»Ê¹ÚÌåÓýapp

Section 65 contains a targeted anti-avoidance rule (TAAR) to counteract arrangements with a main purpose of achieving a DST tax advantage.

»Ê¹ÚÌåÓýapp TAAR applies to relevant anti-avoidance arrangements, there are three components to this:

• »Ê¹ÚÌåÓýappre must be an arrangement
• A main purpose of the arrangement must be to enable a person to obtain a DST tax advantage
• »Ê¹ÚÌåÓýapp TAAR will not apply when the obtaining of the tax advantage can reasonably be regarded as consistent with the principles, and policy objectives, of the DST legislation.

When the TAAR applies, HMRC must counteract the arrangement by making such adjustments that are just and reasonable.

Arrangements

Arrangements is a defined term and takes the standard definition of an arrangement used elsewhere in tax law. It is defined broadly and can be expected to encompass any deliberate or conscious action to achieve a DST tax advantage.

Main purpose

Whether an arrangement has a main purpose of obtaining a tax advantage is a question of fact which depends on several factors, including, for example, the circumstances of the particular case and the subjective intentions of the group.

Example A

Group ABC operates a Business to Business (B2B) online marketplace for specialist equipment for nuclear power stations. Major clients using the ABC marketplace include companies BCD and CDE. Both BCD and CDE are UK incorporated companies which conduct their business through the UK. »Ê¹ÚÌåÓýappse groups purchase large volumes of high value equipment and pay a large commission fee on successful transactions.

Faced with the cost of DST, ABC contacts BCD and CDE and offers them a 0.5% reduction in commission fees if they incorporate an overseas SPV to carry out transactions on the online marketplace.

»Ê¹ÚÌåÓýapp group has entered into agreements with its clients so these will be regarded as an arrangement. On the face of it, the purpose of the arrangements is to circumvent the DST by routing the transaction through a non-UK user. »Ê¹ÚÌåÓýappre is likely to be a main purpose of achieving a DST advantage. As the economic activity appears to still be carried out through the UK, and the SPV seems to be little more than a conduit, this tax advantage is not consistent with the principles of DST and will be counteracted.

Example B

Group DEF is an online marketplace. It decides to take flash title on all goods sold through the online marketplace. It does not take any additional risks than it did before. DEF only acquires goods on the condition there is a successful transaction. Sellers still bear the credit risk and remain liable for any returns or defects. DEF argues it is not a marketplace as there are not sales by users.

DEF has changed its commercial relationship with its users in response to DST. »Ê¹ÚÌåÓýappre is consequently an arrangement. »Ê¹ÚÌåÓýapp purposes of the arrangement will need to be examined but based on these facts it is likely there is a main purpose of obtaining a DST advantage. »Ê¹ÚÌåÓýappre doesn’t appear to be a significant change in the commercial relationship, or economics of the transactions, post the restructure.

Consistency with the principles and objectives of the DST legislation

»Ê¹ÚÌåÓýapp legislation does not specify when a tax advantage is consistent with the principles or objectives of the DST. This will therefore depend on the particular facts of the arrangements and an assessment of whether the application of the TAAR to that arrangement can reasonably be said to be consistent with the wider statutory purpose of DST.

Example C

Group BCD provides an online marketplace across Europe. It decides the UK DST means its UK pre-tax profit and return on capital is too low. It decides to exit the UK market entirely so UK users are no longer able to buy or sell via the online marketplace.

»Ê¹ÚÌåÓýappre is an arrangement as the group has decided to cease its UK operations. »Ê¹ÚÌåÓýapp cost of the DST is a main driver behind that decision. However, it is unlikely the TAAR could be said to be intended to apply to this situation. »Ê¹ÚÌåÓýapp policy objectives of the DST are to tax value derived from UK users. »Ê¹ÚÌåÓýapp group no longer derives any value from a UK user base and does not generate revenues from UK users in its consolidated accounts. Applying the TAAR would mean the group is taxed on revenues it does not receive. »Ê¹ÚÌåÓýappse are not relevant avoidance arrangements.