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Example 5

A subsidiary of a United Kingdom group resident in the Cayman Islands hires out cars for the island’s tourist trade. It receives no other income. »Ê¹ÚÌåÓýapp company fails the exempt activities test as its main business is investment business (leasing). However, the facts show that:

• the main reason for the company’s existence is to hire out cars in the Cayman Islands; and
• whilst there is a reduction in UK tax by a diversion of profits from the UK, its achievement is not another main reason for the company’s existence.

»Ê¹ÚÌåÓýapp diversion of profits leg of the motive test is consequently passed.

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Example 6

A subsidiary of a UK group in a low tax territory provides hotel accommodation in that territory. It receives no other income. »Ê¹ÚÌåÓýapp company fails the exempt activities test because local law stipulates it must subcontract out certain work to local companies. »Ê¹ÚÌåÓýapp facts show that:

• the main reason for the company’s existence is to provide hotel services in its territory of residence; and
• whilst there is a reduction in UK tax by a diversion of profits from the UK, its achievement is not another main reason for the company’s existence.

»Ê¹ÚÌåÓýapp diversion of profits leg of the motive test is therefore passed.

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Example 7

A subsidiary of a United Kingdom group is resident in a low tax territory where it acts in a broking capacity for the group selling financial products to third parties in that territory. It has no other income. Local law specifies that it needs a licence to carry out this activity in the territory and to obtain that licence it must be resident and incorporated in that territory. »Ê¹ÚÌåÓýapp facts show that:

• one of the main reason for the existence of the company is to provide broking services to the group;
• whilst there is a reduction in UK tax by a diversion of profits from the UK, its achievement is not another main reason for the company’s existence; and
• whilst transactions between the subsidiary and the UK group have achieved a more than minimal reduction in UK tax, that achievement was not one of the main purposes of the transactions.

Both legs of the motive test are consequently passed.