D9.116 The escape clause
These provisions apply for corporation tax purposes. For details of the income tax regime see D9.116A–D9.119.
Even if a tax advantage is obtained in one of the prescribed circumstances (see D9.113–D9.115), HMRC cannot take counteraction if the taxpayer can show:
(a) that the transaction or transactions concerned were carried out either for genuine commercial reasons or in the ordinary course of making or managing investments; and
(b) that none of them had as their main objects, or one of their main objects, to enable tax advantages to be obtained1.
It is also important to note that these are separate tests and it is entirely possible that transactions are carried out for genuine commercial reasons or in the ordinary course of making or managing investments, while also having tax avoidance as a main object, as in IRC v Trustees of the Sema Group Pension Scheme2 (see below).
Burden of proof
The existence of the escape clause raises an important issue over the burden of proof in cases involving counteraction under the transactions in securities legislation. Put simply, the structure of the legislation requires HMRC to demonstrate that a tax advantage has been obtained in one of the prescribed circumstances. However, the onus is on the taxpayer to establish that he is protected by this 'escape clause'. This is due to the specific wording that states that it is for the taxpayer to show that the escape clause applies.
Genuine commercial reasons
In IRC v Brebner3, the taxpayer and five others were
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