CG44105 | Targeted rules to prevent income to capital converter schemes by companies - tax advantage - choice of commercial options

The existence of a tax advantage, such as obtaining a deduction for tax purposes, isnot enough in itself to show that the arrangements have a main purpose of obtaining a taxadvantage.

Where there is evidence that a group considered two ways to achieve a commercial objectiveand chose on commercial grounds to pursue one of them, the fact that there was abeneficial difference in tax treatment for the chosen route would not meet the main purpose test. Where the potential tax treatment was a factor in choosing between alternative arrangements, then it would still be necessary that securing a tax advantagewas a main purpose to the arrangements. There may be situations where the tax advantage secured through undertaking one arrangement rather than another is so significant that this indicates that achieving a tax advantage was a main purpose. This is unlikely to bethe case where the arrangements chosen do not involve additional, complex or costly stepsincluded solely to secure or enhance a tax advantage.

It will be relevant to draw a comparison in order to consider whether, in the absenceof the tax considerations:

• the transaction giving rise to the advantage would have taken place at all;

• if so, whether the tax advantage would have been of the same amount; and

whether the transaction would have been made under the same terms and conditions.