Commentary

D9.118 Positive filter: the technical filter

Corporate tax
Corporate tax | Commentary

D9.118 Positive filter: the technical filter

Corporate tax | Commentary

D9.118 Positive filter: the technical filter

These provisions apply for income tax purposes. For details of the corporation tax regime see D9.102A–D9.116.

This filter is known as the unallowable purpose test and it applies if either condition A or condition B is met. Given the relatively straightforward language used, it is appropriate to quote verbatim excerpts from the legislation.

'Condition A

Condition A is that, as a result of the transaction in securities or any one or more of the transactions in securities, a 'relevant person' receives relevant consideration in connection with:

  1.  

    (a)     the distribution, transfer or realisation of assets of a close company,

  2.  

    (b)     the application of assets of a close company in discharge of liabilities, or

  3.  

    (c)     the direct or indirect transfer of assets of one close company to another close company,

and the relevant person does not pay or bear income tax on the consideration.'1

A major simplification is the application of the income tax rules only to close companies2, or to companies that would be close if they were UK resident (see D3.102)3. This is partly a simplification, as close companies4 are well understood. Furthermore, HMRC recognised during consultation that the previous definition of a relevant company (which is

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