»Ê¹ÚÌåÓýapp

Example 2 Part 3 - outward investment

Facts: For this part of the example we assume that the scheme was set up in order to replace a loan that had previously been provided for an existing overseas subsidiary. »Ê¹ÚÌåÓýapp scheme did not result in any new funds being made available to the foreign subsidiary. »Ê¹ÚÌåÓýapp foreign subsidiary already incurred an interest deduction because of the previous loan to a UK group company.

Analysis:

As above, Conditions A, B and D are met.

Condition C: We can draw the following conclusions from the above facts:

• the scheme lacks a commercial purpose, because it does not make new funds available to the foreign subsidiary; and
• it did not have the purpose of creating a foreign tax deduction, because the same deduction already existed.

It is therefore hard to avoid the conclusion that under these facts, the scheme is intended to create a deduction to match and therefore cancel the interest receipt arising in the UK under the previous arrangement.

»Ê¹ÚÌåÓýapprefore the scheme does have a main purpose to achieve a UK tax advantage. As all the conditions are satisfied, it is necessary to consider the deductions rules. In this example, Rule A will apply because the deduction available to the UK subsidiaries is also available to the partnership under the Code A. All of the subsidiariesâ€� deductions will be disallowed.

Finally it is necessary to consider whether a disclaimer is possible. »Ê¹ÚÌåÓýappre is no commercial purpose for any part of the loan, and the above conclusions apply to the whole of it. A disclaimer would have to be for all the deduction to cancel the effect of the main purpose.