Loan relationship : avoidance scheme
A recent tax case (Greene King plc v HMRC) led to an interesting conclusion. The company had assigned its rights to receive interest on loan stock to a subsidiary company in return for preference shares which carried the right to a special dividend. HMRC’s opinion was that the arrangement was designed to take advantage of a loophole and achieve a tax deduction for the interest payable without a tax payment on the receipt. HMRC challenged the planning and sought to nullify the tax advantage; the company appealed.
The Tribunal found for HMRC.
The Tribunal noted that there was a possibility that this finding might eventually lead to double taxation, but observed that ‘the transactions were a device for ensuring that relief for payment was not matched by taxation of the receipt, and the appellants have no evident difficulty with that outcome. It does not seem to us that they can legitimately complain if the scheme fails in its purpose and instead results in their paying tax twice.’
This seems a clear indication on the current view of planning schemes. Any new planning must take account of all possible outcomes and balance the cost of success against failure.
Date: 23rd July, 2012
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