CG47327 | Targeted anti-gain buying rule - tax advantage - choice of commercial options

The existence of a tax advantage, such as obtaining a deduction for tax purposes, is not enough in itself to show that the arrangements have a main purpose of obtaining a tax advantage.

Where there is evidence that a group considered two ways to achieve a commercial objective and chose on commercial grounds to pursue one of them, the fact that there was a beneficial 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 advantage was 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 be the case where the arrangements chosen do not involve additional, complex or costly steps included solely to secure or enhance a tax advantage.

Hence it will be relevant to draw a comparison in order to consider whether, in the absence of 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.

For example, in a case where section 184B of the Taxation of Chargeable Gains Act 1992 may be in point, and the arrangements include the purchase of a company with a crystallised gain or an asset pregnant with a gain, it will be necessary to consider whether that transaction would have proceeded at all if the acquiring company or group had not been in possession of capital losses. If it would, then it would also be necessary to consider, for example, whether the benefit of the capital losses had a significant effect on the terms and conditions of the acquisition.