The following Corporation Tax guidance note by Tolley provides comprehensive and up to date tax information covering:
This guidance note provides assistance with the anti-avoidance provisions governing the taxation of disguised interest as found in CTA 2009, ss 486A–486E (Pt 6, Ch 2A).
Disguised interest is a term which is only found in tax law. It refers to an amount that, from an economic perspective, comprises an interest-like return but is typically either a capital (rather than an income) gain for tax purposes or falls outside the charge to tax completely.
The disguised interest rules are anti-avoidance provisions which seek to ensure that an interest-like return is always charged to corporation tax, even where it is obtained from a transaction that is neither a loan nor treated as a loan.
The rules work by:
The rules are subject to a motive test. A company can only be charged under these provisions where (one of) the main purposes of entering into the arrangement is to secure a relevant tax advantage as defined in CTA 2009, s 486C(4).
In response to revelations under the disclosure of tax avoidance schemes (DOTAS) rules, similar anti-avoidance measures known as the ‘shares as debt’ rules were introduced by Finance Act 2004. However, these were repealed in 2009 on the introduction of the disguised interest provisions.
As a result, there are complex transitional provisions and disguised interest rules apply as follows:
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