Supplementary guidance on the interaction of section 441 CTA 2009 (unallowable purpose rules) and the CFC rules in Part 9A TIOPA 2010 (offshore financing arrangements) has been published by HMRC.

By way of background, the introduction of the CFC rules means businesses can establish (or in some cases retain) offshore financing arrangements and provided an acceptable claim under Chapter 9 of the CFC rules is made, the CFC charge on UK chargeable companies may be reduced by between 75% and 100%.

Where the circumstances of the financing arrangements give rise to material uncertainty as to whether a claim under Chapter 9 would be agreed, HMRC are prepared to consider a non-statutory application for clearance that a claim would be accepted in the case of both proposed transactions and existing arrangements. Clearance applications in respect of proposed transactions will only be considered in cases where the planning is essentially complete, but for the issue of uncertainty identified in the clearance application.

However, the structure of particular financing arrangements may also give rise to uncertainty in relation to other anti-avoidance rules, in particular the loan relationships “unallowable purpose” rule under section 441 CTA 2009 as nothing within the CFC rules restricts the application of the UK’s domestic anti-avoidance legislation, including this particular rule.

This uncertainty is most likely to arise where profits from an existing loan made by a UK company (a UK loan receivable) are effectively transferred out of the UK into a CFC or are sheltered in a financing arrangement for which a structure involving a CFC is proposed as a potential comparator for establishing a tax advantage.

If the facts of a particular case would lead HMRC to apply this rule, then it is HMRC’s view that section 441 may apply to restrict the loan relationship debits of a UK company or a CFC.

Whether or not a company had a tax avoidance purpose, and whether that purpose was a main purpose, will depend on the evidence relating to the company’s purpose in respect of the loan relationship.

HMRC does not provide non-statutory clearances in relation to section 441. Therefore if a business is concerned that section 441 may apply to a financing structure they have already implemented, then they should discuss the transaction with their customer relationship manager or customer co-ordinator.

It follows therefore that where a business submits an application for a non-statutory clearance, HMRC may be able to provide a clearance in relation to the CFC, but will not be able to provide a clearance in respect of the application of section 441 to the UK company (or companies).