Examples of how the GAAR applies to tax arrangements

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HMRC has never accepted that the arrangements give rise to the claimed tax result. 2.1.6 Conclusion On the facts given the arrangement is an abusive one to which HMRC would seek to apply the GAAR. 8
2.2 Capital Allowances – Double Dip 2.2.1 Background The purpose of the capital allowances regime is to give allowances over the life of ownership of certain qualifying plant or machinery for an amount equal to the net capital cost of ownership of the asset (generally the asset cost less any sales proceeds) during that period. The long funding lease legislation differs only in that the person who is entitled to the capital allowances is the lessee of the assets rather than the legal owner (generally the lessor). The net cost principle remains except that the amount of capital allowances available to the lessee should equal the lessee’s net expenditure under the lease less any finance charges (these finance charges being separately relievable). The long funding lease rules define the capital expenditure for the lessee as including the present value of rental payments under the lease plus the amount of financial guarantees (“residual value guarantees” or RVGs) given by the lessee of the value of leased plant or machinery at the end of the lease. So initially the RVG will be included in the amount on which the lessee claims capital allowances. When the long funding lease ends, there is a deemed capital allowances disposal event, with a consequent adjustment to the lessee’s capital allowance pool. The disposal value for that event (i.e. the amount excluded from the pool going forward) is reduced by any actual payments made by the lessee under the RVG. The effect of this adjustment is that after the disposal event the payment made by the lessee under the RVG will continue to be eligible for capital allowances. In normal circumstances, that is the right outcome because the RVG paid by the lessee represents part of the capital expenditure incurred by the lessee in respect of the leased plant during the lease period (so is properly treated as part of the cost that should be eligible for capital allowances). 2.2.2 The scheme Company A sells plant or machinery that it owns and uses in its trade to Company B for 100. The arrangements include the following terms: • Company B leases the plant or machinery back to Company A for a very short term (a few weeks at most) at commercial rent levels. • Company A grants a put option to Company B under which Company B can require Company A to reacquire the plant or machinery at a predetermined price (say, 98 of the original capital expenditure of 100). 9
Page 1 and 2: HMRC’S GAAR GUIDANCE- CONSULTATIO
Page 3 and 4: 1. Background to the examples 1.1 H
Page 5 and 6: 2. Corporation tax examples to whic
Page 7: does it represent almost the whole
Page 11 and 12: 2.2.5 What is the GAAR analysis und
Page 13 and 14: 2.3 Unauthorised Unit Trusts 2.3.1
Page 15 and 16: The scheme in detail On or before 3
Page 17 and 18: • to result in the UK exchequer g
Page 19 and 20: 3. Capital gains tax and income tax
Page 21 and 22: 3.1.5 What is the GAAR analysis? 3.
Page 23 and 24: 3.2 Blumenthal - QCB/Non-QCB 3.2.1
Page 25 and 26: underlying principle is that the ac
Page 27 and 28: chance that it would be met in the
Page 29 and 30: 3.3.5.4 Does the arrangement includ
Page 31 and 32: 3.4.4 The taxpayer’s tax analysis
Page 33 and 34: 4. Inheritance tax- examples to whi
Page 35 and 36: In both situations the non-tax resu
Page 37 and 38: 4.2.3 The relevant tax provisions S
Page 39 and 40: 5. SDLT- examples to which the GAAR
Page 41 and 42: If the A to B transaction completes
Page 43 and 44: 6. Corporation tax examples to whic
Page 45 and 46: tier company might receive a corres
Page 47 and 48: • Treaty Lender makes an equitabl
Page 49 and 50: interest rule, in order to ensure t
Page 51 and 52: 7.1.5.4 Does the arrangement includ
Page 53 and 54: The substantive results of the tran
Page 55 and 56: The substantive result of the arran
Page 57 and 58: Section 942: Income tax to be colle
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(iii) not a transitional serial int
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(2) Companies shall be chargeable t
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(8) In this section— “interveni
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(5) So far as the relevant transact
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(A1) For the purposes of corporatio
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Finance Act 1996 Section 91B: Non-q
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(2) For the purposes of this Schedu
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(6) For the purposes of this paragr
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145. Since then, these proposals ha
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(a) given by or on behalf of any on
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(b) paid after the withholding from
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Case 1 This case applies if the tru
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(1) The basic rule is that the defi
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(c) income which arises from a sour
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those profits by the Island but onl
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Examples of how the GAAR applies to tax arrangements

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