company—
a
is in a position to claim, or has claimed, an amount by way of deduction in respect of the transaction, or
b
is in a position to set off, or has set off, an amount relating to the transaction against profits in an accounting period.
4
Deduction scheme condition C is that the main purpose of the scheme, or one of its main purposes, is to achieve a UK tax advantage for the company.
5
Deduction scheme condition D is that the amount of the UK tax advantage is more than minimal.
234Schemes achieving UK tax advantage for a company
1
For the purposes of section 233, a scheme achieves a UK tax advantage for a company if, in consequence of the scheme, the company is in a position to obtain, or has obtained—
a
a relief or increased relief from corporation tax,
b
a repayment or increased repayment of corporation tax, or
c
the avoidance or reduction of a charge to corporation tax.
2
In subsection (1)(a) “relief from corporation tax” includes a tax credit under section 1109 of CTA 2010 (tax credits for certain recipients of qualifying distributions) for the purposes of corporation tax.
3
For the purposes of subsection (1)(c) avoidance or reduction may, in particular, be effected—
a
by receipts accruing in such a way that the recipient does not pay or bear tax on them, or
b
by a deduction in calculating profits or gains.
235Further provisions about deduction notices
1
A deduction notice must specify the transaction in relation to which the officer of Revenue and Customs considers that each of the deduction scheme conditions is or may be met.
2
A deduction notice must specify the accounting period in relation to which the officer considers that deduction scheme condition B is or may be met in relation to the transaction.
3
A deduction notice must inform the company to which it is given that, as a result of the service of the notice, section 243(2) to (6) (consequences of a deduction notice) will apply if each of the deduction scheme conditions is met in relation to the transaction.
4
A deduction notice may relate to two or more transactions.